Satish Chandra, C.J.
The question of law referred for our opinion is whether there was any material to support the finding that the assessee was not guilty of wilful default or gross negligence within the meaning of Explanation to s. 271(1)(c) of the Income-tax Act, 1961. The question relates to the assessment year 1964-65. Till the assessment year 1963-64, the assessee was a partner in the firm Messrs. Madhav Dass & Sons. The firm was dissolved. Then the assessee started the same as his proprietary business. For the assessment year 1964-65, the assessee filed a return of income of Rs. 17,854/-. The Income Tax Officer, inter alia, found that the revised Balance Sheet filed by the assessee showed an excess of assets over liabilities by Rs. 20,475/-. He included it as income from undisclosed sources. He ultimately assessed the income at Rs. 51,662/-. Finding that the returned income fell short of the assessed income by more than 80% he initiated penalty proceedings. Since the imposable penalty was over Rs. 1,000/-, he referred the case to the Inspecting Assistant Commissioner.
2. Meanwhile, the assessees appeal succeeded substantially. The assessed income was reduced to Rs. 23,292/- which was later on rectified by the AAC to Rs. 32,500/-.
3. The Inspecting Assistant Commissioner disbelieved the explanation offered by the assessee and imposed a penalty of Rs. 15,000/- which was a little over 100% of the difference between the assessed and the returned income.
4. The assessee went up in appeal to the Tribunal against the penalty order as well as the assessment on the quantum side. The Income Tax Officer also filed an appeal against the AACs order on the quantum side. There were thus three appeals before the Tribunal which were disposed of by a common judgment. The Tribunal held that the excess of the assets over liabilities was Rs. 20,475/-. The contrary view of the Appellate Assistant Commissioner was set aside. The appeal of the Income Tax Officer was allowed and that of the assessee was dismissed.
5. On the penalty side, the Tribunal held that even though the explanation offered by the assessee to explain the excess of assets over liabilities was not believed, yet the assessee could not be held guilty of gross or wilful neglect on his part. The assessee has been able to discharge the burden placed upon him by the Explanation to s. 272(2)(c). In the alternative, since the Revenue has not been able to establish even the falsity of the explanation the case is covered by the decision of the Supreme Court in Commissioner of Income Tax, West Bengal I and another v. Anwar Ali. Looked at from either point of view this is not a fit case for imposition of penalty. The penalty order was hence vacated.
6. On the quantum side, the Tribunal refused to accept the explanation offered by the assessee for the excess of the assets over liabilities. The explanation was that the excess cash balance was actually spent over expenses incurred by the assessee in the assessment years 1962-63, 1963-64 and 1964-65, totalling a sum of Rs. 20,475/-. The Tribunal held that it was not explained as to why these expenses were not entered at the time when they were incurred and why they were allowed to accumulate for three years and then only an entry was made at the end of the accounting year in question. The entries that were made in the Cash Book were in a different ink although they showed expenses relating to the three previous years as stated by the assessee. They did not think it safe to rely on these entries which were not made contemporaneously with the expenditure. On these findings the explanation was disbelieved and the income was added as income from undisclosed sources. But inspite of this conclusion on quantum side, the Tribunal held that it cannot be said that the assessee was guilty of fraud or gross neglect on his part. The disbelieving of the explanation offered by the assessee did not automatically mean that it was false. This was the distinction on which the Tribunal laid emphasis.
7. Having heard learned counsel, we are not satisfied that the Tribunal committed any error of law in reaching this factual conclusion. Basically the finding that the assessee was not guilty of gross or wilful neglect or fraud is on a question of fact. No. element of legal error has crept into the finding.
8. We, therefore, answer the question referred to us in the affirmative, in favour of the assessee and against the Department. The assessee shall be entitled to costs which are assessed at Rs. 200/-.