Sabyasachi Mukharji, J.
1. In this reference under Section 256(2) of the I.T. Act, 1961, as directed by this court, the following two questions have been referred to this court:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and acted within its jurisdiction in upholding the imposition of penalty with reference to the amount of Rs. 1,88,800 and which did not constitute the basis on which the Inspecting Assistant Commissioner passed his order
2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,83,737 having been declared by the assessee in Part F of his return, could at all attract the provisions of Section 271(1)(c) ?'
2. In order to appreciate the questions, it is necessary to refer that the ITO in this case initiated penalty proceedings and referred the same to the IAC under Section 271(1)(c) of the I.T. Act, 1961. This relates to the assessment year 1963-64. The assessee had filed the return on 10th September, 1964, disclosing the total income of Rs. 25,594. The ITO noticed certain hundi loans amounting to Rs. 1,25,000. He treated these loans as not being genuine and added the same as the assessee's income from 'other sources'. He also noticed a credit of Rs. 1,88,800 which the assessee claimed as winnings from horse races. The ITO held that no evidence had been produced to prove the winnings of this amount from horse races. Accordingly, he added this sum of Rs. 1,88,800 as the assessee's income from 'other sources'. In appeal, the AAC held that the sum of Rs. 1,25,000 represented the hundi loans on the ground that the peak credit in this year did not exceed the amount of Rs. 1,55,000 which was the closing balance of the earlier year. He, however, sustained the addition of Rs. 1,88,800. The Tribunal, however, sustained the order of the AAC with regard to the addition of Rs. 1,88,800. The ITO, as mentioned hereinbefore, had initiated the penalty proceedings and referred the matter to the IAC. The IAC issued a notice to the assessee under Section 274(2) read with Section 271(1)(c) and after giving the opportunity of a hearing to the assessee imposed the penalty. It is important to refer to the order of the IAC. The IAC observed, inter alia, as follows :
'It is seen that the ITO has treated income from properties in the name of the wife, amounting to Rs. 6,085, and income from letting out of furniture on wife's account, amounting to Rs. 2,885, as the assessee's own income. In respect of these additions it is explained that the assessee had shown the entire amount in the statement of income filed and had shown in the return of income filed for the year the proportionate income to be considered in the hands of the assessee under Section 64 of the Act on the gift made by him to her. It is seen that for the earlier years the entire income from the properties as well as from letting out of furniture has been held to be the income of the assessee himself and for non-disclosure on the part of the assessee of this income in the return penalty under Section 271(1)(c) has been levied. The facts for this year under consideration are similar. On the facts brought on record by the ITO the explanation advanced that the lady had constructed the property out of her own funds excepting to the extent of the gifts made to her by the husband, has to be held to be not in order and has to be rejected accordingly.
The entire funds for investment in these assets came from the assessee and hence the assessee had to show the full income in the return for the year under Section 64. The return of income having been filed after 31st March, 1964, the provisions of the Explanation to Section 271(1)(c) will apply. The assessee has not shown this amount in the return and has not proved that the failure to include these items in the return of income for the year was not due to any gross or wilful neglect on his part. Hence, the assessee will be deemed to have concealed income attracting the provisions of Section 271(1)(c).
4. It is also seen that the ITO added back a sum of Rs. 1,25,000 representing credits in the form of hundi loans as income of the assessee from undisclosed sources. In respect of this addition, it is claimed before me, that the assessee had already surrendered hundi loans and had agreed to be assessed on the loans as the assessee's own income on peak basis, and that the addition for the earlier year under this head is more than the addition made by the ITO for this year and hence there will be no separate addition to be made under this head for this year. As the appeal against this addition is still pending this contention of the assessee cannot be entertained by me, at this stage. On the assessee's own admission the credits under consideration represent the concealed income of the assessee. Hence, the claim for deduction of interest on such credits amounting to Rs. 6,594 also represents a deliberately false claim for deduction of a non-genuine item of expenditure. In respect of this addition also the provisions of Section 271(1)(c) are attracted.
