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Commissioner Of Income-Tax v. Punjabhai Shah

Madhya Pradesh High Court
Aug 11, 1967
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

Misc. Civil Case No. 84 of 1966

Attorney(S)

R.K.Tankha

P.S.Khirvadkar

M.Adhikari

JUDGES

P.V Dixit, C.J

R.J Bhave, J.

ACTS

Section 28 (1) (c) of the 1922-Act or Section 271(1)(c) of the 1961-Act

Section 28(1)(c) of the Indian Income-tax Act, 1922,

SECTION 28 INDIAN INCOME TAX ACT

Section 271(1)(c) of the Income-tax Act, 1961.

Section 256(1) of the Income-tax Act, 1961,

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Structured Summary of the Opinion — Income-tax Reference under Section 256(1)

Factual and Procedural Background

This reference arises under Section 256(1) of the Income-tax Act, 1961, made by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax. The question referred was whether the assessee, Punjabhai Shah, could be said to have concealed particulars of his income for the assessment year 1959–60 so as to be penalised under Section 271(1)(c) of the Income-tax Act, 1961.

Material factual background (as stated in the opinion):

  • During assessment for 1960–61 it was noticed that the assessee had purchased a motor vehicle with payments totalling Rs. 31,250 made on dates in 1958.
  • For assessment year 1959–60 the assessee's total income had been fixed at Rs. 10,953.
  • The assessee explained that part of the payments (Rs. 1,000 on 26-8-1958 and Rs. 9,000 on 8-9-1958) were made out of a cash balance of Rs. 14,168 and that the balance of the purchase price had been paid out of amounts attributable to depreciation allowances previously allowed on his trucks.
  • The Income-tax Officer (ITO) rejected these explanations, observed that the cash book and Rokad entries did not support the alleged withdrawals, described the explanation as "obviously phoney", and treated Rs. 31,250 as income from undisclosed sources for 1959–60. The assessment was reopened under Section 147.
  • Penalty proceedings under Section 271(1)(c) (initiated under Section 274(2)) were conducted by the Inspecting Assistant Commissioner, who also rejected the explanations and imposed a penalty of Rs. 5,000, finding concealment "proved beyond reasonable doubt".
  • The assessee appealed to the Appellate Tribunal, which cancelled the penalty, finding that while the explanation regarding Rs. 10,000 was "completely disproved", the explanation for the balance was not prima facie unreliable and that mere non-acceptance of an explanation does not automatically sustain a penalty.
  • The present reference asks the higher court to decide whether the assessee could be penalised under Section 271(1)(c) on the facts and circumstances of the case.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances, the assessee concealed particulars of his income for assessment year 1959–60 so as to be penalised under Section 271(1)(c) of the Income-tax Act, 1961?

Arguments of the Parties

Assessee's Explanation / Position

  • The assessee stated that he possessed a cash balance of Rs. 14,168 on 26-8-1958 and that Rs. 1,000 (26-8-1958) and Rs. 9,000 (8-9-1958) were paid from that cash balance.
  • He further explained that payments making up the balance of the purchase price were financed from amounts represented by depreciation allowances previously allowed on his trucks for assessment years 1957–58 to 1959–60.
  • Before the Inspecting Assistant Commissioner the assessee reiterated these explanations but did not place additional material to show that Rs. 31,250 was not his income or that there was no concealment.

Revenue's Position (ITO and Inspecting Assistant Commissioner)

  • The Income-tax Officer found no entries in the cash book recording withdrawals of Rs. 10,000 and noted pencil jottings in the Rokad inconsistent with actual cash withdrawals; accordingly he rejected the cash-balance explanation and concluded those payments represented undisclosed income.
  • The ITO rejected the depreciation-fund explanation, indicating that no separate depreciation reserve or equivalent cash or liquid reserve had been shown by the assessee, and described the explanation as "obviously phoney and without any substance".
  • The Inspecting Assistant Commissioner, on penalty proceedings, accepted the view that the cash came from concealed income, concluded concealment was "proved beyond reasonable doubt", and imposed a Rs. 5,000 penalty under Section 271(1)(c).

