- (1.) THE Tribunal, Delhi has referred the following question of law. under s. 256(1) of the IT Act, 1961 (hereinafter referred to as 'the Act') for opinion of this Court : "Whether on the facts and circumstances of the case, the Tribunal was correct in law in holding that the ingredient of s. 271(1)(c) of the IT Act, 1961 was not present in this case and penalty under s. 271(1)(c) was not exigible - The reference relates to the asst. yr. 1980 -81. In respect of the penalty imposed under s. 271(1)(c) of the Act.
(2.) BRIEFLY stated the facts giving rise of the present reference are as follows : The assessee is an individual and is doing proprietary business of job -work in leather tanning in the name of M/s Vijay income of Rs. 2,29,030 which, inter alia, included disallowance under s. 36(1)(iii) of interest of Rs. 1,98,607 on the debit balance in the name of M/s Mohan General Trading Company, Calcutta and M/s Mallik & Co., HUF, Kanpur. During the course of assessment proceedings, it was found by the AO that the assessee had received huge loans from the various persons who were mostly close relatives of the assessee and also paid substantial interest amounting to Rs. 2,33,434 to them on their respective deposits. It was further found by him that the assessee had shown receipts of interest of Rs. 17,500 only on the advances given to M/s Ideal Glass Co. It was also found by him that the assessee had given substantial loans to M/s Mohan General Trading Company, Calcutta and M/s Mallik & Co., HUF, Kanpur and she had not charged interest from them with a view to divert the interest income and also payment of IT was avoided on such income. Accordingly, the AO made the above disallowance of Rs. 1,98,607. Penally proceedings under s. 271(1)(c) of the Act. The assessee had filed appeal against the above penalty order. The CIT(A) vide order in Appeal No. CIT concealment of income and was liable for penalty under s. 271(1)(c) of the Act. However, at the same time, the CIT(A) reduced the quantum of penalty to minimum at Rs. 1,30,467 and allowed relief of Rs. 65,226 to the assessee. Thereafter, the assessee had filed second appeal against the above order of CIT(A). The Tribunal vide order in ITA No. (1)(c) of the Act was not present in this case and, therefore, the penalty under s. 271(1)(c) of the Act is not exigible. It was also held by the Tribunal in quantum appeal that the addition was justified but that fact by itself will not justify the imposition of penalty under s. 271(1)(c) of the Act. It has further been held by the Tribunal that the rejection of some explanation given by the assessee is sufficient to uphold the addition in the quantum appeal but some thing more is needed to support the levy of penalty under s. 271(1)(c) of the Act.
(3.) WE have heard Shri R.K. Upadhyaya, learned standing counsel appearing for the Revenue and Shri Shakeel Ahmad, learned counsel appearing for the respondent assessee. It is relevant to mention, here that in the penalty proceedings, the ITO had specifically mentioned that at the time of penalty under s. 271(1)(c) of the Act, the assessee has not given reply to the show -cause notice to the ITO which only confirms the view taken at the time of assessment proceedings and shows that the assessee does not have anything to say in this regard. He had further mentioned that the factual evidence which has come out in this case also shows that it is not a case of mere rejection of the explanation of the assessee but it is a case where mens rea and the element of deliberateness stands proved. The Tribunal has, however, deleted the penalty without considering cl. (A) of Expln. 1 of s. 271(1)(c) of the Act. Expln. 1 as it stood during the relevant assessment year is reproduced below : "Explanation 1. - -Where in respect of any facts material to the computation of the total income of any person under this Act, - - (A) such person fails to offer an explanation or offers an explanation which is found by the ITO or the AAC or the CIT(A) to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of cl. (c) of this sub -section, be deemed to represent the income in respect of which particulars have been concealed : Provided that nothing contained in this explanation shall apply to a case referred to in cl. (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him." ;