V. Ramaswami, J.
1. The assessee was carrying on business in cotton and was running a ginning factory. For the assessment year 1962-63, corresponding to the accounting year ending December 31, 1961, he submitted originally a return on December 31, 1962, showing a total income of Rs. 77,236. Subsequently on June 15, 1963, a revised return was filed showing a total income of Rs. 38,452. The assessee had a key loan account with the central Bank of India, Coimbatore. The ITO made a detailed scrutiny of the accounts and found that there were certain discrepancies in the stock as shown in the assessee's books and as declared to its bankers. In these penalty proceedings, we are concerned only with the discrepancies in the key loan account. In the assessee's accounts, the closing stock of Karunganni kapas was shown as 33,273 lbs., whereas as per the statement given to the bank, the closing stock was 1,82,000 lbs., showing a difference of 1,48,727 lbs. On the ground that the assessee would not have declared to the bank such figures of non-existent stock and that the bankers also would not have accepted such declaration if such stocks were not really available with the assessee; the ITO did not accept the plea of the assessee that the difference was due to variation in the estimate of the loose kapas. The ITO accordingly added a sum of Rs. 84,960, which represented the value of the surplus stock. The AAC and the Tribunal upheld the addition of this sum of Rs. 84,960 in the quantum appeal.
2. It may be mentioned at this stage that there were two other addition of Rs. 50,000 and Rs. 86,260 in respect of open loan account. Penalty proceedings were taken in respect of the addition of the amounts relating to these accounts, namely, Rs. 50,000 and Rs. 86,260 in respect of open loan account and Rs. 84,960 in respect of the key loan account. A penalty of Rs. 40,200 which is equivalent to 100 per cent. of the tax relatable to the addition of Rs. 50,000 and a sum of Rs. 68,800 which represented per cent. of the tax relatable to the addition of the remaining two items totalling Rs. 1,71,200 were imposed by the IAC. When the appeal against the penalty proceedings was pending before the Tribunal, the AAC in the quantum appeal directed the deletion of the addition of Rs. 50,000 as well as the addition of Rs. 86,260 and those deletions were also sustained by the Tribunal. Therefore, the Tribunal considered the question of imposition of penalty only with reference to the addition of Rs. 84,960 in respect of the key loan account which was sustained by it in the quantum appeal.
3. The Tribunal held that the penalty was not imposable on two grounds. Firstly, from the mere fact that the assessee's explanation that the entries in the key loan account did not reflect actual stock, that they were mere entries made only for the purpose of accommodation given by the bank and that purchases were never made, was not acceptable, was not enough to hold that there was concealment of particulars of income or inaccurate furnishing of particulars of such income within the meaning of the Act and that there should be some positive evidence in addition to the rejection of the explanation. Secondly, though in the assessment appeal, it was found that the purchase of the stock was not reflected in the books of the assessee, there was no evidence to show that the purchase consideration was made out of the funds of the assessee which were of an income nature. On a petition filed under s. 256(2) of the I. T. Act, 1961, this court had directed the Tribunal to refer the foll owing three questions :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's cancellation of penalty of Rs. 1,09,000 under section 271(1)(c) is justified and sustainable in law
2. Whether the Tribunal having held in the assessment appeal of the assessee that the purchase consideration was not reflected in the account books and was paid out of the fund outside the account, was right in holding in the penalty appeal that there was no evidence that the purchase consideration came out of funds of income nature
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's finding that there is no concealment is based on any valid and relevant materials or evidence ?'
4. We have already pointed out that the penalty of Rs. 1,09,000 was imposed by the IAC in respect of the three additions of Rs. 50,000, Rs. 86,260 and 84,960 and the additions of Rs. 80,000 and Rs. 86,260 in respect of the open loan account was deleted in the quantum appeal by the AAC and that had become final. The penalty, therefore, could have been imposed only in respect of Rs. 84,960 and the sum of Rs. 1,09,000, therefore, could not represent the correct figure.
