R.M. Sahai, J.
1. The following question of law has been referred for our opinion:
'Whether, upon the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that no penalty could be levied under Section 271(1)(c) of the Income-tax Act, 1961, upon the assessee ?'
2. The facts were that for the assessment year 1965-66 the assessee-firm filed a return showing an income of Rs. 42,887. The Income-tax Officer completed the assessment on a total income of Rs. 82,798. The penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act (hereinafter described as 'the Act') in respect of unexplained cash credit and unexplained investment of Rs. 26,274. The case was referred by the Income-tax Officer to the Inspecting Assistant Commissioner who issued a show-cause notice under Section 274 of the Act. In response to the notice the assessee filed a written reply which was not accepted by the Assistant Commissioner and he found that the assessee interpolated the entries in the cash book with regard to the credit of Rs. 8,000. He further recorded a finding that the assessee tried to evade taxes by claiming the business style Habib Oil Industrial Corporation as a separate unit and that the explanation given regarding the cash credit was not even probable. The assessee filed an appeal and the Income-tax Appellate Tribunal (hereinafter called the 'Appellate Tribunal') set aside both these findings and recorded the following findings. It found :
'No doubt, though her statement was not satisfactory for the purposes of assessment proceedings, yet it cannot be said that the statement was so improbable as to be branded as false. Similarly, the attempt of the assessee to make Habib Oil Industrial Corporation a separate unit was clearly a legal device to avoid taxes in which the assessee has, for reasons given in our appellate order, of course, failed. In the absence of a finding that the assessee made any attempt to conceal the facts, it would be difficult to give a finding that merely because the assessee failed in his device to illegally avoid taxes he can be held guilty within the provisions of Section 271(1)(c).'
3. We have heard learned counsel for the partners.
4. Mr. Deokinandan has urged that the Appellate Tribunal misdirected itself considering the Explanation which was added to Section 271(1)(c) of the Act. He further urged that the Appellate Tribunal did not record any finding that the assessee has discharged its burden and has satisfactorily established that it was not guilty of fraud or gross misconduct. According to him, after the addition of the Explanation, the presumption of fact arose against the assessee and it was for it to establish the same by positive evidence that he was neither guilty of fraud nor he was guilty of gross misconduct. Without going into this question, we may point out that no question has been raised on behalf of the department on the findings recorded by the Appellate Tribunal. It has been urged by Mr. Deokinandan that the scope of the question is wide enough and we can go into the merits of the findings recorded by the Appellate Tribunal. In our opinion, this would be appreciating the evidence which the Supreme Court in Karnani Properties Ltd. v. Commissioner of Income-tax : 82ITR547(SC) has negatived. It has held that when the question referred to the High Court speaks of 'on the facts and circumstances of the case', it means 'on the facts and circumstances found by the Appellate Tribunal' and not 'facts and circumstances' that may be found by the High Court on a reappraisal of the evidence. In view of this pronouncement of law, we are of opinion that we cannot go into the findings recorded by the Appellate Tribunal.
5. The result is that we answer the reference in the affirmative, against the department and in favour of the assessee. The assessee shall be entitled to his costs which we assess at Rs. 200.