Satish Chandra, C.J. - (1.) THE assessee is a Hindu undivided family. It carries on business of money-lending and pawning. It derives income from the sale of ornaments which are not redeemed, though pawned or pledged. For the assessment years 1967-68 and 1968-69, the assessee returned an income of Rs. 14,890 and Rs. 17,175, respectively. THE assessments were completed on an income of Rs. 23,060 and Rs. 31,251, respectively. THE difference in the returned and the assessed income being more than 20%, the IAC drew up proceedings for imposition of penalty under Section 271(1)(c) of the Act. THE IAC, after hearing the assessee, held that the assessee had failed to prove that the difference did not arise out of any gross or wilful neglect on its part. A penalty of Rs. 10,500 and Rs. 14,000 was imposed for the two assessment years. THE assessee went up to the Tribunal in appeal.
(2.) IT was argued that this was a case of mere estimate. The profit rate on the sale of ornaments was estimated by the ITO at 25% of the sales while the Tribunal reduced it to 18%. Reliance was placed on CIT v. Harnam Singh and Co. [1977] 106 ITR 532 (All). The Tribunal felt itself bound by that decision. Following it, it held that the enhancement of income could not be said to be due to fraud or wilful neglect on the part of the assessee. The levy of penalty was cancelled. At the instancee of the Commissioner, the Tribunal has referred the following questions of law for our opinion : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in cancelling the penalties in question ? 2. Whether, in view of the finding of the assessing authorities that the assessee had suppressed income from unredeemed pawned ornaments, the Tribunal was justified in proceeding on the basis that the income was assessed merely by applying a profit rate ? " The case of Harnam Singh and Co. [1977] 106 ITR 532 (All) does not lay down any principle of law. In that case, on facts, the Tribunal had found that the difference in the income returned and the income assessed was not due to any fraud or gross or wilful neglect on the part of the assessee. One of the reasons was that the assessing authorities had considered the profits shown by the assessee to be low and they estimated it by applying a higher rate. The judgment of this court in Harnam Singh's case [1977] 106 ITR 532 (All) does not give the facts completely. It does not mention all the findings of the Tribunal. Since the Bench considered that on an overall view of the matter the ultimate finding of the Tribunal was one of fact, it did not consider it worthwhile to discuss the various factual aspects determined or found by the Tribunal, elaborately in its own judgment. They went on to observe that no separate question has been raised challenging the finding of the Tribunal on the point. Under these circumstances, the questions were answered against the department on the ground that they were concluded by findings of fact. In our case, the question No. 2 specifically challenges the finding of the Tribunal that since the rate of profit on the sale of ornaments was estimated, there was no question of imposing penalty. Harnam Singh's case [1977] 106 ITR 532 (All) is hence not appropriately applicable to the present case.
(3.) IN Addl. CIT v. Swatantra Confectionery Works [1976] 104 ITR 291 (All), the legal position has been elaborately explained. It emphasized that the view that where the assessee's books are rejected and a best judgment assessment, after applying the gross profit rate thereon, is made, no penalty under Section 271(1)(c) can be imposed, is not a correct view. Action under Section 271(1)(c) can appropriately be taken even in a case where an assessment is a best judgment assessment. Even in such a case, the Tribunal should apply its mind to the facts to see whether it was a case of concealment or furnishing of inaccurate particulars and, if so, whether the assessee has been able to establish that the same was not as a result of gross or wilful neglect on his part. The burden for proving the latter is on the assessee. The Tribunal has not applied its mind to the facts at all. It felt itself bound by the decision of this court in Harnam Singh's case [1977] 106 ITR 532 (All). IN the absence of relevant findings on various factual aspects, we are unable to adequately answer the questions referred to us. In our view, it would be appropriate for the Tribunal to rehear the appeal and give a finding in accordance with law.;