Appellate Tribunal's Position

  • The Tribunal found the explanation about the Rs. 10,000 (cash withdrawals) to be "completely disproved".
  • As to the remainder of the payments, the Tribunal considered the manner in which the assessee maintained accounts and concluded there was nothing prima facie unreliable in that explanation; it stated "the position is slightly more in favour of the assessee".
  • The Tribunal relied on prior decisions (including Commissioner of Income Tax v. Gokuldas Harivallabhdas and Commr. v. L.H. Vora) to hold that mere non-acceptance of an explanation, or the fact that an explanation is false, is not by itself sufficient to sustain penalty; something more is required. On that basis it cancelled the penalty.

Table of Precedents Cited

Precedent Rule or Principle Cited For (as stated in opinion) Application by the Court (how the precedent was used in this opinion)
Commr. of Income Tax v. Gokuldas Harivallabhdas, 1958-34 ITR 98 (AIR 1959 Bom 96) Authority for the proposition that more is necessary than mere non-acceptance of an assessee's explanation to sustain a penalty for concealment. The Tribunal relied on this decision in concluding that the assessee could not be penalised merely because an explanation was not accepted; the Court noted the Tribunal applied it in cancelling the penalty.
Commr. of Income Tax v. L.H. Vora, 1965-56 ITR 126 (Guj) Similar supporting authority for the proposition that rejection of an explanation alone is insufficient to impose penalty. The Tribunal relied on this decision alongside others; the Court recorded that the Tribunal applied it in reaching its conclusion.
Mangilal Karwa v. Commr. of Income-tax, Misc. Civil Case No. 113 of 1962 (MP) Statement that whether an assessee concealed particulars of income is a question of fact to be determined in the circumstances of the case. The Court cited this case to support the proposition that the reference raises a question of fact and that no question of law arises from the Tribunal's order.
In re Lachhman Das Brijballabh Das, 1942-10 ITR 186 (Oudh) Authority laying down the proposition that concealment is a question of fact to be determined on the circumstances. The Court cited it as one of the authorities establishing that concealment is a factual question.
Padmaraju v. Commr. of Income Tax, 1959-37 ITR 365 (AP) Support for the proposition on factual nature of concealment inquiries. Cited by the Court as part of the authorities confirming that the question of concealment is a question of fact.
Khemraj Chagganlal v. Commr. of Income Tax, 1960-38 ITR 523 (AIR 1960 Pat 252) One of the authorities cited for principles governing penalty proceedings (penal nature, quantum of proof, need for material to justify a finding of concealment). Included in the list of precedents relied upon for the proposition that penalty proceedings require high proof and the authority must expressly find explanation false to impose penalty.
Bhagwandas Shyam-sunder v. Commr. of Income Tax, 1962-45 ITR 566 (Pat) Cited among earlier authorities laying down principles on burden/standard in penalty proceedings. Used in the opinion as part of the body of case law the Court relied upon to state the applicable principles for imposing penalty.
Mohd. Atiq v. Income Tax Officer, (1962) 46 ITR 452 (All) Cited for principles relating to penalty proceedings and requisite material to justify finding of concealment. Included in the Court's catalogue of precedents establishing the standards for penalty imposition.
P.K. Kalasami Nadar v. Commr. of Income Tax, 1962-46 ITR 1056 (Mad) Part of the authorities cited on the nature and proof standard in penalty proceedings. The Court cited it among cases supporting the need for material and an express finding to impose penalty.
Maney and Co. v. Commr. of Income Tax, 1963-47 ITR 434 (Ker) Cited in the list of cases on penalty proceedings' nature and needed proof. Included among precedents relied on to delineate the standard required in penalty cases.
Lakshmi Narain Shambhuram v. Commr. of Income Tax, 1963-49 ITR 350 (Pat) Cited for the same body of principles about penalty proceedings. Used as supporting authority by the Court for the standard of proof and requirement for express finding of falsity in explanation.
M. Hussain All and Sons v. Commr. of Income Tax, 1965-58 ITR 787 (Mad) Part of the jurisprudence cited concerning penalty proceedings and proof standards. Cited among the cases the Court listed in support of the principles it applied to the facts.
Mohan Ram Ram Kumar v. Commr. of Income Tax, 1966-59 ITR 135 (All) Cited as authority on penalty proceedings, burden and nature of proof. Included in the Court's list of precedents establishing those principles.
S. Paramasiva Mudaliar and Sons v. Commr. of Income Tax, 1966-60 ITR 283 (Mad) Cited for the proposition that if an assessee's explanation is shown to be deliberately false it may induce the inference of deliberate furnishing of false particulars, but the penal authority must expressly so decide. The Court relied on it to emphasise that an express finding in penalty proceedings is required before imposing penalty for deliberate falsity.
S. R. Kalani and Co. v. C.L. Sharma, 1965 MPLJ 553 : (1965) 16 STC 756 Cited as a decision following the principles laid down regarding penalty proceedings and requisite material. Cited by the Court as a case that followed the listed precedents; used to show consistent application of those principles.
Lal Chand Gopal Das v. Commr. of Income Tax, 1963-48 ITR 324 (All) A contrary view noted in which it was held that onus of proving the real nature of receipt and non-concealment lay on the assessee; it treats proceedings as not penal in character for that purpose. The Court noted this different view but distinguished it, explaining that the Supreme Court observations on penalty being additional tax do not settle the question of whether penalty proceedings are penal for the purpose of proof and onus.
A. V. Thomas and Co. (India) Ltd. v. Commr. of Income Tax, 1966-59 ITR 499 (Mad) Another decision expressing the view (following Lal Chand) that onus lies on the assessee to prove real nature of receipts and non-concealment. The Court recorded that this view exists but reiterated that even where onus is placed on the assessee, the tax authorities must have material to justify a finding of concealment.
C.A. Abraham v. Income-tax Officer, Kottayam, 1961-41 ITR 425 (AIR 1961 SC 609) Supreme Court observation that additional tax imposed on contumacious conduct is "designated as penalty" (i.e., penalty characterised as additional tax). The Court cited this Supreme Court observation but refused to treat it as determinative for concluding penalty proceedings are not penal in nature for purposes of proof and onus.
Commr. of Income Tax v. Bhikaji Dadabhai and Co., 1961-42 ITR 123 (AIR 1961 SC 1265) Another Supreme Court decision noting penalty imposed may be characterised as additional tax. The Court cited it and indicated that such observations do not remove the requirement that penalty authorities have material and express findings before imposing penalties for concealment.

