V P SAMTANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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:

(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 :

(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: