The imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961, requires a finding of concealment or furnishing of inaccurate particulars, which was not established in this case.

M.K. Srinivasa Iyengar, J.—The Income Tax Appellate Tribunal, Banglore Bench, has referred the following question under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court in R. A. No. 394 (Bang) 1974-75 on its file :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of the Explanation to section 271(1)(c) are not applicable to this case ?"

2. The commissioner of Income Tax had sought for referring three questions. But, the Tribunal referred only one question. Subsequently, the Commissioner moved this court in C. P. No. 18 of 1976 for directing further questions to be referred to this court. An order was made by this court dated December 1, 1976, in C. P. No. 18 of 1976 and, pursuant to that order, the following question has also been referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the penalty of Rs.5 lakhs levied under section 271(1)(c) of the Income Tax Act, 1961 ?"

3. As both the references arise out of the same order of the Tribunal, they are disposed of by this common order.

4. An assessment had been made against the assessee (respondent) for the assessment year 1960-61 on December 5, 1961, computing a net loss of Rs. 12,599. Subsequently, proceedings under section 147(a) of the Act were taken on the ground that the assessee had received a sum of Rs. 32,58,500 from Parsons and Whittmore, Canada, which purported to be a loan. The Income Tax Officer thought that, in reality, it was not a loan but a sort of commission paid to the assessee from a foreign collaborator. It was on this ground that reassessment proceeding was started. The assessee maintained that it was a loan and there was no justification to hold that it was any receipt from business. But, the Income Tax Officer did not accept that contention and reassessment was made including that amount as income of the assessee. The appeal to the Appellate Assistant Commissioner of Income Tax and the Tribunal was not fruitful. At the instance of the assessee, the Income Tax Appellate Tribunal referred the question, whether the conclusion that the amount represented income was correct, to this court in Bedi and Company Pvt. Ltd. Vs. Commissioner of Income Tax, Karnataka, (1983) 144 ITR 352 KAR. That matter was heard on August 4, 1980, and answered in favour of the assessee. This court held that there was no material justifying any inference that the amount represented any income from business and the Tribunal ought to have upheld the apparent state of affairs, namely, that the transaction was a loan transaction.

5. In view of the addition made, the Income Tax Officer was of the opinion that the assessee had concealed its income or furnished inaccurate particulars thereof and, therefore, initiated proceedings for imposition of penalty under section 271(1)(c) of the Act. On the ground that the minimum penalty imposable would exceed Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner. He, after affording an opportunity to the assessee to show cause why penalty should not be imposed, did not accept the contention of the assessee that the amount did not represent any income and that, therefore, there was no question of concealing any income or furnishing inaccurate particulars thereof, and imposed penalty in sum of Rs. 5 lakhs. By the time that order came to be made, the appeal of the assessee to the Appellate Assistant Commissioner had been disposed of. Apparently, the matter had not yet been disposed of by the Tribunal.

6. The assessee preferred an appeal to the Tribunal against the imposition of penalty. The Tribunal, inter alia, accepted the contention on behalf of the assessee that, in the circumstances of the case, as the assessee was contending that the amount did not represent any income, it could not be said that the asses