assessee derived income from plying of two tankers and for asst. yr. 1974-75 he disclosed income of Rs. 13,250 for financial year 1973-74. H e did not maintain any books of account for his business. ITO in absence of books, estimated income from two tankers UTE 5357 and UTE 5917 at Rs. 33,000 and after adding back profit under s. 41(2) on sale of two tankers, viz., UPJ 8997 and UPJ 786 to extent of Rs. 27,000, determine total income of assessee at Rs. 60,000. AAC reduced income estimated by ITO from two tankers by Rs. 9,000, i.e., as against ITO's estimate of Rs. 33,000, AAC estimated income from two tankers at Rs. 24,000. AAC also reduced ITO's determination of profit under s. 41(2) from Rs. 27,000 to Rs. 16,060. On basis of AAC's order total income of assessee came to Rs. 38,310. On further appeal by assessee, Tribunal reduced income from plying of tankers from AAC's estimate of Rs. 24,000 to Rs. 21,000. Tribunal, however, affirmed AAC's determination of profit under s. 41(2) on sale of two tankers at sum of Rs. 16,060. Thus, total income finally determined for asst. yr. 1974- 75 on basis of Tribunal's order came to Rs. 35,313. ITO by his order dt. 23rd Feb., 1979 levied penalty under s. 271(1)(c) at Rs. 22,060 on ground that assessee inspire of opportunities given did not furnish any explanation to ITO's show-cause notice issued under s. 271(1)(c) of Act. ITO accordingly held that "since there was no compliance by assessee, it is clear that he has acted in conscious disregard of his obligation He was expected to keep proper accounts and file correct return of his income. By not producing books of account, assessee tried to get away after filing return of estimated income. "The AAC cancelled penalty order of ITO on ground that difference between income returned and assessed was mainly due to addition made on estimated basis and by following Calcutta High Court decision in case of Burmah-Shell Oil Storage and Distributing Co. India Ltd. vs. ITO & Ors. (1978) 112 ITR 592 (Cal), AAC held that no penalty could be imposed on assessee in terms of s. 271(1)(c) of Act. department is in appeal against said order of AAC on ground that AAC failed to note that assessee did not AAC failed to not that assessee did not disclose income under s. 41(2) in his return of income and that such non-disclosure attracted penalty within meaning of s. 271(1)(c) of Act. departmental representative at out-set pointed out that since assessee did not furnish any explanation before ITO inspire of opportunities given presumption was that assessee had nothing to explain that failure to return correct income did not arise from any fraud or any gross or willful neglect on part of assessee and consequently ITO was justified in holding that assessee's case came within ambit of s. 271(1)(c) read with Explanation to said section. In support, departmental representative relied on Gujarat High Court decision in case of F. C. Agarwal vs. CIT 1976 CTR (Gau) 82: (1976) 102 ITR 408 (Gau). It has been argued that amount considered in assessment under s. 41(2) of IT Act would be income for nondisclosure of which penalty could be levied under s. 271(1)(c) of Act. For this proposition, reliance was placed on Punjab & Haryana High Court decision in case of CIT vs. Behari Lal Pyare Lal (1977) 107 ITR 587 (P&H). It has been stated that with insertion of Explanation to s. 271(1)(c) w.e.f. 1st April, 1964 law relating to imposition of penalty has been substantially changed inasmuch as in case where total income returned by assessee was less than 80 per cent of total income assessed as reduced by expenditure incurred bona fide by him, for purpose of making or earning any income included in total income, but which has been disallowed as deduction, presumption arises that assessee concealed particulars or his income or furnished inaccurate particulars of such income for purposes of cl. (c) of s. 271(1) of It Act. 1961. It has been pointed out that in explaining scope of Explanation to s. 271(1)(c), Allahabad High Court in case of Addl. CIT vs. Lakshmi Industries and Cold Storage Co. Ltd. (1983) 32 CTR (All) 195: (1984) 146 ITR 492 (All) has held that penalty in terms of Explanation to s. 271(1)(c) was exigible in cases when additions have been made on estimate and even where best judgment assessment is made. In this connection reliance was also placed on another Allahabad High Court decision in case of CIT vs. Swarup Cold Storage and General Mills (1982) 29 CTR (All) 273: (1982) 136 ITR 435 (All) and Madras High Court decision in case of CIT vs. B. A. Balasubramanian & Bros. Co. (1984) 40 CTR (Mad) 217. It has been argued that even under provisions of 1922 Act it has been held by Madras High Court in