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Issues:
1. Correctness of cancellation of penalty under section 271(1)(c) of the Income-tax Act, 1961. Analysis: The High Court of Patna dealt with a reference under section 256(2) of the Income-tax Act, 1961, regarding the correctness of canceling a penalty under section 271(1)(c) of the Act. The case involved an assessee who was a dealer in biri leaves for the assessment year 1968-69. The assessee had shown cash credits of Rs. 80,374 with interest, which was not accepted by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal during the quantum appeals. The assessed income was Rs. 5,53,340 compared to the returned income of Rs. 2,70,451, leading to a penalty proceeding under section 271(1)(c) being initiated. The Inspecting Assistant Commissioner levied a penalty of Rs. 85,000, which was later set aside by the Tribunal upon appeal by the assessee. The Revenue, dissatisfied with the Tribunal's decision to delete the penalty, sought a reference under section 256(1) of the Act, which was refused. Subsequently, the matter was brought before the High Court under section 256(2) for consideration. The court noted that the quantum assessment was still pending, and a previous reference had highlighted the need to establish the identity of creditors to determine the validity of cash credits. The court emphasized the importance of summoning the creditors for verification before making any additions to the income. As the cash credit assessment was unresolved, the court concluded that the question of penalty could not be determined until the quantum assessment was finalized. The court highlighted the necessity of establishing concealment as per legal precedents and directed the matter back to the Tribunal for action post the quantum assessment's conclusion. Ultimately, the court refused to answer the reference question and urged the Tribunal to expedite the case's resolution. The judgment emphasized the importance of due process and proper assessment procedures in tax matters.
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