R.N. Misra, J.
1. By order dated 29th October, 1973, this court required the learned Appellate Income-tax Tribunal to state a case and refer the following questions for the opinion of the court:
'(1) Whether, in the facts and circumstances of the case, the explanation of the assessee is liable to be rejected and, therefore, the amount of Rs. 41,075 is to be added to the income
(2) Whether, in the facts and circumstances of the case, the assessee has not been prejudiced on account of the Income-tax Officer examining the bank manager behind the assessee's back
(3) Whether the imposition of penalty under Section 271(1)(c) of the Act is at all warranted ?'
2. Assessee is a registered firm and carries on business in brooms and jungle products. The year of assessment with which we are concerned is 1962-63. The Income-tax Officer determined the income at Rs. 76,657 which included a sum of Rs. 10,000 said to be credit received by the firm from two persons and an addition of Rs. 41,075 as income from concealed sources. Assessee's appeals for omission of the additions failed before the Appellate Assistant Commissioner. The Appellate Tribunal accepted the assessee's contention in regard to Rs. 10,000 and directed deletion thereof. There is no dispute about the said amount. Assessee's explanation in regard to Rs. 41,075 was, however, not accepted and the addition was sustained. Penalty under Section 271(1)(c) of the Income-tax Act (hereinafter referred to as the 'Act') was levied and upheld. These two reference applications arise out of the Appellate Tribunal's disposal of the appeal against the quantum as also the appeal against the penalty.
3. In regard to Rs. 41,075 the assessee's explanation was that the said amount came by way of withdrawal from a local branch of the State Bank. Records of the bank were produced to justify the entry in the assessee's accounts but there appeared to be a discrepancy of one day in the matterof withdrawal of the amount from the bank and crediting the same in the assessee's accounts. Assessee's explanation was that the bank and the place of business of the assessees were located side by side and a peculiar commercial practice had developed in the area where the assessee was permitted to have the money drawn from the bank but adjustments used to take place on the following day. To support such a plea, the assessee wanted to examine the branch manager of the bank from the very beginning of the enquiry. The Income-tax Officer did not accept the request of the assessee but, at a later stage in the assessment proceeding, he examined the branch manager behind the back of the assessee. The assessee did not have an opportunity of leading evidence on the point relevant to its explanation. The Income-tax Officer rejected the explanation of the assessee and added the amount as income from a concealed source. Consequently, proceedings were taken under Section 271(1)(c) of the Act and penalty was also levied. Both the appeals before the Appellate Assistant Commissioner as also the Tribunal failed. Before the Appellate Tribunal while the claim was reduced by deduction of Rs. 10,000 as already indicated, the rest of the addition was sustained and imposition of penalty was not interfered with.
4. The Appellate Tribunal drew adverse inference against the assessee by saying that the evidence placed before it was not well-founded because of the fact that no material question was put by the Income- tax Officer to the bank manager. The assessee came with a definite explanation, truth whereof was available to be checked up by examining the bank manager. From the very beginning, the assessee claimed that the bank manager be examined. As the Appellate Tribunal has rightly noticed, the assessee reiterated his request from time to time. The Income-tax Officer, however, did not accede to the request but later on without informing the assessee he examined the bank manager. The assessee having not been given an opportunity of bringing the relevant evidence from the bank manager, if the Income-tax Officer did not make appropriate queries from the bank manager, the assessee could have no responsibility. The Tribunal was not correct in saying that because the income-tax Officer had not put to the bank manager material questions, the assessee would lose. Learned standing counsel for the revenue fairly conceded during the hearing of the matter that the Income-tax Officer should have examined the bank manager in the presence of the assessee and the assessee should have been given an opportunity of establishing its case by examining the bank manager. This having not been done, there is scope for the assessee to be prejudiced and the grievances of the assessee's counsel is genuine.
5. In these circumstances, we would answer question No. 2 in the following way:
6. In the facts and circumstances of the case, the assessee has been prejudiced on account of the Income-tax Officer examining the bank manager behind the assessee's back.It is now for the Appellate Tribunal to decide whether it would examine the bank manager or remit the matter to a subordinate forum for examination of the bank manager in the presence of the assessee. After the assessee is given an opportunity of bringing the evidence of the bank manager on record, determination of the first and the third questions would be possible. It would be difficult at present to express any definite opinion on these questions. We would, accordingly, decline to answer questions 1 and 3 now but make it clear that in case the assessee succeeds in correlating the entry in its account with the debit of the amount in its bank account by its withdrawal, the addition has to go and with it the imposition of penalty must fall, otherwise the addition of the amount has to be sustained and the imposition of penalty would be consequential. Therefore, while dealing further with the matter, the forums below (depending upon who records the evidence of the bank manager) would take care to see that these two questions are adequately considered on the basis of the new evidence on record.
7. We make no order as to costs.
8. I agree.