R. Balia, J. - (1.) HEARD learned counsel for the parties.
(2.) THIS is an application under Section 256(2) of the Income-tax Act, 1961 (for short "the Act of 1961"), rejecting the application made by the asses-see-applicant for stating the case and referring the following questions said to be of law and arising out of the Tribunal's order passed in I. T. A. No. 1408/JP of 1980, dated May 18, 1983 : "1. Whether, on the facts and circumstances of the case, there was any material for the finding that the assessee had concealed any income or furnished inaccurate particulars of income under the meaning of Section 271(1)(c) of the Income-tax Act, 1961 ? 2. Whether it is lawful to impose penalty when even after additions by the Department there was still no taxable income and the assessee not liable to pay any tax ? Whether it is lawful for the Third Member of the Tribunal to agree to imposition of penalty while holding the view that when the assessee's explanation is read as a whole an inference cannot be drawn that the assessee is guilty of either concealment of income or furnishing of inaccurate particulars ? Whether penalty under Section 271(1)(c) is exigible when the asses-see's explanations for the substantial portion of the alleged suppressed sales had been accepted and only for a small portion, the explanations were not accepted ?" 3. The assessee has filed a return of loss for the assessment year 1974-75. The loss computed by the assessee amounted to Rs. 52,280 for the purpose of carrying forward. The assessee has shown his gross sales at Rs. 8,99,350 on which gross profit was shown at Rs. 1,17,159 disclosing the gross profit rate at 13.2 per cent. During the course of survey, the books of account of the assessee were seized from the premises of the assessee on the basis of which the Income-tax Officer was of the opinion that it disclosed undisclosed sales amounting to Rs. 3,35,000. The Income-tax Officer rejected the result as per books of account and estimated the gross turnover at Rs. 12,50,000, and applied thereon a gross profit rate of 15 per cent, and on that basis the assessment was made. Notwithstanding making additions in the returned income as aforesaid the net taxable income was still assessed as nil. Separate computation for unabsorbed loss to be carried forward was shown in the assessment order. However, ultimately in the quantum assessment additions on account of undisclosed turnover were restricted to Rs. 70,340 and the gross profit rate applicable thereto was accepted at 13.2 per cent, as disclosed by the assessee in his return which resulted in addition in the gross profit of the assessee to the tune of Rs. 9,314 only. 4. As the Assessing Officer was satisfied that the assessee has not disclosed truly and correctly particulars of his income, he initiated proceedings under Section 271(1)(c) of the Act of 1961 for levying penalty on the alleged concealment of the particulars of the income. The Assessing Officer has levied penalty of Rs. 32,840. For that purpose, the Income-tax Officer had taken into consideration the then existing assessment computing the gross profit by applying the gross profit rate of 15 per cent, on the estimated sale of Rs, 10,00,000 and which has resulted in the increased profit of Rs. 32,840. In substance, the penalty was levied on the basis of the estimated additions made in the gross profit. This order of the Assessing Officer was affirmed by the Commissioner of Income-tax (Appeals). On further appeal, there was a difference of opinion between the Judicial Member and the Accountant Member of the Tribunal. The Judicial Member had confined the levy of penalty to the extent it was referable to additions made on account of additions made in the gross profit, the gross profit declared by the assessee as noticed above on estimated concealed sales of Rs. 70,340. However, the Accountant Member had taken into account the additions made in its entirety. On this difference of opinion about the basic amount to which particulars of income be held to have been concealed, the matter was referred to a Third Member, who agreed with the opinion of the Judicial Member and sustained the penalty of Rs. 9,314. However, he also opined that though the question has not been referred to him, in his opinion it was not a case of concealment at all. He has recorded his finding as under : "Neither the order of the Appellate Assistant Commissioner in the quantum appeal nor the order of the Tribunal in the quantum appeal precisely establish that there has been a concealment of income and that to the extent of Rs. 32,840. Thirdly, the explanation given by the assessee in the fetter dated October 30, 1976, has to be read as a whole and when this explanation is read as a whole, an inference cannot be drawn that the assessee is guilty of either concealment of income or furnishing inaccurate particulars of income." The Tribunal has not countenanced the contention of the assessee that even after making additions in the trading results, the net assessment of the income did not make him liable to pay any tax for the assessment year in question and no tax being payable to him, the penalty could not have been imposed under Section 271(1)(c). It could have only been imposed if any tax was payable, but not otherwise.
(3.) IN the aforesaid circumstances, the assessee made an application before the Tribunal to refer the aforesaid questions stated to be questions of law arising out of the Tribunal's order. The Tribunal was of the opinion that the Tribunal has only recorded a pure finding of fact that to the extent additions in the turnover were sustained, the same were not accounted for in his books of account- Thus, a finding of fact was recorded about concealment of particulars of his income to the tune income was imbedded in the concealed turnover. No question of law arises from such a finding. The application was, therefore, rejected. Hence, this application under Section 256(2) of the Income-tax Act, 1961. Having heard learned counsel for the assessee as well as learned counsel for the Revenue and perusing the material made available to us, we are of the opinion that the order of the Tribunal dated November 16, 1983, rejecting the application under Section 256(1) and holding that no question of law arises out of its appellate order in penalty proceedings is erroneous. In our opinion, the questions of law do arise from the order of the Tribunal passed in appeal arising from penalty proceedings. ;