A protective order of penalty is not warranted under law, and in the absence of wilful concealment and the amount not accruing to the firm, the penalty is unsustainable.

S.P.Goyal, J.

1. The assessee-firm was initially formed on September 20, 1958, consisting of Pyare Lal and his two sons, Lachhman Dass and Sat Parkash, as partners. After the death of Pyare Lal, it was reconstituted on February 22, 1960, and Smt. Basanti Devi, his widow, was introduced in his place. Yet another change took place in the constitution of the firm on March 23, 1962, whereby Smt. Basanti Devi retired and Omkar, son of Kishan Chand, was taken as partner with two annas share. During the assessment years 1961-62 and 1962-63 the firm paid Rs. 8,261 on account of sales tax which were ordered to be refunded and on that account a sum of Rs. 4,498 was received by the firm on September 7, 1967, and credited to the account of Lachhman Dass and Sat Parkash in equal shares. This amount was not shown as income of the firm in the assessment year 1968-69 and was included in its income by the assessing authority. Simultaneously, the penalty proceedings for wilful concealment of income were instituted and penalty imposed by the IAC, vide order dated September 21, 1970. However, on appeal, the Tribunal deleted the penalty and on an application by the Commissioner referred the following three questions for the opinion of this court :

"1. Whether, on the facts and in the circumstances of this case, the Appellate Tribunal was right in law in annulling the penalty order of the Inspecting Assistant Commissioner against the assessee-firm holding it to be bad in view of his observations that the penalty proceedings are being completed to protect the interests of the Revenue ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that it was open to the assessee-firm to urge in penalty proceedings that the addition of Rs. 4,498 under Section 41(1) of the Income-tax Act, 1961, was not warranted in the quantum assessment of the firm ?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that penalty was not exigible because the identity of the firm as constituted in the assessment years 1961-62 and 1962-63 was different from the firm, as constituted in the assessment year 1968-69, their constitutions being different ? "

2. The penalty was imposed by the IAC as a protective measure because a similar penalty had already been imposed on the two partners for concealment of the said income. The Tribunal found that, under law, a protective order of assessment can be passed but not of penalty. The learned counsel for the Revenue was unable to challenge this view of the Tribunal and frankly conceded that he was not able to cite any provision of law or decided case which warranted a protective order of penalty. That apart, no finding was recorded by the IAC that there was any wilful concealment of the income and in the absence of such a finding, the order of penalty would be unsustainable. The other reason given for deleting the penalty was that the income did not accrue to the present firm. As is apparent from the facts stated above, the amount received by the firm was not credited in its account and instead credited to the accounts of Lachhman Dass and Sat Parkash who were partners in the earlier firm. The assessee-firm, therefore, did not treat the said amount as its own and it being a firm different from the one to whom the refund had been made could not be held guilty of any concealment. The Tribunal, therefore, rightly deleted the penalty and questions Nos. 1 and 3 are accordingly answered against the Revenue and in favour of the assessee.

3. In view of our answer on questions Nos. 1 and 3, we do not propose to express any opinion on question No. 2 and the same is returned unanswered. No costs.