1. SACHCHIDANAND JHA, J.---The Tribunal has referred the following question for opinion of this Court under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"): "Whether after insertion of Explanation 1(B) of section 271(1)(c) of the Income Tax Act, 1961, which was applicable for the impugned assessment year, the Tribunal was justified in cancelling the entire penalty under section 271(1)(c) of the Income Tax Act, 1961, even when it had sustained some trading addition in rejecting the assessee's explanation in quantum appeal?"
2. The assessee derives income from crockery business. For the assessment year 1979-80, to which this reference relates, it submitted a return showing turnover of Rs.4,37,285 and gross profit at 10.5 per cent. The Assessing Officer found that the income shown was not correct. He estimated the sale and gross profit at Rs.5,12,500 and at 15 per cent. Respectively. In view of the discrepancy between the income returned and the income assessed, he initiated penalty proceedings under section 271(l)(c) of the Act and, ultimately, imposed penalty of Rs.11,290. The Appellate Assistant Commissioner confirmed the order. The Tribunal, however, cancelled the penalty holding that there was no finding of concealment of income by the' assessing/appellate authorities. It held that although the addition of income had been sustained by the Tribunal, it could not follow that the books of account which the assessee had produced contained inaccurate particulars of total income. However, on an application for making a reference of the question as to whether it had correctly deleted the penalty the Tribunal referred the above-noted question for opinion to. This Court.
3. Mr. K. K. Vidyarthi, learned counsel for the Revenue, contended that the Tribunal has committed an error in cancelling the order of penalty on the basis of the decisions in CIT v. Nathulal Agarwala & Sons (1.985) 153 ITR 292 (Pat.) (FB) and CIT. v. Mussadilal Ram Bharose (1987) 165 ITR 14, (SC) which had been rendered in view of the Explanation as it stood prior to the 1976 amendment. He submitted that a definite finding to the effect that the particulars of income were inaccurate had been recorded by both the Assessing Officer and the Appellate Assistant Commissioner.
4. "Explanation 1.---Where in respect of any fact material to the computation, of the total income of any person under this Act---
(B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof 'shall, for the purposes of clause (c) of this subsection, be deemed to represent the income in respect of which particulars have beers concealed. "
5. It is relevant to mention here that by the aforesaid amendment a proviso to the Explanation. Had also been inserted. Since the Tribunal has relied on the said proviso in coming to the conclusion in favour of the assessee, it would be relevant to quote the same as well as hereunder: "Provided that nothing contained in this Explanation shall apply to a case referred to .In clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him."
6. By the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, the above proviso was deleted and clause (B) of the Explanation, quoted above, was also suitably amended. The amended clause (B) reads as follows: "such person offers an explanation which he is not able to substantiate (and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him). "
7. (words within brackets added by the amendment).
8. The question referred for opinion, as noted at the outset, is as to whether in view of Explanation I (B) appended to section 271(1)(c) of the Act as applicable during the relevant assessment year, the Tribunal committed an error in cancelling the penalty. The' contention of Mr. Vidyarthi, on behalf of the Revenue is that where the assessee has offered an explanation but fails to substantiate the same he would be deemed to have concealed the amount added or disallowed in computing the total income for. The purpose of clause (c) of section 271(1). Mr Binod Poddar, learned counsel for the assessee, on the other hand, contends that the Tribunal was correct in deleting the penalty on the ground that the explanation furnished by the assessee was bona fide taking the aid of the proviso. He submits that although the decision in the cases of Nathulal Agarwala (1985) 153 ITR 292 (Patna) (FB) and Mussadilal Ram Bharose (1987) 165 ITR 14 (SC) had been rendered in the context of the Explanation as it stood prior to 1976 the principles laid down in those judgments hold good.
9. Furnishing inaccurate particulars of income per se will not warrant imposition of penalty unless it is found to be lacking bona fides. Mr. Poddar submits that, in the present case, it may not be necessary to go into the larger question in view of the finding of fact recorded by the Tribunal on the point of inaccuracy or otherwise of the particulars of income.
10. It would be appropriate to quote the relevant parts of the appellate order of the Tribunal as hereunder: "We have perused the order but we have not been able to find any finding of concealment recorded by him ...His charge is that the assessee had furnished inaccurate particulars. This is because he had found the gross profit rate to be low. This had led him to make a trading addition.
11. The addition had been sustained by the Tribunal but it does not follow from those that the books of account which the assessee produced gave out inaccurate particulars of total income. The assessee had, no doubt, given an explanation in which he refuted the charge that he had given any inaccurate particulars. According to him, it was the trading necessity as well as prevailing conditions of market which were accountable for the decline in the gross profit rate. It was not the case of the Revenue that any purchase or sales were found omitted from their being accounted for in the books. The addition has followed on the basis of the estimate. Those facts could not lead to a finding that the 4ssessse e had given inaccurate particulars of income."
12. "It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact- finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus; it becomes a conclusion of fact. No question of law arises."
13. Let a copy of this judgment be transmitted to the Income-tax Appellate Tribunal, Patna Bench, as required under section 260 of the Income-tax Act. .
14. AFTAB ALAM, J.---I agree.