Income-tax---

----Penalty---Concealment of income---Finding that there was no fraud or wilful neglect in not returning correct income---Cancellation of penalty valid.

Held, that though the Tribunal was not right in holding that, in matters of estimate of income it will not be reasonable to levy penalty, since this was not the only ground for cancelling the penalty and the other ground was the finding of fact that, in the instant case, there had been no fraud or gross or wilful neglect on the part of the assessee in not returning the correct income, the cancellation of penalty was valid.

JUDGMENT

B.P. JEEVAN REDDY, CJ.---Under section 256(2) of the Income Tax Act, 1961, the Tribunal has stated the following question:

"Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in knocking off the penalty solely on the ground that the income of the assessee had been made by estimate?"

The assessee is a private medical practitioner of Bijnor. The assessment year concerned is 1970-71. He declared a total income of Rs.6,381. The Income Tax Officer, however, estimated the income at Rs.55,315. On appeal, the Appellate Assistant Commissioner reduced it to Rs.34,815. On further appeal, the Tribunal reduced it to Rs.16,815.

Meanwhile, proceedings for levying penalty were initiated under section 271(1)(c) of the Income Tax Act. The Inspecting Assistant Commissioner found that this is a case to which the Explanation to section 271(1)(c) was attracted and that the assessee has failed to discharge the burden which lies upon him by virtue of the said explanation. Accordingly, he levied penalty in a sum of Rs.30,000. It may be noted that, by the date of the said order, the quantum appeal pending before the Tribunal was not disposed of.

When the penalty appeal came before the Tribunal, the Tribunal was of the opinion `that, in the matter of estimate of an assessee's income, it will not be reasonable to penalise an assessee only on the technical ground that the provisions of the explanation to section 271(1) are attracted'.

But this is not the only ground for allowing the appeal. Furthermore, it is stated in the very same.paragraph that:

"In the instant case, there is nothing to suggest fraud or gross or wilful neglect on the part of the assessee."

The question stated to this Court proceeds on the assumption that the penalty was deleted only on the ground that the income of the assessee had' been made by estimate, but that, in our opinion is not wholly correct. It is not the sole ground, but one of the two grounds stated above. We agreed with learned standing counsel for the Revenue that the Tribunal was not right in practically laying down a rule of law that, in matters of estimate of income, it will not be reasonable to levy penalty. No such rule of law nor even a rule of practice can be recognised. It is not desirable to lay down such a proposition which binds the discretion of the authorities. But since this is not the only ground for deleting the penalty and since the other ground is a valid and relevant ground, we are not inclined to disturb the finding of the Tribunal that no penalty is leviable in this case.

In the above circumstances, we decline to answer the question referred because it proceeds on the factual assumption which is not found to be correct. However, the Tribunal may note the observations made hereinbefore. The reference is answered accordingly.

There shall be no order as to costs.

M.BA./1653/T???????????????????????????????????????????????????????????????????????????????????? Reference answered.