BANERJEE J. - This reference, under section 66(1) of the Indian Income-tax Act, 1922, has been made in the circumstances hereinafter related.
The statement of case relates to the assessment year 1951-52.
The assessee is an individual having business in share dealings. He has also some income from property, dividends and other sources. The Income-tax Officer found that the assessee had purchases 3,000 shares of Rani Cherra Tea Co. Ltd. for Rs. 33,000 and 2,500 shares of Indian Iron and Steel Co. Ltd. for Rs. 48,281, the total value of investment being Rs. 81,281; but the investment in purchasing shares of Rani Cherra Tea Co. Ltd for Rs. 33,000 was not entered in the books of the assessee. When the assessee was called upon to explain the source of the investment, he alleged that he had borrowed Rs. 80,940 from his wife. Called upon further to explain how his wife had amassed so much money in her hands, it was said that she received Rs. 32,000 from her father in 1940 and the balance constituted her savings from out of monthly payments of Rs. 500, made to her by the assessee, for her personal expenses, during the last 10 years. The Income-tax Officer accepted the existence of savings to the extent of Rs. 38,000 and treated the balance of Rs. 53,000 as income from undisclosed sources. With the other parts of the assessment order we are not concerned in this reference.
The assessee appealed before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner sustained the addition of Rs. 53,000 to the income of the assessee from undisclosed sources.
Thereupon, by a notice dated March 29, 1955, the Income-tax Officer called upon the assessee to show cause why penalty should not be levied upon him for failure to prove the source of the funds with which the investment had been made. In the course of the penalty proceedings, the Income-tax Officer referred to the acquisition of shares by the assessee, valued at Rs. 81,000, outside the books. He observed that the assessees story that he had borrowed money from his wife was false and that he attempted to support the false statement by production of a fabricated cash book; that the assessee had not established the rates at which he purchased the shares and also had not disclosed the names of the vendors. Accordingly, he held that the assessee had concealed particulars of his income and deliberately furnished a false and improvable explanation. He, therefore, levied a penalty of Rs. 20,000 under section 28(1)(c) of the Act.
Against the penalty order the assessee appealed before the Appellate Assistant Commissioner. It was contended before the Appellate Assistant Commissioner that the penalty under section 28(1)(c) was exigible only for concealment of income and not for giving a false explanation. It was further contended that the mere fact that the explanation given by the assessee turned out to be false would not give jurisdiction to the Income-tax Officer to impose the penalty. The Appellate Assistant Commissioner overruled the objection and dismissed the appeal.
Thereupon the assessee took a second appeal before the Tribunal. The Tribunal upheld the contention of the assessee with the following observations.
'The departmental representative submitted that the assessees case stood on a different footing because he was a share dealer and had made unexplained investments in shares. In our opinion, this does not make any difference. We are not concerned with any concealment of stock-in-trade, but the source of funds with which certain shares (even stock-in-trade) had been acquired. As to the acquisition of shares also, the assessees explanation in some form or other was that of investment or past savings whether by himself directly or through his wife. Even assuming that the cash book produced by the assessees wife was a got up one, it would not follow that the assessee had concealed his income. Barring suspicion that the assessee had concealed his income, we do not find any material on the basis of which we could support a positive finding to that effect. Accordingly we hold that the levy of penalty under section 28(1)(c) was bed in law and direct that the amount of penalty if paid should be refunded to the assessee.'
Thereupon the revenue obtained a reference to this court on the following question of law :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the levy of penalty under section 28(1)(c) of the Income-tax Act, 1922 was not justified in law ?'
Now, it is settled law that proceedings under section 28(1)(c) are in nature of penal proceedings and the revenue musts establish that the assessee was guilty of concealment of particulars of income. The offence under section 28 was not that the assessee was charged with having given false explanation but that the assessee gave inaccurate particulars about his income. This is the view which was expressed by the Bombay High Court in Commissioner of Income-tax v. Gokuldas Harivallabhdas 1 and also by this court in Commissioner of Income-tax v. Anwar Ali 2. We have already quoted the relevant finding of the Tribunal. It does not appear therefrom that the assessee was guilty of any concealment of income but as found guilty to have come forward with a false explanation about the source of certain purchases. This being our view, we answer the question referred to this in the affirmative and in favour of the assessee. The revenue must pay costs of this reference to the assessee.
K. L. Roy J. - I agree.