A penalty under Section 271(1)(c) of the Income-tax Act, 1961, cannot be levied on cash deposits surrendered by the assessee unless there is material on the record to show that the surrendered item was his income.

1. This order will dispose of Income-tax Case No. 2 of 1971 and Income-tax Reference No. 30 of 1970.

2. The assessee is Messrs. Gumani Ram Siri Ram of Muktsar, district Ferozepur. In the assessment year 1964-65 while proceeding with the assessment, the Income-tax Officer noticed cash deposits of Rs. 12,000 appearing in the name of Messrs. Romesh Trading Company in the books of the assessee. The assessee was asked to prove the genuineness of these cash credit entries. The assessee stated that he was not in a position to prove the genuineness of these entries and made a statement "surrendering squared up account of Rs. 12,000 in the name of Romesh Trading Company". The assessee was then assessed to an income of Rs. 65,046 as against the returned income of Rs. 46,446. The income assessed included the amount of Rs. 12,000.

3. The assessment was followed by proceedings under Section 271(1)(c) of the Income-tax Act, 1961, and a penalty of Rs. 6,768 at 50 per cent. of the tax sought to be evaded was levied by the Inspecting Assistant Commissioner. Against his decision an appeal was taken to the Income-tax Appellate Tribunal. The Tribunal maintained the order levying the penalty but reduced the quantum to 1/3rd of the tax evaded. The assessee then moved the Tribunal under Section 256(1) of the Income-tax Act, 1961, for stating four questions of law for the opinion of this court. The Tribunal has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, a penalty could be levied on the cash deposits surrendered by the assessee out of his free will and whether any more material for the levy of penalty was required to be adduced by the, income-tax authorities ?"

4. The assessee was not satisfied with this order and made an application to this court under Section 256(2) of the Income-tax Act, 1961, and required that the Tribunal be directed to refer the following questions of law for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the initial satisfaction for the imposing of penalty should have been that of the Income-tax Officer or of the Inspecting Assistant Commissioner and whether the said satisfaction has been recorded ?

2. Whether, on the facts and in the circumstances of the case, the Explanation to Section 271(1) will apply particularly when the said Explanation came into force with effect from 1st April, 1964, while the alleged fictitious entry was made on 25th February, 1964 ?"

5. The learned counsel for the assessee while arguing Income-tax Case No. 2 of 1971 did not press for reference of the first question and conceded that the second question was only of an academic nature particularly when the Tribunal did not rely on the explanation in support of the order upholding the levy of penalty by the Appellate Assistant Commissioner.

6. This, therefore, leaves the question that is the subject-matter of Income-tax Reference No. 30 of 1970. So far as this question is concerned it appears to us that the answer to this question is concluded by the decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696 (S.C.). The facts of the Supreme Court decision are almost in pari materia with the facts of the present case. The only distinction that the learned counsel for the department could urge was that in the Supreme Court case the assessees case was that he had received the amounts from his relations because of certain communal riots for safe custody. That explanation was rejected by the Income-tax Officer and the amount in question lying in deposit with the bank was treated as income of the assessee. In the present case the assessee furnished no explanation for the cash credit entries of Rs. 12,000. He surrendered this amount for the purpose of tax. But he made no statement that this amount was his income. Their Lordships of the Supreme Court in Anwar Alis case, observed that :

"Before penalt