1. This reference is common to three assessment years, viz., 1958-59, 1959-60 and 1960-61. There are two questions which arise for consideration, viz.:--
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining concealment penalty of Rs. 18,000, Rs. 21,000 and Rs. 25,500 in respect of the assessment years 1958-59, 1959-60 and 1960-61? And
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961, in respect of assessment year 1958-59 and under Section 28(1)(c) of the Indian Income-tax Act, 1922, in respect of the assessment years 1959-60 and 1960-61 was not illegal?'
2. The second question is more easily answered and, therefore, we take It first for consideration. For the assessment year 1958-59, the original assessment was completed on March 31, 1959, under the Indian Income-tax Act, 1922. On the basis of some information that the assessee had not properly accounted for the investment in a bus and in a building, the assessment was reopened and completed under Section 147 of the Indian Income-tax Act, 1961, on June 29, 1963. Section 297(2)(g) of the Act provides that any proceeding for the imposition of a penalty in respect of any assessment completed on or after 1st day of April, 1962, could be initiated and completed under the Act of 1961. The Income-tax Officer, therefore, referred the question of levy of penalty for this year to the Inspecting Assistant Commissioner, who levied penalty of Rs. 24,000. The objection of the assessee before the Tribunal to the penalty proceeding being taken under the Act of 1961 did not succeed. The first question in so far as it relates to the assessment year 1958-59 thus raises the validity of the levy of penalty under Section 271(1)(c) of the Income-tax Act of 1961. The answer to this question is concluded by the decision of the Supreme Court in Jain Brothers v. Union of India, : 77ITR107(SC) .
3. For the assessment years 1959-60 and 1960-61 the relevant assessments were made under the Act of 1922 on March 30, 1962. Under Section 297(2)(f) of the Act, any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, could be initiated and completed under the Act of 1922. Therefore, the legality of the levy of penalty under Section 28(1)(c) of the Indian Income-tax Act, 1922, for those two years cannot be validly disputed. The second question is, therefore, answered in the affirmative and against the assessee.
4. We now turn to the first question. The assessee is an individual running a petrol bunk at Coimbatore and a bus service in Mysore State in the name of M.G.S. Motor Service. He is also a partner having a half share in the firm of M/s. B.L.S. Motor Service at Coimbatore. He put up 16 houses in what is known as 'R.M.S. Colony' in Cowly Brown Road and Bashyachari Street in R.S. Puram. The site, on which the buildings were put up, was purchased long ago prior to the relevant years with which we are concerned. The certificate for the commencement of construction of the buildings was given in April, 1957. The construction of the buildings was completed by January, I960. Each building is a twin house. The buildings are pucca R.C.C. constructions with a compound wall surrounding all the houses. There is a well and over-head tank for taking well water with motor pump and also a tank for storing fresh water from the municipal supply. The buildings have electrical installations, sanitary fittings with septic tanks and other amenities. Each building fetched a rent of Rs. 185 per month in the relevant previous year for the assessment year 1959-60 in which the cost of construction of the buildings was the subject of consideration for the first time by the Income-tax Officer. The assessee estimated the cost of construction at Rs. 1,92,544 and obtained a valuation report from a retired railway engineer estimating the cost of construction of each block at Rs. 10,425 or Rs. 1,66,800 for the whole.
5. The construction of these houses came to be known from a statement of wealth filed as on December 31, 1958. The assessee was asked to furnish further details relating to the statement of wealth. He did not respond. In a letter dated November 13, 1961, the assessee was asked to file full details of the site area, plinth area of construction, the date on which the construction was completed and the course of construction during the several years. The assessee was also asked to produce the accounts relating to the building construction. There was no response to this letter also. The assessee's authorised representative, who appeared before the Income-tax Officer, informed him that the assessee had not furnished him the required particulars and pleaded helplessness in the matter. The Income-tax Officer was, therefore, compelled to infer that the assessee was refraining from furnishing particulars deliberately for reasons best known to himself. Though it is not clear from the assessment order, it appears from the objection of the assessee to the penalty proceedings that the Income-tax Officer had visited the area and inspected the buildings. After referring to the nature of the construction and the amenities available, the Income-tax Officer estimated the cost of construction of each pair of houses at Rs. 37,500. The total amount that could thus have been spent on construction was thus taken to be Rs. 3,00,000. As there were other common amenities provided, he estimated the cost of such amenitiesat Rs. 20,000, so that the total amount spent on the building during the period April I, 1957, to January, 1960, was taken at Rs. 3,20,000. He allocated this sum of Rs. 3,20,000 as follows :
(1) Expenditure during the year ended on 31-3-1958, Rs. 1,00,000.
