The ITO's jurisdiction to impose penalty is limited to the findings of the original assessment.

( 1 ) THIS reference under Section 66 (1) of the Indian I. T. Act, 1922, arises out of the income-tax assessment of Ananda Bazar Patrika Private Ltd. , the assessee, for the assessment year 1953-54, the relevant previous year being the calendar year 1952.

( 2 ) THE assessee is engaged in the publication and sale of various newspapers and periodicals. The ITO computed the taxable income as follows : Loss of Rs. 4,951 under the head "business" ; income of Rs. 31,335 under the head "income from property" and an income of Rs. 1,85,963 under the head "other sources". The last item was arrived at by including a sum of Rs. 1,63,000 from a credit of Rs. 2,50,000 standing in the account of Sarala Bala Sarkar, the grandmother of the managing director of the assessee, which the ITO treated as the assessee's income from undisclosed sources.

( 3 ) ON appeal, the AAC, on the basis of certain data relating to circulation figures of the publications of the assessee as supplied to the Audit Bureau of Circulation, held that business income of Rs. 6,92,771 had not been accounted for in the books of the assessee. He held further that the said sum of Rs. 1,63,000 added as income from undisclosed sources was a part of such unaccounted business income. The AAC enhanced the assessment by Rs. 5,29,771. Assessee's further appeal to the Tribunal being dismissed for default, this assessment became final.

( 4 ) PENALTY proceedings under Section 28 of the Act was initiated by the ITO in respect of the said sum of Rs. 1,63,000 included by him under the head "other sources". In the said proceedings, the assessee contended that after the AAC's order, the said sum of Rs. 1,63,000 could not be treated as income from undisclosed sources and the enhancement by the AAC was not the subject-matter of the penalty proceedings. The penalty proceedings were, therefore, not maintainable. The ITO rejected the contentions of the assessee and passed an order on the 8th August, 1963, levying a penalty of Rs. 2,70,000. He took into consideration the assessment as enhanced by the AAC and proceeded on the basis that the income concealed was Rs. 6,92,771.

( 5 ) THE assessee appealed to the AAC against the said levy of penalty. Evidence was led to show that the particulars supplied to the Audit Bureau of Circulation were mere estimates and had not even been accepted by the said Bureau. It was contended that having regard to the commission paid on local sales in Calcutta and allowances to agents for unsold copies, enhancement of the business income was not justified. It was further contended that the penalty proceedings, in any event, had to be confined to the cash credit addition. The AAC upheld the penalty imposed but reduced the amount by Rs. 67,500.

( 6 ) BOTH the assessee and the revenue preferred appeals to the Tribunal from the order of the AAC. The Tribunal found that the notice initiating the penalty proceedings was issued with specific reference to the aforesaid sum of Rs. 1,63,000 and held that the AAC was not competent to enhance the business income as was done by him, and, in any event, he acted in excess of jurisdiction in enhancing the total income by Rs. 5,29,771. The Tribunal held that the levy of penalty in respect of the alleged understatement of business income by Rs. 6,92,771 was bad in law and accordingly allowed the appeal of the assessee. The appeal of the revenue was dismissed.

( 7 ) THE following two questions have been referred :" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the AAC, who heard the assessment appeal had acted in excess of his jurisdiction in enhancing the total income by Rs. 5,29,771 on the ground that the business income, though not the subject-matter of appeal before him, had been under-assessed to the extent of Rs. 6,92,771 and that for this reason the ITO's order of penalty with respect to such enhancement was bad in law ? (2) If the answer to the first quest