Court's Reasoning and Analysis

The Court's reasoning proceeds in these principal steps (as stated in the opinion):

  1. The Court first characterised the central question as one of fact: whether the assessee concealed particulars of income for the relevant year. It cited earlier authorities (e.g., Mangilal Karwa, In re Lachhman Das, Padmaraju, Padmaraju and others) for the proposition that concealment is a factual determination to be made on the circumstances of the case.
  2. The Court then set out the legal principles governing penalty proceedings under Section 271(1)(c) (and the corresponding Section in the 1922 Act). It stated that a penalty can be imposed only if the authority is satisfied that the assessee concealed particulars of income; because penalty proceedings are penal in nature the degree or quantum of proof required is that of a criminal prosecution. The Court observed that assessment proceedings and penalty proceedings are of different natures: findings in assessment proceedings are relevant but do not operate as res judicata to bar other evidence in penalty proceedings.
  3. The Court emphasised that the mere fact that an assessee's explanation was rejected in assessment proceedings does not, by itself, justify a conclusion the assessee deliberately concealed income. If an explanation is deliberately false, an inference of concealment may follow, but the authority imposing the penalty must itself expressly find the explanation to be false. The Court relied upon a sequence of decisions to support these principles (as listed in the opinion).
  4. The Court examined the material before the Inspecting Assistant Commissioner in this case. It noted that the only material before him was the ITO's rejection of the assessee's explanation in the re-assessment. The Inspecting Assistant Commissioner did not himself record a finding that the assessee's explanation was palpably or deliberately false; he merely concluded that cash came from concealed income and that concealment was proved beyond reasonable doubt. The Tribunal likewise did not find the explanation to be false in toto: it found the cash-withdrawal explanation for Rs.10,000 to be "completely disproved", but for the balance the Tribunal considered the position "slightly more in favour of the assessee".
  5. On the foregoing analysis the Court concluded that, because neither the Inspecting Assistant Commissioner nor the Tribunal expressly found that the assessee's explanations were false and because there was no other material from which concealment could be inferred, a penalty could not properly be imposed. The Court explained that it could not itself re-evaluate the facts to conclude the explanation was false because that would require deciding a factual question (i.e., whether the assessee deliberately concealed his income) that had been resolved by the Tribunal in the assessee's favour on the evidential balance.
  6. Therefore, applying the settled principles and the factual findings made by the Tribunal, the Court held the Tribunal was justified in cancelling the penalty.

