A.S. Bains, J.
1. At the instance of M/s. Sohinder Singh and Brothers, Jullundur, the assessee, the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as ' the Tribunal '), has referred under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as ' the Act '), the following question of law for the opinion of this court :
' Whether, on the facts and circumstances of the case, the Tribunal was right in upholding the penalty imposed under Section 271(1)(c) of the I.T. Act, 1961 '
2. In order to appreciate the scope of the reference, it is necessary to refer to the material facts that gave rise to the aforesaid question :
The assessee, M/s. Sohinder Singh and Brothers, Jullundur, is a registered firm carrying on business in the manufacture and sale of pipe fittings and resale of ready-made goods on wholesale basis. During the course of the examination of accounts for the assessment year 1964-65, relevant to the accounting period ending March 31, 1964, the ITO while examining the correctness of the closing stock shown by the assessee with reference to the overdraft obtained by pledging the stock with the bank, found that there was a huge discrepancy between the value of the closing stock shown to the bank and the value of the stock as per its books of account. The assessee was asked to explain as to how an overdraft of Rs. 19,828 was obtained from the State Bank of India against the security of the stock while no such stock was shown in the books of account. The explanation offered by the assessee did not find favour with the ITO and, in that situation, the assessee agreed to an addition of Rs. 23,054 and the ITO gave a note on the front page of the return filed by the assessee with regard to the aforesaid offer and it was got signed from the assessee. The ITO completed the assessment on March 22, 1969, on a total income of Rs. 1,99,678, which included the sum of Rs. 23,054 agreed to by the assessee, as against the income of Rs. 64,640 shown in the return of income filed by the assessee on December 31, 1964. The ITO also initiated penalty proceedings and referred the matter to the IAC under Section 274(2) of the Act as the minimum penalty imposable exceeded a sum of Rs; 1,000, which the ITO eould not impose. A copy of the assessment order dated March 22, 1969, is marked as annex. ' A ' and is attached to the statement of the case.
3. The IAC of Income-tax, after hearing the assessee, imposed a penalty of Rs. 5,500 under Section 271(1)(c) of the Act. A copy of the order passed bythe IAC of Income-tax on March 20, 1971, is annexed with the statement of the case as annex. ' B '.
4. Aggrieved by the order of the IAC of Income-tax, the assessee filed an appeal before the Tribunal, which was dismissed. Hence this reference.
5. Mr. Ved Vyas, learned counsel appearing on behalf of the assessee, argued that the assessee agreed to the addition of Rs. 23,054 in the total income only for the purposes of assessment in order to earn peace of mind and avoid litigation and that it cannot be considered as its concealed income. He further argued that in order to avoid litigation for the year under consideration it was thought advisable by the assessee to agree to the aforesaid addition in his total income, as in the preceding year a penalty of Rs. 12,000 was also imposed by .the IAC and he got the necessary relief from the Tribunal. His further contention is that mere surrender of certain amount for assessment purposes does not mean that the said amount is surrendered for penalty purposes also. For this contention Mr, Vyas has relied upon a Division Bench decision of this court in Gumani Ram Sin Ram v. CIT .
6. On the other hand, Mr. D. N. Awasthy, learned counsel for the revenue, contended that the assessee himself had agreed to the addition of Rs. 23,054 in its total income and by so agreeing to be assessed on a certain income, it was liable to a penalty under Section 271(1)(c) of the Act and that the ratio of Gumani Ram Siri Ram's case is not applicable, but the ratio of the case Mahavir Metal Works v. CIT is applicable. This case is also of our own High Court.
7. The facts are not disputed. The contention of the assessee must prevail in the circumstances of the present case. In order to avoid further litigation the assessee had offered for assessment an amount of Rs. 23,054 and the ITO made a note on the face of the return of income filed by the assessee and got it signed from the assessee, as is clear from his order dated March 22, 1969 (Copy of annex. ' A '). The note reads as under :
' The assessee has agreed to an overall addition of Rs. 23,054 in the trading account.'
8. In my opinion, this writing was done by the ITO and in order to bind the assessee it was got signed by the assessee. In fact, where there is no clear finding by the ITO that the assessee concealed a definite amount of income and did not show it in its return, the assessee cannot be penalised. This penalty provision is quasi-criminal in nature and its purpose is that the assessees should file correct returns of income and should not conceal any income, and if any assessee deliberately conceals the income then he is to be penalised under the aforesaid provision. For initiating penalty proceedings under Section 271(1)(c), the ITO after inquiry, has to give a clear finding that a definite amount had been concealed by the assessee. But, wherethere is no material before the ITO to give a definite finding and he did not probe into the matter on the basis of the offer made by the assessee, the assessee cannot be penalised and the offer of the assessee to add a certain amount in his total income for assessment purposes cannot be called as a definite income of the assessee for penalty purposes. As observed earlier, it was only to avoid further litigation and to have peace of mind that the assessee agreed to the aforesaid addition of Rs. 23,054 for assessment purposes. If in such cases the strict view is taken and on a voluntary offer of a certain amount for assessment purposes the assessees are to be penalised, then no assessee would come forward for assessment on an agreed amount and this would involve lot of time of the enforcement staff in making inquiries about the real income of the assessee. The penalty provision is to be strictly construed and only those assessees should be penalised where there is a clear finding by a competent authority, after enquiry, that a definite amount was concealed by an assessee from his return of income. But where an assessee in order to avoid further litigation himself agrees for the addition of a certain amount for assessment purposes at the instance of the competent authority, resort to the penalty proceedings is not advisable. In my opinion, the ratio of Gumani Ram Siri Ram's case is fully applicable to the facts of the present case. In that case also, while proceeding with the assessment for the assessment year 1964-65, the ITO noticed cash deposits of Rs. 12,000 appearing in the name of M/s. Ramesh Trading Co. in the assessee's books of account. When asked to prove the genuineness of these entries the assessee stated that he was not in a position to prove the genuineness of those entries and made a statement, ' surrendering squared up account of Rs. 12,000 in the name of Messrs. Ramesh Trading Company.' The assessee was then assessed on an income of Rs. 65,046, which included the amount of Rs. 124000, as against the returned income of Rs. 46,446. Assessment was followed by penalty proceedings under Section 271(1)(c) of the Act and a penalty of Rs. 6,768 at 50 per cent. of the tax sought to be evaded was levied by the IAC. On appeal, the Tribunal maintained the order levying penalty but reduced the quantum to 1/3rd of the tax evaded. On a reference made to this court, their Lordships of the Division Bench held as under (pp. 69, 70) :
' In the present case the assessee furnished no explanation for the cash credit entries of Rs. 12,000. He surrendered this amount for the purpose of tax. But he made no statement that this amount was his income.........
