BANERJEE, J. - (1.) THIS reference, under s. 66(1) of the Indian IT Act, 1922, has been made in the circumstances hereinafter related. The statement of case relates to the asst. yr. 1951-52. The assessee is an individual having business in share dealings. He has also some income from property, dividends and other sources. The ITO found that the assessee had purchased 3,000 shares of Rani Cherra Tea Co. Ltd. for Rs. 33,000 and 2,500 shares of Indian Iron and Steel Co. Ltd. for Rs. 48,281, the total value of investment being Rs. 81,281; but the investment in purchasing shares of Rani Cherra Tea Co. Ltd. for Rs. 33,000 was not entered in the books of the assessee. When the assessee was called upon to explain the source of the investment, he alleged that he had borrowed Rs. 80,940 from his wife. Called upon further to explain how his wife had amassed so much money in her hands, it was said that she received Rs. 32,000 from her father in 1940 and the balance constituted her savings from out of monthly payments of Rs. 500, made to her by the assessee, for her personal expenses, during the last 10 years. The ITO accepted the existence of savings to the extent of Rs. 38,000 and treated the balance of Rs. 53,000 as income from undisclosed sources. With the other parts of the assessment order we are not concerned in this reference.
(2.) THE assessee appealed before the AAC. THE AAC sustained the addition of Rs. 53,000 to the income of the assessee from undisclosed sources. THEreupon, by a notice dt. 29th March, 1955, the ITO called upon the assessee to show cause why penalty should not be levied upon him for failure to prove the source of the funds with which the investment had been made. In the course of the penalty proceedings, the ITO referred to the acquisition of shares by the assessee. valued at Rs. 81,000, outside the books. He observed that the assessee's story that he had borrowed money from his wife was false and that he attempted to support the false statement by production of a fabricated cash book; that the assessee had not established the rates at which he purchased the shares and also had not disclosed the names of the vendors. Accordingly, he held that the assessee had concealed particulars of his income and deliberately furnished a false and improbable explanation. He, therefore, levied a penalty of Rs. 20,000 under s. 28(1)(c) of the Act. Against the penalty order the assessee appealed before the AAC. It was contended before the AAC that the penalty under s. 28(1)(c) was exigible only for concealment of income and not for giving a false explanation. It was further contended that the mere fact that the explanation given by the assessee turned out to be false would not give jurisdiction to the ITO to impose the penalty. The AAC overruled the objection and dismissed the appeal. Thereupon the assessee took a second appeal before the Tribunal. The Tribunal upheld the contention of the assessee with the following observations : "The Departmental representative submitted that the assessee's case stood on a different footing because he was a share dealer and had made unexplained investments in shares. In our opinion, this does not make any difference. We are not concerned with any concealment of stock-in-trade, but the source of funds with which certain shares (even stock-in-trade) had been acquired. As to the acquisition of shares also, the assessee's explanation in some form or other was that of investment or past savings whether by himself directly or through his wife. Even assuming that the cash book produced by the assessee's wife was a got up one, it would not follow that the assessee had concealed his income. Barring suspicion that the assessee had concealed his income, we do not find any material on the basis of which we could support a positive finding to that effect. Accordingly we hold that the levy of penalty under s. 28(1)(c) was bad in law and direct that the amount of penalty if paid should be refunded to the assessee." Thereupon the Revenue obtained a reference to this Court on the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the levy of penalty under s. 28(1)(c) of the IT Act, 1922, was not justified in law ?" Now, it is settled law that proceedings under s. 28(1)(c) are in the nature of penal proceedings and the Revenue must establish that the assessee was guilty of concealment of particulars of income. The offence under s. 28 was not that the assessee was charged with having given false explanation but that the assessee gave inaccurate particulars about his income. This is the view which was expressed by the Bombay High Court in CIT vs. Gokuldas Harivallabhdas (1958)34 ITR 98 (Bom), and also by this Court in CIT vs. Anwar Ali (1976) 65 ITR 95 (Cal). We have already quoted the relevant finding of the Tribunal. It does not appear therefrom that the assessee was guilty of any concealment of income but was found guilty to have come forward with a false explanation about the source of certain purchases. This being our view, we answer the question referred to this Court in the affirmative and in favour of the assessee. The Revenue must pay costs of this reference to the assessee.;