Holding and Implications

Holding:

The reference is answered in favour of the assessee: the assessee could not be penalised under Section 271(1)(c) of the Income-tax Act, 1961 on the facts of this case; the penalty imposed by the Inspecting Assistant Commissioner is cancelled.

Immediate consequences and practical implications (as stated in the opinion):

  • The Tribunal's order cancelling the penalty is upheld by the Court on the grounds explained in its reasoning.
  • The Court awarded costs of the reference to the assessee and fixed counsel's fee at Rs. 200.
  • The Court noted that no question of law arose from the Tribunal's order and disposed of the reference on that short ground as well as on the substantive principle that an express finding of deliberate falsity is required before imposing a penalty for concealment.
  • The opinion emphasises that the decision rests on the application of established principles concerning the penal nature and proof standard in penalty proceedings; the Court applied those principles to the factual findings made by the Tribunal rather than substituting its own factual assessment.

Note: This summary is strictly confined to the information and conclusions contained in the provided opinion and does not add or infer facts or legal propositions beyond what the opinion states.

Show all summary ...

1. In this reference by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, at the instance of the Commissioner of Income tax, the question which has been placed for our decision is--

"Whether on the facts and in the circumstances of the case, the assessee could be said to have concealed the particulars of his income for the assessment year 1959-60 so as to be penalised Under Section 271(1)(c) of the Income-tax Act, 1961?"

2. The material facts are that for the assessment year 1959-60 the total income of the assessee. Punjabhai Shah, was fixed at Rs. 10,953/-. During the course of assessment for the next year, namely, 1960-61, it was noticed that the assessee had purchased a motor vehicle and made payments for the purchase of the vehicle as under--

1. 26-8-1958 ...

Rs. 1,00/-

2. 8-9-1958 ...

Rs. 9,000/-

3. 23-9-1958 ...

Rs. 3,800/-

4. 23-9-1958 ...

Rs. 3,450/- body building

5. 30-9-1958 ...

Rs. 9,000/-

6. 7-10-1958 ...

Rs. 8,000/-

_______________ Rs. 31,250/-

_______________ The assessment for the year 1959-60, was therefore, reopened under Section 147 of the Act. The assessee's explanation with regard to these payments was that on 26th August, 1958 he had a cash balance of Rs. 14,168.0.0, and out of this cash balance he made a payment of Rs. 1000/- on 26th August 1958 and of Rs. 9,000/- on 9th September 1958. This explanation was rejected by the Income-tax Officer, Chhindwara. The Income-tax Officer found that in the cash book there were no entries of the withdrawal of Rs. 10,000/-; that in the Rokad there were certain jottings in pencil; and that if the payments had been actually made from the cash balance, then the amounts withdrawn would have appeared merged in the Rokad entries themselves and not in pencil jottings. In regard to the source of payment of the balance of the purchase price, the assessee said that he was allowed depreciation amount on his trucks for assessment years 1957-58 to 1959-60, and that this amount was utilised by him for making the payments. This explanation was also rejected by the Income-tax Officer, who observed--

"In the circumstances of the case by no stretch of imagination he (assessee) can be said to possess hard cash of Rs. 21,126/-available for purchase of vehicle on the above-mentioned dates"
.

