1986 (12) TMI 29

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....e assessee as loans from different parties were disclosed to be the income of the assessee. Rupees 2,94,000 was stated to be the peak credit in the relevant assessment year. Rupees 19,782 was also shown in the accounts of the assessee as interest paid to the alleged creditors on the said loans. Such interest was also disclosed to be the income of the assessee in the said assessment year. The Income-tax Officer issued a notice to the assessee under section 143(2) of the Income-tax Act, 1961, on September 29, 1967, and hearing was fixed on November 16, 1967. In making the assessment, the Income-tax Officer took into account the amount of peak credit in the accounts of the assessee prior to April, 1, 1962, and the balance of the peak credit....

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....on December 31, 1965, subsequent to the filing of its return but before any enquiry or investigation had been initiated by the Revenue. It was submitted further that, in the circumstances, the provisions of section 271(1)(c) of the Income-tax Act, 1961, were not attracted and the penalty imposed should be cancelled. It was contended on behalf of the Revenue before the Tribunal that in the return filed on November 8, 1963, the assessee had not shown the amounts of the said loans as its income and had also claimed deduction of interest paid thereon wrongly. It was submitted that the assessee did not file any revised return and merely because the assessee had made a disclosure which was ultimately rejected, the assessee was not entitled to ....

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....bunal held that in the facts and circumstances, the breach of the provisions of the Income-tax Act by the assessee was only venial and was pardonable. The Tribunal held that the case of the assessee was not one where penalty should be imposed merely because it was lawful to do so and, considering the nature of the breach, held that it would be justified in declining to uphold the penalty. The Tribunal allowed the appeal of the assessee and cancelled the order of penalty. On an application of the Revenue under section 256(2) of the Incometax Act, 1961, the Tribunal, as directed, has referred the following question, as a question of law arising out of its order for the opinion of this court: " Whether, on the facts and in the circumstan....