TMI Blog2006 (3) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was filed in response to a notice under section 142(1) of the Act. Since the assessee failed to comply with the notices issued, the Assessing Officer completed the assessment under section 144 on a total income of Rs. 20,57,326 in the status of an AOP. This assessment was set aside by the CIT(A) in appeal to be made de novo. Subsequently, the Assessing Officer made fresh assessment under section 143(3) on a total income of Rs. 4,84,570 and also initiated penalty proceedings under section 271(1)( c ) of the Act. The assessee filed an appeal against the assessment order and the CIT(A) reduced the total income to Rs. 1,37,834 vide his order dated 26th April, 1995. But, the Department filed an appeal against the order of the CIT(A) before the Tribunal and Tribunal, Amritsar Bench, vide its order dated 24th May, 2004, restored the income of Rs. 2,95,940. However, the Assessing Officer considered the following three additions aggregating to Rs. 2,08,676 for the purpose of levy of penalty under section 271(1)( c ) of the Act : ( i ) Addition on account of unexplained cash credits in the capital account of the partner introduced on 1-4-1986 to 19-3-1986 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were reiterated. Relying on the decision of Tribunal, Agra Bench, in the case of Jain Motors Tractors ( supra ), it was contended that the penalty for concealment of income could be imposed only if both the conditions, i.e., the assessee failed to substantiate its explanation and also failed to prove that such explanation was bona fide were satisfied. It was argued that in the present case, these two conditions have not been satisfied in regard to an addition of Rs. 80,000, more so, when such addition was deleted by the CIT(A) and restored by the Tribunal. This only indicated a difference of opinion which meant that explanation of the assessee was bona fide . Relying on the judgment of Bombay High Court in the case CIT v. B.S. Badve [1982] 138 ITR 682 and Calcutta High Court in the case of CIT v. Clive Mills Co. Ltd. [1982] 138 ITR 182 it was argued that merely because the addition was made because the explanation of the assessee was not found satisfactory would not justify levy of penalty. Thus, it was argued that addition of Rs. 62,176 made by rejecting the explanation of the assessee would not attract penalty under section 271(1)( c ). It was further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly based on the fact that the addition was sustained by the Hon ble Tribunal. Mere sustaining of an addition by the Tribunal is no ground for levy of penalty as held in the following judgments : ( i ) CIT v. Smt. Padma Devi Jain [2000] 158 CTR (MP) 278 : [2000] 245 ITR 818 (MP); ( ii ) CIT v. Inden Bislers [2000] 158 CTR (Mad.) 323 : [1999] 240 ITR 943 (Mad.); ( iii ) Durga Kamal Rice Mills v. CIT [2003] 183 CTR (Cal.) 223 : [2004] 265 ITR 25 (Cal.). It is well-settled law that where the assessee offers a bona fide explanation but he fails to substantiate its explanation or the revenue does not prove the explanation to be false, no penalty under section 271(1)( c ) can be levied. Herein also, explanation was not invokable and thus the findings of the Assessing Officer that the sum of Rs. 80,000, Rs. 62,176 and Rs. 78,155 represents concealed income are vacated." The revenue is aggrieved by the order of the CIT(A). Hence, this appeal before the Bench. 4. The learned Departmental Representative, Shri Achal Sharma, heavily relied on the order of the Assessing Officer. He submitted that various additions made by the Assessing Officer have been upheld by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 25, the Hon ble Calcutta High Court has held that when two views are possible and when no clear and definite inference can be drawn, in a penalty proceeding, penalty could not be imposed. In the case of CIT v. Devi Dayal Aluminium Industries (P.) Ltd. [2004] 141 Taxman 289 (All.) the addition made by rejecting the explanation of assessee was upheld by the Tribunal. But, the penalty levied by the Assessing Officer was deleted on the ground that rejection of explanation of assessee did not render explanation false. In the case of CIT v. Balraj Sahani [1979] 119 ITR 36, the Bombay High Court held that findings of Tribunal given in quantum appeal are not binding in penalty appeal. In the case of Clive Mills Co. Ltd. ( supra ), the Hon ble Calcutta High Court upheld the order of Tribunal for cancelling the penalty on the ground that even though addition was justified, there was no evidence of concealment of income. In the case of B.S. Badve ( supra ), the facts before Bombay High Court were that books of account were destroyed in fire. Return was filed on estimate basis. Some additions were made. No finding that estimate was fraudulent or there was deliberate underestim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en found satisfactory. There is no finding recorded by the Assessing Officer either in the assessment order or in the penalty order that the explanation of the assessee in regard to the source of credits of Rs. 80,000 was either false or not bona fide. The Assessing Officer has also not recorded any finding that introduction of this amount in the name of the partner was a device for canalising unaccounted income of the firm. Now as per provisions of section 68 of the Act, the addition in respect of unexplained credit could be made if the assessee is unable to explain the source of the credit or the explanation given is not found satisfactory by the Assessing Officer. Section 68 is the deeming provision of the Act. It is settled law that operation of legal fiction extends only for which it was inserted in the Act. But, the operation of section 68 cannot be extended to levy of penalty under section 271(1)( c ). But, at the same time, the fact remains that credits appeared in the name of partner in the books of account of the firm. While the addition made represents the deemed income of the firm under section 68, but it is not a concealed income of the firm. The Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had explained the source out of withdrawals made from the imprest account. But, the assessee was unable to explain from the books of account because the books had been lost. Thus, the addition has been made only by rejecting the explanation of the assessee. But, there is no finding recorded by the Assessing Officer to show that the said explanation was either false or not bona fide. Further, credits appeared in the books of account of the firm and were brought to tax under section 68. Therefore, the finding recorded in para 6.1 that addition represented the deemed income of the firm but not the concealed income of the firm equally hold good for this addition. Therefore, I agree with the CIT(A) that no penalty under section 271(1)( c ) is leviable in respect of such addition. 6.3 The last addition in respect of which penalty has been levied is an amount of Rs. 62,176 being credit on account of suspense account. The facts placed on record show that the assessee had explained that an amount of Rs. 62,176 represented receipts out of sundry debtors. Since the books of account of the assessee had been lost, the assessee was unable to link the receipts with the party and, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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