The Income-tax Officer described the explanation as "obviously phoney and without any substance." After rejecting the explanation of the assessee, the Income-tax Officer held that Rs. 31,250/- was the income of the assessee from undisclosed sources in the assessment year 1959-60.

3. Thereafter penalty proceedings were initiated against the assessee by the Inspecting Assistant Commissioner of Income-tax under Section 274(2) of the Act. Before the Inspecting Assistant Commissioner, the assessee repeated the explanation which he gave before the Income-tax Officer in the re-assessment proceedings He placed no material to show that the amount of Rupees 31,250/- was not his income or that there was no concealment of income on his part. The Inspecting Assistant Commissioner also found himself unable to accept the explanation. He found that the cash balance of Rs. 14,168/-, which existed on 26th August 1958, continued to be carried forward to full extent from day-to-day upto the close of the account year on 11th November 1958 and the assessee did not withdraw from his cash balance the amount of Rupees 10,000/- as alleged by him . The Inspecting Assistant Commissioner reached the conclusion that "cash came from concealed income in possession of the assessee for making these payments". While rejecting the assessee's explanation with regard to the payment of the balance of purchase price out of the depreciation amount allowed to him for some years, the Inspecting Assistant Commissioner said--

The assessee has not created any depreciation reserve and has not carried forward an equivalent amount in the form of cash or other liquid reserve to be able to claim that the amount of depreciation allowed to him in the past before computing the assessable income was kept apart by him and that he did not withdraw or did not utilise the same for any purpose but used it for making a payment towards the purchase of the truck to the extent of Rs. 21,170/-. It is apparent that the assesses is merely relying upon the notional allowance granted for statutory purposes before computing the total income to explain away his investments to the extent of Rs. 21,170/-..... It is thus clear that the assessee has financed and (sic) purchase of truck from some undisclosed sources.

The Inspecting Assistant Commissioner concluded by observing that the "fact of concealment of income is proved beyond reasonable doubt" and imposed a penalty of Rs. 5,000/- on the assessee under Section 271(1)(c) of the Act.

4. The assessee then preferred an appeal before the Appellate Tribunal against the order of the Inspecting Assistant Commissioner imposing penalty on him. The Tribunal found that the explanation which the assessee offered with regard to the payment of Rs. 10,000/- "from the cash balance stands completely disproved." As regards the explanation about the payment of the balance, the Tribunal said that in the manner in which the assessee's accounts were maintained there was nothing prima facie unreliable in his explanation so as to be rejected in penalty proceedings and that with regard to this payment "the position is slightly more in favour of the assessee". The Tribunal went on to say that even if the assessee's explanation is wrong or false, he could not be penalised "merely because the explanation given by him is not accepted or the explanation is found to be false. Much more than this is necessary to sustain the penalty."

The Tribunal based its conclusion relying on Commr. of Income Tax v. Gokuldas Harivallabhdas, 1958-34 ITR 98 : (AIR 1959 Bom 96) and Commr. of Income Tax v. L.H. Vora, 1965-56 ITR 126 (Guj). The Tribunal stated its conclusion thus--

"On a consideration of all the facts before us and applying the decisions mentioned above, we have to hold that the assessee cannot be penalised on the facts as they are before us. We, therefore, cancel the penalty."

