1. In this reference under s. 256(1) of the I.T. Act, 1961, the questions referred to us for our opinion are as follows:
'(1) Whether the expression 'income' in section 271(3)(b) of the Income-tax Act, 1961, means assessable income or income as bona fide believed by the assessee to be its assessable income ?
(2) Whether the assessee-firm was entitled to carry forwards and set off the loss of Rs. 39,763 incurred by it in assessment year 1960-61, against its profits for the assessment year 1961-62, notwithstanding the fact that the said loss was appointed amongst the partners and was carried forward in their individual assessments ?
(3) Whether, on the facts and in the circumstances of the case, the maximum amount of penalty imposable against the assessee was Rs. 25 ?'
2. On hearing the points at issue between the parties, we think that instead of the said three questions, only one question framed by us below would cover fully the controversy. The question as reframed by us would be as follows:
'Whether, on the facts and in the circumstances of this case, the Tribunal was justified in holding that there was no obligation on the part of the assessee to file a return of income under section 139(1) of the Income-tax Act, 1961, since the income shown in the return was below the taxable limit, notwithstanding the fact that the assessee's income was chargeable to tax ?'
3. We are concerned in this case with the question of penalty of Rs. 4,548 levied by the ITO on the assessee-firm under s. 271(1)(A) of the I.T. Act at the rate of 2% on the sum of Rs. 1,23,001, being the income of the assessee as assessed by the ITO.
4. Pursuant to the notice by the ITO dated July 4, 1961, under s. 22(2) of the Indian I.T.Act, 1922, calling upon the assessee-firm to file its return in respect of the assessment year 1961-62, the assessee did not file its return in time which, in the ordinary course, it should have filed by August 19, 1961. However, the assessee filed the return on August 30, 1962, that is, after a delay of one year and 11 days. In the said return the assessee-firm showed its income as Rs. 21,219, below the taxable income for firms. The ITO, however, did not accept the said return, and, for various reasons, assessed the income of the assessee at Rs. 1,23,001.
5. In appeal, the AAC confirmed the order of the ITO. However, he reduced the assessee's income to Rs. 56,553. The assessee did not appeal against the said order.
6. Thereafter in view of the delay on the part of the assessee in filing the return, the ITO issued a notice under s. 22(2) of the Indian I.T. Act to the assessee to show cause why penalty should not be imposed on the assessee. The said notice was admittedly served on the assessee. In reply to the said notice, the assessee sought to explain the delay by stating that it was prevented from filing a return as its accountant was not well. The ITO rejected the said explanation, as occurring to him out of the six partners of the firm or the employees of the firm, any one could have closed the accounts and filed the return in time. The ITO thereafter made an order under s. 271(1)(b) of the I.T.Act, imposing on the assessee a penalty at the rate of 2% on the amount of taxable income for every completed months of delay in filing the return for the said assessment year.
7. In the appeal to the AAC against the said order, two contentions were raised by the assessee. Firstly, it was contended that there was a reasonable cause for the delay in filing the return due to the sickness of the accountant. Secondly, it was contended that as the income of Rs. 21,219, as disclosed by the assessee, was below the taxable limit for the assessee firm, which was Rs. 40,000, the assessee was under no obligation to file the return voluntarily under s. 22(2) of the Indian I.T. Act, and therefore, the maximum penalty that was leviable, if any, was only Rs. 25 under s. 271(3)(b) of the I.T. Act.
8. The AAC also did not accept the contention of the assessee that it was prevented by reasonable cause from filing the return in time. The AAC further held that since the finally assessed income of Rs. 56,553 exceeded the maximum taxable amount of income for a firm in this case, s. 271(3)(b) was not applicable. He, therefore, dismissed the assessee' s appeal.
