DIPAK KUMAR SEN, J.

(1) THIS reference arises out of the income-tax assessment of Calcutta Credit Corporation, the assessee, in the assessment year 1966-67, the accounting year ending on June 30, 1965. In making the assessment, the Income-tax Officer found Rs. 1,20,000 standing credited in the name of one Shankarlal Dulichand in the books of the assessee. A sum of Rs. 10,846 was also shown as paid by way of interest to the said Shankarlal Dulichand. The Income-tax Officer did not accept the particular item of entry and treated the said sum of Rs. 1,20,000 as the assessees income from other sources. He also disallowed the assessees claim of deduction of Rs. 10,846 which was claimed to have been paid to Shankarlal Dulichand by way of interest. The taxable income of the assessee was computed accordingly.

(2) BEING aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that the creditor, Shankarlal Dulichand, was a registered firm consisting of five partners and that it was an assessee under the Income-tax Act. He also found from the report of the inspector dated July 26, 1969, that the firm had since closed down and its partners were not traceable. He next considered the financial capability of the creditor and scrutinised the last three assessments of the firm. He came to the conclusion that the financial position of the creditor was not bad and it would have been possible for the creditor to have advanced the amount to the assessee from its secreted profits and suppressed funds. He held that the fact that the assessee had not paid any brokerage to the broker who claimed to have negotiated the loan was not of much relevance. He held that the Income-tax Officer was not justified in including the said amount of Rs. 1,20,000 which stood credited in the name of Shankarlal Dulichand in the income of the assessee and directed deletion of the amount.

(3) BEING aggrieved, the Revenue went up in appeal before the Income-tax Appellate Tribunal. The Tribunal found from the facts on record that the confirmatory letter from the creditor suffered from infirmities. The Tribunal also did not accept the oral testimony of the broker in support of the said loan. It was noted that the broker was not carrying on regular business and there was no evidence to show that he had received any brokerage in respect of the particular transaction. The Tribunal also considered the financial position of the creditor and held that it could not be established that the creditor had enough assets to make the loan. The finding of the Appellate Assistant Commissioner that the creditor could have given the loan from its secreted profits and concealed assets was held to be speculative.

(4) THE Tribunal, however, after considering the cash credits covered by the earlier disclosures of the assessee, held that the cash credit shown in the name of Shankarlal Dulichand could be explained from such disclosures and the cash rotation statement except to the extent of Rs. 40,000. The Tribunal reversed the finding of the Appellate Assistant Commissioner and restored the addition to the extent of Rs. 40,000. The claim for deduction of Rs. 10,846 alleged to have been paid by way of interest was also disallowed and the addition of the said amount was restored.

(5) ON the basis of the aforesaid, penalty proceedings were initiated by the Inspecting Assistant Commissioner under Section 274 of the Income-tax Act, 1961, and by an order dated February 25, 1974, a penalty of Rs. 49,566 was imposed on the assessee.

(6) BEING aggrieved, the assessee preferred an appeal against the order of penalty before the Income-tax Appellate Tribunal. The Tribunal found that the assessees case supported by evidence, viz. , certificate of the creditor, the affidavit and the oral evidence of the finance broker and the income-tax records of the creditor, was accepted by the Appellate Assistant Commissioner who found that the cash credit in the name of the creditor and the interest paid thereon were genuine. On further appeal, the Tribunal, however, did not accept the findings of the Appellate Assistant Commissioner and held that part of the cash credit, viz. , Rs. 40,000, should be treated as the assessees income. The Tribunal noted that two opinions on the facts of the case were possible, namely, whether the particular amount constituted the assessees income. In that view, it was held that the charge of concealment of income or furnishing of inaccurate particulars or fraud or gross or wilful negligence could not be established. The Tribunal further held that the difference between the total income shown in the return and the total income ultimately assessed after giving effect to the appellate orders without considering the expenses incurred in earning the income would not bring into operation the Explanation to Section 271 (l) (c) of the Income-tax Act, 1961. On the above grounds, the Tribunal cancelled the order of penalty.

(7) ON an application of the Revenue under Section 256 (1) of the Income-tax Act, the following question has been referred as a question of law arising out of the order of the Tribunal for the opinion of this court:

"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no penalty was leviable under Section 271 (1) (c) read with the provisions of the Explanation thereto "

(8) IT appears that the facts found by the Tribunal have not been challenged as perverse or based on no evidence. It is settled law that mere addition to the taxable income does not automatically lead to an order of penalty. Further investigation and finding is necessary before penalty can be imposed. In the instant case, the case of the assessee that he had not deliberately concealed his income or deliberately furnished inaccurate particulars or that he is guilty of fraud or wilful neglect supported by evidence adduced has been accepted by the Tribunal on facts found by the Tribunal which remain unchallenged. The finding of the Tribunal that if the expenses incurred by the assessee in earning the income in dispute are excluded, then the Explanation to Section 271 (1) (c) leading to a presumption of concealment of income or deliberate furnishing of incorrect particulars of income will be excluded has not been challenged. In CIT v. Jagabandhu Prasanna Kumar Ruplal Sen Poddar [1982] 133 ITR 156 [LQ/CalHC/1981/63] , in almost identical facts, this court accepted the finding of the Tribunal that no case for levying penalty had been made out as two opinions were arrived at on the same facts.

(9) FOR the above reasons, we answer the question referred in the affirmative and in favour of the assessee. There will be no order as to costs.