5. The minimum penalty leviable for the default is Rs. 55,599 and the maximum is Rs. 4,16,994. I hereby levy penalty of Rs. 56,000 equal to about the minimum penalty leviable which I feel will be reasonable under Section 271(1)(c) read with Section 214(2) of the Act. The ITO to issue D.N. and challan accordingly.'
3. There was thereafter an appeal before the Appellate Tribunal. The Appellate Tribunal after referring to the facts stated hereinbefore and several other decisions observed in the original order passed by it on the 7th June, 1974, inter alia, as follows:
'In view of the ratio laid down in the above cases, we are of the view that the Explanation is applicable to the instant case. Under the Explanation the onus is on the assessee to prove that the difference between the returned income and the assessed income was not due to fraud, gross or wilful neglect on the part of the assessee. In the quantum appeal, we have upheld the addition of Rs. 1,88,800, which the assessee claimed as receipts from race winnings. We have held that the story of the assessee that the sum of Rs. 1,88,800 was the amount received from horse race winnings is not true and the assessee did not place any evidence in support of his claim. We have also held that the sum of Rs. 1,88,800 represented assessee's own unaccounted money from undisclosed source brought into books of account and the assessee had concealed the income. Thus in our view, the assessee has concealed the income and the provisions of Section 271(1)(c) are applicable. The assessee has not discharged the onus under the Explanation. The Inspecting Assistant Commissioner had referred to the addition of Rs. 1,25,000 in his order. But this has been deleted in appeal by the AAC. The IAC has also referred to the income from house property and income from letting out of furniture on wife's account, which the assessee has not returned. The AAC has sustained Rs. 1,767 and Rs. 654, respectively, in this regard and the assessee has concealed these items by not returning the same.
There was no appeal to the Tribunal with regard to these items. So far as the addition of Rs. 1,88,800 is concerned, the Tribunal has also found that the assessee's story is false and has upheld the addition in the quantum appeal. Taking the entire facts into consideration we are of the view that the assessee has clearly concealed the income. The ratio laid down in the case of D.M. Manasvi : 86ITR557(SC) is applicable to the instant case. In the circumstances, the Inspecting Assistant Commissioner was justified in imposing penalty. The Inspecting Assistant Commissioner has imposed a minimum penalty of Rs. 56,000. The Appellate Assistant Commissioner has given some relief in the appeal. So, the penalty leviable should be with reference to the tax on the finally assessed income. Accordingly, we direct the IAC to modify the penalty order by imposing a minimum penalty with reference to the tax on the finally assessed income.'
4. It appears that there was some mistake and as a result a miscellaneous application was made and by an order dated 31st May, 1975, in para. 5, at p. 5, of the order of the Tribunal the following sentences were deleted ;
'The Inspecting Assistant Commissioner also referred to the income from house property and income from letting out of furniture on wife's account, which the assessee has not returned. The AAC has sustained Rs. 1,767 and Rs. 624, respectively, in this regard and the assessee has concealed these two items by not returning the same. There was no appeal to the Tribunal with regard to these items.'
5. Therefore, it appears from the facts stated hereinbefore that while the ITO had initiated the penalty proceedings for concealment of the income, for furnishing inaccurate particulars of different item, etc., by the assessee as indicated in his order, the IAC in imposing the penalty had considered only two items, viz., the sum of Rs. 1,25,000, representing the hundi loans, as well as Rs. 6,594, which was said to be the wife's income, not correctly shown in the husband's return. The assessee being aggrieved by the said order went up in appeal before the Tribunal. The Tribunal did not consider Rs. 1,25,000 because the same had already been deleted in the quantum appeal. The Tribunal also did not consider the wife's income of Rs. 6,594 because that had already been deleted. The Tribunal upheld the order of imposition of penalty on the ground of addition of this amount of Rs. 1,88,800 in respect of winning from horse races in the assessment order as mentioned hereinbefore. In the ground of appeal, before the Tribunal, one of the grounds was, inter alia, as follows :
'For that the learned Inspecting Assistant Commissioner failed to discharge his onus to prove conclusively that the amounts 'treated' as income in the assessment, actually represented income of revenue receipt of the appellant and the appellant was guilty of concealment or for furnishing inaccurate particulars of his income.'
