- (1.) THE present appeal relates to the assessment year 1989 -90 .
(2.) A search and seizure operation was carried out under Section 132(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) at the business premises of the firm M/s Jagan and Co. and also at the residential premises of its partners. Based on the said search and seizure operation, the Assessing Officer made a best judgment assessment under Section 144/147 of the Act. Penalty proceedings under Section 271(1)(c) of the Act was initiated both against the firm as well as against the partners. Before the Assessing Officer, the assessee, contended that the partners were deriving income from the firm and there was no justification in imposing a penalty against the firm as well as against the partners. The Assessing Officer, after considering the reply, imposed a penalty on the assessee.
(3.) BEING aggrieved, the assessee filed an appeal, which was allowed and the order of penalty was set aside. The appellate authority held that the assessee had only a share income from the firm and, therefore, penal action, if any, should be taken against the firm and not against the partners. The appellate authority held that the penalty for concealment does not appear to be leviable. The department, being aggrieved, filed an appeal before the Tribunal, which was dismissed and consequently, filed the present appeal under Section 260A of the Act, which was admitted on the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in upholding the action of the Commissioner of Income Tax (Appeals) in cancelling the penalty under section 271(1)(c) of the Income Tax, 1961 imposed by the Assessing Officer for the assessee's failure to disclose his true and correct income? 2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that since assessment was made on the basis of the firm's income contumacious conduct could be attributed to the partner for concealing their income.";