Nazir Ahmad, J.

1. A statement of the case has been submitted by the Income-tax Appellate Tribunal, "B" Bench, Patna (hereinafter referred to as the Tribunal), under Sec.256(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), referring the following question as directed by this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 15,000 imposed under Sec.271(1)(c) of the Income-tax Act ?"

2. The relevant facts of the case may be culled from the statement of the case as well as from the orders of the Income-tax Officer, the Inspecting Assistant Commissioner of Income-tax and the Tribunal. The assessment year involved is 1958-59. For the assessment year 1958-59 the Income-tax Officer originally completed the assessment under Sec.23(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as the old Act). The assessee returned a loss of Rs. 30,519. The Income-tax Officer calculated the loss at Rs. 33,608, which was unabsorbed depreciation which was to be carried forward. This assessment was made on February 19, 1959. The .assessment order has been annexed and has been marked as annexure A forming part of the statement of the case.

3. The Income-tax Officer issued a notice dated October 9, 1967, under Section 148 of the Act which was served on the assessee by registered post. The assessee again filed a return of income on February 26, 1968, declaring the total loss at Rs. 30,519 as was shown in the original return. The Income-tax Officer found the following cash credits in the account books of the assessee :

Date Name to which entries relate Amount Rs.

January 2, 1958 M/s. Sri Kishan Ghanshyam Das, Calcutta 29,000

February 5, 1958 M/s. Ramkrishna Shyam Sunder, Calcutta 31,000

February 24, 1958 do. 29,000

4. Thus the total credits came to Rs. 89,000. The Income-tax Officer asked the assessee to explain these credits. The assessee was informed that the parties against whom credits were shown were ghost parties and not actually existing. The assessee was further requested to prove the genuineness of these credits. The assessee took time till January 6, 1968, but ultimately he did not bring any evidence except writing in the letter dated February 1, 1968, that the parties were genuine. Finally, one more opportunity was given by the Income-tax Officer by letter dated March 11, 1971, for proving the genuineness of the loans. The assessee did not produce any evidence to prove the genuineness of the loans. The Income-tax Officer, therefore, considered the amount of Rs. 89,000 relating to the credits as secret profits from the business of the assessee for 1967. The Income-tax Officer after adding the cash credits of Rs. 89,000 and after allowing depreciation and development rebate, assessed the total income at Rs. 58,235. This reassessment was made on March 17, 1971, on the return in pursuance of the notice under Sec.148 which was filed on February 26, 1968. The assessment order relating to the reassessment proceeding has been annexed and marked as annexure A-1 forming part of the statement of the case.

5. During the course of reassessment proceedings, penalty proceedings under Sec.271(1)(c) of the Act were also initiated by the Income-tax Officer with the previous approval of the Inspecting Assistant Commissioner and so the proceeding was referred to the Inspecting Assistant Commissioner as the minimum penalty leviable amounted to more than Rs. 1,000. On behalf of the assessee it was argued before the Inspecting Assistant Commissioner that there was nothing on the record from which it could be proved that the assessee had either concealed its income or had furnished inaccurate particulars thereof. It was also submitted on behalf of the assessee that the cash credits which appea