Asabyasachi Mukhaeji, J.
1. In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty order made Under Section 271(1)(c) of the I.T. Act, 1961 ?'
2. The assessment year involved is 1963-64. The assessee submitted a return showing an income of Rs. 27,305. The assessment was completed at Rs. 1 59,728. In the assessed income the ITO included Rs. 1,08,150 as income from undisclosed sources in respect of cash credits. He also disallowed the interest of Rs. 38,000. Out of the addition of Rs. 1,08,150 an addition was made of Rs. 1,03,500 on peak basis in respect of cash credits appearing in the names of the creditors: (i) Vishandas, (ii) S. Amarlal, (iii) N. Kenailal, and (iv) P. Prabhudas. The ITO held that the assessee could not prove the genuineness of these cash credits and that the assessee had also made a disclosure petition in which these credits had been disclosed as the income of the assessee. An addition of Rs. 4,000 was made in respect of the credit appearing in the name of Smt. Rukmini Devi. The ITO found that the creditor had no capacity to advance the loan and she was the relative of the partners of the assessee. The ITO did not accept the genuineness of the loan and treated the same as the income of the assessee from undisclosed, sources. Two more items of Rs. 500 and Rs. 350 were also treatedas the income of the assessee from undisclosed sources in respect of loans appearing in the name of Bai Indumati and Bai Gomati Devi. In the penalty proceedings, the assessee by its letter pleaded that the assessee had not concealed any income and that the disclosure petition had been made by both the partners of the firm showing the credits of which the peak was Rs. 1,03,500 on the ground that the creditors were not co-operating for reasons of their own and the partners were compelled to make the disclosures. It was further pleaded that the disclosure made by the partners did not amount to an admission on the part of the assessee as the assessee was a distinct entity from the partners. Next it was urged that the credits were genuine loans from the parties. Further, it was contended that the creditor, Smt. Rukmini Devi, had confirmed the giving of the loan and had appeared along with her books of account which supported the advancing of the loan. It was denied that she was a relative of the partners of the assessee-firm. The assessee requested the IAC to summon the creditors under Section 131 for appearing along with their books of account to enable the assessee to prove the genuineness of the loans. The IAC, however, took the view that the admission made by the partners that the credits were their own undisclosed income was an admission by the assessee and that it was futile to summon the creditors. He, therefore, held that the credits appearing in the names of the aforesaid creditors represented the concealed income of the assessee. He took a similar view with respect to the addition of Rs. 4,000 in the case of Smt. Rukmini Devi. He also held that by claiming the interest of Rs. 3,800, the assessee set up a bogus claim and thereby concealed an income. The IAC held that the assessee had committed default under Section 271(1)(c) and imposed a penalty of Rs. 55,000.
3. Being aggrieved by the order of the IAC, the assessee went up in appeal before the Tribunal. After considering the rival contentions of the parties, the Tribunal observed as follows :
'The partners in their disclosure petitions admitted that the cash credits of which the peak was Rs. 1,03,500 were introduced by them out of their concealed income in the names of the bogus creditors and that an assessee might surrender the amount for the purpose of taxation as income and for that surrender there might be several reasons as pointed out in the case of Gumani Ram Siri Ram v. CIT . The Tribunal further observed that from the mere fact of surrender an inference of concealment of income could not be drawn. The Tribunal further observed that in this case so far as the partners were concerned it was not a case of mere surrender of the cash credits but it was a case of clear admission that the credits were their concealed income and that on the facts of the case the decision reported in : 79ITR63(Delhi) , in the case of Durga Timber Works v. CIT, was applicable. The Tribunal was of theview that the point still for consideration was whether the admission made by the partners amounted to an admission by the assessee-firm. Under the Partnership Act a partnership is a separate entity. The Tribunal next observed that in the instant case both the partners made the disclosure petitions owning the cash credits in equal, shares and both of them acted in concert and it was to be presumed that they acted on behalf of the firm while making the admission of the cash credits as their concealed income. According to the Tribunal, the next point for consideration was whether the assessee had a right to show that the admission in the disclosure petitions were wrongly made under certain exceptional circumstances and that the credits were really genuine. The Tribunal referred