case of A. K. Bashu Sahib vs. CIT (1977) 108 ITR 736 (Mad) that where estimate of assessee amounts to deliberate under statement, inference of concealment of income could certainly be drawn and penalty could be levied under s. 28(1)(c). In reply, assessee's ld. counsel stated that all along in past assessments have been made by estimate and it is incorrect to say that there was non-disclosure of materials facts in return. It has been pointed out that in asst. yr. 1973-74 assessee disclosed income from plying of two oil tankers at Rs. 11,000, but ITO in assessment estimated total income of assessee at Rs. 27,307. It has been pointed out that after giving effect to Tribunal's order, total income of assessee for 1973-74 worked out to Rs. 9557, i.e., about income shown in return. In respect of asst. yr. 1974-75, it has been stated, assessee submitted return income on 14th Aug., 1974 and in letter dt. 9th Aug., 1974 assessee made full disclosure of sale of two old tankers Nos. UPJ 786 and UPG 8997. It has been argued that assessee was under honest impression that since no depreciation had actually been allowed, profit under s. 41(2) could not be considered in hands of assessee in view of Allahabad High Court decision in case of Karamat Khan vs. CIT (1965) 158 ITR 642 (All). ld. counsel for assessee also referred to observations of Hon'ble Supreme Court in case of CIT vs. Straw Products Ltd. (1966) 60 ITR 156 at 165 (SC). Lastly it has been submitted that only due to assessee's default in not furnishing any reply to ITO's show- cause notice under s. 274, ITO's order of penalty under s. 271(1)(c) should not be sustained on that ground. We have considered submission of both parties and have carefully gone through paper books submitted by both representatives of assessee and department. return of income has been submitted on 14th Aug., 1974 and consequently penalty provisions prior to their amendment by Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976 would be applicable in instant case. departmental representative relied on Gauhati High Court decision in case of F.C. Agarwal (supra) in support contention raised that in absence of any explanation from assessee there was presumption that difference between income returned and assessed represented concealed income of assessee. In that case three assessments were involved. In respect of first asst. yr. 1963-64 original return sowing total income of Rs. 30,750 which was subsequently revised to Rs. 2,74,189 in return field subsequently by assessee. For asst. yr. 1964- 65 as against original return showing income of Rs. 36,315 assessee submitted revised return showing total income of Rs. 3,35,181. Again for asst. yr. 1965-66 assessee submitted original return showing nil income but subsequently revised return showing total income of Rs. 81,030 was filed. On these facts as also on basis of Tribunal's order that totality of circumstances clearly pointed out that it was case of gross or willful neglect on part of assessee, High Court held that considering materials on record and staggering differences between original returns and revised returns together with fact that no particular item of income had been pointed out to explain that revised return were merely result of inadvertent mistakes or omissions, Tribunal's finding could not be said to be bad or perverse in law. In instant case as against returned income of Rs. 13,250 income finally determined as per Tribunal's order amounts to Rs. 35,313. assessee did not submit any revised return and it is not department's case that there was suppression of income from any of tankers. Gauhati High Court decision is, therefore, distinguishable on facts with present case. Now coming to point whether non-disclosure of income under s. 41(2) of Act attract penalty under s. 271(1)(c) of Act, we may point out assessee in letter dt. 9th Aug., 1974 disclosed that factum of sale in respect of two tankers No. UPJ 786 and UTE 5917, income from which had been shown in return submitted for asst. yr. 1973-74. It is not known whether said letter dt. 9th Aug., 1974 was submitted along with return filed on 14th Aug., 1974. return has been verified on 8th Aug., 1974 and it is not disputed that letter dt. 9th Aug., 1974 is on ITO's record. In absence of any other evidence to contrary. We are of opinion that assessee's letter dt. 9th Aug., 1974 was submitted along with return on 14th Aug., 1974. In case of Behari Lal Pyare Lal (supra), High Court held that according to s. 5(1)(a) of IT Act, 1961, total income of previous year includes all income received or deemed to received in India by assessee in such year. High Court observed that amount which is deemed to be income under s. 41(1) of