6. In this background, we have to answer the two questions posed before us. On the merits, we had held that the Tribunal was right in holding that the sum of Rs. 1,88,800 was correctly added as the income of the assessee and we had further held, in respect of other years, that this addition attracted the provisions of Section 271(1)(c) read with the Explanation, in view of the facts of this case, wherefrom it would appear that there was a deliberate concealment of income even though the assessee had returned his income in Schedule F of the return. Learned advocate for the assessee tried to urge before us that where the assessee had disclosed the particulars of the income but it was added in the quantum appeal in consideration of other facts, in such a case, the assessee could not be said to have failed to disclose the particulars of income truly and fully and Section 271(1)(c) could not be attracted. In aid of his submission, he drew our attention to the decision of the Supreme Court in the case of ITO v. Madnani Engineering Works Ltd. : 118ITR1(SC) . There, in the original assessment of the respondent-assessee for the assessment year 1959-60, completed on 23rd October, 1960, certain interest paid by it to creditors from which it claimed to have borrowed moneys on hundis were allowed as deductible expenditure. Subsequently, in January, 1968, after a lapse of four years from the end of the assessment year a notice was issued by the ITO to reopen the assessment of the assessee on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the assessee to any of the creditors and the interest was wrongly allowed. It was challenged before the High Court. The ITO in his affidavit declined to disclose the facts. Thereafter, he filed a further affidavit stating that in the course of the assessment of the assessee for the assessment year 1963-64, it was discovered that various items shown as interest loan against the hundis in the assessee's books of account for the assessment year 1959-60, were, in fact, fictitious and credits against the names of certain persons were found not to be genuine and in that premises it appeared to the ITO that the assessee had failed to disclose fully and truly all the particulars of the income. The notice was quashed because it was held by the Supreme Court that the respondent had produced all the hundis on the strength of which it had obtained loans from the creditors as also the entries in the books of account showed the payment of interest and the Supreme Court was of the view (at p. 5 of the report), that it was for the ITO to investigate and determine whether these documents were genuine or not. The Supreme Court felt that the assessee could not be said to have failed to make a true and full disclosure of the material facts by not adducing before the ITO evidence that the hundis and the entries in the books of account produced by it were bogus. The facts of that case, in our opinion, are entirely different. Here, what the assessee was to show was that he had won certain amount of money from the horse races. It was actually found that this was not so. The story of horse racing was merely a device which was proved conclusively in the assessment proceedings and which was also brought on the record in the penalty proceedings that there was no horse racing and there could not have been any winnings from the horse racing. In such a background, by merely including an item and setting up a false story, one could not be said to have furnished accurate particulars or not concealed the income. Thus, in this case, because the ITO wanted to investigate into the matter, the ITO found out that the story was false and on that finding initiated the penalty proceedings against the assessee. Therefore, the initiation of the penalty proceedings by the ITO could not be said to be without jurisdiction.
