Judgement

SABYASACHI MUKHARJI, J.:- This appeal by special leave is from the judgment and order of the Allahabad High Court dated 23rd December, 1971* in the Income-tax Reference. The assessee is a limited company under the Indian Companies Act and derived its income from the manufacture and sale of sugar and confectionery. The assessment for the assessment year 1958-59 was completed under the Indian Income-tax Act, 1922. The Income-tax Officer in the said assessment, inter alia, made following additions besides others in respect of the following items :

(i) For cane cost Rs. 48,500/-

(ii) For shortage in cane Rs. 67,500/-

(iii) for salary of outstation staff Rs. 21,700/-

* Reported in 1972 Tax LR 577 (All).

2. The assessee did not challenge the said assessment order made by the Income-tax Officer in so far as the additions of the above amounts in appeal or otherwise. It was the case of the assessee that it did not appeal because it wanted to keep good relations with the revenue although, according to the assessee the above additions made by the Income-tax Officer were totally unjustified and illegal.

3. On 14th March, 1963 the Income-tax Officer issued a notice under S. 274 read with S. 271 of the Income-tax Act, 1961 (hereinafter called the Act) in respect of the assessment year 1958-59 for imposing penalty.

4. The assessee company duly demurred. After considering the reply the Inspecting Assistant Commissioner on 1st October, 1964 imposed a penalty of Rs. 70,000/- under S. 274 read with S. 271 of the Act holding inter alia that there was concealment of income to the tune of Rs. 1,37,700/- and the maximum penalty of Rs. 1,06,317/- was imposable. in law but a sum of Rs. 70,000/- was imposed as penalty considering the facts and circumstances of the case.

5. The assessee preferred an appeal against the said order. The Tribunal after considering the entire matter, reduced the penalty to Rs. 5,000/-. The Tribunal referred the three following questions two at the instance of the assessee and one at the instance of the revenue, to the High Court for determination :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of section 271 of the Income-tax Act, 1961 are applicable to the present case;

2. Whether, there is any material to warrant the finding that the assessee company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of section 271(2). of the Income-tax Act, 1961; and

3. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in reducing the penalty under section 271(l)(c) from Rs. 70,000/- to Rs. 5,000/-?"

6. The High Court was of the opinion that the third question did not clearly bring out the matter in dispute between the parties and as such it was refrained as follows :

"Whether, on the facts and in the circumstances, the finding of the Tribunal that the assessee had not concealed income to the extent of Rs. 67,500/- and Rs. 21,700/- within the meaning of section 271 (1)(c) of the Indian Income-tax Act, 1961, is correct in law?"

7. The High Court noted that the Income-tax Officer had made certain additions and disallowed certain expenses and of the various amounts disallowed only three amounts were required to be considered by the High Court namely; (i) inflation in price of sugar-cane of an amount of Rs. 48,500/-, (ii) excess shortage claimed for cane Rs. 67,500/- and (iii) salary of out-station staff of loading contractors of Rs. 21,700/- So far as the first question is concerned the High Court held in favour of revenue and answered the question in the negative. The answer to this question is no longer in dispute here. So far as the second question is concerned the High Court answered the question in the negative and in favour of the assessee. There is no dispute about that question too, in so far as there is no appeal by the revenue. As regards th