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2022 (5) TMI 516 - AT - Income TaxPenalty u/s 271(1)(c) - Addition u/s 68 - assessee failed to prove the creditworthiness of creditor and made addition under section 68 by treating the unsecured loan as unexplained cash credit - HELD THAT:- Addition made in the quantum assessment attained finality. We are of the conscious of the fact that penalty proceedings are separate and independent proceedings though the observation on the addition in the quantum assessment may have bearing in the penalty proceedings. However, such observation are not conclusive. We find that the identity of creditor including PAN and details of agricultural procedure was filed by the assessee and the assessee claimed that loan amount was received through banking channel. AO has not made any independent investigation nor issued any show cause notice or summons to the creditor to bring other adverse material against the assessee. It is also fact that the assessee could not prove his contention about the unsecured loan. However, we find merit in the submission of Ld. AR of the assessee that the explanation offered by assessee has not been disproved by the Assessing Officer. The Hon'ble jurisdictional High Court in the case of National Textiles [2000 (10) TMI 19 - GUJARAT HIGH COURT] and Jalaram Oil Mills [2001 (6) TMI 15 - GUJARAT HIGH COURT] held that where the circumstances do not lead to the reasonable and positive inference that the assessee’s Explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. In view of the aforesaid factual discussion, we are of the view that in absence of material on record to disprove the explanation offered by assessee about the creditworthiness and genuineness of transaction, the AO was not justified in levying penalty under section 271(1)(c). Therefore, grounds raised by assessee is allowed.
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