BALASUBRAHMANYAN J.


The assessee in this tax case is a registered partnership firm carrying on business in dhall and gram and deriving income therefrom. For the assessment year 1965-66 relevant to the previous year ended March 31, 1965, the assessee filed a return disclosing an income of Rs. 23, 080. During the examination of accounts, which followed the filing of the return, the ITO found a number of cash credits appearing in the assessee's books of account. Before the investigation into the genuineness of these credits and their source could get heated up, the assessee itself came forward and offered for the purposes of assessment, the amount of peak credit appearing from the account books of the year. The ITO accepted that offer and brought to tax a sum of Rs. 30, 000 which he estimated to be the peak credit, as part of the income, over and above what was returned by the assessee. In this process while disbelieving the apparent form of the cash credit entries which figured in the account books as if they represented moneys lent to the assessee, the ITO also disallowed the interest which was credited by the assess.



"in the assessee in the books of account Following the assessment of cash credits and the disallowance of interest thereon, parallel proceedings for levy of penalty on the assessee were started by the ITO. They were in due course taken over by the IAC. The IAC held that the assessee must be regarded as having concealed particulars of its income when judged by its own conduct in making an offer to the departmental authority to add the peak credit of Rs. 30, 000. It may be observed that quite apart from what the assessee did by way of this offer in the course of the assessment proceedings before the ITO, the assessee had also filed a petition before the IAC, purporting to be under s. 271 (4A) of the Act with a request that the concealment of income, if any, may be condoned and the penalty waived. These subsequent representations of the assessee in the course of penalty proceedings were also taken note of by the IAC when levying the penalty. The penalty actually imposed was Rs. 24, 000The assessee took both the order of assessment and the order of penalty in appeal the one before the AAC and the other before the Tribunal. The AAC considered that the assessment of the figure of Rs. 30, 000 as the peak credit during the account year was not reasonable., He determined it at Rs. 22, 000 giving a reduction of Rs. 8, 000 in the total income.


In the appeal before the Tribunal against the order of penalty, the assessee submitted that there was no concealment on its part of any income and merely because, in the course of assessment proceedings an eagerness was shown to settle the assessment by offering the peak credit as taxable income, it cannot be held that there was evidence of an actual concealment of that amount as income. The Tribunal accepted this submission of the assessee. They held that while it was open to the assessing authority, to invoke s. 68 of the I.T. Act and treat the unexplained cash credits as taxable income, the enabling power under the statute was restricted only for assessment purposes. The Tribunal observed that for the purpose of penalty it would be incumbent on the revenue authorities to make out, by cogent evidence, that there, had been a concealment of income. According to the Tribunal, there was no evidence, whatever in the instant case to show that the peak credit, determined on the basis of the; cash credit entries in the accounts, really represented the assessee's concealed income. They, however, considered that on the assessee's own showing that the credits were not genuine, the claim for a deduction of interest, which the assessee had made in the assessment, must be regarded as part of the concealment process. They accordingly held that in respect of the interest disallowed (as well as a gross profit addition made by the ITO) the assessee was liable to pay penalty. They determined the penalty ultimately at Rs. 2, 860, which figure was substituted for the penalty levied by the IAC in the sum of Rs. 24, 000This decision is now before us on a case stated by the Tribunal at the instance of the Commissioner. The following questions of law have been referred by the Tribunal for our consideration" *


1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that penalty could not be levied in respect of the cash credits added back under section 68 ?


2. Whether, on the facts and in the circumstances of the case and having regard to the Explanation to section 271 (1)(c), the Appellate Tribunal was right in cancelling the penalty in respect of the addition towards unexplained cash credits especially when the assessee had agreed for the assessment ?


3. Whether the Appellate Tribunal's finding that the assessee had not concealed income in respect of the cash credits is a reasonable view to take on the facts of the case ? "


Although as many as three questions have been framed, the real issue for decision is whether the Tribunal's finding that the assessee had not concealed its income in respect of cash credits can be regarded as a reasonable view of the facts on record. This issue, in our judgment, is fairly presented in the third question of law before us.


We have earlier referred to the factual background to the case as well as the content of the proceedings before the various authorities. We have also referred to the reasonings of the Appellate Tribunal. It would have been seen that the Tribunal had not wholly ruled out the Department's case about the assessee's efforts at concealment. All they found was that in so far as the amounts representing cash credits were concerned, there really was no material for the Department on the basis of which it could confidently be said that they represented the assessee's income which had not suffered tax and which was concealed in the garb of cash credit entries: in accounts. It is true that the assessee itself had offered the peak credit for the purpose of assessment. But it is not suggested anywhere in the proceedings either of the ITO or of the IAC that while offering the peak credit for assessment purposes, the assessee had confessed that the cash credits in question really represented concealed income. The record does not show what it was which impelled the assessee to short-circuit the assessment process by offering the peak credit for assessment. Whatever might be the compelling motive, there is not a shred of evidence even in the penalty proceedings to show that any of the credits were

not genuine or that they are really camouflaged or concealed income, of the assessee. None of the persons in whose names the cash credits appear in the assessee's books were shown to have been examined by the ITO or even by the IAC for the purpose of making out a case against the assessee to the effect that they are not genuine loan transactions. In these circumstance, we must accept the ultimate finding of the Tribunal as one based on a reasonable view of the facts and circumstances of the case. Our answer to question No. 3 is against the Revenue. It follows that similar answers must be returned for the two other questions as well. Since the Department has failed in this reference, it will pay the costs of the assessee. Counsel's fee Rs. 500.