' MUSHTAQ HUSSAIN, J.-The assessee is an association of persons dealing in tobacco on the basis of commission. For the assessm ent year 1959-60 it submitted a return disclosing receipts of Rs, 10,918.
The Income-tax Officer, however, found that the assessee had been doing business on its own account also besides working as a commission agent, had been indulging in black-marketing and evasion of excise duty. He consequently found that an addition of Rs 20,000 to the aforementioned receipts was justifiable.
2. The assessee appealed to the Appellate Assistant Commissioner who found that there was no basis for holding that the assessee had indulged in black-marketing or evasion of excise duty. He nevertheless came to the conclusion that tho assessee had failed to prove that some of the transactions entered in the books of account were in respect of business done on commission only and not on his own account. He consequently agreed that some extra profit had been made out of the transactions shown in the books of account, but he reduced the additional income from twenty to ten thousand rupees.
3. The assessee still felt dissatisfied and knocked the doors of the Tribunal which reduced the amount of additional income to eight thousand rupees.
4. On the basis of his findings, the Income-tax Officer imposed a penalty of Rs, 2,976.09 under section 28(1-A) of the Income-tax Act. This penalty was remitted by the Appellate Assistant Commissioner as he was of the view that no case for concealment had been clearly established.
The Tribunal rejected the appeal filed by the Department. The Commissioner of Income-tax consequently applied for reference of the question :- "Whether on facts and in the circumstances of the case the income-tax Appellate Tribunal was justified in cancelling penalty imposed under section 28(1-A) of the the income-tax Act?" ' and the Tribunal has referred the same to us for an answer.
5. Raja Muhammad Akram, Advocate, raised a preliminary objection on behalf of the assessee that the question referred to us was not a question of law but one of fact, Since it had to be determined whether a case had been made out that the assessee had been indulging in sales on his own account and, therefore, it is not a fit case for reference under section 66 of the Income-tax Act
6. This abjection is misconceived as for giving an answer to the question posed we do not have to enter into a factual enquiry; all that this Court has to do is to find if section 28(1-A) is applicable to the facts of the case as found by the Tribunal which is the last authority for determining such questions. The application of law to proven facts cannot be said to relate to the domain of facts because it falls properly within the ambit of a question of law and we, therefore, do not uphold the objection raised by the learned counsel for the assessee.
7. The Income-tax Officer gave a notice under section 28(3) to the assessee asking him to show because why penalty should not be imposed as he had concealed the particulars of his income.
The assessee denied having done so. The Income-tax Officer found discrepancies in the sale as shown in the account of the assessee and as found out from the excise register.
8. He further found that while tee assessed maintained that he was not indulging in direct dealings with transactions of tobacco, the Income-tax Officer found that the asses see had opened a Khata in the name of Messrs Abdul Majid and Abdur Rashid of Hazro and gave Karachi as their place of business. In fact, according to the Income-lax Officer these persons were cobblers by profession and lived in Hazro itself. He came to this conclusion on the basis of statements of Abdur Rashid and Abdul Majid which he recorded and in which they admitted that they did not have any tobacco licence nor were they carrying on any business.
9. The Income-tax Officer also found that the assessee had also opened a Khata in the name of one Abdur Rehman. Abdur Rehman admittedly was found to be a minor son of the assessee who was studying in a school and did not even have a separate licence on his own account.
10. It was on the basis of such instances that the Income-tax Officer came to the conclusion that the assessee was dealing directly in tobacco also and that he had made fictitious entries in the names of persons in his accounts who had nothing to do with his business. The Appellate Assistant Commissioner found that the discrepancies between the excise register and the account could be explained in accordance with the practice prevalent at Hazro. He, therefore, held that the evasion of excise duty or black-marketing was not proved against the assessee. He also accepted the explanation of the assessee with regard to the safe in the name of Abdur Rashid.
11. The Appellate Assistant Commissioner, however, came to the conclusion that the appellant had not been able to prove that some of the transactions in his books did not relate to business conducted by him on their own account. He consequently set aside the order of imposition of penalty.
12. The Tribunal accepted the reasoning of the Appellate Assistant Commissioner. It should, however, be noted that the Tribunal did not hold that the Appellate Assistant Commissioner was wrong in holding that the assessee had been carrying on business on his own account. It also upheld the retention of the addition of Rs, 8,000 out of Rs, 20,000 proposed by the Income-tax Officer which had been reduced to Rs, 10,000 by the Appellate Assistant Commissioner. This increase had been made on account of concealment and misrepresentation made by the assessee as would be clear from the resume of the facts given by us above, and section 28(1-A) is, therefore, squarely attracted to the facts of this case. The imposition of penalty was, therefore, justified, but since the amount of penalty had been fixed by the Income-tax Officer at a time when the addition made by him was to the tune of Rs, 20,000, the same having been reduced to Rs, 8,000 by the Income-tax Appellate Tribnnal it would be in accordance with law to reduce this amount of penalty to Rs, 1,000.
13. Our answer to the question posed is, therefore, in the negative with the observation that the amount of penalty should be reduced to Rs, 1,000. The costs of the case shall be borne by the parties.
14. We have gone through the application C. M. 11 of 1969 presented by the Commissioner of Income-tax for a direction to the Tribunal to state the facts more completely as explained in it, but we are not in agreement with the stand of the Commissioner of income-tax in that matter and, in fact, we have been able to dispose of the case without asking for such a statement. The application is, therefore, dismissed.