Dipak Kumar Sen, J. - (1.) In the assessment year 1959-60, Messrs. R.H.N. Choudhuri & Co. Private Ltd. was assessed to income-tax. In the course of the assessment proceedings the Income-tax Officer found a deposit of Rs. 4,000 in the account of one S. L. Rathor, and 4 hundi loans amounting to Rs. 1,00,500. The assessee was asked to explain the nature and source of the same. Explanations were offered but were not accepted by the Income-tax Officer who added back the same as the assessee's income. Interest on the hundi loans to the extent of Rs. 7,814 was also disallowed as deduction.
(2.) The assessee went up on appeal and the Appellate Assistant Commissioner by his order dated the 28th March, 1969, accepted the deposit of Rs. 4,000 as genuine. So far as the hundi loans were concerned he allowed a credit of Rs. 55,500. Addition was partly reduced accordingly.
(3.) The Income-tax Officer in the meantime had referred the matter to the Inspecting Assistant Commissioner for levy of penalty who issued a show-cause notice on the 16th February, 1966, and levied a penalty after considering the assessee's reply.;