ADDITIONAL COMMISSIONER OF INCOME TAX Vs. PRASADI SAO RAJENDRA PRASAD

JUDGEMENT

(1.) Pursuant to the direction of this Court by order dated 25 -7 -1974, a reference has been made by the Tribunal, Patna, under Sec. 256(2) of the Income -tax Act, 1961 ('the Act'), for the opinion of this Court, on the following question of law:

(2.) The ITO imposed a penalty of Rs. 5,773 with reference to these additions of cash credit and he held that the assessee had knowingly furnished inaccurate particulars of his income with a clear intention of evading taxes. The order of the ITO imposing penalty has been marked Annexure 'A' to the statement of the case.

(3.) When the matter went up before the AAC in appeal, it was pleaded before him that the assessee had explained the source of the credit before the ITO as well as before the AAC but that explanation had not been accepted by either of the authorities. It was also submitted that the firm started its business and the partners deposited the amounts as capital and, therefore, it could not form part of the income of the firm and, if at all, it could be treated as income of the partners. The AAC found that the partners had no substantial means to own these amounts. He, therefore, held that the penalty was imposable though he reduced the quantum of penalty to Rs. 2,000 only. The order of the AAC has been marked Annexure 'B'.