7. The next aspect of the questions that requires consideration in this case is whether in the present case the IAC having held that Section 271(1)(c) read with the Explanation was applicable on certain grounds, the Appellate Tribunal could on the assessee's appeal uphold the said imposition on different grounds. Now, it appears that in order to attract Section 271(1)(c) along with the Explanation of the Act there must be a finding by the authority which imposes the penalty that there has been concealment of income and that could be, in certain cases, due to the introduction of the Explanation, if the difference between the returned income and the assessed income exceeded 20% then certainly in such a case the onus was on the assessee. In this case, in order to determine this point, the IAC considered that (the difference) between the returned income and the assessed income exceeded the limit contemplated by the Explanation by virtue of the addition of Rs. 1,25,000 on account of hundi loans and Rs. 6,085 on account of wife's income. Both these incomes were deleted by the Tribunal. If these two items go, then the addition could have been upheld by considering whether the returned income was within the mischief of the Explanation by only considering the sum of Rs. 1,88,800. This the IAC did not consider. The subject-matter of the appeal is primarily the power of the Appellate Tribunal as circumscribed by the provision of the statute. Under Section 254(1) of the I.T. Act, 1961, the Tribunal is empowered and authorised to pass 'such order', as it considers fit and proper on the subject-matter of the appeal, in view of the expression 'thereon' which makes it quite clear. Incidentally, we may mention that under Section 26 of the Indian I.T. Act, 1922, the Income-tax Appellate Tribunal had also original jurisdiction to impose penalty on its own. That power the Income-tax Appellate Tribunal no longer enjoyed under the Act of 1961. Therefore, we are only confined to the position whether the imposition of the penalty proceedings as found by the IAC was the subject-matter of the appeal. Now, this question was considered by the Division Bench of this court in the case of CIT v. Calcutta Discount Company Ltd. : 82ITR941(Cal) , where this court had held, dealing with Section 33(4) of the Indian I.T. Act, 1922, which used similar expression, that the power of the Tribunal was restricted to the subject-matter of the appeal, and the subject-matter of the appeal consisted of the memorandum or grounds of appeal, the additional grounds, if any, allowed by the Tribunal and the grounds, if any, urged by or on: behalf of the respondent to support the order under appeal.
8. Following this decision sitting singly, I had to consider whether when the subject-matter of the appeal was business loss or speculative loss, the Tribunal could direct an enquiry into whether it is a capital loss or revenue loss. I held that it was not open to the Tribunal to enlarge the subject-matter of the appeal in wider sense ; but the power was circumscribed, as indicated before, under which it could not embark into that question. That is the decision in the case of R.L. Rajgharia v. ITO : 107ITR347(Cal) .
9. Our attention was, however, drawn to the decision of the Supreme Court in the case of CIT v. Mahalakshmi Textile Mitts Ltd. : 66ITR710(SC) , where the assessee, which carried on the business of manufacture and sale of cotton yarn, spent about Rs. 93,215 for introduction of the 'Casablanca conversion system' in its spinning plant. Substantially, this involved replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring frames from certain existing parts, introduction, inter alia, of ball-bearing jockey-pulleys for converting the original band-drivers to tape drivers and other additions and alterations in the drafting mechanism. The assessee claimed development rebate on the ground that introduction of the 'Casablanca conversion system' involved installation of new machinery, and for the first time before the Appellate Tribunal claimed in the alternative that the amount laid out was in any event an expenditure for current repairs allowable under Section 10(2)(v) of the Indian I.T. Act, 1922. The Tribunal inspected the factory, studied the working of the machinery and considered the literature of the manufacturers and held that though development rebate was not admissible the amount spent was admissible under Section 10(2)(v) since as a result of the stress and strain of production over a long period there was need for change in the plant, and that the assessee had replaced old parts, It was held that the subject-matter of the appeal before the Tribunal was the right to claim development rebate by the assessee. Whether the allowance was admissible under one head or another of Sub-section (2) of Section 10, the subject-matter for the appeal remained the same, and the Tribunal having held that the expenditure incurred fell within the terms of Section 10(2)(v), though not under Section 10(2)(v)(b), it had jurisdiction to admit that expenditure as a permissible allowance in. the computation of the taxable income of the assessee.
