JUDGMENT R.L. Gulati, J.
1. The Income-tax Appellate Tribunal, Allahabad, has submitted the statement of the case under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as the "Act").
2. The assessee is a firm registered under the Act. For the assessment year 1962-63 it did not file a return of its income as required by Section 139(1) of the Act. Under that provision the return should have been filed by 30th November, 1962, Later on, in May 12, 1964, the assessee did file a voluntary return disclosing a net loss of Rs. 9,214. The Income-tax Officer did not accept the return and assessed the assessee at a total income of Rs. 64,922, which included a sum of Rs. 40,000 as income from undisclosed sources, being the aggregate amount of three cash credits, the source and nature of which the assessee was unable to prove and which it ultimately surrendered for assessment. The Income-tax Officer also initiated proceedings for levying penalty in respect of the default committed by the assessee of the provisions of Section 139(1) and ultimately imposed a penalty of Rs. 13,702 under Section 271(l.)(a) of the Act. The assessee's appeal to the Appellate Assistant Commissioner of Income-tax failed. On a second appeal, the Income-tax Appellate Tribunal held that the assessee is not liable to file a voluntary return under Section 139(1) of the Act. The reasoning of the Tribunal is like this. Out of the total income of Rs. 64,922 assessed by the Income-tax Officer, a sum of Rs. 40,000 on account of the unexplained cash credits had to be excluded and the balance of Rs. 24,922 was less than Rs. 25,000 which is the minimum taxable limit in the case of a firm. As such, Section 139(1) did not cast any liability upon the assessee to file a voluntary return. On this finding, the Tribunal has cancelled the penalty. The Commissioner is aggrieved and at his instance the following question of law has been referred to us :
"Whether, on the facts and in the circumstances of the case, the penalty levied under Section 271(1)(a) of the Income-tax Act, 1961, was rightly cancelled ?"
3. Two contentions have been raised by the learned counsel for the department: (1) that the Tribunal is wrong in holding that the assessee's income was less than Rs. 25,000 ; and (2) that even if the income was less than Rs. 25,000, the assessee was liable to file a voluntary return.
4. Now, under Section 139(1) a duty is cast upon every person to file a voluntary return if his income exceeds the maximum amount which is not chargeable to income-tax. The question arises as to which income is contemplated by this provision, the income which the assessee believes to be his income or which is finally assessed by the Income-tax Officer. It is clear that at the time when a person is required to file a voluntary return, no assessment has yet been made against him. He is thus to be guided by what he himself believes to be his income, It is possible and it happens very frequently that an assessee may not consider a particular item to be his income and yet, the Income-tax Officer may hold otherwise. In such a case, if what he considers to be his income is less than the amount which is not chargeable to income-tax, he is not required to file a voluntary return even if the income finally assessed is more than the maximum amount which is not chargeable to income-tax. Of course, the belief of the assessee must be bona fide. In the instant case, the total income assessed by the Income-tax Officer includes a sum of Rs. 40,000 on account of unexplained cash credits. These cash credits could not be considered by the assessee to be its income. According to the assessee, they represented loans. During the course of assessment proceedings the assessee surrendered this amount for inclusion in its income but the Tribunal has found that the surrender was made because the assessee found itself unable to produce evidence which could satisfy the Income-tax Officer. In these circumstances it cannot be said that the assessee itself should have treated the cash credits to be its income. As has been rightly pointed out by the Tribunal the fact that the Inspecting Assistant Commissioner of Income-tax had absolved the assessee of the charge of concealment with respect to the cash credits during the course of proceedings for levy of penalty under Section 271(1)(c) goes a long way to show that the belief of the assessee that cash credits were not items of taxable income was bona fide one. Thus, the sum of Rs. 40,000 must be deducted out of the income assessed to find out if the balance was still more than the maximum amount not chargeable to income-tax. Now, after deducting Rs. 40,000 the balance is less than Rs. 25,000 which is the maximum amount not chargeable to income-tax in the case of a registered firm. Clearly, the assessee was under no obligation to file any voluntary return under Section 139(1) of the Act, and, as such, was not liable to any penalty under Section 271(1)(a).
5. In the alternative the learned counsel for the department argued that even if the assessee's income was below Rs. 25,000 yet it was under an obligation to file a voluntary return, if it had some income. He says because the income assessed in the hands of a firm is ultimately to be included in the assessment of the partners, there is no amount which is not chargeable to income-tax in the case of a registered firm. No such question was raised before the Tribunal and, as such, it does not arise out of the order of the Tribunal. It is well settled that in a reference only those questions can be answered by the High Court as have been raised before the Tribunal and have been referred by it. It is, therefore, not necessary to deal with this contention of the learned counsel.
6. We accordingly answer the question in the affirmative, in favour of the assessee and against the department. The Commissioner of Income-tax will pay costs of this reference to the assessee, which we assess at Rs. 200.
Question answered in the affirmative.