The Judgment of the Court was delivered by

Paripoornan, J.:— The Revenue has filed this original petition under section 256(2) of the Income-tax Act, 1961. The respondent herein is an assesee to income-tax. The matter relates to the levy of penalty under section 271(1)(c) of the Income-tax Act for the assessment year 1975-76. In this original petition, the Revenue prays for the issue of a direction to the Income-tax Appellate Tribunal to refer certain questions of law formulated in para 10 of the original petition which, according to it, arise out of the appellate order passed by the Income-tax Appellate Tribunal dated March 6, 1986.

2. We heard counsel for the Revene, Mr. P.K.R Menon, as also counsel for the respondent-assessee. The assessee was a partner in a firm which was doing Abkari business. The first assessment year for the firm was 1975-76. On going through the records of the firm, it turned out that the assessee has advanced a loan of Rs. 4,39,890 to the firm. The respondent/assessee was asked to explain. He stated that a sum of Rs. 2,85,000 was derived by way of income from agricultural properties belonging to him, his wife and his mother, and a sum of Rs. 1,60,000 was obtained by way of loan from several persons. The Income-tax Officer did not accept the savings out of the agricultural income to the tune of Rs. 1,00,000. The loans from various persons to the extent of Rs. 95,000 were also treated as unexplained. This resulted in an addition of Rs. 1,95,000 in the assessment. In the quantum appeal, the Commissioner of Income-tax (Appeals) confirmed the addition of Rs. 1,00,000 being the unexplained portion of the agricultural income. The addition of Rs. 95,000, representing loans from various persons, was deleted. The assessee as well as the Revenue filed appeals before the Appellate Tribunal. In I.T.A No. 475.Coch/1979, the Appellate Tribunal, by order dated September 30, 1981, held that two loans amounting to Rs. 45,000 (Rs. 15,000 in the name of Sri. Rama Varma Kochunni Thampuran and Rs. 30,000 in the name of Shri. P.C Raman Unni) were not satisfactorily proved as also the addition in respect of the agricultural income to the extent of Rs. 40,500 as against Rs. 1,00,000 sustained by the Commissioner of Income-tax (Appeals). In the result, the Appellate Tribunal upheld the addition of Rs. 85,500 in the quantum appeal. Proceedings under section 271(1)(c) of the Income-tax Act were initiated against the assessee. The assessee was asked to explain why penalty should not be levied with reference to the addition of Rs. 85,50 (5 finally sustained by the Appellate Tribunal. The assessee filed an explanation dated February 11, 1982. It was stated that no penalty is exigible. The Income-tax Officer, by order dated April 27, 1982, levied a penalty of Rs. 85,500 under section 271(1)(c) of the Act. In appeal, the Commissioner of Income-tax (Appeals) held that the addition in the quantum assessment regarding agricultural income was sustained by the Tribunal by estimate and the cash credits (loans) from two persons, amounting to Rs. 45,000 was sustained since the Tribunal opined that there was no proof that the creditors would have adequate savings. On these premises, the Commissioner of Income-tax (Appeals) held that the assessee cannot be held to be guilty of conealment of income for levy of penalty under section 271(1)(c) of the Act and cancelled the penalty levied.

3. The Revenue filed ah appeal before the Appellate Tribunal and assailed the cancellation of penalty of Rs. 85,500 ordered by the Commissioner of Income-tax (Appeals). The Appellate Tribunal held that the Explanation to section 271(1)(c) of the Income-tax Act, prior to its amendment with effect from April 1, 1976, would be applicable in the instant case. It was found that the assessed income would be more than 20%. It was stated that under the Explanation to section 271(1)(c) of the Act, the onus is on the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on the part of the assessee. After adverting to the decision of this court in Commr. Of Incometax v. P.T Antony & Sons and Sons, [1985] 151 ITR 34, CIT v. Sankersons and Co., [1972] 85 ITR 627; as also the decision of the Gujarat High Court in CIT v. S.P Bhatt, [1974] 97 ITR 440 and the decision of the Patna High Court in Commissioner Of Income-Tax, Bihar v. Gopal Vastralaya., [1980] 122 ITR 527, the Appellate Tribunal held that the onus cast on the assessee has been discharged and the preponderance of probabilities showed that the failure to return the correct income has not arisen on account of any fraud or gross or wilful neglect on the part of the assessee. Since it was found that the assessee has discharged the onus cast on him, the Tribunal further stated that the assessee has not consciously concealed the income and the Commissioner of Income-tax (Appeals) was justified in cancelling the penalty levied under section 271(1)(c) of the Act. The order passed by the Appellate Tribunal is dated March 6, 1986.

