JUDGMENT

SABYASACHI MUKHARJI, J. :— These appeals by special leave arise from the decision of the Orissa High Court dated 31st October 1973 refusing to direct the Tribunal to state a case under S. 256(2) of the Indian Income-tax Act, 1961 (hereinafter called the Act) and to refer certain questions said to be questions of law arising out of appellate order of the Income-tax Appellate Tribunal for determination of the High Court. The assessment year involved was 1962-63. There were proceedings - one appeal was related to an assessment order whereby additions were made to the quantum of income disclosed by the assessee and the other was in respect of imposition of penalty under S. 271(1)(c) read with S. 274(2) of the said Act.

2. The questions involved respectively in two applications before the High Court were as follows :

"S. J. C. No. 116 of 1972

1. Whether in the absence of proving confirmation letters and Hundis by the assessee, the assessee has discharged his initial onus by producing merely the confirmation letters and Hundis to prove the nature of the transaction?

2. Whether in the facts and circumstances of the case the Tribunal was right in ordering deletion of Rs. 1, 50,000/- as assessees income from undisclosed sources?

3. Whether in the facts and circumstances of the case the cash credit is the assessees income from undisclosed sources?

S. J. C. No. 85 of 1972

Whether in the facts and circumstances of the case the Tribunal was right in shifting the onus from the assessee to the Revenue and in deleting the penalty?"

3. The assessee at the relevant time was a private limited company and maintained accounts according to the calendar year. For the accounting year ending on 31st December, 1961 corresponding to the assessment year 1962-63, the Income-tax Officer did not accept the assessees accounts showing cash credit of Rs. 1,50,000/-. Three amounts were shown to have been received by way of loans from three individual creditors of Calcutta under Hundis. The assessee produced before the Income-tax Officer letters of confirmation, the discharged Hundis and particulars of the different creditors general index numbers were with the Income-tax Department. Attempts had been made to bring those creditors before the Income-tax Officer by issue of notices under S. 131 of the Act, but the said notices were returned with the endorsement left. The Income-tax Officer, therefore, treated the entire amount of Rs. 1,50,000/- as unproved cash credit and added the same to the income of the assessee. The appeal of the assessee to the Assistant Appellate Commissioner was dismissed. Thereafter there was further appeal to the Tribunal.

4. In the meantime on the basis of assessment order proceeding was taken under S.271(1)(c) of the Act and the Inspecting Assistant Commissioner imposed a penalty of Rs. 50,000/-. An appeal against the imposition of penalty was also filed before the Tribunal. Both the appeals were disposed of by the Tribunal.

5. The Tribunal noted that the credit entries stood in the name of third parties in the account-books of the assessee. The explanation was that the amounts represented loans to the assessee from the concerned persons. The assessee had produced discharged Hundis and confirmation letters from these alleged lenders. The Tribunal was of the view that if the assessee could not produce these persons alleged to be the creditors, it did not follow automatically that the adverse inference should be drawn that these amounts represented undisclosed income of the assessee. It was further noted that the creditors were income-tax assessees and while being assessed they had made statements before the respective Income-tax Officers admitting that they were allowing their names to be lent without really giving loans as creditors of different assessees. A list of the assessees had also been given but the name of the present assessee did not figure in that list. The Tribunal came to the conclusion that the revenue was not justified i