(2) Expenditure during the year ended 31-3-1959, Rs. 1,20,000.
(3) Expenditure during the year ended 31-3-1960, Rs. 1,00,000.
6. Based on the above allocation, the assessments for 1959-60, 1960-61, and the reassessment for 1958-59 were completed. In the reassessment for 1958-59, the Income-tax Officer found that the assessee had acquired 5 buses at a cost of Rs. 25,000 in July, 1957. Thus, for that year the investment to be accounted for came to Rs. 1,25,000 consisting of Rs. 1,00,000 for the building as mentioned above and Rs. 25,000 for the buses. For the other two years the source of the fund for the expenditure to be accounted for came to Rs. 1,20,000 and Rs. 1,00,000, respectively.
7. For the 3 years the Income-tax Officer went separately into the question of the fund available to the assessee for meeting the expenditure as mentioned above. Taking the assessment year 1958-59, the Income-tax Officer found that out of Rs. 1,25,000 to be accounted for there were resources available to the assessee to the extent of Rs. 95,426 in the shape of, (a) drawings in the several accounts, (b) income from the own bus as per the income-tax assessme.. and (c) agricultural income (estimated) and rental income. In the assessment there was another sum of Rs. 18,100 which was also the subject of consideration. As it has been deleted on appeal by the Appellate Assistant Commissioner, we have not made any reference to it. After adjusting the sum of Rs. 95,426 available to the assessee against Rs. 1,25,000 the balance left to be explained was Rs. 29,574. It is this amount which was added in the assessment for that year.
8. For the assessment year 1959-60, the expenditure allocated towards the construction of the house was Rs. 1,20,000. The Income-tax Officer has estimated the bus service income in Mysore at Rs. 36,000 out of which Rs. 20,000 had been credited in the account of M/s. B.L.S. Motor Service at Coimbatore. He took the balance of Rs. 16,000 as available to the assessee. He took into account also the drawings of Rs. 66,650. The total amount thus found to be available with the assessee was Rs. 82,650. The balance of Rs. 37,350 was taken as that of income from the undisclosed sources not explained by the assessee.
9. For the assessment year 1960-61 the cost of construction to be accounted for was Rs. 1,00,000 as mentioned already. The Income-tax Officer went into the available resources. He held that the income from the bus service in Mysore available to the assessee was Rs. 16,000 and that he could have in addition another sum of Rs. 7,900 being the rentalincome. After providing for any other savings he estimated the available fund at Rs. 25,000. He held that a sum of Rs. 75,000 was the income from the undisclosed sources.
10. For the assessment years 1959-60 and 1960-61 there was a revision petition filed before the Commissioner of Income-tax. The Commissioner of Income-tax declined to interfere with the addition of Rs. 37,350 made for 1959-60. He gave a reduction of Rs. 40,543 for 1960-61 observing as follows:
'However, having regard to the other circumstances of the case, the addition of Rs. 75,000 made for the year 1960-61 is reduced by Rs. 40,543.'
11. The addition as reduced for that year thus came to Rs. 34,457.
12. As observed already, for the assessment year 1958-59 the Income-tax Officer referred the question of penalty to the Inspecting Assistant Commissioner in accordance with the provisions of Section 274 of the Income-tax Act, 1961. The main contention of the assessee before the Inspecting Assistant Commissioner was that the Income-tax Officer's estimate of the cost of construction was high. Apart from relying on a certificate furnished by the railway engineer, no other evidence was produced to show that the estimate was on the high side. The report of the engineer could not be relied on, as the basis on which it was prepaid was not known. The Inspecting Assistant Commissioner observed that the estimate of the cost of construction at Rs. 3,20,000 was made after detailed enquiries. He was satisfied that the estimate was reasonable. Another argument advanced before him was regarding the availability of certain additions made in the assessment of the firm in which the assessee had a half share. The Inspecting Assistant Commissioner considered that the additions would have been utilised for running the two establishments of the assessee, one at Coimbatore and another at Mysore and for other personal expenditure. He held that there was concealment of income. He thus levied Rs. 24,000 as penalty.
