Shukla, J.

This is a reference under Section 256(2) of the I.T. Act, 1961. On the direction of this court the Income Tax Appellate Tribunal, Indore, has stated the case and referred the following question for our decision :

"Whether, on the facts and circumstances of the case, the Tribunal rightly held that the assessee cannot be held to be guilty of fraud or gross or wilful neglect on his part, the burden was upon the Department to prove so and consequently rightly deleted the penalties in question ?"

The assessee is an HUF carrying on business in grain and cotton, etc. For assessment years 1966-67 and 1967-68, it filed a return disclosing an income of Rs.2,600 on estimate basis. The ITO issued a notice under Section 143(2) of the Act, with which the assessee failed to comply, and, therefore, best judgment assessments were completed for each of the two years under Section 144 of the I.T. Act. The total income computed by the ITO for each year was Rs.18,100. The assessee appealed against the assessments and the AAC reduced the income to Rs.11,700 and Rs.15,100 respectively. The ITO initiated penalty proceedings and as the minimum penalty imposable exceeded Rs.1,000, he referred the matter to the IAC under the provisions of the Act as they stood at the relevant time. The IAC invoked the Explanation to Section 271(1)(c) of the Act and levied penalties of Rs.9,100 and Rs.12,500 for the two assessment years in question.

The assessee appealed against the orders of the IAC. The Income Tax Appellate Tribunal allowed the appeals and cancelled the penalties holding that even though the accounts of the assessee were not closed and the same were not produced before the ITO, the assessee was not guilty of suppressio veri or suggestio falsi. The operative part of the Tribunal's order may be reproduced :

"The assessee filed its income on the basis of an estimate and the departmental authorities have rejected the estimate of its income by the assessee and substituted their own estimate of the income of the assessee. After all an estimate is an estimate and the circumstance that the estimate of income given by the assessee is rejected and is substituted by another estimate by the departmental authorities and also by the Tribunal will not, ipso facto, go to show that the assessee is guilty either of fraud or of gross or wilful neglect and, therefore, guilty of concealment. We are satisfied that on the facts of the case for each of these two years, the penalty provisions are not attracted. The non-maintenance of closed accounts and the non-production of them, when called upon to do so, might expose the assessee to a different penalty altogether, but so far as the charge of concealment is concerned or of gross or wilful neglect of the assessee is concerned, we must come to the conclusion that on the facts of the case, the penalty provisions under Section 271(1)(c) are not attracted, in either of these two appeals We, therefore, vacate the orders of penalty and allow the appeals."

The Department sought a reference under Section 256(1) of the I.T. Act but the Appellate Tribunal rejected the application. The Department then filed an application under Section 256(2) of the Act before this court and this court directed the Appellate Tribunal to state the case and refer the aforesaid question for our decision.

It may be noted that the Appellate Tribunal placed complete reliance on the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696(SC). The decision was rendered under the 1922 Act which did not contain any provision analogous to the Explanation to Section 271(1)(c) of the Act which was introduced by the amendment of Section 271(1)(c) by the Finance Act, 1964, w.e.f. 1st April, 1964. We have reproduced the relevant portion of the Appellate Tribunal's order and it is clear from a mere perusal thereof that the Appellate Tribunal did not consider the question of burden proof in the wake of the Explanation to Section 271(1)(c) of the A