JUDGMENT A.K. MATHUR, C.J. : This is an IT reference under S. 256(1) of the IT Act, 1961, at the instance of the Revenue and the following questions of law have been referred by the Tribunal for answer by this Court : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that penalty under S. 271(1)(c) of the IT Act, 1961, r/w Expln. 1 was not leviable ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that it was not a case where Explanation offered by the assessee could not be substantiated by it ?" 2. Brief facts giving rise to this reference are these : The assessee filed a return of income on 30th July, 1979 declaring total income of Rs. 3,080. It was a case of country liquor business. During the year in question, the assessee was licensed by the State excise authorities to carry on the business of trade in country liquor from several shops located at Satna and other areas on a licence fee of Rs. 14,25,000. The assessee disclosed sales of Rs. 21,82,346 and profit of Rs. 3,080. Along with the return, a consolidated balance sheet containing purchase and sales of different varieties of liquor transacted from different shops, was filed. Along with that, it also filed P&L a/c indicating gross profit of Rs. 14,76,602. On the expenditure side, major expenses of Rs. 14,25,000 were shown towards licence fee, Rs. 25,800 towards salary, Rs. 7,860 towards house rent, shop rent and other petty miscellaneous expenses. All these expenses totalled to Rs. 14,73,523. Thus a net profit of Rs. 3,079.55 or Rs. 3,080 was worked out. It was the claim of the assessee that the purchases, sales and profits were on the basis of books of account regularly maintained by it which was again a fact that there were in all 9 shops located at different places and the books of account were not maintained separately for each of them and instead, a single cash book and ledger were maintained for all the shops. The AO recorded a finding that all the shops remained open till 9 p.m. and it was not possible to acquire daily account from all the shops regularly at a particular place and in any case, no evidence in support of such proposition was produced. It was also found that sales of all these shops were recorded at a stretch. 3. During the assessment proceedings, the matter was referred to the IAC under S. 144B and the following two submissions among others, were made by the assessee : (i) Since the shops were situated at distant interior places, it had to spend sizeable sum on account of transportation and travelling expenses. (ii) Sale memos and stock registers were also available and produced. From the account copies, it was not ascertainable whether any expenses were shown for travelling, since neither in the P&L a/c, nor in the trading account, such expenses were appearing. Sales were shown to be low. In other cases, for the same period, sales were more than 24 times of the licence fee. The assessee did not furnish details of sealing charges, transportation charges and many other incidental expenses. 4. The AO, after taking into consideration and in obedience to the direction given by the IAC, estimated the sales at Rs. 28,50,000, i.e., two times of the lease money and net profit was determined at Rs. 85,500, i.e., 3% of the sales. By virtue of this, 97% of the sale was allowed as cost of liquor and other expenses. The difference between the assessees income and returned income was, therefore, extremely large. 5. On appeal, the CIT(A) dismissed the appeals with the observation that the appellant had not opted to furnish the information in regard to the books maintained, method of accounting followed and method of stock valuation. It was also observed that the assessee had not produced the books of account and entries of sales of the scattered branches had been incorporated in the cash book of the head office which it was not possible to do so on the same day. The books of account which were produced, were not found to be reliable. Hence, the assessees income was assessed at Rs. 85,500. 6. Thereafter the AO levied penalty under S. 271(1)(c), r/w Explns. 1(A) and (B) with the proviso, amounting to Rs. 35,900 on the assessee. The books of account which were produced, were not found to be reliable. Hence, the assessees income was assessed at Rs. 85,500. 6. Thereafter the AO levied penalty under S. 271(1)(c), r/w Explns. 1(A) and (B) with the proviso, amounting to Rs. 35,900 on the assessee. Notice was given to the assessee and in its explanation, the assessee placed reliance on number of cases and submitted that there was no deliberate concealment on his part. However, the AO levied the penalty. Therefore, an appeal was preferred before the CIT(A). The CIT(A), after considering the matter, set aside the penalty and held that it was a simple case of rejection of book results and estimation of income by applying flat rates. It was also held that the AO did not record the finding of fraud or gross or wilful neglect on the part of the assessee. On appeal by the Revenue before the Tribunal, the Tribunal affirmed the finding of the CIT(A) and has made a reference of the aforesaid two questions of law for answer by this Court. 7. We have gone through the order of the Tribunal and the CIT(A). We are satisfied that both the authorities have correctly approached the matter and found that there was no fraudulent attempt on the part of the assessee. The assessee had placed before the authorities whatever books of account it had maintained - whether they were properly maintained or not - but it has not withheld or concealed any material or made any deliberate attempt to defraud the authorities. The assessing authority has employed the flat rate for assessing the income of the assessee and on that basis, he has been taxed. 8. Therefore, we are of the opinion that the view taken by the Tribunal in setting aside the penalty appears to be justified and we answer both these questions against the Revenue and in favour of the assessee.