4. The Revenue filed an application under section 256(1) of the Act to refer certain questions of law which, according to it, arose out of the appellate order of the Tribunal. The Appellate Tribunal held, that in disposing of the appeal filed by the Revenue, it adverted to section 271(1)(c) of the Act along with the Explanation and after considering the entire facts and materials on record, held that the assessee has discharged the burden cast on him and in this view of the matter, it is for the Revenue to prove by positive material that the assessee has consciously concealed his income so as to attract the penal provisions of section 271(1)(c) of the Act which was not done in this case. In the above perspective, the Tribunal confirmed the order passed by the Commissioner of Income-tax (Appeals). Since the finding given by the Tribunal is purely a finding of fact, the questions proposed by the Revenue are not referable questions of law, but are only questions of fact. The application filed by the Revenue was dismissed. It is thereafter that the Revenue has filed this original petition under section 256(2) of the Income-tax Act.

5. Before us, counsel for the Revenue stressed the following aspects: The Appellate Tribunal sustained the addition of a sum of Rs. 85,500 in the quantum assessment. A sum of Rs. 45,000, out of the loans said to have been obtained from various persons, was held not satisfactorily proved Similarly, a sum of Rs. 40,500, by way of addition of agricultural income, was sustained. The Tribunal having sustained the addition to the extent of Rs. 85,500 and the returned income admittedly being less than 80 per cent, of the assessed income, in the absence of “additional” materials or evidence during the penalty proceedings, the cancellation of the penalty by the Commissioner of Income-tax (Appeals) and confirmation thereof by the Appellate Tribunal were uncalled for and unjustified. Counsel for the Revenue submitted that in order to discharge the onus cast on the asses-see, under the Explanation to section 271(1)(c) of the Act, the assessee should have let in some “additional” material or evidence in the penalty proceedings other than those available during the assessment proceedings to substantiate the assessee's plea. On the basis of the materials available during the assessment proceedings on the basis of which the Tribunal sustained the addition of Rs. 85,500, it is not open to the Commissioner of Income-tax (Appeals) as also to the Appellate Tribunal to have a different look on the same materials to hold that the assessee has discharged the onus cast on him or that no penalty is exigible. In this connection, reliance was placed on the decisions in Addl. CIT v. D.D Lamba and Co., [1981] 128 ITR 564, 569 (All), Addl. CIT v. Ram Prakash, [1981] 128 ITR 559, 563 (All) and Commissioner Of Income-Tax v. M. Habibullah., [1982] 136 ITR 716, 719 (All).

6. Our attention was invited pointedly to the observations contained in Commissioner Of Income-Tax v. M. Habibullah., [1982] 136 ITR 716, 719, which is to the following effect:

“The findings in the assessment proceedings were against him. The circumstances on which the Tribunal placed reliance, had already been considered in the assessment proceedings and disbelieved. We fail to understand as to how a different interpretation could be put on those circumstances in penalty proceedings without the assessee producing any fresh evidence or placing any additional or, fresh circumstance in penalty proceedings.”