13. For the assessment years 1959-60 and 1960-61, the Income-tax Officer himself levied the penalty, as he could do under the Act of 1922. The amount added for 1959-60 was Rs. 37,350. The Income-tax Officer observed that the assessee could not let in any evidence to show that he had income from any other sources to expend the said sum. He levied Rs. 28,000 as penalty for that year. Similarly, for 1960-61 he levied Rs. 34,000 as penalty.
14. The assessee appealed to the Appellate Assistant Commissioner for the assessment years 1959-60 and 1960-61 against the penalty orders, while the levy of penalty for 1958-59 could be and was the subject of direct appeal to the Tribunal. For the assessment years 1959-60 and 1960-61,the Appellate Assistant Commissioner confirmed the penalty as levied by the Income-tax Officer. In the course of his order the Appellate Assistant Commissioner observed that he had carefully gone into the method adopted by the Income-tax Officer regarding the cost of construction and found that the estimate was properly framed.
15. In the appeals before the Tribunal for all the 3 years, which were taken together for consideration, one of the points taken was that the Income-tax Officer's determination of the cost of construction of the properties at Rs. 3,20,000 was not proper and was based only on an estimate. The Tribunal pointed out that the assessee's figure of Rs. 1,92,544 for the construction was also an estimate since no accounts were available. It went into the explanation given by the assessee and rejected it. It reduced the penalty by Rs. 6,000 for the assessment year 1958-59, by Rs. 7,000 for the assessment year 1959-60, and Rs. 8,500 for the assessment year 1960-61. The penalties so sustained by the Tribunal are the subject of reference of the first question as mentioned above.
16. In the course of the argument the learned counsel for the assessee submitted that the cost of construction had not been properly taken in the assessment itself, that the assessee was entitled to challenge the cost in the penalty proceedings and that the income-tax authorities and the Tribunal were bound to go into the question as to what was the proper cost of construction so as to find out whether there was or could be any concealment. For the Commissioner of Income-tax the submission made was that the assessee had not produced any accounts for the cost of construction, that the assessee's figures were themselves based on some estimate for which there was no basis and that the Income-tax Officer had estimated the cost of construction at Rs. 3,20,000 after a personal inspection of the property taking into account the nature of the construction and the kind of materials used. As all the authorities, who dealt with these assessments, had upheld the estimate of the cost by the Income-tax Officer and as there was no other material to take any other amount as the cost of construction, the concealment, on the facts of this case, should be, it was submitted, taken to be proved.
17. The penalty proceeding is an independent proceeding. In Section 28 of the Indian Income-tax Act, 1922, apart from the opportunity to be given to the assessee to show cause why penalty should not be levied for any concealment of income, the Income-tax Officer had also to obtain the approval of the Inspecting Assistant Commissioner to the levy of penalty. This shows that the levy of penalty was not an automatic concomitant of the assessment and that safeguards were provided for in the Act itself to see that penalties were levied only in appropriate cases. Similarly, in the Act of 1961, at the material time, the Inspecting Assistant Commissionerwas constituted as the authority for levying of penalty in a case like this with a view to see that an independent higher authority went into the whole question of the liability to penalty. It has now been settled by the decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali, : 76ITR696(SC) that the finding given in the assessment proceedings is not conclusive though it is good evidence and that before penalty could 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, The Supreme Court has in a later case in Commissioner of Income-tax v. Khoday Eswarsa and Sons, : 83ITR369(SC) observed as follows:
'No doubt the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.'
18. The principles of this decision have been applied in a number of cases decided by this court, out of which it is sufficient to refer to two. The first case is P. M. A. P. Ayyampemmal Nadar v. Commissioner of Income-tax : 97ITR161(Mad) . It was pointed out that the scope of the enquiry and the findings arrived at in the two proceedings, viz., assessment and penalty proceedings, were different and that the findings in the assessment proceedings might be relevant but not conclusive in the penalty proceedings. In R. Srinivasan & Co. v. Commissioner of Income-tax : 97ITR431(Mad) this court again observed, after considering the earlier decisions, as follows :
'It is not as if the materials adduced at the assessment stage ceased to be any the less evidence at the stage of the penalty proceedings. It is true, a penalty order cannot be solely based on the reasons given in the original order of assessment. The authorities are expected to consider afresh all the materials available, either produced at the assessment stage or later in the penalty proceedings, without merely proceeding on the basis of the findings given earlier at the stage of assessment and if those materials reasonably point to the conclusion that the disputed amount represented income and that the assessee had deliberately concealed particulars of the same, the levy of penalty can be justified.'
