C.S.P.SINGH,J - (1.) THE Income tax Appellate Tribunal, Allahabad Bench in compliance with our direction issued under section 256(2) of the Income tax Act, 1961 referred the following question for our answer : - "Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal applied the Explanation to s. 271(1)(c) correctly and its finding that the penalty imposed by the Inspecting Assistant Commissioner was not sustainable is right in law -
(2.) THE facts leading to this reference are these. For the assessment year 1966 -67, the Income Tax Officer rejected the amount book version of the assessee firm and estimated the sales at Rs. 2,50,000/ - instead of the returned sale of Rs. 1,75,465/ -. On the above sales, he applied a profit rate of 17.5%. As a result, an additional amount of Rs. 19,150/ - was added as profit. The Income Tax Officer also added an amount of Rs. 16,000/ - as income from undisclosed source. On appeal, the addition was reduced to Rs. 10.400/ -. The inclusion of Rs. 15,000/ - added by the Income Tax Officer was, however, upheld by the Appellate Assistant Commissioner.
(3.) THE assessee had returned an income of Rs. 17,634/ -, while even after appeal, the assessed income was more than 80% of the returned income, and as a consequence proceedings under section 271(1)(c) of the Act were initiated against the assessee. In as much as the penalty imposable was over Rs. 1,000/ - the matter was referred by the Income tax Officer to the Inspecting Assistant Commissioner. In its explanation to the show cause notice, the assessee stated that the cash deposits in the assessees books in the name of the partners were shown in part F of the returns filed by the partners, and as such there was no concealment of this amount. It was also urged that there was no suppression of sales, and the account books had been rejected inter alia on the ground that the withdrawal of the partners for personal expenses were shown at a very low figure. A further ground was taken that no penalty proceedings could be taken where income had been estimated by reference to section 145(1) of the Act. The Inspecting Assistant Commissioner did not accept these contentions. He held that inasmuch as partners had no independent source of income of their own, and as the deposit appeared in the books of the firm, these had to be included as income of the firm in view of section 68 of the Act, as the partners had not been able to explain the source of the deposits. He accordingly imposed a penalty of Rs. 8,700/ - by his order dated 12 -11 -1968. An appeal was, therefore, taken up by the assessee to the Tribunal. The Tribunal held that the assessee had failed to prove the sales, only on account of the fact that the cash memos issued by him lacked certain details, the Department, however, was unable to point out any omission of sale in the course of proceedings relating to the penalty matter. It also held that the account book versions were rejected, inasmuch as the assessee had acted in a haphazard manner, and could not explain the facts properly. In view of these consideration, the Tribunal held that no penalty should have been imposed on the ground of addition of extra profits amounting to Rs. 19,160/ - As regards the penalty on the basis that the assessee had concealed an amount of Rs. 16,000/ -, the Tribunal found in the quantum appeal, no categorical finding had been recorded that the amount aforesaid represented the concealed income of the assessee. It also held that inasmuch as the partners had offered to include the deposits totalling Rs. 16,000/ - in their won assessment, that itself was sufficient to outwit the allegation that the explanation given by the assessee was false.;