to the decision in the case of Krishan Lal Shiv Chand Rai v. CIT , wherein it was held that it was an established principle of law that a party was entitled to show and prove that an admission made by him previously was in fact not correct and true and it was incumbent upon the IAC to afford the assessee full opportunity to prove his assertions and that even treating the surrender as an admission of concealment of undisclosed income the IAC could not deny the assessee his right to prove that the fact of surrender was no such admission and that the so-called admission was in fact wrong and the surrender was made solely to avoid botheration. It was next held that penalty proceedings were distinct from the assessment proceedings and were in the nature of quasi-criminal proceedings and that the onus was on the department to positively prove and produce for that purpose certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. The Tribunal observed that in the instant case the assessee pleaded before the IAC that the partners had admitted the concealed nature of the cash credits as the creditors were not co-operating for their self-interest and they were compelled to make the disclosure petitions and that the loans were really genuine. It further observed that the assessee specifically requested the 1AC to summon the creditors but the IAC declined to do so considering that the summoning of the creditors would be futile. According to the Tribunal, the IAC could not forestall the result of the enquiry if he had summoned the creditors and that the assessee was denied an opportunity to support its plea that the credits were genuine and that it had not concealed any income. Next it was held that the question of claiming the interest on a bogus expenditure or as an unallowable expenditure as the credits really belonged to the partners did not arise as, on account of the refusal of the IAC, the assessee did no.t have an opportunity to prove that the loans really belonged to the creditors in whose names those appeared. The Tribunal observed that neither the 1TO nor the IAC accepted that the loans really belonged to the partners and not to the assessee-firm. The Tribunal was of the view that in those circumstances the penalty order could not be sustained and the Tribunal accordingly cancelled the penalty order.'
4. Now, it appears that the Tribunal treated that the disclosure petition would be an admission on behalf of the firm. On this aspect, the Tribunal was in favour of the assessee. The Tribunal also came to the finding that there was a clear admission that it was a concealed income but what the Tribunal was of the view, and in our opinion rightly, was that there was an initial burden on the revenue because of the presumption of law to prove that there was a concealment of income. But that did not deprive the assessee from showing, by evidence or by submission, that he was not guilty of any concealment. The opportunity was not given to the assessee. Furthermore, in a particular case, the submission made by the assessee that without calling the alleged creditors of the firm, which was difficult, it would not be possible to resist the addition, and, further, asserting that the admissions had been made in order to avoid certain liabilities, automatically do not attract the penalty proceedings. The assessee has still a right to show the peculiar circumstances under which the admission was made and those circumstances indicated the absence of any culpable mind. The Tribunal further observed that the assessee had specifically requested the IAC to summon the creditors but the IAC declined to do so considering that the summoning of the creditors would be futile. Thus, the Tribunal held that the IAC could not forestall the result of the enquiry if he had summoned the creditors and that the assessee was denied an opportunity to support its plea that the credits were genuine and that it had not concealed any income. That opportunity which the law enjoins must really be the principle specially in a quasi-criminal proceeding of the penalty nature. In view of the fact and the finding, which finding of fact has not been specifically challenged in the question posed before us, in our opinion, the decision of the Tribunal was correct and the question must be answered in the affirmative and in favour of the asssssee.
5. Reliance was placed on certain observations of the courts. Reference was made to the observations of the Delhi High Court in the case of Durga Timber Works v. CIT : 79ITR63(Delhi) as well as to the observations of the Division Bench of this court in the case of CIT v. P. B. Shah and Co. (P.) Ltd, : 113ITR587(Cal) but inasmuch as the problems in these two cases were practically distinct and different, in our opinion, the observations in those decisions would not be of much assistance in resolving the controversy posed before us in the instant case. In the premises, the question is answered in the affirmative and in favour of the assessee.
6. There will be no order as to costs.
Sudhindra Mohan Guha, J.
7. I agree.