19. These cases clearly go to show that the dispute regarding the quantum of the cost of construction raised by the assessee here should have been gone into by the Tribunal when the matter was raised before it. Unfortunately, the Tribunal has sought to meet the assessee's complaint about the cost of construction by observing that the assessee himself filed only an estimate. Whether the assessee's statement was based on an estimate or not is not and cannot really be the point in issue in the penalty proceedings. When the assesscc raised the question of the cost of construction as is estimated by the Income-tax Officer, it is that estimate which ought to have been scrutinised. Unfortunately, we do not find any basis in any of the annexures to the statement of the case for the said estimate of Rs. 3,20,000. The Appellate Assistant Commissioner in disposing of the penalty appeals has referred to the method adopted by the Income-tax Officer as being proper. But what the method is, is not clear. In the absence of a finding on the correctness of the basic figure of Rs. 3,20,000 there could be no question of any conclusion regarding the levy of penalty. In other words, so long as the cost of construction is not properly determined in the present proceedings when it was put in issue by the assessee, the conclusion that the assessee had concealed the particulars of his income cannot follow. Before the charge of concealment could be sustained, one must know the amount which is complained of as concealed. As the finding on this aspect is not available, we are unable to answer the reference.
20. The question that now arises is as to the next step to be taken in this behalf. The learned counsel for the department suggested our calling for a finding on this question. We do not think that in the present case that matter could be disposed of by calling for a supplementary statement. There arc two decisions of the Supreme Court in which there was similar difficulty in answering a reference. In Commissioner of Income-tax v. Greaves Cotton and Co. Ltd. : 68ITR200(SC) the question was regarding the allowability of a sum of Rs. 18,00,000 paid to the managing agents at the time of the termination of the managing agency as a deduction. The Tribunal did not accept the bona fides of the transaction of termination of the managing agency and hence disallowed the assessee's claim. The assessee in that case had attempted to show that the termination of the managing agency was bona fide, as it effected a saving of recurring expenditure. The assessee's endeavour was also to show that the sum of Rs. 18,00,000 paid had actually been recouped by savings of the managing agency commission over a period of about 7 years. The relevant materials placed before the Appellate Assistant Commissioner or the Tribunal had not been taken into account. The Supreme Court, therefore, directed as follows :
'We have, therefore, reached the conclusion that the question of law referred to the High Court cannot be answered in view of the defective finding by the Appellate Tribunal which is recorded without consideration of all the evidence. It will be open to the Appellate Tribunal to rc-hcar the appeal under Section 66(5) of the Act and record a clear finding after hearing the parties and after considering all the relevant material in the case as to whether the amount of Rs. 18 lakhs paid by the respondent-company to the managing agents on the termination of the managing agency agreement was an admissible deduction under Section 10(2)(xv) of the Income-tax Act. After recording a clear finding on the question the Appellate Tribunal will finally dispose of the appeal.
21. In Raghunath Prasad Poddar v. Commissioner of Income-tax,  93 ITR 140 the question that arose before the Supreme Court was whether certain transactions in gunny bags were speculative in nature. The Supreme Court found that neither the income-tax authorities nor the Tribunal had gone into the question as to what the trade practice was and as to whether there was actual delivery of the goods ultimately at the final stage when certain documents of title relating to the gunny bags changed hands. At page 147 the Supreme Court observed as follows:
' The crucial question of fact to be decided was whether the last buyers of the P. D. Os. had taken actual delivery of the goods covered by the P.D. Os......Under the circumstances, it is not possible to answer thequestions referred to the High Court. All that we can do is either to call for a supplementary statement from the Tribunal or to remand these cases to the Tribunal for a fresh hearing. As seen earlier, the authorities under the Act have completely misdirected themselves as to the questions of fact to be decided. Hence, there is need for a fresh enquiry. Therefore, it will be in the interest of the parties to remand the cases to the Tribunal for a fresh enquiry on the lines suggested earlier. We order accordingly.'
22. We think it proper to adopt the same course in the present case also. We have, therefore, to return the reference on the first question as unnecessary. The Tribunal will go into the question of cost of construction de novo. The levy of penalty will then be considered in the light of the conclusion arrived at as regards the cost of construction.
23. In the result, the second question is answered as indicated earlier and the reference on the first question is returned. As neither party has succeeded in this reference, there will be no order as to costs.