The main legal point established in the judgment is that for the purposes of clause (c) of S.271(1) of the Income-tax Act, 1961, there is no need to find any failure to furnish return or failure to comply with a notice. The judgment also emphasized that even a 'nil assessment' has to be regarded as an assessment in the eye of law.

1. The Income-tax Appellate Tribunal; Cochin Bench, has sent up a statement of the case and referred the following question of law for our opinion viz., "Whether, on the facts and in the circumstances of the case and particularly in view of the finding that the assessee consciously and deliberately concealed particulars of its income and deliberately furnished inaccurate particulars thereof and further that the Explanation to S.271(1)(c) applied to this case, the Income-tax Appellate Tribunal is right in law in cancelling the penalty imposed under S.27(1)(c) of the Income-tax Act, 1961?"

The assessee was doing business in food grains, tobacco and rubber. The assessment year with which we are concerned is T969-70, the accounting year being the financial year 1968-69 ending with 31st March, 1969. On an examination of the accounts, the Income-tax Officer found two credits in the folio opened for M/s. Kottayam Rubber Company to the following effect:

Table:#1

These credits were wiped off by debit entries on 25-12-'68 for Rs. 3000/-, and on 31-3-1969 for Rs. 2,629/-. The Officer grew suspicious in regard to the debit entries, and called upon the assessee to explain the cash credits and how they were squared up. It was then admitted before the Officer that the credits represented the income of the assessee and that the debits were fictitious. The plea was that it was so done by the Clerk without the knowledge of the assessee, and on account of the laxity on the part of the Managing Partner to check up the cash balance as per accounts. The explanation was rejected by the Income-tax Officer, and the amount of Rs. 5,629/- was added back. There was no appeal against the assessment. Penalty proceedings were initiated for concealment of income, and the case was referred to the Inspecting Assistant Commissioner who found concealment of income and imposed the penalty of Rs. 8,500/-. The assessee appealed to the Tribunal. The Tribunal took the view that even after the addition of Rs. 5,629/-, and the disallowance of certain amounts, the total income assessed was only Rs. 21,384/-, viz. below the assessable limit for a registered firm; that, being a registered firm with income of less than Rs. 25,000/-, the assessment, was a 'Nil' assessment which would result in no demand against the firm. It was of opinion that there was no evidence of any concealment of any other item of income. The Tribunal hence came to the conclusion that there was no material to show that there was any intention or desire to hide or to conceal the income so as to attract a penalty. It allowed the appeal, and held that no penalty was imposable. The question has been referred to us under S.256 (2) of the Act.

2. S.271 (1) of the Income-tax Act as it stood at the relevant time read:

"271. Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of S.139 or by notice given under sub-section (2) of S.139 or S.148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of S.139 or by such notice, as the case may be, or

(b) has without reasonable cause failed to comply with a notice under subsection (1) of S.142 or sub-section (2) of S.143, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,

(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two percent of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent of the tax;

(ii) in the cases referred to in clause (b), in addition to a