1. The questions referred for the decision of this court are the following :
'1. Whether, on the facts and in the circumstances of the case, and especially when the petitioner had disclosed the fact of his accounts being incomplete, the petitioner could be held guilty of concealing the particulars of its income or whether it could be said to have furnished inaccurate particulars of income by showing the business income at Rs. 4,434 in the return
2. Whether the Income-tax Appellate Tribunal, in the absence of an appeal by the department, could impose a penalty with respect to item No. 2, regarding business profits in respect of which the petitioner had been absolved of any liability as per the order of the Inspecting Assistant Commissioner ?'
2. It is common ground that in case question No. 2 is answered in favour of the assessee, the need to answer the other question does not arise.
3. The assessee was carrying on business in steel and hardware. In respect of the assessment year 1961-62, corresponding to the accounting year Diwali 1959, to Diwali 1960, the assessee filed a return showing the total income under the head of business income alone as Rs. 4,434. The assessee also filed a statement in Form C, as then prevailing. The ITO made additions to the income of the assessee under four heads, two of which were 'Accretion to capital' and 'Investment in properties'. The increase under the head 'Accretion to capital' was Rs. 1,53,136 and that under the head 'Investment in properties' was Rs. 93,261. The total addition made by the ITO under all the heads was Rs. 3,17,964.
4. After the assessment was made the ITO initiated penalty proceedings against the assessee and referred the matter to the IAC under Section 271(1)(c) of the I.T. Act, 1961. The IAC levied a penalty of Rs. 1,00,000 only against the assessee in respect of only two items of Rs. 1,19,220, under the head 'Accretion to capital' and Rs. 28,000 under the head 'Investment in properties', vide order, annex. 'D', dated February 2, 1967. The assessee preferred an appeal to the Tribunal on the question of quantum and another appeal against the imposition of penalty.
5. The Tribunal partly allowed the assessee's quantum appeal and reduced the addition under the head 'Accretion to capital' to Rs. 33,962 against the addition of Rs. 1,19,220. The addition of Rs. 28,000 under the head of 'Investment in properties' was, however, retained. The total addition under these two heads was, therefore, reduced to Rs. 61,962 (annex. 'C'). In the other appeal filed by the assessee against the imposition of penalty the Tribunal by its order dated December 8, 1967 (annex 'E'), came to the conclusion that the two additions under the heads of 'Accretion to capital' and 'Investment in properties' do not attract any penalty and the same were, therefore, set aside. The Tribunal, however, proceeded to levy penalty on the addition of Rs. 35,258, made under a different head.namely, business income, in respect of which the IAC had not imposed any penalty and no proceeding was taken by the department by way of an appeal or cross-objection.
6. The assessee being aggrieved by the imposition of penalty under a fresh head by the Tribunal in its appeal against the IAC's order, annex 'D', applied for a reference to this court. The Tribunal declined to make a reference, which led the assessee to apply under Section 256(2) of the I.T. Act, 1961, to this court for referring the questions of law arising out of the Tribunal's order to this court for decision. That application having been allowed, the Tribunal has referred the aforesaid two questions for the decision of this court as a result of that direction.
7. The facts stated above clearly show that the penalty imposed by the Tribunal on the addition of Rs. 35,258 under the new head of business income while setting aside the penalty imposed by the IAC under the two other heads only was clearly beyond the scope of the appeal before the Tribunal. The only question involved in that appeal was whether the imposition of penalty on the additions made under the two heads 'Accretion to capital' and 'Investment in properties' was liable to be set aside. The Tribunal came to the conclusion that no penalty could be levied under those two heads, which alone were relied on by the IAC for the imposition of penalty. Accordingly, the penalty imposed by the IAC was set aside. Once that conclusion was reached, nothing more was required to be done in that appeal and the Tribunal's further action of imposing penalty under the new head of business income for which no penalty had been levied by the IAC and which did not fall within the scope of that appeal was wholly uncalled for. If the department was aggrieved by the non-imposition of any penalty by the IAC under the head of business income, it was for the department to make a grievance against that before the Tribunal in the manner prescribed by law. But this was admittedly not done and, therefore, the question of imposing any penalty in respect of the addition made under the head of business income did not arise for decision. Since the imposition of penalty by the Tribunal under the new head of business income was beyond the scope of the appeal, the same was levied illegally and has to be set aside.
8. As a result of the aforesaid discussion, the above-quoted question No. 2 has to be answered in the negative in favour of the assessee and against the department. For this reason, question No. 1 does not arise for decision and need not be answered.
9. This reference is, accordingly, answered in the assessee's favour, who also shall get the costs of this reference. Counsel's fee shall be Rs. 300, if certified.