R.N. Misra, J.
1. On an application made by the revenue under Section 256(2) of the Income-tax Act of 1961 (hereinafter referred to as ' the Act'), this court directed the Income-tax Appellate Tribunal, Cuttack Bench, to state a case and refer the following question of law for its opinion and the Tribunal pursuant to the said direction has now stated the case and referred the said question :
' Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee was not liable to be visited with penalty for having concealed the particulars of his income or furnished inaccurate particulars of such income in respect of :
(a) a sum of Rs. 14,050 representing income from house property;
(b) income from undisclosed sources of Rs. 51,000 said to be cash credit; and
(c) capital gains of Rs. 30,400 on the head of capital gains, and was, therefore, liable to penalty under Section 271(1)(c) of the Act '
2. The relevant assessment year is 1964-65 corresponding to the previous year ending on March 31, 1964. The Income-tax Officer included the following items as the assessee's income though the same had not been returned :
(ii) Income from property
(iii) Dividend on shares in the name of the assessee's wife
(iv) Dividend on shares in the name of the assessee's minor son
(v) Income from undisclosed sources as cash credit
(vi) Income from undisclosed sources used for personal expenses
(vii) Capital gains (Rs. 30,400)
3. Penalty proceedings under Section 271(1)(c) of the Act w.ere initiated andthe Inspecting Assistant Commissioner, after hearing the assessee's explanation, imposed a penalty of Rs. 60,000.
4. Assessee appealed to the Appellate Tribunal and contended that there was no deliberate concealment of income. It was further maintained on behalf of the assessee that in regard to salary income the assessee had surrendered it to the National Defence Fund and was, therefore, under the belief that it was not necessary to disclose the salary in the return. With regard to the income from property the assessee submitted that the residential house purchased in New Delhi was not permanently occupied and the annual value remained to be ascertained and that the assessee,under the bona fide belief that the notional income from the house was not includible in the income, had not shown it. With regard to the dividend from shares standing in the name of the wife and minor son, it was submitted that the assessee was not bound under law to disclose the same and, therefore, there was no concealment. With regard to cash credit added as income from undisclosed sources, it was submitted that the penalty should not have been imposed merely because the explanation of the assessee about the cash credit was found to be false. With regard to capital gains, the assessee's contention was that there was no capital gain at all. It was only on the assessment being made on break-up value basis that the Income-tax Officer came to hold that the assessee had earned a capital gain. With regard to the addition on account of personal expenses, the assessee relied upon the Tribunal's order for a previous year.
5. The Appellate Tribunal dealt with several items referred to above and as a fact found that there was no justification for imposition of penalty. While dealing with cash credit, the Tribunal referred to the decision of the Supreme Court in the case of Commissioner of Income-tax v. Anwar Ali : 76ITR696(SC) and held that penalty should not have been levied. It also referred to the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) and vacated the imposition of penalty.
6. After the application of the revenue under Section 256(1) of the Act was rejected, this court was moved by an application under Section 256(2) to call for a statement covering all the items which were taken into account by the Inspecting Assistant Commissioner in framing the order of penalty. A Bench of this court noticed that five questions had been formulated by the revenue as questions of law arising out of the Appellate Tribunal's order. In S. J. C. No. 222 of 1974, between the same parties and disposed of on November 19, 1975 (Commissioner of Income-tax v. Biju Patnaik : 103ITR713(Orissa) , some common questions had been dealt with and for reasons indicated in that decision, the court declined to direct the Appellate Tribunal to state a case with reference to alleged suppressions in 'the matter of salary income, dividend income and the alleged income from undisclosed sources relating to personal expenses and required the Appellate Tribunal to state a case with reference to the remaining three items as already indicated.
