Ajit K. Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1964-65, the following questions of law have been referred to this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence or had relied on irrelevant material for holding that the assessee had been able to rebut the presumption arising under the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, that the assessee's failure to return the correct income arose either from fraud or from gross or wilful neglect on his part ?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the order of penalty made under Section 271 (1)(c) of the Income-tax Act, 1961 ?" 2. The facts shortly stated are that, in the course of assessment proceedings, the Income-tax Officer noticed that the assessee claimed to have taken a loan of Rs. 1 lakh from M/s. Raj Kumar Jain and Co., on September 6, 1963. After making an enquiry, he concluded that the assessee had concealed his income to this extent and consequently added the amount as the assessee's income from concealed sources. Simultaneously he initiated proceedings under Section 274(2)/273 read with Section 271(1)(c) of the Income-tax Act. Since the minimum penalty leviable was more than Rs. 1,000, he referred the same to the Inspecting Assistant Commissioner of Income-tax. At the time of hearing, the following points were urged on behalf of the assessee : (1) Notice under Section 131 was issued when the party was out of station and no attempt was made to issue another notice when the party was available and could be traced. (2) An appeal is pending before the Appellate Assistant Commissioner and power to impose the penalty was with the Appellate Assistant Commissioner and not with the Inspecting Assistant Commissioner. (3) The case was originally referred to another Inspecting Assistant Commissioner and the present Inspecting Assistant Commissioner has no jurisdiction. (4) Reference had been barred by limitation.
(3.) The Inspecting Assistant Commissioner held that there was no merit in any of the contentions and ultimately levied a penalty of Rs. 1 lakh upon the assessee.;