10. Here, however, whether the other item was properly exigible in a penalty proceeding of this nature, the IAC had no occasion to advert to. That being so, in our view, it is not a question of allowing deduction on the one ground or the other, but it is a question of allowing or permitting the attraction of Section 271(1)(c) read with the Explanation on a ground which was not adverted to by the IAC, from whose order the appeal was preferred before the Tribunal. On the subject-matter of the appeal, as I had mentioned in the decision in the case of R.L. Rajgharia v. ITO : 107ITR347(Cal) , referred to hereinbefore, I had observed in the manner as I have indicated before.
11. This view has been confirmed by the Division Bench of this court In the decision in the case of ITO v. R.L. Rajghoria : 119ITR872(Cal) . In this connection, reference may also be made to the observations of the Supreme Court in the case of State of Kerala v. Vijaya Stores : 116ITR15a(SC) , and the observations of the Supreme Court at p. 18 of the report also elaborate the same principle.
12. In this connection, learned advocate for the revenue drew our attention to the decision of this court in the case of Monoranjan Mukherjee v. CIT : 132ITR712(Cal) , where the assessee had filed a return on February 16, 1968, for the assessment year 1966-67 showing an income of Rs. 15,944. The ITO completed the assessment on December 31, 1970, on a total income of Rs. 68,525 which was inclusive of Rs. 38,464 added as income from undisclosed sources. The addition of Rs. 38,464 was made on the basis that the sum of Rs. 38,464 credited in the assessee's books of account as proceeds realised by the sale of goods in fact, represented the assessee's income from undisclosed sources. With reference to the above addition and some other additions made in the assessment, the ITO initiated penalty proceedings against the assessee and referred the matter to the IAC for further action. In the appeal preferred by the assessee, the AAC reduced the aforesaid addition of Rs. 38,464 to Rs. 31,464. The impugned order was passed by the IAC after disposal of the appeal against the order of assessment by the AAC. It was held that the charge before the ITO was with regard to the concealment of the particulars of income and upheld the order of the ITO. Thus the initiation of the proceedings was made on the satisfaction of the ITO as to the concealment of income. It was held that the charge of concealment was there though it was found by the Tribunal that the said income had not come from other sources but on business account. It could not be held that the very basis of the initiation proceedings had been altered by the subsequent finding by the Tribunal as to the head of income. This is not the case here. This is not a question of changing the basis of the initiation of proceedings. This is a question of upholding the penalty on the ground that Section 271(1)(c) was exigible because certain additions came within the mischief of the Explanation to Section 271(1)(c) of the Act.
13. Our attention was also drawn to the observations of the Supreme Court in the case of Mansukhlal & Bros. v. CIT : 73ITR546(SC) , and learned advocate for the revenue drew our attention to the observations of the Supreme Court at p. 554 which runs as follows :
'In the above view of the matter it must be held that the penalties which have been provided by Section 28(1) are meant for the acts of omission or commission which are set out therein and once an assessee is proved to have been guilty of them the penal provisions are attracted and with reference to Clause (c) irrespective of the amount concealed. Thus the answer returned by the High Court to the question referred was correct.'
14. This observation, in our opinion, cannot have any relevance to the controversy before us. It dealt with the question whether penalty was imposable at all. In the instant reference before us, we are not concerned with this controversy.
15. Our attention was also drawn to the decision of the Allahabad High Court in the case of CIT v. Zeekoo Shoe Factory : 127ITR837(All) . This again is entirely on a different set of facts and the power of the Appellate Tribunal to go into another ground upon which penalty was sustained was not canvassed before the Division Bench of the Allahabad High Court.
16. For the reasons mentioned hereinabove, we will answer question No. 1 in the negative and in favour of the assessee.
17. For the reasons mentioned hereinabove, we will, however, answer question No. 2 in the affirmative. Though we have said that the Tribunal's order was bad in answering this question, we will make it quite clear that the initiation of the proceedings by the ITO was in order but the order ultimately passed by the Tribunal was bad as being beyond the subject-matter of appeal.
18. In the facts and circumstances of the case, parties will pay and bear their own costs.
Sudhindra Mohan Guha, J.
19. I agree.