C.M. Lodha, C.J.
1. This is a reference under Section 256(1) of the I. T. Act, 1961 (hereinafter to be referred to as 'the Act'), by the Income-tax Appellate Tribunal, Delhi Bench B, at the instance of the CIT, Rajasthan, whereby the following question of law has been referred to us :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the penalty imposed upon the assessee under Section 271(1)(c) of the Income-tax Act, 1961 '
2. The assessment year under reference is 1963-64. Firm Messrs Sohan Lal Brij Lal (hereinafter to be referred to as ' the assessee ') was the wholesale dealer in artificial silk and nylon and carried on its business at Sri Ganganagar. For the relevant assessment year, the ITO made two additions : (i) of Rs. 24,454, which he considered to be the value of the stock pledged with the bank but suppressed by the assessee from its books of account; and (ii) of Rs. 21,466, which the ITO considered as income from transactions outside the books. The ITO further found that the assessee had concealed the particulars of the income of the aforesaid two items. Consequently, since the minimum penalty imposable under Section 271(1)(c) of the Act exceeded Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner of Income-tax (hereinafter to be referred to as ' the IAC '), as provided under Section 274(2) of the Act. The IAC issued notice to the assessee as to why penalty be not levied upon it. The assessee filed reply in response to the notice stating that no penalty was leviable on it. The IAC was, however, not satisfied with the explanation submitted by the assessee and held that the assessee had concealed the particulars of income by suppressing the stock valued at Rs. 21,409 out of Rs. 24,454 and had also suppressed profit amounting to Rs. 21,466 by keeping back the profit arising out of the dealings entered into by him outside the books. In this view of the matter, he imposed a penalty of Rs. 12,185 under Section 271(1)(c) read with Section 274(2) of the Act.
3. Aggrieved by the decision of the IAC, the assessee filed appeal before the Appellate Tribunal. The Appellate Tribunal, by its order dated February 20, 1968, set aside the order of the IAC and upheld the content tion of the assessee that in the facts and circumstances of the case, no penalty was leviable on it. It found that the item of Rs, 21,466 had already been deleted by it in the quantum appeal and so far as the item of Rs. 24,454 is concerned, it came to the conclusion that no concealment or deliberate suppression of the income was established. Thereupon, the CIT filed an application under Section 256(1) of the Act requiring the Tribunal to refer to this court the question of law extracted above.
4. Learned counsel for the revenue has urged that the Tribunal in its order dated February 20, 1968 (annex. ' D ') has erroneously made the following observation :
' The IAC has clearly admitted that it is a case of the inability of the assessee to prove its contention that it was following an ingenious device of taking out the contents of the bales and substituting them by goods of cheaper varieties and pledging those substituted bales with the bank by showing them only the invoices of the bales.'
5. In this connection, the learned counsel has invited our attention to the order of the IAC dated October 15, 1966 (annex. ' C '), and has submitted that as a matter of fact, the IAC had held ' that the assessee has deliberately concealed profit of Rs. 21,409 by understating the stock of this value '. Put in other words, the contention of the learned counsel is that for the purpose of answering the question referred to us, we must take into consideration the findings of the IAC contained in his order imposing the penalty and not the finding arrived at by the Tribunal under a misconception of the findings of the IAC.
6. It may be useful to reproduce here the relevant finding of the IAC in extenso :
' It is not understood how these bales could have been sold off when these were actually pledged with the bank and remained in the possession of the bank even on the 1st day of the accounting period. As stated earlier, the assessee had alleged that he had pledged different cloth with the bank but taken loan on the basis of the bills received from the parties. He was, therefore, asked to show and prove the cloth which was actually pledged with the bank. He was also asked to prove how it was accounted for in the trading account. The assessee showed his inability to do so. Since the assertion has been made by the assessee, it is for him to prove that different cloth was pledged with the bank than what was recorded in the books of the bank. The documents clearly show that these 14 bales had remained pledged with the bank on the last day of the accounting period and so no cloth out of it could have been sold by the assessee. These bales of cloth have not been accounted for by the assessee in his closing stock. The assessee has, therefore, suppressed the closing stock to this extent. The value of such closing stock is Rs. 21,409. In the face of the documentary evidence of the bank and the fact that the assessee has not been able to prove otherwise, I hold that the assessee has deliberately concealed profit of Rs. 21,409 by understating the stock of this value.' (page 38 of the paper book).
7. It appears that the Tribunal, however, took a slightly different view of the matter and has recorded the following finding in this respect :
' We have discussed in detail the assessee's contention about the discrepancy in the stock and have held that the assessee's explanation cannot be believed. '
8. In the concluding portion of their order (annex. ' D '), the Tribunal has observed that ' the assessee has tried to explain the discrepancy in the stock reported to the bank and that recorded in its books of account, but the explanation has not been believed, either by the authorities below or by the Appellate Tribunal and addition of Rs. 24,454 on account of the discrepancy in the stock has been sustained by the Tribunal. '
9. After having carefully read the order of the Tribunal (annex. ' D '), we find that there is no finding by the Tribunal that the assessee had deliberately concealed or suppressed the profit of Rs. 24,454. All that has been found by the Tribunal against the assessee is that it was not able to explain the discrepancy in the stock reported to the bank and that recorded in its books of account. This finding, in our opinion, cannot lead to the conclusion that the assessee had furnished wrong particulars of his income or had deliberately concealed its income. In CIT v. Anwar Ali : 76ITR696(SC) it was observed that the proceedings under Section 28(lXc) of the Indian I.T. Act, 1922 (which is equivalent to Section 271(1)(c) of the I.T. Act, 1961), are of a penal nature and the burden is on the department to prove that the receipt of the amount in dispute constitutes the income of the assessee. The mere fact that the explanation given by the assessee in respect of such amount is false, does not necessarily give rise to the inference that the disputed amount represents its income. It was further observed that before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the assessee had consciously concealed the particulars or had deliberately furnished inaccurate particulars. The aforesaid view was confirmed by their Lordships of the Supreme Court in CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) . It was held that apart from the falsity of the explanation given by the assessee in the penalty proceedings, the department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and the disputed amount is a revenue receipt.
10. Bearing in mind the principles laid down by their Lordships in the aforesaid authorities and the finding arrived at by the Tribunal, all that can be said against the assessee is that the explanation given by it for the discrepancy in the stock reported to the bank and that recorded in the books of account, is not satisfactory. But that cannot lead to the conclu-sion that the assessee had consciously concealed the particulars or had deliberately furnished inaccurate particulars. Consequently, the levy of penalty cannot be justified. We are, therefore, of opinion, that in the facts and circumstances of the case, the Tribunal was justified in quashing the penalty imposed upon the assessee under Section 271(1)(c) of the Act.
11. Accordingly, we answer the question in the affirmative, but make no order as to costs.