Judgment:
B. S. Dhillon, J.
1. In this petition under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the Commissioner of Income-tax, Amritsar-I, has prayed that the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as the Tribunal), be directed to refer the following two questions of law to this court for decision:
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal has misdirected itself in holding that the claim made by the asses-see on account of bonus reserve did not arise from any fraud or any gross or wilful neglect on his part ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in- law in deleting the penalty imposed under Section 271(1)(c) of the Act ?'
2. The assessee is a registered firm carrying on business of manufacturing and sale of water meters and components. In the assessment order for the year 1967-68, the ITO made the following additions towards the total income of the assessee :
(1) Rs. 1,394 towards car expenses on account of personal use of car by the partners of the firm,
(2) Rs. 500 out of travelling expenses on account of fooding expenses of partners while on tour.
(3) Rs. 1,008 out of repair account on account of capital expenditure relating to the electric fans.
(4) Rs. 25,111 'reserve for bonus.'
3. The ITO also initiated penalty proceedings and he referred the case to the IAC under Section 274(2) of the Act. The IAC, after hearing the assessee, imposed a penalty of Rs, 24,925 in terms of the Explanation to Section 271(1)(c) of the Act, This order was assailed by the assessee before the Tribunal. The Tribunal accepted the appeal and recorded a finding that disallowance of certain expenditure, claimed in good faith, cannot be the basis for the levy of penalty under Section 271(1)(c) of the Act. Aggrieved by this order, the revenue filed a petition before the Tribunal to refer the above-mentioned two questions of law for the opinion of this court. This petition has been dismissed by the Tribunal holding that the above-mentioned questions are not questions of law as the finding recorded by the Tribunal is based on the material placed on the record and the findings recorded are essentially findings of fact.
4. We have carefully gone through the order of the Tribunal dated 20th July, 1974, copy of which is annex. 'B', and all other relevant material on the record and we have no reason to take a different view than the one taken by the Tribunal. The revenue accepted the position regarding items Nos. 1 to 3 referred to in the earlier part of the judgment that the said items were a claim bona fide made which was disallowed by the ITO and thus no penalty proceedings could be taken. As regards item No. 4, the reserve for bonus, it is not disputed that this amount was shown in the balance-sheet attached with the return and thus there was no concealment of that amount on the part of the assessee. The bona fide claim was asserted for the reserve for bonus which was disallowed by the ITO. It is well established that in penalty proceedings the mens rea is the essential ingredient and in view of the fact that the assessee disclosed this amount of income but claimed it as a reserve for bonus, would clearly show that there was no concealment. We are, therefore, inclined to agree with the view expressed by the Tribunal in the order referred to above.
5. For the reasons recorded above, this petition is dismissed. However, there will be no order as to costs.