TMI Blog1986 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was justified in cancelling the penalty of Rs 16,250 levied by the Inspecting Assistant Commissioner under the Explanation to section 27 l(1)(c) read with section 274 of the Income-tax Act, 1961 ? The facts giving rise to this reference may be shortly stated. M/s. Kejriwal Iron Stores, Neem-Ka-Than a, was a firm registered under section 185 of the Act. The assessee filed its return for the assessment year 1970-71 and while examining the same and scrutinising the accounts of the assessee, the Income-tax Officer, Sikar, found that the assessee had made purchases from M/s. Amar Singh Bajaj Sons, New Delhi, and made payments in cash for such purchases exceeding Rs. 2,500. The Income-tax Officer also found that there were discrepanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he seller. It was observed that the assessee had not shown the withdrawals from cash balance in hand on the dates on which payments are alleged to have been made according to the seller and that the withdrawals were not supported by entries in the books of account of the assessee which showed that his books of account were unreliable and incorrect. It was, therefore, held that the addition of Rs. 16,250 was fully justified and called for imposition the penalty. The Inspecting Assistant Commissioner, therefore, imposed the minimum penalty of Rs. 16,250 upon the assessee by his order dated January 29, 1973. On further appeal, the Income-tax Appellate Tribunal by its order dated March 26, 1974, set aside the penalty imposed upon the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Inspecting Assistant Commissioner while imposing the penalty. On a careful reading of the order of the Income-tax Officer, we, find that although he noticed that there were discrepancies in the dates of payment and receipts as disclosed by the assessee and the seller, yet the addition of Rs. 16,250 to the total income of the assessee was made by the Income-tax Officer only on account of infringement of the provisions of section 40A(3) and the consequent disallowance of the said amount. While computing the total income of the assessee, the Income-tax Officer had added in the trading account a sum of Rs. 5,092 and the amount of Rs. 16,250 was disallowed under section 40A(3) of the Act. Thus, so far as the amount of Rs. 16,250 was concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 16,250 being added as unexplained investment which in accordance with the provisions of section 69 would be deemed to be income of the assessee. Although the Income-tax Officer had noticed the discrepancies between the dates of payments disclosed by the assessee and the dates of receipts disclosed by the seller, yet he left the matter there and proceeded to make the addition of Rs. 16,250 by disallowing the said amount under the provisions of sub-section (3) of section 40A. The Inspecting Assistant Commissioner could not make a new ground for imposition of penalty, inasmuch as the satisfaction for initiation of penalty proceedings has to be recorded by the Income-tax Officer and the basis for the satisfaction of the Income-tax Officer ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such expenditure was disallowed on account of the provisions of subsection (3) of section 40A, because the alleged payments were not made by crossed cheques or bank drafts and not on the ground that the assessee has not been able to disclose the source from which such payments were made. The Inspecting Assistant Commissioner of Income-tax held that it could not be said that any exceptional or unavoidable circumstances existed on account of which the assessee could not make payment in respect of the alleged purchases by crossed cheques or bank drafts. He proceeded to observe that the question regarding the addition of Rs. 16,250 did not end only with the application of the provisions of section 40A(3), as there exists no other circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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