DESAI, J. - (1.) BY this reference the Income -tax Appellate Tribunal has referred the following question for our consideration : 'Whether, on the facts and in the circumstances of the case, penalty was not imposable on the assessee under section 271(1)(c) of the Income -tax Act, 1961, for the assessment year 1959 -60 ?'
(2.) AS the assessee has taken out a notice of motion for further question, we may briefly refer to the facts and then consider the assessee's application. As the question referred to us indicates, we are concerned with the assessment year 1959 -60. the assessee was a registered firm dealing the motor spare parts and accessories. In the course of assessment proceedings for the assessment year concerned, the Income -tax Officer discovered in the account books of the assessee hundi loans to the tune of Rs. 90,000, which, according to the Income -tax Officer, represented concealed income. When these hundi loans were considered in the assessment, the assessee -firm agreed to the addition of the aforesaid amount, viz., Rs. 90,000, as its business income of that year. The assessment was then completed on 26th December, 1963, on that footing. In the order itself there is an indication of contemplated penalty proceedings, which were then initiated by a notice dated 14th October, 1964. Since the minimum penalty leviable exceeded Rs. 1,000, the Income -tax Officer referred the matter to the Inspecting Assistant Commissioner under section 274(2).
(3.) THE Inspecting Assistant Commissioner then issued another notice under section 274(1) of the Income -tax Act, 1961, to the assessee -firm. In response to this notice, the assessee -firm filed a letter dated 21st October, 1964, submitting that the penalty proceedings were required to be terminated. The representative of the assessee then appealed before the Appellate Assistant Commissioner. Before The Appellate Assistant Commissioner it was contended on behalf of the assessee that no penalty could be levied because there was an agreement between the assessee -firm and the Income -tax Officer that no penalty would be levied if the assessee -firm immediately accepted the addition of the amount of Rs. 90,000. It was also contended that there was no definite material brought on record to show that the assessee -firm had actually concealed the particulars of its income. Since the assessee had accepted the addition of the amount of Rs. 90,000 and since the record of the Income -tax Officer did not bear out the alleged agreement, the Inspecting Assistant Commissioner rejected the contentions of the assessee and levied a penalty of Rs. 11,200 under section 271(1)(c) of the Income -tax Act, 1961. It may be stated that this was the minimum penalty (20% of the tax avoided) as provided by the said provision as it then stood. Aggrieved by the order of the Inspecting Assistant Commissioner levying penalty, the assessee filed an appeal to the Income -tax Appellate Tribunal. Before the Tribunal it was urged that the assessee had agreed to the said addition under a tacit understanding and assurance of the Income -tax Officer that he would not impose penalty in respect of the addition. It was also submitted that this was a case where cash credits were added because the assessee did not prove their source and genuieness. It was finally submitted that on the basis of the financial year as the previous year, an amount of Rs. 25,000 only could be added in the assessment year and that the entire amount of Rs. 90,000, which was agreed to be added, could not be regarded as concealed income of the assessee for that year. It was also sought to be urged that section 297(2) of the Income -tax Officer, 1961, was ultra vires of the legislature and no penalty could be levied under that section. As far as last argument was concerned, the Tribunal rejected the assessee's contention, holding that it was a valid provision and intra vires of the powers of the legislature. The other contentions raised by the assessee were also rejected principally on the ground that the assessee had consented to the addition of the above amount as his income for the assessment year in question and that income had not been shown by the assessee in the return filed by it.;