Rajesh Balia, J. - (1.) HEARD learned counsel for the parties.
(2.) THIS is an application under Section 256(2) for requiring the Tribunal to state the case and refer the question of law arising out of its order in ITA No. 318/JP of 1992 for the assessment year 1986-87. The respondent-assessee is a firm dealing in a certain brand of cigarettes manufactured by Godfrey Philips India Ltd. (GPIL). As a result of search operations carried out under Section 132 of the Income-tax Act, 1961, at the business/residential premises of GPIL and its wholesale dealers, incriminating documents including circulars issued by GPIL to its wholesale/retail dealers requiring them to charge premium/"on money" on certain popular brands of cigarettes and remit a major portion of such "on money" to GPIL and utilise the balance on advertisement and publicity, were found and seized. During the course of proceedings under Section 132(5), the partners of the firm made confession about charging of "on money" which was not accounted for in the books of account. After the search operations, during the course of assessment proceedings, the assessee confirmed additional income of Rs. 20,609 for the assessment year 1985-86 and Rs. 19,805 for the assessment year 1986-87. The assessment was accordingly completed. The Assessing Officer while completing the assessment, initiated penalty proceedings for concealment under Section 271(1)(c) of the Income-tax Act and in those proceedings, imposed penalty of Rs. 15,800 for the assessment year 1986-87. The said penalty was cancelled by the learned Deputy Commissioner (Appeals) by his order dated November 27, 1991, and that order has been affirmed by the Tribunal vide its order dated December 11, 1997. It was a common order as far as the respondent-assessee is concerned for both the years. The finding recorded by the Tribunal is based on its decision rendered in some other matter. The Tribunal held that though the facts disclosed concealment of income by the wholesale dealers of the GPIL yet such dealers could not be successfully visited with penalty under Section 271(1)(c) in view of the circumstances that they were forced to charge "on money" for the benefit of the principal and promotion of sales and other purposes which was his bona fide conduct in the interest of his business. The Department filed a reference application under Section 256(1) of the Income-tax Act asking the Tribunal to refer the following question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the first appellate authority (D C (A)), who cancelled the penalty levied under Section 271(1)(c) of the Income-tax Act, 1961, by holding that though the facts disclosed concealment of income by the wholesale dealers of the GPIL, yet such dealers could not be successfully visited upon penalty under Section 271(1)(c) in view of the circumstances they were forced to charge on money ?"
(3.) THE Tribunal vide its order dated April 23, 1998, in Reference Application No. 31/JP of 1998 has refused to make a reference on the ground that the finding recorded by the Tribunal is based on appreciation of material available on record which does not give rise to any question of law and following its decision in other matters, rejected the application. After hearing learned counsel for the parties, we are of the opinion that the Tribunal has clearly erred in considering the question arising out of its order to be a question of fact. Undoubtedly, the question of facts or inference of facts drawn from other established facts also becomes a question of fact and thus cannot be said to be a question of law. The established facts as per the Tribunal's order are that the assessee has concealed particulars of his income which he was required to disclose. The penalty has been held not liable to be imposed solely on the ground that though the facts disclosed concealment of income by the wholesale dealers of the GPIL yet such dealers could not be successfully visited with penalty under Section 271(1)(c) in view of the circumstances that they were forced to charge "on money" for the benefit of the principal and promotion of sale and other bona fide conduct. The question, therefore, which requires consideration is whether any amount which is shown to be charged compulsorily if it results in income to the assessee on which he is liable to be assessed is not disclosed can be considered to be a bona fide action in the context of the provisions of the Income-tax Act which requires the assessee to declare his income from all sources legal or illegal, without distinction for the purpose of proper assessment of tax or in other words the question that arises is whether under the provisions of the Income-tax Act the assessee can legitimately claim justification for not disclosing income which is alleged to have been earned involuntarily by him or retained by him. It also gives rise to the question whether such a finding is a finding to which any person instructed in law can reasonably reach. These are not questions of facts but rather questions of law or at any rate mixed questions of facts and law. We, therefore, allow this application and direct the Tribunal to state the case and refer the following question of law arising out of its order which in our opinion correctly reflects the controversy : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law after finding that the assessee is guilty of concealment of particulars of his income as fact, but considered the act of non-disclosure of income to be bona fide merely because the income has been earned as a result of compulsion from the principal and set aside the penalty on that ground ?" ;