Act would income for non-disclosure of which penalty could be levied under s. 271(1)(c). In that case during financial years relevant to asst. yr. 1968-69, firm known as Behari Lal Pyare Lal received amount of Rs. 4498 as refund from ST Department. This amount was credited in personal account of two partners of firm equally. It was not entered in returns of income of firm or two partners. ITO, however, treated amount as 'deemed' income under s. 41(1) of IT Act, 1961. IAC levied penalties on all assessees under s. 271(1)(c) holding that they were defaulters for not showing that income in returns. In present case, assessee admittedly did not submit any explanation before ITO. Before AAC, however, it was explained that as no depreciation had been allowed in any year there was no profit under s. 41(2). AAC in this regard observed as follows: "Shri Jain further contended that difference in income returned and income assessed was also on account of fact that profit under s. 41(2) of IT Act, has been calculated by ITO without appreciating contentions of appellant. It was pointed out before ITO that since no depreciation of appellant. It was pointed out before ITO that since no depreciation on tankers were claimed, there should not be profit under s. 41(2) and it was vehemently contended that it is controversial and debatable issue and addition on controversial issue should not automatically attract penal provisions." assessee's ld. counsel relied on Allahabad High Court decision in case of Karamat Khan (supra) in support of contention raised before AAC that additions sustained without appreciating legal issue involved in case could not justify imposition of penalty in terms of s. 271(1)(c) of Act. In that case fact in brief were that assessee was deriving income from playing of eight lorries. In asst. yr. 1949-50, he sold three lorries for Rs. 36,100. In making assessment for two asst. yrs. 1948-49 and 1949-50 initial cost of eight lorries of assessee as assessee had not furnished any particulars under proviso (a) to s. 10(2)(vi), was estimated by ITO at Rs. 64,000 in 1944-45. ITO then proceeded to work out written ITO at Rs. 64,000 in 1944-45. ITO then proceeded to work out written down value in subsequent assessment years and ultimately for asst. yr. 1948-49, written down value of eight lorries was worked out at Rs. 15,187 which included in depreciation of Rs. 5,063 allowed for that year. In asst. yr. 1949-50, written down value of Rs. 15,187 was taken as basis and depreciation of Rs. 3,797 was allowed for that year. written down value of three lorries worked out on proportionate basis of Rs. 4272 and sale price of three lorries being Rs. 36,100, ITO estimated profit at Rs. 19,728. Tribunal reduced estimated profit to Rs. 10,000. High Court held that though question of depreciation may be considered when income is estimated under proviso to s. 13, yet only depreciation that had been duly worked out and factually allowed in assessment orders of earlier year can be taken into account for purposes of working out profit under s. 10(2)(vii). Second proviso to s. 10(2)(vii) of 1922 Act is in pari material with provisions of s. 41(2) of IT Act, 1961. It is true that Tribunal by their order in ITA No. 2179/A/1976- 77 affirmed AAC's order determining profit under s. 41(2) on sale of two tankers at Rs. 16,060. relevant portion of Tribunal's order reads as follow: "So far as profit under s. 41(2) from two tankers sold, we do not see any merit in plea put forth by learned counsel for assessee as authorities below have right arrived at profit on sale of two tankers." Tribunal had no occasion to consider aforesaid Allahabad High Court decision. view of said decision of Allahabad High Court we are inclined to hold that explanation submitted before AAC was indeed plausible, viz., that assessee was under bona fide impression that he was not liable to be assessed under s. 41(2), as no depreciation had been allowed in past assessments on two tankers sold during financial year 1973-74 relevant for assessment year under appeal. Apart from income determined under s. 41(2) we have noted earlier, assessee's income from plying of tankers as per Tribunal's order works out to Rs. 21,000 as against income disclosed of Rs. 13,250. It cannot be said that difference between two estimates was due to gross or willful neglect on part of assessee in filing correct return of income. In this view of matter, we are of opinion that Explanation to s. 271(1)(c) as it stood at relevant assessment year was not applicable in assessee's case. We accordingly confirm AAC's order though on different grounds. In result, departmental appeal is dismissed. *** INCOME TAX OFFICER v. SUSHIL KUMAR KANODIA