7. Placing heavy reliance on the above observations, counsel for the Revenue emphatically argued that no “fresh material or evidence” was let in by the assessee during the penalty proceedings and if, on the basis of materials available at the assessment stage, the Tribunal upheld the total addition of Rs. 85,500 (Rs. 45,000 on the ground of two loans and Rs. 40,500 in respect of agricultural income), there was no reason to hold that the assessee has discharged the burden cast on him and has proved that the failure to return the correct income has not arisen on account of any fraud or gross or wilful neglect on the part of the assessee. In this view, the Tribunal erred in holding that no penalty is exigible in the instant case.

8. At this juncture, we should state that the Appellate Tribunal sustained an addition of Rs. 85,500 in the following manner. Though the creditors — Rama Varma Kochunni Thampuran and P.C Raman Unni—were examined and they admitted having lent the amounts to the assessee, the Appellate Tribunal could not hold that such creditors had resources to give the loans. But the identity of the creditors was established and they were examined. In the penalty proceedings, the Appellate Tribunal observed that the creditors could not adduce evidence to substantiate their plea of savings which would enable them to advance the loans to the assessee and that may be sufficient in the quantum appeal. But, in penalty proceedings, the assessee has discharged the onus cast on him as the creditors themselves admit-ted having lent the amounts. Their identity was established and they were examined. So also, with regard to the non-acceptance of the assessee's explanation for a portion of the agricultural income, the Tribunal sustained an addition of Rs. 40,500. But the agricultural income was only “estimated” after rejecting the assessee's explanation with regard to certain amounts in the matter of cultivation expenses, pattom arrears, etc. It was only in the realm of “estimate”. It is implicit from the above aspects, highlighted by the Appellate Tribunal with a different perspective and look, that the Tribunal had in mind the distinct and different nature of penalty proceedings. So, the Appellate Tribunal held that it is not necessary for the assessee to produce any positive (or additional) material to prove his case. In order to discharge the burden cast on him under the Explanation to section 271(1)(c) of the Act, and in considering the preponderance of probabilities, the entire facts and materials on record can be considered and the Appellate Tribunal found that the failure to return the correct income did not arise on account of any fraud or gross or wilful neglect on the part of the assessee and the assessee has discharged the onus cast on him. To deviate from that position, the Revenue did not prove, by any positive material that the assessee has consciously concealed his income to attract the provisions of section 271(1)(c) of the Act. We are of the view that the above reasoning and approach of the Appellate Tribunal are justified in law as will be evident from a review of the decided cases on the point. The law on the point has been exhaustively laid down by the Supreme Court in Commissioner Of Income Tax v. Messrs Mussadilal Ram Bharose., [1987] 165 ITR 14, 19, 21, 22. There is an earlier decision of this court, regarding the nature of proof required to be adduced by the assessee to discharge the burden cast on him in the light of the Explanation to section 271(1)(c) of the Act, in CIT v. Sankarsons and Co., [1972] 85 ITR 627. The matter has been exhaustively dealt with by two Bench decisions of this court in Commissioner Of Income-Tax v. Saraf Trading Corporation, [1987] 167 ITR 909 and Commissioner Of Income-Tax v. Shri Pawan Kumar Dalmia, [1987] 168 ITR 1. Besides, there is a Bench decision of the Gujarat High Court in CIT v. S.P Bhatt, [1974] 97 ITR 440, wherein the decision of this court in CIT v. Sankarsons and Co., [1972] 85 ITR 627 was followed. So, the decision of the Supreme Court in Mussadilal Ram Bharose's case, [1987] 165 ITR 14, the decisions of this court in Sankarsons' case, [1972] 85 ITR 627, Saraf Trading Corporation's case, [1987] 167 ITR 909, Pawan Kumar Dalmia's case, [1987] 168 ITR 1, as also the decision of the Gujarat High Court in S.P Bhatt's case, [1974] 97 ITR 440 have laid down the law applicable to cases such as the one in the instant case. In particular, we would only extract the observations in the earlier Bench decision of this court in Commissioner Of Income-Tax v. Saraf Trading Corporation, [1987] 167 ITR 909, 915 which has been extracted in the later case, Commissioner Of Income-Tax v. Shri Pawan Kumar Dalmia, [1987] 168 ITR 1, 6 and 7. The following passages are relevant in this context:

