Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(2) of the I.T. Act, 1961, as directed by this court, the following two questions have been referred to this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and acted within its jurisdiction in upholding the imposition of penalty with reference to the amount of Rs. 1,88,800 and which did not constitute the basis on which the Inspecting Assistant Commissioner passed his order ? Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,83,737 having been declared by the assessee in Part F of his return, could at all attract the provisions of Section 271(1)(c) ?"
(2.) In order to appreciate the questions, it is necessary to refer that the ITO in this case initiated penalty proceedings and referred the same to the IAC under Section 271(1)(c) of the I.T. Act, 1961. This relates to the assessment year 1963-64. The assessee had filed the return on 10th September, 1964, disclosing the total income of Rs. 25,594. The ITO noticed certain hundi loans amounting to Rs. 1,25,000. He treated these loans as not being genuine and added the same as the assessee's income from "other sources". He also noticed a credit of Rs. 1,88,800 which the assessee claimed as winnings from horse races. The ITO held that no evidence had been produced to prove the winnings of this amount from horse races. Accordingly, he added this sum of Rs. 1,88,800 as the assessee's income from "other sources". In appeal, the AAC held that the sum of Rs. 1,25,000 represented the hundi loans on the ground that the peak credit in this year did not exceed the amount of Rs. 1,55,000 which was the closing balance of the earlier year. He, however, sustained the addition of Rs. 1,88,800. The Tribunal, however, sustained the order of the AAC with regard to the addition of Rs. 1,88,800. The ITO, as mentioned hereinbefore, had initiated the penalty proceedings and referred the matter to the IAC. The IAC issued a notice to the assessee under Section 274(2) read with Section 271(1)(c) and after giving the opportunity of a hearing to the assessee imposed the penalty. It is important to refer to the order of the IAC. The IAC observed, inter alia, as follows : "It is seen that the ITO has treated income from properties in the name of the wife, amounting to Rs. 6,085, and income from letting out of furniture on wife's account, amounting to Rs. 2,885, as the assessee's own income. In respect of these additions it is explained that the assessee had shown the entire amount in the statement of income filed and had shown in the return of income filed for the year the proportionate income to be considered in the hands of the assessee under Section 64 of the Act on the gift made by him to her. It is seen that for the earlier years the entire income from the properties as well as from letting out of furniture has been held to be the income of the assessee himself and for non-disclosure on the part of the assessee of this income in the return penalty under Section 271(1)(c) has been levied. The facts for this year under consideration are similar. On the facts brought on record by the ITO the explanation advanced that the lady had constructed the property out of her own funds excepting to the extent of the gifts made to her by the husband, has to be held to be not in order and has to be rejected accordingly. The entire funds for investment in these assets came from the assessee and hence the assessee had to show the full income in the return for the year under Section 64. The return of income having been filed after 31st March, 1964, the provisions of the Explanation to Section 271(1)(c) will apply. The assessee has not shown this amount in the return and has not proved that the failure to include these items in the return of income for the year was not due to any gross or wilful neglect on his part. Hence, the assessee will be deemed to have concealed income attracting the provisions of Section 271(1)(c). 4. It is also seen that the ITO added back a sum of Rs. 1,25,000 representing credits in the form of hundi loans as income of the assessee from undisclosed sources. In respect of this addition, it is claimed before me, that the assessee had already surrendered hundi loans and had agreed to be assessed on the loans as the assessee's own income on peak basis, and that the addition for the earlier year under this head is more than the addition made by the ITO for this year and hence there will be no separate addition to be made under this head for this year. As the appeal against this addition is still pending this contention of the assessee cannot be entertained by me, at this stage. On the assessee's own admission the credits under consideration represent the concealed income of the assessee. Hence, the claim for deduction of interest on such credits amounting to Rs. 6,594 also represents a deliberately false claim for deduction of a non-genuine item of expenditure. In respect of this addition also the provisions of Section 271(1)(c) are attracted. 5. The minimum penalty leviable for the default is Rs. 55,599 and the maximum is Rs. 4,16,994. I hereby levy penalty of Rs. 56,000 equal to about the minimum penalty leviable which I feel will be reasonable under Section 271(1)(c) read with Section 214(2) of the Act. The ITO to issue D.N. and challan accordingly."
(3.) There was thereafter an appeal before the Appellate Tribunal. The Appellate Tribunal after referring to the facts stated hereinbefore and several other decisions observed in the original order passed by it on the 7th June, 1974, inter alia, as follows: "In view of the ratio laid down in the above cases, we are of the view that the Explanation is applicable to the instant case. Under the Explanation the onus is on the assessee to prove that the difference between the returned income and the assessed income was not due to fraud, gross or wilful neglect on the part of the assessee. In the quantum appeal, we have upheld the addition of Rs. 1,88,800, which the assessee claimed as receipts from race winnings. We have held that the story of the assessee that the sum of Rs. 1,88,800 was the amount received from horse race winnings is not true and the assessee did not place any evidence in support of his claim. We have also held that the sum of Rs. 1,88,800 represented assessee's own unaccounted money from undisclosed source brought into books of account and the assessee had concealed the income. Thus in our view, the assessee has concealed the income and the provisions of Section 271(1)(c) are applicable. The assessee has not discharged the onus under the Explanation. The Inspecting Assistant Commissioner had referred to the addition of Rs. 1,25,000 in his order. But this has been deleted in appeal by the AAC. The IAC has also referred to the income from house property and income from letting out of furniture on wife's account, which the assessee has not returned. The AAC has sustained Rs. 1,767 and Rs. 654, respectively, in this regard and the assessee has concealed these items by not returning the same. There was no appeal to the Tribunal with regard to these items. So far as the addition of Rs. 1,88,800 is concerned, the Tribunal has also found that the assessee's story is false and has upheld the addition in the quantum appeal. Taking the entire facts into consideration we are of the view that the assessee has clearly concealed the income. The ratio laid down in the case of D.M. Manasvi is applicable to the instant case. In the circumstances, the Inspecting Assistant Commissioner was justified in imposing penalty. The Inspecting Assistant Commissioner has imposed a minimum penalty of Rs. 56,000. The Appellate Assistant Commissioner has given some relief in the appeal. So, the penalty leviable should be with reference to the tax on the finally assessed income. Accordingly, we direct the IAC to modify the penalty order by imposing a minimum penalty with reference to the tax on the finally assessed income.";