Dwarka Prasad, J. - This petition under s. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act) has been filed by the CIT, Jaipur Circle, Jaipur, seeking a direction to the Tribunal, Jaipur Bench, Jaipur to state the case and refer questions of law arising out of its order dt. 29-3-1978 relating to imposition of penalty to this Court.
2. The assessee is a registered firm carrying on business of jewellery, precious stones and handicraft at Jaipur. While making the assessment of the assessee-firm in respect of the asst. yr. 1969-70, the ITO made an addition of Rs. 75,000 in the income of the assessee on the alleged ground that the purchase of jewellery by the assessee-firm from one Raghuvir Singh was not proved. The case of the assessee was that on 5-10-1968 one Raghuvir Singh had sold to the assessee-firm a necklace of cut emeralds and diamonds, set in platinum alloy, for a sum of Rs. 75,000. This purchase of necklace by the assessee was not held to be proved by the ITO and it was observed by him that the said transaction was not genuine. The AAC, however, held that the alleged purchase of jewellery by the assessee from Raghuvir Singh was a genuine transaction and he set aside the addition of Rs. 75,000 from the income of the assessee. The assessing authority filed an appeal before the Tribunal, which was allowed and the Tribunal held that the transaction in question was not a genuine one and that the ITO was justified in adding the sum of Rs. 75,000 to the assessees income.
3. While passing the assessment order, the ITO had directed that notice should be issued to the assessee under s. 271(1)(c) of the Act, in respect of unproved purchase of the necklace referred to above. Since the penalty leviable exceeded jurisdiction of the ITO, he referred the matter to the IAC, who after considering the explanation furnished by the assessee and the material placed on record by him, held that the assessee failed to show that there was no fraud or gross or wilful neglect on its part in furnishing inaccurate particulars of its income. A penalty in the sum of Rs. 1 lakh was imposed on the assessee under s. 271(1)(c) of the Act, by the IAC. The assessee filed an appeal before the Tribunal. The Tribunal held that the purchase of necklace for a sum of Rs. 75,000 from Raghuvir Singh was duly proved and there was no question of any concealment of income on the part of the assessee and further that it was not established that the assessee furnished inaccurate particulars of its income. Consequently, the imposition of penalty on the assessee was cancelled by the Tribunal by its order dt. 29-3-1978.
4. The Commissioner requested the Tribunal to state the case and refer seven questions said to be arising out of the order of the Tribunal dt. 29-3-1978 to this Court for its opinion. The Tribunal rejected the application by its order dt. 28-6-1979. Hence, this application under s. 256(2) of the Act, has been filed by the Commissioner before this Court.
5. Having heard the ld. counsel for both the parties at some length, we find it difficult to agree with the Tribunal that no questions of law arose out of the order of the Tribunal dt. 29-3-1978, in respect of which a reference was sought by the department.
6. The ld. counsel for the assessee requested that we should not enter into an elaborate discussion if the manner at this stage, else the same may prejudice the rights and contentions of the parties in the reference which the revenue desired that this Court should call from the Tribunal. We, therefore, agree with the ld. counsel for the assessee that it is desirable that we may dispose of the application seeking a reference by a brief order, making the only observation that after going through the order passed by the Tribunal on the departmental appeal as well as the order passed by the same Tribunal in the penalty proceedings, we are inclined to observe that the Tribunal, as the final fact finding authority, should have arrived at its conclusion of facts in the penalty proceedings after due and proper consideration of the entire material on record and after considering all the circumstances appearing for and against the assessee and after dealing with all aspects of the matter.
7. The ld. counsel for the department initially desired that the Tribunal should be called upon to state the case and refer seven questions mentioned in the application under s. 256(2) of the Act, to this Court. However, after we have heard the case at length ld. counsel for the department modified his initial request and submitted that reference be called for in respect of three questions only. In our view, the questions suggested by the ld. counsel for the department should be modified so as to bring out clearly the real and crucial aspect of the questions which arise out of the order of the Tribunal dt. 29-3-1978.
8. We, therefore, allow the application under s. 256(2) of the Act and direct the Tribunal, Jaipur Bench, Jaipur to state the case and refer the following two questions of law arising out of its order dt. 29-3-1978 to this court for its opinion.
'1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal, that the purchase of necklace by the assessee from Raghuvir Singh on 5-10-1968 was duly proved and that the assessee was not guilty of any fraud or gross or wilful neglect or was not guilty of furnishing inaccurate particulars of its income, is contrary to the material on record and was arrived at without considering the entire evidence and material on record ?
2. Whether, on the facts and in the circumstances of the case, and in view of the provisions contained in s. 271(1)(c) of the IT Act, 1961, and the Explanation thereof, the Tribunal was justified in law in cancelling penalty imposed on the assessee by the IAC ?'
9. The parties are left to bear their own costs of the proceedings in this Court.