In the present case there is no material whatever which can (sic) to the conclusion that the amount of Rs. 12,000 represents the inc (sic) assessee.........
So far as the Tribunal is concerned it assumed that (sic) Rs. 12,000 represents the income of the assessee and pr (sic)basis. It will be apparent from the two orders already referred to that from the only circumstance that the amount of Rs. 12,000 was surrendered by the assessee an inference has been drawn that the amount represents the income of the assessee. In our opinion, this conclusion is not inevitable. There may be a hundred reasons for the assessee to surrender this amount irrespective of the fact whether it was his income or not and it was incumbent, in view of the observations of the Supreme Court in Anwar Ali's case : 76ITR696(SC) , for the Income-tax Officer to find on evidence that the amount of Rs. 12,000 represented the income of the assessee. Therefore, we are clearly of the view that the requirements of Section 271(1)(c) have not been satisfied so as to bring the case of the assessee within the same.'
9. In my opinion, the IAC and the Tribunal have erred in not applying the ratio of Gumani Ram Sin Ram's case to the facts of the present case. They have distinguished it on the ground that in the present case the assessee himself has agreed that the sum of Rs. 23,054 was his income, whereas in Gumani Ram Siri Ram's case there was no such admission. I am unable to agree with the distinction made by the IAC and the Tribunal. In Gumani Ram Sin Ram's case also, as observed earlier, the assessee had made an admission. There is no difference between the surrender of squared up account of Rs. 12,000 and to add the amount of Rs. 23,054 in the trading account. This erroneous conclusion has been arrived at by the IAC and the Tribunal on the basis of a note on the face of the return agreeing to an addition of Rs. 23,054 which was duly signed by the assessee. But that writing, as I have already observed, was in the hand of the ITO just to bind the assessee so that he may not resile from that before the higher authorities. Similar type of admission was also made by the assessee in Gumani Ram Siri Ram's case . In that case their Lordships based their conclusion on the observations of the Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) , wherein their Lordships observed as follows (p. 701) :
' Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.'
10. The decision relied upon by the I.T. authorities, Mahavir Metal Worksv. CIT , is also of our own High Court, but the facts ofthat case are entirely distinguishable from the facts of the present case. Inthe (sic) the assessee had filed a revised return on the basis of which(sic) was made. Penalty proceedings were initiated under Section 271(1)(c)(sic) of Rs. 12,000 was imposed. On a reference made to the(sic) Lordships observed as under :
' Penalty proceedings being of a penal nature it is for the income-tax department to establish that the assessee was guilty of concealment of particulars of his income. But in a case where the assessee himself during the course of assessment proceedings files a revised return and owns a disputed amount to be his income and the admission of the assessee is proved by the department during penalty proceedings, the onus on the department is discharged. In that situation the assessee is put to proof and it is open to the assessee to prove in the penalty proceedings that the admission made by him during the course of assessment proceedings was wrongly or illegally made or was incorrect. He can lead evidence during penalty proceedings to show that he had not concealed any income or furnished inaccurate particulars thereof. If he fails to prove this, the income-tax department would be justified in levying penalty on him under Section 271(1)(c).'
11. I am in perfect agreement with these observations of their Lordships. But in the present case, no revised return has been filed by the assessee. When an assessee files a revised return, that is, his final return, and the assessee then owns the disputed amount to be his income from which he cannot resile later on. As observed earlier, it was only to avoid further litigation that the assessee in the present case had to agree to the addition of Rs. 23,054 in its total income for the purposes of tax. In the facts and circumstances of the case, I am of the considered opinion that the penalty under Section 271(1)(c) of the Act could not be levied on the basis of the addition of Rs. 23,054 in the total amount agreed to by the assessee for the purposes of tax only unless there was material on the record to show that the agreed addition of an amount was the income of the assessee. Admittedly, there is no independent finding of the departmental authorities to the effect that the addition of an amount of Rs. 23,054 in question was the income of the assessee. Hence, the Tribunal was not justified in upholding the penalty imposed on the assessee under Section 271(1)(c) of the Act.
No other point is urged.
12. For the reasons recorded above, we answer the question referred to us in the negative, i.e., in favour of the assessee and against the department. However, in the circumstances of the case, there will be no order as to costs.
D. S. Tewatia, J.
13. I agree.