5. In our judgment, the question, which we have been asked to answer, is plainly a question of fact. It has been held by this Court in Mangilal Karwa v. Commr. of Income-tax, Misc. Civil Case No. 113 of 1962 D/- 14-9-1962 (MP) that the question whether the assessee concealed the particulars of of his income or whether he has committed an offence under Section 28(1)(c) of the Indian Income-tax Act, 1922, is a question of fact to be determined in the circumstances of the cast. The same proposition has been laid down in In re, Lachhman Das Brijballabh Das, 1942-10 ITR 186 (Oudh); 1958-34 ITR 98 : (AIR 1959 Bom 96) and Padmaraju v. Commr. of Income Tax 1959-37 ITR 365 (AP). It seems to us that this nature of the question whether the assessee concealed his income is in no way altered here by enquiring whether there was evidence before the tribunal to justify the finding that the assessee had not committed an offence under Section 28(1)(c) of the Indian Income-tax Act, 1922, or under Section 271(1)(c) of the Income-tax Act, 1961. The reference can be disposed of on the short ground that no question of law arises from the order of the Tribunal. Be that as it may, even on the settled principle with regard to the nature of penalty proceedings and the material that must exist in order to find an assessee guilty of concealment of his income, it must be held in the present case that the Tribunal was right in coming to the conclusion that it did.

6. Now, a penalty under Section 28 (1) (c) of the 1922-Act or Section 271(1)(c) of the 1961-Act can be imposed on an assessee only if the authority mentioned in those provisions is satisfied that the assessee has concealed the particulars of his income. The penalty proceedings, being in their very nature penal proceedings, the degree or quantum of proof for finding an assessee guilty is that of a criminal prosecution. The assessment proceedings and penalty proceedings are different in their nature. The findings given in assessment proceedings are no doubt relevant and admissible in penalty proceedings. But they do not operate as res judicata so as to preclude the production of other evidence in penalty proceedings to show that the assessee concealed his income or to rebut this charge. Again, the bare fact that the explanation offered by the assessee in assessment proceedings was rejected and it was held in those proceedings that he had concealed his income or that the explanation was unsatisfactory by itself cannot be made the basis of the conclusion that he has been guilty of deliberately concealing the particulars of his income. No doubt, if the assessee's explanation is found to be deliberately false, then it is possible to infer that he concealed his income. But the authority competent to impose penalty must expressly find that the assessee's explanation is false. These principles have been laid down in 1958-34 ITR 98 : (AIR 1950 Bom 96) (Supra), Khemraj Chagganlal v. Commr. of Income Tax, 1960-38 ITR 523 : (AIR 1960 Pat 252), Bhagwandas Shyam-sunder v. Commr. of Income Tax 1962-45 ITR 566 (Pat), Mohd. Atiq v. Income Tax, Officer (1962) 46 ITR 452 (All) P.K. Kalasami Nadar v. Commr. of Income Tax, 1962-46 ITR 1056 (Mad), Maney and Co. v. Commr. of Income Tax, 1963-47 ITR 434 (Ker), Lakshmi Narain Shambhuram v. Commr. of Income Tax 1963-49 ITR 350 (Pat), M. Hussain All and Sons v. Commr. of Income Tax 1965-58 ITR 787 (Mad), Mohan Ram Ram Kumar v. Commr. of Income Tax 1966-59 ITR 135 (All) and S. Paramasiva Mudaliar and Sons v. Commr. of Income Tax 1966-60 ITR 283 (Mad). They have been followed by this Court in Mangilal Karwa v. Commr. of Income-tax (supra) and in S. R. Kalani and Co. v. C.L. Sharma, 1965 MPLJ 553 : (1965) 16 STC 756.

7. A different view as regards the nature of penalty proceedings has no doubt been expressed in Lal Chand Gopal Das v. Commr. of Income Tax 1963-48 ITR 324 (All) and A. V. Thomas and Co. (India) Ltd. v. Commr. of Income Tax, 1966-59 ITR 499 (Mad), In Lal Chand's Case, 1963-48 ITR 324 (All) (supra), it has been said that in view of the decision of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam, 1961-41 ITR 425 : (AIR 1961 SC 609) that additional tax imposed on the assessee for his contumacious conduct is "designated as penalty", proceedings under Section 28 of the Indian Income-tax Act, 1922, cannot be regarded as penal proceedings. To the same effect is the decision in 1966-59 ITR 499 (Mad) where Lalchand's case, 1963-48 ITR 324 (All) (supra), is followed. No doubt, the Supreme Court has observed in 1961-41 ITR 425 : (AIR 1961 SC 609) (supra), as also in Commr. of Income Tax v. Bhikaji Dadabhai and Co. 1961-42 ITR 123 : (AIR 1961 SC 1265) that penalty imposed on an assessee is additional tax. But this observation was made by the Supreme Court while considering the question whether the word "assessment" covered penalty proceedings if "assessment" were taken to denote the whole procedure for imposing liability on the taxpayer. It would not, therefore, be right to press into service this observation of the Supreme Court for holding that penalty proceedings are not criminal proceedings and, therefore, the onus of proof of non-concealment lies on the assessee.

