The assessee is required to prove that the difference between the returned income and the assessed income is not due to any fraud or gross or wilful neglect on its part, and the provisions of law applicable to the penal proceedings are those governing on the date on which the return is filed.

1. This is a reference under Sec.256(1) of the I.T. Act, 1961, made by the Income-tax Appellate Tribunal, Patna "A", for the assessment year 1965-66. The Tribunal has referred the following two questions of law for opinion of this court :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that no penalty could be imposed in this case under Sec.271(1)(c) of the Income-tax Act read with its Explanation ?

(2) If the answer to the above question is in the negative, whether the Tribunal was correct in folding that the quantum of penalty in this case was to be governed by the provisions of the law which were in force before April 1, 1968?"

2. From the statement of case submitted, the relevant facts that appear are these.

3. The assessee is a registered co-operative society manufacturing guns under licence from the Government. In the course of the assessment proceedings, the ITO found certain discrepancies between the balance in the Central Bank of India and the accounts of that bank in the books of the assessee. The balance as per books was Rs. 7,974 whereas the pass book showed a balance of Rs. 28,105. At the time of assessment, the assessee could not explain this difference. It was merely stated on its behalf that at the time of audit, the pass book had been misplaced by the ex-secretary of the society and so it was not placed before the auditor. In the absence of any satisfactory explanation, the ITO treated the difference of Rs. 20,031 as the assessees undisclosed income. The ITO further initiated proceedings under Sec.271(1)(c) for concealment. A copy of the assessment order passed by the ITO is annex. A forming part of the statement of case.

4. In the quantum appeal, the AAC found that the transactions with the bank were partly recorded in the books of account and partly they were not so recorded. There were certain transactions in the bank which were explained by the assessee as representing sales of guns on behalf of the members of the said society (the assessee). It was explained that at the time of sales of guns, the sale proceeds were deposited in the bank directly without going through the ledgers or cash book maintained by the assessee. The AAC found that the discrepancy had not been proved and he further found that the credit in the bank to the extent of Rs. 1,81,000 could very well represent the sales by the assessee. He, therefore, estimated that the profit on such sales could be almost the same amount as added by the ITO, In this view of the matter, the addition made by the ITO was confirmed by the AAC, a copy whereof has been annexed to the reference as annex. B.

5. In the penalty proceedings, the IAC found that there was no explanation for the difference between the bank account as per pass book of the assessee and as per books maintained by the assessee. The IAC also referred to the fact that whereas the assessee showed sales of Rs. 6,380, the credit in the bank was to the extent of Rs. 1,81,000 which could very well represent the sales which had not been shown by the assessee. He, therefore, held that the assessee had concealed its income, and as such penalty had to be levied under Section 271(1)(c).

6. In this case, the assessee has filed several returns and one of the revised returns was filed on July 12, 1969, and "as this return had been filed after April 1, 1968, the IAC held that the minimum penalty imposable was equal to the amount of concealment and he, therefore, imposed a penalty of Rs. 20,000. A copy of the penalty order passed by the IAC is annex. C to this reference.

7. Before the Tribunal it was submitted by the assessee that the society was making sales of guns on behalf of its members and the society was merely getting commission on these sales. It was, therefore, argued that the penalty was not leviable. On behalf of the Revenue, it was argued before the Tribunal that the penalty was leviable, as the difference between the returned income