JUDGMENT A. K. MATHUR, C.J. : This is a reference under s. 256(1) of the IT Act, at the instance of the Revenue and the following questions have been referred for answer by this Court : "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that after amendment from 1st April, 1976, unless and otherwise a positive evidence is found that the assessees declared income is not true or accurate, no penalty is envisaged ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the CIT(A) who deleted the penalty levied by AO under s. 271(1)(c) r/w Expln. 1 of the IT Act, 1961 ?" 2. The assessee was served with a notice of hearing, but neither it appeared nor did it file any application for adjournment. Therefore the Tribunal proceeded to dispose of the reference after hearing learned counsel for the Revenue. 3. No detailed facts have been given. Neither the statement of the case nor the order passed speaks about the detailed facts except that a notice was given to the assessee for furnishing inaccurate particulars under s. 274/271 of the IT Act for the asst. yr. 1978-79 and then the ITO imposed a penalty of Rs. 53,340 by order, dt. 31st March, 1984. The assessee then approached the appellate authority which cancelled the penalty. Aggrieved by this order, the Department approached the Tribunal which affirmed the order of the CIT(A) and set aside the penalty. The Department then approached the Tribunal for making a reference to this Court in view of the amendment to Expln. 1 to s. 271 of the Act and referred the aforesaid two questions for answer by this Court. 4. We have gone through the record. Sec. 271 of the Act deals with failure to furnish returns, comply with notices, concealment of income, etc. 1 to s. 271 of the Act and referred the aforesaid two questions for answer by this Court. 4. We have gone through the record. Sec. 271 of the Act deals with failure to furnish returns, comply with notices, concealment of income, etc. According to s. 271, if the AO, in the course of any proceeding under this Act is satisfied that any person has failed to comply with a notice under sub-s. (1) of s. 142 or sub-s. (2) of s. 143, or fails to comply with the directions issued under sub-s. (2A) of s. 142, or has concealed the particulars of his income or furnishes inaccurate particulars of his income, he may direct that such person shall pay by way of penalty : (i) ... ... (ii) in the cases referred to in cl. (b) in addition to any tax payable by him, a sum which shall not be less than one thousand rupees but which may extend to twenty-five thousand rupees for each such failure; (iii) in the cases referred to in cl. (c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. Thereafter Expln. 1 was inserted with which we are concerned. It says that in respect of any facts material to the computation of the total income of any person under this Act : A. such person fails to offer an explanation or offers an explanation which is found by the AO or the Dy. CIT(A) or the CIT(A) to be false, or B. such person offers an explanation which is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of cl. (c) of sub-section, be deemed to represent the income in respect of which particulars have been concealed. As per Expln. (c) of sub-section, be deemed to represent the income in respect of which particulars have been concealed. As per Expln. 1, if the assessing authority or the concerned authority, on the material before it, finds that the explanation offered by the assessee is false, then penalty can be levied on the amount which is found to be concealed. Therefore, the whole idea behind the Expln. 1 is that the assessing authority has to first record reasons for arriving at a conclusion that there is a failure on the part of the assessee. Hence after seeking explanation if the authority comes to a conclusion that it is false, then the authority can proceed to levy penalty. Therefore, this Explanation which has been inserted by the amending Act of 1975 w.e.f. 1st April, 1976, has cast a duty on the AO that he should first record reasons that there has been concealment of income and then the explanation is sought. These are the basic requirements for natural justice desired by the legislature for providing this explanation. Therefore, the initial burden is on the Department to prima facie record that there was concealment and thereafter the explanation is to be sought and in case the explanation is found to be false, then to the extent the income is found to have been concealed and the explanation is found to be false, then the authority can proceed against the assessee. Therefore, this Explanation does not change the position and absolve the Department just to issue notice for giving false explanation and proceeding against him. Before this, much has to be done by the Department under this Explanation. 5. In this view of the matter, both the questions referred by the Tribunal to this Court are answered (in favour of the assessee and against the Revenue).