The Explanation to Section 271(1) of the Income-tax Act, 1961 does not make the decision of the Supreme Court in Anwar Ali's case inapplicable.

1. The Income-tax Appellate Tribunal (Chandigarh Bench) has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that no penalty was leviable in this case under Section 271(1)(c) read with the Explanation thereto and in deleting the penalty of Rs. 50,000 levied by the Inspecting Assistant Commissioner ?"

2. In the assessment year 1966-67, the Income-tax Officer received information that the assessee had been found in possession of cash amounting to Rs. 1,72,679 by the police at Ambala Cantt. bus stand on March 1, 1966. A notice was issued to him under Section 139(2) of the Income-tax Act, 1961 (hereinafter called "the Act"). The assessee filed his return on August 6, 1966, declaring an income of Rs. 163 from interest. Notices were issued to the assessee under Sections 142(1), 143(2) and 131 of the Act He was examined at considerable length and thereafter the Income-tax Officer assessed him on an income of Rs. 1,77,842. The break up of this income is as follows :

(a) Income from interest as declared--Rs. 163.

(b) Amount recovered by the police in possession of the assessee, the source of which was not satisfactorily explained and which was treated as the assessees income from undisclosed source--Rs. 1,72 679.

(c) Deposit in bank regarding the source of which there was no satisfactory explanation--Rs. 5,000

3. According to the Income-tax Officer the correct income thus was Rs. 1,77,842 as against Rs. 163 declared by the assessee. The assessee was taxed on this income and ultimately the Tribunal maintained the assessment to the tune of Rs. 1,37,679. The Income-tax Officer also initiated penalty proceedings under Section 271(1)(c) of the Act, and as the minimum penalty in the case of the assessee worked at more than Rs. 1,000 the proceedings were referred to the Inspecting Assistant Commissioner of Income-tax. The said Commissioner heard the assessee and ordered a penalty of Rs. 50,000. The assessee filed an appeal against the order of the Inspecting Assistant Commissioner levying a penalty of Rs. 50,000. It was urged before the Appellate Tribunal that, in view of the decision of the Supreme Court in Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696; [1971] 1 S.C.R. 446 (S.C.) the department could not impose the said penalty. The contention was that the department had failed to prove that the amount recovered from the assessee by the police was his income. The contention of the revenue was that the income that was declared by the assessee was Rs. 163 only whereas his correct income had been finally assessed at Rs. 1,37,679. In view of the Explanation to Section 271(1)(c) of the Act, apart from the evidence of concealment, the assessee was to be deemed to have concealed particulars of income or furnished inaccurate particulars of such income for the purposes of Section 271(1)(c) of the Act, unless he proved that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. The Tribunal after hearing the department and the assessee allowed the appeal and deleted the penalty under Section 271(1)(c) of the Act. While doing so the Tribunal observed as under :

"So far as penalties and their exigibility is concerned we have held in the quantum appeal that Shri Karnail Singh has not been able to prove that the sum as sustained by us did not belong to him but to others also. Therefore, we have sustained the assessment of the sum of Rs. 1,52,679 minus Rs. 1,50,800 in his hands. Right from the beginning when he was arrested by the police, Shri Karnail Singh has been agitating that the whole sum does not belong to him. To start with, he stated that the amount belonged to Shri John D. Singh and later on he put up the plea that the money belonged jointly to himself, Bakhshish Singh, Puran Singh and Babu Singh. He has been very consistent inasmuch as he has never said at