7. Learned standing counsel strenuously contended that the Bench hearing the matter at the final stage is not bound by the view expressed at the preliminary hearing and as a question of law did arise in regard to the other items, we should now require the Appellate Tribunal to draw up an additional statement in regard to the items which have been excluded. In support of his contention, he places reliance on the well known FullBench decision of the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax , on a decision of the Andhra Pradesh High Court in the case of Commissioner of Income-tax v. G. M. Chennabasappa : 35ITR261(AP) and a decision of the Supreme Court in the case of Lakshmiratan Cotton Mills Ltd. v. Commissioner of Income-tax : 73ITR634(SC) . There is no dispute about the proposition that correctness of an order of the High Court calling for a statement of the case may be challenged at the hearing of the reference and though the court may have directed a case to be stated, after hearing parties, the court may decline to answer the reference by holding that the dispute was concluded by a finding of fact or that the question that was raised was academic or that it could not be raised because it had not been incorporated in the application under Section 256(1) of the Act. What is now contended by the learned standing counsel is not what has been decided in the three cases referred to by him. Each of them was dealing with a matter connected with the proposition just Stated. On the other hand, what was indicated by Chagla C.J. in the decision of a Division Bench of the Bombay High Court in the case of Jethabhai Hirji and Co. v. Commissioner of Income-tax : 17ITR533(Bom) seems to throw considerable light on the present dispute. The learned Chief Justice stated (at page 544);
' Obviously, once the Tribunal has come to the conclusion under Section 66(1) that no question of law arises which can be referred to the High Court under Section 66(2) it is for the High Court to indicate to the Tribunal what are the question or questions of law which arise out of their decision and in respect of which it should state a case and refer it to tbe High Court. Therefore, in my opinion, when the assessee or the Commissioner comes to the High Court under Section 66(2), it would be for the High Court after hearing the other side to determine what are the question or questions of law which would arise out of the order made by the Tribunal, and when a requisition is made by the High Court to the Tribunal to state the case, that requisition should contain the question or questions of law which according to the High Court arise out of the Tribunal's order. That would be a clear'indication to the Tribunal as to what case they should state and refer to the High Court. But I do not think it would be convenient for the High Court itself to formulate the questions which would arise for determination out of the questions of law in respect of which the Tribunal has to state the case. It would be much more convenient for the Tribunal itself to formulate the questions having in view what are the questions of law on which the High Court requires a case to be stated. But I wish to make it clear that it is for the High Court alone to indicate to the Tribunal what are the questions of law, and the only function of the Tribunal is, once a requisition is made upon it under Section 66(2) to formulate proper questions which arise out of those questions of law and to state a case which is germane to the questions of law indicated by the High Court. It would then be open to the High Court either to answer the questions as formulated by the Tribunal or, if the High Court feels that the questions are not properly raised, to reframe the questions or modify the questions, and answer those questions as reformulated or modified.'
8. Learned standing counsel has not asked for reframing or modification of the question. At the preliminary hearing, this court came to hold that no question of law arose in regard to the items which were omitted. The effect of that order really is that the application by the revenue for stating a case with regard to those questions was not entertained. Reviving matters which are closed cannot come within the ambit of reframing the question or making a suitable modification so as to bring the true dispute into the picture. Dispute arose with regard to different items for the purpose of imposition of penalty and some of the items were excluded. We find nothing in the decisions relied upon by the learned standing counsel which would support his submission. Accordingly, we decline to reopen the matter at this stage and the present reference shall be confined to consideration of the question referred by the Tribunal for opinion of the court.
9. The question now for consideration is whether the assessee was liable for being visited with penalty for the three omissions from his return. Assessee purchased a residential house in New Delhi during the assessment year. In his return for the year, assessee had mentioned about it in the appropriate place but no income was shown. The Income-tax Officer on the basis of rental value computed net income from this source at Rs. 14,050. Assessee did not challenge his liability on this aspect. In the penalty proceeding, assessee took the stand that the house had just been purchased and, as the assessee being the Chief Minister of this State at the relevant period was staying at Bhubaneswar and as the house did not bring any rental income, the assessee went under the impression that no notional income had to be shown. The Tribunal has taken the view that the assessee's conduct was beyond reproach and he had no mala fide intention behind non-disclosure of any income from this property. We do not think that the conclusion drawn by the Tribunal on the given set of facts can be branded as erroneous and a conclusion which no prudent man versed in law would reach.
10. The next item for consideration is non-disclosure of capital gain of Rs. 30,400. In the capital account, assessee showed a sum of Rs. 30,400 on August 3, 1963. On being questioned by the Income-tax Officer, assessee explained that the lease of his Calcutta property was terminated and assessee received this amount by way of compensation. Assessee had beenadvised that there was no element of income in it and as such it need not be shown in the return. The Income-tax Officer took the view that the lease was an asset and on termination of the same when assessee received money, it was an item of capital gain. Before the Inspecting Assistant Commissioner, the assessee maintained that he had no mala fide intention and accepting the advice given to him, the amount had not been specifically shown as capital gain though it appeared in the accounts. That explanation was not accepted by the Inspecting Assistant Commissioner but it appealed to the Appellate Tribunal.
