TMI Blog2006 (5) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... ary basis. The third ground of appeal is that the learned CIT(A) erred in holding that Expln. 5 below s. 271(1)(c) did not apply to the facts of the case. The fourth ground of appeal is that the CIT(A) erred in relying on an order passed under s. 132(5) of the Act, which is merely an interlocutory order passed with a limited purpose of retention of assets seized in the course of search and seizure operation. The fifth ground of appeal is residuary in nature. 2. In the consolidated order for the three years, the learned CIT(A) pointed out that the assessee is an association of persons (AOP) comprising of 14 members. The assessee conducts the business of civil contractors for installation of sodium vapour street lights. The return of income for this year was filed declaring total income of Rs. 3,60,400. The returned income was accepted under s. 143(1). Subsequently, search and seizure operation was undertaken in this case, and other cases of this group on or about 12th Dec., 1990. 2.1 In the course of search, incriminating books of account and documents were found or seized. From the seized material, it was noticed that the books of account were incomplete and no reconciliation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his possession to independently prove that the assessee had actually earned extra incomes declared in the subsequent returns. The incomes were declared on an ad hoc basis and no finding was given to show that the AO was in possession of any specific material to show that the income ought to have been higher than what was returned in the original returns. 2.3 His attention was drawn towards a number of case-laws, which were considered by him. After considering the facts of the case and the case-law, he came to the conclusion that the AO had rightly levied penalties under s. 271(1)(c). While doing so, he referred to the order passed under s. 132(5) of the Act. This order shows that after search, several discrepancies and shortcomings were noticed in the books of account. There were also documents and loose papers seized from the assessee indicating certain transactions which could not be satisfactorily explained at the time of search. He referred to the amount involved in the contract executed on behalf of municipal corporation and payment of certain amounts to the corporation. It was also found that there was negative cash balance in a few cases amounting to Rs. 1,02,49,899. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out in the penalty order or in the appellate order which would support the assessed figures. Therefore, it was argued that no penalty under s. 271(1)(c) could have been levied as no finding that the explanation was not bona fide was given. The learned counsel also relied on a number of decisions, to which, we shall revert shortly. 4.1. The learned Departmental Representative had relied on the case of K.P. Madhusudanan, decided by the Hon'ble Supreme Court. The facts of the case were that demand drafts were purchased by the assessee and on verification of the cash book, it was found that sufficient cash balance was not available in the books. The purchase of demand draft was sought to be explained by hand loans, which could not be proved. It is argued that provisions of Expln. 1 are not applicable as the AO had not given notice regarding its applicability. The Hon'ble Supreme Court held that notice under s. 271(1)(c) puts the assessee on notice regarding applicability of Expln. 1. The explanation given by the assessee was found to be false and, therefore, the penalty was upheld. It may be pointed that in that case, specific discrepancies pertaining to the year under question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of such confession is another thing. Penalty cannot be levied solely on admission. What is required to be done is that on the basis of material on record, an independent finding of concealment of income has to be given; and for this purpose, Hon'ble Tribunal referred to the decision in the case of Sir Shadilal Sugar and General Mills Ltd. Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC). Since such a finding was not given, the Hon'ble Tribunal deleted the penalty. 4.4. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of CIT vs. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC). The facts of the case are that search and seizure operation was undertaken under the provisions of s. 132(1) of IT Act. Thereafter, a notice under s. 148 was issued, in response to which, a return was filed showing higher income than the income shown in the original return. The income was stated to be revised upwards with a view to buy peace of mind. The return was accepted without any objection. The AO initiated penalty proceedings and also levied the penalty. The Court pointed out that the assessee had no chance of carrying through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee could not be asked to do an impossible thing. It was further mentioned that no finding was given regarding suppression of sales or inflation of purchases. In these circumstances, the Court held that the provisions of the Expln. 1 were attracted. But, it was also pointed out by the Hon'ble Court that the explanation created merely a rule of evidence by which burden was initially shifted to the assessee to explain that the failure to return correct income did not arise out of fraud, gross or willful neglect. Once this explanation was tendered, the presumption under Expln. 1 was shifted and thereafter, it was for the Department to prove that the assessee had concealed income. The ratio of the case insofar as we are concerned is that mere estimation of income because of lack of vouchers, etc., will not lead to levy of penalty unless it is spawn that there was fraudulent intention on the part of the assessee or he was guilty of gross and wilful neglect. 4.7 The learned counsel of the assessee also relied on the decision of Rajasthan High Court in the case of Shiv Lal Tak vs. CIT (2001) 166 CTR (Raj) 534 : (2001) 251 ITR 373 (Raj) In this case, the assessee was a buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion. Therefore, it can be said that the assessment was completed on the basis of fresh returns filed and in the proceedings no specific discrepancy was pointed out. In such circumstances, the ratios of decisions in the cases of Suresh Chand Mittal, Devandas Perumal, and Shiv Lal Tak are clearly applicable. In other words, the explanation of the assessee that higher income were shown to avoid protracted litigation and to buy peace was not false and in view thereof, the burden was on the Department to prove that the incomes had been concealed in the original returns. It may be clarified that mere declaring higher income does not ipso facto lead to conclusion of concealment of income. Further, specific finding on discrepancies are to be given in assessment order and their narrations in order under s. 132(5) do not discharge the burden cast on the Department. This conclusion will stay whether or not the assessee was entitled to immunity from penalty under Expln. 5 to s. 271(1)(c). The fact stressed by the learned CIT(A) that there was substantial variation in the incomes returned in subsequent returns vis-a-vis the incomes returned in original returns does not advance the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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