S.N. Sahay, J. - (1.) THIS reference has been made by the Income-tax Appellate Tribunal under Section 256(2) of the Income-tax Act, 1961, in pursuance of the order of this court dated May 5, 1988. The questions which have been referred to this court are as follows : "(1) Whether, on the facts and in the circumstances of the case, there was material before the Tribunal to hold that the assessee had not discharged its burden to rebut the presumption of concealment and to restore the penalty cancelled by the Appellate Assistant Commissioner ? (2) Whether, on the facts and circumstances of the case, the Tribunal was justified in overlooking the explanation dated February 2, 1987, filed before the Income-tax Officer, ignored by him but considered by the Appellate Assistant Commissioner ?" The relevant facts are that the assesses had filed its return showing an income of Rs. 1,990 from brick-kiln business. The assessment was completed on a total income of Rs. 12,000. During the assessment proceedings for the assessment year 1975-76, the statement on oath of Azimullah, a partner of the assessee-firm, was recorded. He admitted that he had valued the closing stock at the market rate of Rs. 32,901. A perusal of the accounts revealed that the value of bricks numbering 2,90,000, which were inside the kiln, had not been taken into consideration by the assessee. In that case, the valuation of the closing stock would be Rs. 55,026 and, as such, there was an escapement from income of Rs. 22,135. Accordingly, action was taken under Section 148 of the Act and assessment was completed on a total income of Rs. 24,320 on October 7, 1978. Notice was issued to the assessee under Section 271(1)(c) of the Act to show cause why penalty be not imposed on him. The assessee did not file any written reply. The Income-tax Officer took the view that the provisions of Section 271(1)(c) were attracted and the minimum penalty payable was Rs. 22,330 and the maximum penalty payable would be Rs. 44,660. So he imposed a penalty of Rs. 22,330 on the assessee.
(2.) THE assessee preferred an appeal against the order of the Income-tax Officer imposing penalty. THE Appellate Assistant Commissioner held that it is not a fit case for imposition of penalty. He observed as follows : "In the instant case, it is clear that there is reconciliation of the opening and the closing stock which has, after consideration by one Income-tax Officer, resulted in an income of Rs. 12,000 as against Rs. 1,990 shown by the assessee. It is not the case of Income-tax Officer that the assessee had not placed before him the true facts. In fact, he has shown the closing stock of the bricks in the kiln and he also declared the sales fully in the subsequent year of the closing stock brought forward as opening stock during the year 1975-76, when there was no manufacturing of bricks but the Income-tax Officer worked out the income earned in the subsequent year. I feel convinced that there was no intention on the part of the assessee to evade the legitimate tax liability and by omission, in truth, there is either no tax advantage obtained. THE Income-tax Officer has not brought on record any material which would show that the assessee had wilfully or deliberately omitted to disclose the value of closing stock and in the light of these facts, I hold that it is not a fit case for imposition of penalty which is hereby cancelled and the appeal is allowed." THE order of the Appellate Assistant Commissioner was set aside by the Income-tax Appellate Tribunal in the appeal preferred by the Department. THE Tribunal held that the facts narrated above reveal that the income disclosed in the original return is much less than what was disclosed in the revised return. It is, therefore, evident that while furnishing the original return, the assessee had concealed his correct income. THE Tribunal further held on the basis of the statement of the assessee's partner that the assessee had undervalued the closing stock since the value of the bricks lying inside the kiln comes to Rs. 55,026 while the value of such bricks was disclosed at Rs. 32,901. THE motive for undervaluation, in the view of the Tribunal, can be only to conceal the correct income. THE Tribunal also held that the mere fact that in the subsequent year tax had been paid taking into account the price fetched on sale can be of little assistance to the assessee because on that basis it cannot be held that the assessee had not concealed his income during the year under consideration. THE Tribunal also held that the assessee did not offer any explanation in response to the notice issued by the Income-tax Officer under Section 271(1)(c) of the Act. Thus, the Tribunal came to the conclusion that the Income-tax Officer was right in levying the penalty and the Appellate Assistant Commissioner had committed an error in cancelling the same. THE appeal was allowed and the order of the Income-tax Officer imposing penalty was restored. Learned counsel for the Department has raised a preliminary objection that the reference is not legally maintainable since the questions which have been referred by the Tribunal are questions of fact. In Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), to which our attention has been drawn by learned counsel, various authorities on the subject were reviewed and the position that emerged from the authorities was summed up as follows : (1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court. (2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the court. (3) A finding on a question of fact is open to attack as erroneous in law when there is no evidence to support it or if it is perverse. (4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact. In our opinion, the questions which have been referred by the Tribunal are covered by item No. 2 stated above. While the finding of the Tribunal on the facts involved in the case may be final, the legal effect of those findings is to be determined as to whether, on the basis of those findings, it can be said that there has been concealment of income or furnishing of inaccurate particulars of income within the meaning of Section 271(1)(c). Moreover, we are of the view that we cannot go beyond the order of this court dated May 5, 1988, in pursuance of which the questions have been referred by the Tribunal. The other cases reported in CIT v. Kotrika Venkataswamy and Sons [1971] 79 ITR 499 (SC), CIT v. Ashoka Marketing Ltd. [1976] 103 ITR 543 (SC) and Addl. CIT v. Jai Jawan Radios [1984] 146 ITR 504 (All), which have been relied upon on behalf of the Department, are distinguishable on facts. We, therefore, hold that the preliminary objection has no force. Learned counsel for the assessee has urged that the assessee has not concealed the particulars of his income nor furnished inaccurate particulars of such income and is not liable for the imposition of any penalty under Section 271(1)(c) of the Act. It is only on account of the method of accounting adopted by the assessee, it was submitted, that the value of the bricks in the kiln was not shown in the return and was, after sale shown as the value of the opening balance in the return for the subsequent year. Learned counsel also urged that it is not required that the assessee shall submit a written explanation in the proceedings under Section 271(1)(c) and hence no adverse inference can be drawn against the assessee on account of his failure to submit a written reply.
(3.) ON the other hand, it is contended on behalf of the Department that the assessee had no grievance against the assessment in respect of the escaped income. The assessee did not prefer any appeal and accepted the quantum of tax which was assessed on the basis that the value of the bricks in the kiln had not been shown in the return and the correct income was not disclosed. It is implicit in the conduct of the assessee, it was so contended, that he had concealed particulars of his income and so penalty was rightly imposed under Section 271(1)(c) on him. Now, penalty may be imposed on an assessee under Section 271(1)(c) if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In 1964, an Explanation was added to Sub-section (1) of Section 271 which, in so far as it is material for the purposes of this case, provides that such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section. In 1976, the Explanation was again amended and this amendment came into force with effect from April 1, 1976. But since the matter relates to the assessment years 1974-75 and 1975-76, the provisions of the Explanation which were in force at that time will have to be taken into consideration in view of the decision in CIT v. Onkar Saran and Sons [1992] 195 ITR 1 (SC).;