11. The alleged cash credit is to the tune of Rs. 51,000. As already noted, the assessee purchased a house at Aurangazeb Road, New Delhi, and for that purpose Rs. 51,000 had been paid as advance to the owner. This payment of advance had not been debited in the assessee's books of account. It was stated that a cheque for Rs. 51,000 had been received from one F.C. Mehra and that very cheque had been endorsed to the vendor. Mehra was paid back Rs. 51,000 also by cheque. There is no dispute that Mehra had issued a cheque which had been endorsed in favour of the vendor, nor is there any dispute that Mehra had been paid for through bank. A sum of Rs. 51,000 lay in deposit in the account of Mehra. The Inspecting Assistant Commissioner required the assessee to establish the source of the cash deposit in Mehra's account, because the Income-tax Officer had taken the view that the deposit may have been made by the assessee himself. For the conclusion of the Income-tax Officer, admittedly, there was no material and at the most there could be scops for suspicion. A bare suspicion, however, is no foundation for any quasi-judicial act. The advance by Mehra and repayment to him having passed through a bank, in the absence of any material to link up the assessee with the deposit in Mehra's account to the tune of Rs. 51,000 there is no scope for imposition of penalty. We agree that Anwar Ali's decision : 76ITR696(SC) has no application and the assessee had to satisfy the Inspecting Assistant Commissioner why penalty was not to be imposed. Facts here are, however, very peculiar. As already indicated, the advance by Mehra and repayment to him are not open to douftt. From where Mehra had got Rs. 51,000 in his own account was certainly not a matter for the assessee to explain. There is no material on record at all that Mehra was a man of no means. In paragraph 13 of his order, the Inspecting Assistant Commissioner observed :
'......In respect of cash credit, as I have mentioned earlier, the partyin whose name cash credit appears is not a credit-worthy party...'
12. This statement seems to be unwarranted because there is no mention of this fact anywhere in paragraphs 1 to 12 of the order of the Inspecting Assistant Commissioner which precede the observation. The Income-tax Officer nowhere stated that Mehra was not a credit-worthy party. Admittedly,Mehra had a bank account and it was open to the Income-tax Officer either to require the assessee to establish the credit-worthiness of Mehra or to collect materials all by himself to find out whether Mehra was indeed a person capable of making an accommodation to the tune of Rs. 51,000. There may be cases where if a dispute on such a point arises, the assessee may be required to establish the credit-worthiness of the person with whom he purports to have a deal but in the facts of the case and particularly in the absence of any material to support the view of the Inspecting Assistant Commissioner, we think the Tribunal was right in holding that a case for imposition of penalty had not been made out. Reference to Anwar Ali's case : 76ITR696(SC) was unfortunate, but the conclusion reached on taking a sum total view of the matter does not appear to be a view which no prudent Tribunal versed in law would have reached. As has been indicated by the Supreme Court in the case of Hindustan Steel Limited v. State of Orissa : 83ITR26(SC) , penalty is not to be imposed merely because it is lawful to do so. Where there is no deliberate defiance of law and the conduct is not contumacious or dishonest, it is open to the statutory authority to waive imposition of penalty. Even if a minimum penalty is prescribed, it is open to the authority competent to impose the penalty to refuse to impose penalty, particularly where the default flows from a bona fide belief that the assessee had not to act in a particular way. It is not disputed that the Tribunal was competent to exercise the same power as the penalty imposing authority and, therefore, when taking into consideration the broad features of a given case, the Tribunal comes to conclude that no penalty is exigible, no question of law can be said to arise.
13. Having given our anxious consideration to the matter, our answer to the question referred to us, therefore, is :
On the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not liable to be visited with penalty in respect of a sum of Rs. 14,050 representing income from house property,a sum of Rs. 51,000 said to be income from undisclosed sources and a sum of Rs. 30,400 said to be capital gains.
14. We direct both parties to bear their own costs.
15. I agree.