Penalty for Income Tax Act violation requires proof of intent. Reduced penalty due to inconsistent concealment findings.

The court held that penalty proceedings under section 271(1)(c) of the Income-tax Act require proof of mens rea. The assessee was found guilty of concealing income in one group but not in another, resulting in a reduced penalty. The court determined that the question referred to the High Court did not arise out of the Tribunal's order and declined to answer it. Each party was ordered to bear their own costs.

---

---

Issues Involved:
1. Whether penalty proceedings under section 271(1)(c) are attracted without proof of mens rea.
2. Whether the question referred to the High Court arises out of the order of the Tribunal.

Issue-wise Detailed Analysis:

1. Penalty Proceedings Under Section 271(1)(c) Without Proof of Mens Rea:
The primary issue in this case was whether penalty proceedings under section 271(1)(c) of the Income-tax Act are attracted in the absence of proof of mens rea. The Income-tax Officer (ITO) initiated penalty proceedings under section 271(1)(c) during the assessment for the year 1961-62, which were referred to the Inspecting Assistant Commissioner (IAC), Indore Range, for disposal. The IAC found the assessee guilty of concealing income in two groups: Group A (salary, bonus, commission, and bhav farak totaling Rs. 29,762) and Group B (profit of Rs. 16,498 from benami business of M/s. Dyestuffs and Insecticides). A penalty of Rs. 18,000 was imposed.

Upon appeal, the Tribunal held that the assessee was not guilty of concealment for Group A but found penalty applicable for Group B. The Tribunal reduced the penalty to 25% of the tax involved. The assessee argued that the income from M/s. Dyestuffs and Insecticides could not be considered concealed with the necessary intent, as it was a debatable issue. The department contended that the benami business indicated an attempt to conceal income with intent.

2. Question Referred to High Court Arising Out of Tribunal's Order:
The department raised a preliminary objection that the question of law referred to the High Court did not arise out of the Tribunal's order. The Tribunal's order did not indicate that the question was considered during the appeal hearing. The assessee argued that the question was raised in the application to the Tribunal for making a reference, which was rejected, and subsequently raised in a petition to the High Court under section 256(2) of the Income-tax Act, 1961. The High Court had directed the Tribunal to make a reference on this question.

The court examined the scope of sections 256(1) and (2) of the Income-tax Act, referencing the Supreme Court's decision in CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589. The Supreme Court had held that the High Court's jurisdiction in a reference is advisory and it can only decide questions referred to it by the Tribunal. A question must have been raised before or decided by the Tribunal to be considered arising out of its order.

The court concluded that the question referred did not arise out of the Tribunal's order as it was neither raised before nor considered by the Tribunal. The court cited CIT v. Smt. Anusuya Devi [1968] 68 ITR 750, where the Supreme Court held that the High Court is not bound to answer a question that does not arise out of the Tribunal's order, even if the reference was made under the High Court's direction.

Conclusion:
The court decided not to answer the referred question as it did not arise out of the Tribunal's order. Both parties were directed to bear their own costs.

---