5. The learned counsel for the revenue contended that since the Tribunal has accepted that there was a suppression of stock in the quantum appeal relying on the statement furnished to the bank and that the purchase consideration was not reflected in the account books and were paid out of the funds outside the accounts, it erred in holding that there was no evidence that the purchase consideration came out of the funds of income nature or that there was no concealment attracting the penalty provision. It is now well settled that from the mere fact that the explanation of the assessee was found to be false in the assessment proceedings, it would not follow that the ingredients necessary for levying a penalty under s. 271(1)(c) of the Act are established. Though it is not necessary in all cases that fresh material should be produced in the penal proceedings in order to levy a penalty and that the material produced at the assessment stage could be relied on, the findings given by the authorities on the material at the assessment stage would not be conclusive. There should be sufficient material for coming to the conclusion that there was a conscious concealment of the particulars of the income or that the assessee had deliberately furnished inaccurate particulars. But the difficulty arises in applying this principal. Necessarily, therefore, each case will have to be understood with reference to the facts in that case. Though a number of decisions were cited at the bar, we propose to refer only to those cases, the facts in which are very near to our case. In the decision in CIT v. M. Bhuta & Co. : 103ITR183(Bom) , the assessee had an overdraft account with a bank on an hypothecation of stock worth Rs. 7,68,325. But, according to the books of accounts of the assessee, on the relevant date, the stock was worth only Rs. 3,05,396-3-10. The explanation of the assessee was that not all the stock belonged to it and that the stock might have also been over valued by one of the partners of the firm. A portion of the stock was found to belong to a third party but still there was a deficiency of 175 bags of cotton and 28 bags of groundnuts worth Rs. 47,940 and an addition was made treating this as undisclosed stock in the assessment proceedings. On the question, whether penalty could be levied on it for concealment of the said amount, the Bombay High Court held that since the basis of penalty proceedings was the declaration of stock by the assessee to the bank and there was no admission of concealment of income as such on the part of the assessee either during the assessment proceedings or during the penalty proceedings and there being no further evidence available, it cannot be regarded as a case where there was any deliberate concealment or contumacious conduct on the part of the assessee attracting penalty.
6. The decision in CIT v. Sohan Lal Brij Lal was also a case of discrepancy between the stock reported to the bank and that recorded in the books of account. Though the addition on account of the discrepancy was sustained in the quantum appeal, it was held that of merely on the ground that the assessee was unable to explain the discrepancy or that the explanation was not satisfactory, the penalty cannot be imposed. The learned judges have specifically pointed out relying on the judgments of the Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) and CIT v. Khoday Eswarsa and Sons : 83ITR369(SC) , that 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'. A similar view was taken by the Bombay High Court in CIT v. Murlidhar Chiranjilal : 121ITR528(Bom) in which case also, on facts, there was a discrepancy between the quantity of goods shown as security with the bank and the stock account. Though the addition in respect of the excess value of the stock was sustained as income from undisclosed sources, it was held that that by itself is not enough for the imposition of penalty under s. 28(1)(c) of the Indian I. T. Act, 1922, corresponding to s. 271(1)(c) of the Act of 1961.
7. The facts in the decisions above cited are very similar to the facts of the case on hand and we find that no other view than that taken by the Tribunal is possible in this case. As already stated, the explanation of the entries in the key loan account did not reflect the actual stock and that they were mere entires made as a result of accommodation given by the bank. Though this explanation was found not acceptable, there was no evidence available either relating to the actual purchase or the sale of any stock said to have been suppressed. In fact, even the department did not seem to have verified with the bank as to whether they have actually verified the stock at any stage. In the circumstances, therefore, we cannot say that the Tribunal went wrong in holding that the penalty is not penalty is not imposable on the first ground mentioned earlier.
8. Since on this ground the order of the Tribunal could be sustained, it becomes unnecessary for us to decide as to whether the finding of the Tribunal that the purchase consideration was not proved to have come out of the funds of the assessee which were of an income or revenue nature is correct or not. That finding will have to follow only if the facts otherwise show that there was a deliberate suppression or a concealment of the particular within the meaning of s. 271(1)(c). We are satisfied, therefore, that the order of the Tribunal cancelling the penalty is correct and does not call for any interference. The first and the third questions referred to us are, therefore, answered in the affirmative and against the revenue. It is not necessary to answer the second question. The assessee would be entitled to its costs; counsel's fee Rs. 500.