The ingredients of Clause (c) of Sec. 271(1) of the Income-tax Act, 1961 are not made out if the assessee did not furnish inaccurate particulars of income.

Sachchidanand Jha, J.

1. The Tribunal has referred the following question for opinion of this court under Sec. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") :

"Whether after insertion of Explanation 1(B) of Sec. 271(1)(c) of the Income-tax Act, 1961, which was applicable for the impugned assessment year, the Tribunal was justified in cancelling the entire penalty under Section 271(1)(c) of the Income-tax Act, 1961, even when it had sustained some trading addition in rejecting the assessees explanation in quantum appeal ?"

2. The assessee derives income from crockery business. For the assessment year 1979-80, to which this reference relates, it submitted a return showing turnover of Rs. 4,37,285 and gross profit at 10.5 per cent. The Assessing Officer found that the income shown was not correct. He estimated the sale and gross profit at Rs. 5,12,500 and at 15 per cent respectively. In view of the discrepancy between the income returned and the income asssessed, he initiated penalty proceedings under Sec. 271(1)(c) of the Act and, ultimately, imposed penalty of Rs. 11,290. The Appellate Assistant Commissioner confirmed the order. The Tribunal, however, cancelled the penalty holding that there was no finding of concealment of income by the assessing/appellate authorities. It held that although the addition of income had been sustained by the Tribunal, it could not follow that the books of account which the assessee had produced contained inaccurate particulars of total income. However, on an application for making a reference of the question as to whether it had correctly deleted the penalty the Tribunal referred the above-noted question for opinion to this court.

3. Mr. K. K. Vidyarthi, learned counsel for the Revenue, contended that the Tribunal has committed an error in cancelling the order of penalty on the basis of the decisions in CIT V/s. Nathulal Agarwala and Sons [1985J 153 ITR 292 (Patna) [FB] and CIT V/s. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC) which had been rendered in view of the Explanation as it stood prior to the 1976 amendment. He submitted that a definite finding to the effect that the particulars of income were inaccurate had been recorded by both the Assessing Officer and the Appellate Assistant Commissioner.

4. In order to appreciate the nature and effect of the 1976 amendment in the Explanation to Sec. 271(l)(c), which is the sheet-anchor of the Departments case, it would be apt to very briefly notice the history of the provision regarding imposition of penalty. Sec. 271 of the Act provides for imposition of penalty in cases, inter alia, of concealment of income or furnishing of inaccurate particulars of such income. Clause (c) of Sec. 271(1), with which we are concerned in this case, initially made the assessee liable to imposition of penalty for concealing the particulars of his income or deliberately furnishing inaccurate particulars. The word "deliberately" was omitted in 1964 and an Explanation was inserted. The Explanation laid down that where the total income returned by any person was less than 80 per cent, of the total income as assessed under Sec. 143 or Sec. 144 or Sec. 147 (reduced by the expenditure incurred bona fide by him), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, "be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c)". A new Explanation was substituted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. Since during the relevant period it is this Explanation which was in force it would be appropriate to quote the same so far as relevant, as hereunder :

"Explanation 1--Where in respect of any facts material to the computation of the total income of any person under this Act,-- . . . (B) such person offers an explanation which he i