“Penalty proceedings are distinct and different from assessment proceedings. The findings in the assessment proceedings are not conclusive but are relevant. The entire materials available should be considered afresh by the authorities before imposing the penalty. Even after the addition of the Explanation to section 271(1)(c), conscious concealment is necessary. The Explanation provides only a rule of evidence raising a rebuttable presumption in certain circumstances… Proceeding on the basis that the income returned by the assessee is less than 80% of the total income as assessed, it should be stated that the assessee should initially prove that the failure to return the correct income did not arise from any fraud or gross or wilful neglect on his part. Unless it is so shown, the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. It is only a presumption. The burden is cast on the assessee to prove a negative fact. This can be discharged either by independent evidence led during the penalty proceedings or by a closer scrutiny or appraisal of the existing facts and data available. This will take in even the materials available at the assessment stage …”

9. It cannot be doubted that penalty proceedings are distinct and different from assessment proceedings. It is penal in nature. It is a quasi-criminal proceeding. The findings in assessment proceedings are relevant, but not conclusive. So, the principle of res judicata will not apply. In this connection, it may be stated that the assessment for each year is a separate proceeding under the Income-tax Act and so the view adopted by the Revenue in any particular year cannot possibly bind it in respect of a year subsequent thereto. There is no res judicata. Stressing the above aspect, M.S Menon C.J, delivering the judgment of the Bench in Annamalai Reddiar…Applicant;* v. Commissioner Of Income-Tax, Kerala…., [1964] 53 ITR 601, 603 (Ker), in his inimitable style, stated the law thus:

“The assessment in each year is a separate proceeding under the Indian Income-tax Act, 1922, and the view adopted by the Department in any particular year cannot possibly bind it in respect of a year subsequent thereto. New materials may produce a change of approach; the old materials themselves, on a more careful or intelligent analysis, may effect the same result……”

10. We would respectfully adopt the above observations as our own and as equally applicable in the case of penalty proceedings.

11. In the light of the principles discernible from the decision of the Supreme Court and the earlier Bench decisons of this court referred to above, we are of the view that it was open to the Commissioner of Income-tax (Appeals) as also the Appellate Tribunal to advert to the materials or evidence available during the assessment proceedings afresh and make an independent or closer or more intelligent analysis. That was so done in this case to come to the conclusion that the assessee has discharged the onus cast on him under the Explanation to section 271(1)(c) of the Income-tax Act. On that basis, the Commissioner of Income-tax (Appeals) as also the Appellate Tribunal have concurrently held that the assessee has discharged the onus of proof cast on him and that no penalty is exigible in the instant case. The reasoning and conclusion, in this regard, by the Commissioner of Income-tax (Appeals) as also the Appellate Tribunal are unassailable and are in accord with the law laid down by the Supreme Court and also the aforesaid Bench decisions of this court.

12. With great respect to the learned judges of the Allahabad High Court, we are unable to concur with the observations contained in Commissioner Of Income-Tax v. M. Habibullah., [1982] 136 ITR 716, 719, which have been extracted hereinabove (p. 513 supra), as representing the correct law on the subject. The observations of the learned judges militate against the principles laid down by the Supreme Court in Mussadilal Ram Bharose's case, [1987] 165 ITR 14 and three Bench decisions of this court in Saraf Trading Corporation's case, [1987] 167 ITR 909, Pawan Kumar Dalmia's case, [1987] 168 ITR 1 and Annamalai Reddiar's case, [1964] 53 ITR 601. In the light of the above discussion, we hold that the Appellate Tribunal was justified in its reasoning and conclusion in holding that no penalty is exigible. The findings arrived at are pure findings of fact. We are of the view that no referable question of law, as formulated in para 10 of the original petition, arises for consideration in this case.

13. The original petition is without merit. It is dismissed.