In the cases before the Supreme Court the question whether penalty proceedings are penal proceedings or, the question as to the party on whom onus of proving concealment lies, did not arise for consideration. Even in the case of Lal Chand. 1963-48 ITR 324 (All) (supra) and A.V. Thomas and Co. (India) Ltd. 1966-59 ITR 499 (Mad) (supra), though it was held that the onus of proving real nature of the receipt and of non-concealment of income lay on the assessee, it was recognised that in order to levy a penalty the income-tax authorities must have material to justify their finding of concealment of the particulars or deliberate furnishing of inaccurate particulars.

8. Now, here, in the penalty proceedings the only material that was before the Inspecting Assistant Commissioner was that the assessee's explanation about the source of payment of Rs. 31,250/- had been rejected by the Income-tax Officer in re-assessment proceedings. The Income-tax Officer no doubt described the assessee's explanation as obviously "phoney" that is, counterfeit, and as without any substance. But the Inspecting Assistant Commissioner did not express his own view about this explanation. After pointing out why the assessee's explanation could not be accepted, he merely stated his conclusion that "cash came from concealed income in possession of the asses-see for making these payments" and that "the fact of concealment of income is proved beyond reasonable doubt" The Inspecting Assistant Commissioner nowhere said that the explanation of the assessee was palpably false. The Tribunal also did not find that the explanation of the assessee was false. What it found was that the explanation, which the assessee offered with regard to the payment of Rs. 10,000/-"from the cash balance stands completely disproved". In regard to the payment of the balance, the Tribunal remarked: "the position is slightly more in favour of the asses-sees". The Tribunal no doubt considered the applicability of the decisions in 1958-34 ITR 98 : (AIR 1959 Bom 96) (supra), and 1965-56 ITR 126 (Guj) (supra) assuming that the explanation given by the assessee was wrong or false. This assumption by the Tribunal cannot be regarded as a finding that the explanation given by the assessee was false. In 1966-60 ITR 283 (Mad) the learned Judges of the Madras High Court, while saying that the assessee's explanation if it is shown to be deliberately false, may no doubt induce the inference that the assessee deliberately furnished false particulars of his income, pointed out that it is for the Income-tax Officer expressly so to decide. In other words, the Income-tax Officer must himself expressly find in penalty proceedings that the explanation given by the assessee was false before imposing a penalty on him for concealment of his income.

Here, as neither the Inspecting Assistant Commissioner nor the Tribunal found that the assessee's explanation was false and as there was no other material from which an inference of concealment of income could be drawn, no penalty could be imposed on the assessee. When the Tribunal has only held that the assessee's explanation with regard to the payment of Rs. 10,000/- stands disproved and that in regard to the payment of the balance "the position is slightly more in favour of the assessee", this Court cannot in this reference hold that the assessee's explanation was false and that a penalty should have been imposed on him. So to do would be to evaluate the explanation and decide a question of fact, namely, whether the assessee did or did not deliberately conceal his income.

9. For these reasons, our conclusion is that on the view taken by the Tribunal about the assessee's explanation, the Tribunal was justified in holding that the assessee could not be penalised under Section 271(1)(c) of the Income-tax Act, 1961. We answer accordingly the question referred to us for decision. The assessee shall have costs of this reference. Counsel's fee is fixed at Rs. 200/-.

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