9. On appeal to the Tribunal against the said order, the assessee against contended that for a reasonable cause, namely, the illness of its accountant, the assessee was prevented from filing the return in time. This contention was rejected by the Tribunal. The assessee further contended that as per its bona fide belief it has shown in its return its income at Rs. 21,219 and, therefore, if at all, the maximum penalty imposable was Rs. 25. It further contended that what was relevant for the purpose of s. 271(3)(b) of the the I.T. Act was not the finally assessed income but the income as reasonably reflected in the books of account, as the assessee was not expected to anticipate the income that was likely to be terminal by the ITO or bby the AAC. On the said contention the Tribunal held that as the assessee bona fide believed that its income was Rs. 21,219 and as the AAC had disallowed the deduction, on which there could be an honest difference of the provisions of the I.T. Act and the maximum amount of penalty imposable was Rs. 25 only. The said finding of the Tribunal has been questioned before us in this reference.
10. Section 271 of the I.T.Act deals with the imposition of penalty for failure to file a return, non-compliance with notices,etc.
11. Section 271(3)(b) which is relevant for our purpose provides:
' 271. Failure to furnish returns, comply with notices, concealment of income, etc.-.......
(3) Notwithstanding anything contained in this section,-.......
(b) where a person has failed to comply with notice under sub-section (2) of section 139 or section 148 and proves that he has no income liable to tax, the penalty imposable under sub-section (1) shall not exceed twenty-five rupees.'
12. The expression 'no income liable to tax' appearing in the said provision came to be considered in three decisions which the learned counsel for the assessee has relied upon. The first was the decision of the Allahabad High Court in the case of CIt v. N. Khan and Brothers : 92ITR338(All) . In that case it was pointed out (headnote):
'The income contemplated by this provision is the income which the assessee believes to be his income and not the income as finally assessed by the income-tax Officer. It is possible that all assessee may not consider a particular item to be his income and the Income-tax Officer may hold otherwise. In such a case if what the assessee considers to be his income is less than the maximum not chargeable to tax, he is not required to file a voluntary return even if his income as finally assessed is more than such maximum and he will not be liable to penalty for failure to file his return. It is essential that the belief of the assessee must be bona fide.'
13. Similar view has been expressed in two other decision, namely (1) CIT v. Assam Automobile and Accessories Agency and (2) CIT v. Agarwal Brothers  116 768 . We see no reason to disagree with the said view.
14. In this case, admittedly, the income disclosed by the assessee-firm in its return namely, Rs. 21,219, was below the limit of the taxable income for the firm.The only question that would, therefore, survive for consideration would be whether such disclosure of income by the assessee could be considered to be bona fide. The question whether such a disclosure was bona fide or not was a question of fact and was primarily for the Tribunal to decide.
15. In this case the Tribunal held that the provisions of s. 271(3)(b) were attracted as the assessee had filed its return showing non-taxable income under a bona fide belief. In doing so, the Tribunal observed:
'The difference between the returned income and the assessee income as per the Appellate Assistant Commissioner did not allow the advance to the workers to be deducted and also did not allow the full deduction of the dyeing and bleaching expenses treating a part of them s no relating to the year under appeal. These are matters in which there could be honest difference of opinion and the assessee cannot be held guilty of any default, if this honest view regarding the deductibility or otherwise of an expense is not shared by the assessing authority. The assessee will consider whether it has an assessable income and whether it should file its return suo motu or should comply with a notice under section 22(2) of the Act on the facts as are known and honestly believed by him to be true. In the present case, we are of the opinion that the assessee rightly considered that it did not have income liable to tax.'
16. In our view, the Tribunal has arrived at the said finding on proper consideration and after giving cogent reasons, and we do not think that this court would be justified in interfering with the said finding of fact.
17. We may incidentally point out that the Tribunal has also held that the assessee has suffered a loss of Rs. 39,763 during the previous year, that is in 1959-60, which it was entitled to carry forward and set off against the profits in the concerned assessment year 1960-61, and if that was done, then even on the basis of the assessee, s assessed income of Rs. 56,553 the assessee, s income for the said assessment year would be blow the taxable income for the firm. However, the said view of the Tribunal cannot be considered to be correct, in view of the decision of the Nagpur Bench of this court in the case of Ballarpur Collieries Co. v. CIT : 92ITR219(Bom) . However, for the purpose of determining the question before us, the said view of the Tribunal is not relevant and unnecessary to be considered.
18. We would, therefore, answer the re-framed question in the affirmative and in favour of the assessee. The parties to bear their own costs.