Ajit Kumar Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, the following two questions of law have been referred by the Tribunal to this court : "(1) Whether the entirety of the facts and circumstances of the case reasonably led to the conclusion that the assessee had concealed particulars of its income or furnished inaccurate particulars thereof so as to justify imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that on the evidence on record, no penalty provisions are attracted and, in that view, vacating the order of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961 ?" The facts leading to the present reference are briefly stated hereinafter.
(2.) The assessee, M.B. Engineering Works (P.) Ltd., Howrah, is a private company and the assessment year involved is 1964-65. During the course of the assessment proceeding, the Income-tax Officer found that a sum of Rs. 40,000 in the form of three cash credits represented the assessee's income from undisclosed sources. The assessment was completed on a total income of Rs. 91,647 whereas the income returned was Rs. 18,881. The Income-tax Officer was, therefore, satisfied that the penalty provisions were attracted both under the provisions of Section 271(1)(c) and the Explanation to that section. He, therefore, initiated penalty proceedings against the assessee and as the minimum penalty imposable under the Act would exceed Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner, who, after taking into consideration the explanation of the assessee held that the latter was guilty of concealment. Having reached this conclusion, a penalty of Rs. 39,293 was imposed. Being aggrieved, the assessee preferred an appeal to the Appellate Tribunal against the imposition of penalty. After hearing both sides, the Tribunal came to the conclusion, on the authority of the Supreme Court in CIT v. Anwar Ali, that the penalty provisions were not attracted in this case. In coming to the above conclusion, the Tribunal found that in respect of the assessment appealed against, the addition of Rs. 40,000 representing loans was reduced to Rs. 10,000. This amount was advanced by Sri Shanti Dutta Gupta. The Tribunal rejected the assessee's version regarding the genuineness of this loan and so also disbelieved the assessee's claim amounting to Rs. 32,802 as an expenditure. The Tribunal was of the opinion that merely because the version of the assessee was rejected, it would not automatically fall within the mischief of Section 271(1)(c) of the Income-tax Act, 1961, and that this circumstance itself would not go to show that the assessee was guilty either of wilful neglect or of fraud. Accordingly, the impugned penalty order was vacated.
(3.) Mr. Ramchandra Prosad, learned advocate for the Revenue, has submitted that in the present case, the Tribunal did not examine the finding recorded by the Inspecting Assistant Commissioner, nor did the Tribunal consider the effect of the Explanation to Section 271(1)(c) of the Act. There is no evidence to warrant the conclusion that the assessee was not guilty of fraud or gross or wilful neglect. He has also submitted that the assessee cannot take the benefit of the judgment of the Supreme Court in the case of CIT v. Anwar Ali, in view of the Explanation added to Clause (c) of Section 271(1). In support of his contention, he has relied on three decisions--two decisions of the Allahabad High Court and one decision of the Punjab and Haryana High Court.;