RAMASWAMI J.

The assessee in this case carries on business in money-lending. In the assessment year 1961-62, corresponding to the year ending March 31, 1961, there were three cash credit entries in the books of account of the assessee in the names of Vaiyapuri Pillai, Vaira Perumal and Marimuthu Gounder and the amounts that stood to their credit were Rs. 10, 000, Rs. 10, 000 and Rs. 5, 000, respectively. Vaiyapuri Pillai looks after the assessee's lands. Vaira Perumal is a lessee of the assessee and Marimuthu Gounder is a lessee of certain lands belonging to the assessee's close relation. In the course of the income-tax proceedings the assessee was asked to produce evidence as to the source and nature of the above credits. The said three persons were examined by the Income-tax Officer. After considering their evidence, the Income-tax Officer came to the conclusion that the amounts represented the assessee's income from undisclosed sources. This finding was confirmed by the Appellate Assistant Commissioner and the Tribunal. Penalty proceedings were initiated against the assessee by the Inspecting Assistant Commissioner. To the notice issued in these proceedings, the assessee submitted his reply on June 6, 1967, in which he contended that those were the amounts which were borrowed or deposited by the said three persons and they were not his undisclosed income. The Inspecting Assistant Commissioner examined the three persons again in the penalty proceedings. These three witnesses confirmed the statement of the assessee that they had lent money to the assessee. But the Inspecting Assistant Commissioner rejected their evidence holding that they were men of no means and that there was inherent incompatibility in accepting their evidence. He, therefore, held that the assessee's explanation was not acceptable and that the amounts represented the undisclosed income of the assessee. He, accordingly, levied a penalty of Rs. 10, 000. On a further appeal, the Tribunal also held that the evidence of these three witnesses were not reliable, that the assessee's statement in the circumstances was not acceptable and that the facts and circumstances disclosed that a sum of Rs. 21, 000 standing to the credit of the three persons represented the undisclosed or concealed income of the assessee. But, all the same, the Tribunal considered that the penalty levied was excessive and reduced the penalty to Rs. 5, 000 At the instance of the assessee, the following question has been referred under section 256(2) of the Act

"Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 5, 000 on the assessee for the assessment year 1961-62 under section 271(1)(c) of the Income-tax Act, 1961, is valid in law ?" *

The learned counsel for the assessee strenuously contended that there is no positive evidence in this case to come to the conclusion that the said sum of Rs. 21, 000 represented the concealed income of the assessee. The only thing that could be said is that the Inspecting Assistant Commissioner and the Tribunal chose to reject the explanation offered by the assessee and that on the law now well established such mere rejection of the explanation alone is not enough for levying the penalty under section 271(1)(c)

We have carefully considered this argument of the learned counsel. It is true that a mere rejection of the explanation of the assessee that the amount belonged to somebody else is not enough to hold that the amount represented the concealed income. But we are not prepared to accede to the argument that this is a case of a mere rejection of the assessee's explanation. We have the following facts. The three amounts amounting to Rs. 21, 000 are found accounted in the account books of the assessee. It has, therefore, to be taken that the amount was available with the assessee. His explanation was that these amounts were deposited by the three individuals above referred to. It is seen from their evidence that in