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TMI Blog2012 (11) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... on different dates. The amount was not entered in the ledger. After hearing the assessee it was concluded that the amount represents income of the assessee from undisclosed sources. Penalty proceedings were also initiated u/s 271(1)(c) and the assessee was informed that provision contained in Explanation 1 of the aforesaid section is applicable. 1.1 The additions were agitated in appeal before the CIT (Appeals), Muzaffarnagar. After detailed analysis of the evidence and submission, it is mentioned that the peak of negative cash on 19.10.2004 is Rs. 18,48,039/-. On the basis of this finding it has been concluded that cash introduced in the books by way of advances amounting to Rs. 16.25 lakh was only one component of unaccounted cash available with the assessee. However, such cash was at least Rs. 18,48,039/-. In view thereof, he deleted the addition of Rs. 8,79,204/- and replaced the addition of Rs. 16.25 lakh with Rs. 18,48,039/-. At this stage, it may also be mentioned that the assessee raised an additional ground regarding deduction of excise duty of Rs. 21,02,144/- on the basis of the order of Settlement Commission, Customs and Central Excise, New Delhi, passed on 14.07.2004. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He took into account the fact that total addition now stands at Rs. 18,48,039/-, and assessed income at Rs. 16,62,540/- against returned loss of Rs. 1,85,499/-. In view of the provision contained in Explanation 4 to the aforesaid section, the base for levy of penalty was taken at Rs. 18,48,039/- and penalty of Rs. 6,76,300/- was levied. 1.4 Aggrieved by this order, appeal was filed before the CIT (Appeals), Muzaffarnagar, who disposed if off on 10.05.2011. Relying on the decision in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC), it has been held that the liability involves an element of strict liability, it is a civil liability, it is to provide remedy for loss of revenue and mens rea is not an essential ingredient for the levy. In regard to the facts, it has been mentioned that the burden is on the assessee to prove that particulars of income furnished by it were not inaccurate. Such explanation should be bona fide. Although in the quantum proceedings, two amounts were clubbed and addition of Rs. 18,48,039/- was sustained, both the additions are of the same nature. This amount represents unaccounted income and, therefore, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/-, the income has been finally assessed at Rs. 4,33,057/-. Therefore, the proceedings have finally led to determination of a higher loss. It is not a case of reduction in loss or assessment at a positive figure against the claim of loss. Accordingly, the provision contained in Explanation 4 is not applicable. It is also submitted that the penalty in respect of cash shortage computed by the AO at Rs. 8,79,204/- could not have been levied as this addition was deleted by the ld. CIT (Appeals). The addition of Rs. 16.25 lakh was enhanced by him to Rs. 18,48,039/-. He did not issue any notice for levy of penalty on such enhancement. Therefore, the AO could not have levied penalty in respect of an amount exceeding Rs. 16.25 lakh. 2.1 Continuing with his submissions, it is stated that the AO had made three additions in respect of cash shortage, advances for job work and cash expenditure. While levying penalty, the AO has discussed the orders of the CIT (Appeals) and the Tribunal in quantum appeals. A plea was taken before the ld. CIT (Appeals) that the notice is vague as the AO did not delete inappropriate words and paragraph from the notice. The finding of the ld. CIT (Appeals) is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 8, it is submitted that the lower authorities have levied and upheld the penalty merely on rejection of the explanation of the assessee. This is not enough as an independent finding is to be given after evaluating the explanation that the assessee has either concealed income or furnished inaccurate particulars of income. 3. At the outset, the ld. DR relied on the impugned order. It is submitted that all the arguments of the assessee have been considered in this order and a positive finding has been recorded that the amount of Rs. 18,48,039/- represents unaccounted income of the assessee for which he has furnished inaccurate particulars of income. Therefore, the charge of concealment is more than established. 3.1 Coming to ground-wise replies, it is submitted that finally assessed loss of Rs. 4,30,057/- is on account of additional ground taken by the assessee before the ld. CIT (Appeals) in respect of further deduction of Rs. 21,02,144/- u/s 43B representing the excise duty paid in pursuance of the order of the Settlement Commission. This claim should have rightly been made in the return of income. Upon doing so, the returned loss would have increased by an equivalent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there is not only the rebuttal of the explanation but the facts contain positive element about secreted concealed income sought to be utilized by the assessee without payment of tax. Therefore, the penalty has been rightly levied and confirmed. 3.6 Reverting to the provision contained in Explanation 4, it is submitted that it is in the nature of the definition of the expression "the amount of tax sought to be evaded" but the substantive default is under clause (iii) of sub-section (1) of section 271. 4. In the rejoinder, it is submitted that the Explanation 4 should be strictly construed and in view of higher loss finally assessed, the penalty is not leviable. The ld. CIT (Appeals) has not combined the two additions into one. Both of them are independent additions and should be viewed as such. The defect in the notice of penalty cannot be cured u/s 292B as argued by the ld. counsel. 5. We have considered the facts of the case and submissions made before us. The assessee has taken a number of technical objections to the levy of penalty. We think it desirable to dispose off such objections at the very outset. The first objection is that the assessee was not appraised that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee made a further claim of Rs. 21,02,144/- u/s 43B before the ld. CIT (Appeals) in respect of amount paid as per order of the Settlement Commission. This deduction should have been claimed in the return of income. If that had been done, the returned loss would have been Rs. 22,87,643/-. As against the aforesaid, the loss has been finally determined at Rs. 4,30,057/-. This shows that the addition made by the AO had the effect of reducing loss to the extent the additions have been confirmed by the Tribunal. It may be mentioned that the explanation does not use the words "returned loss" or "assessed loss" but uses the word "has the effect of reducing loss". We have already discussed that the effect of the addition is to reduce loss claimed by the assessee at Rs. 22,87,643/-. Therefore, this argument is also not sustainable. 5.1 The second argument is that the ld. CIT (Appeals) deleted the first addition of Rs. 8,79,204/-. Therefore, penalty is not leviable in respect of this amount. On the other hand, he has enhanced the addition of Rs. 16.25 lakh to Rs. 18,48,039/-, i.e., by an amount of Rs. 2,23,039/-. He has not issued any direction to consider this amount of Rs. 2,23,039/- fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le devise to avoid tax. This cash flow statement was sought to be supported by cash flow statement in respect of two partners, Shri N.S. Panwar and Shri Y.S. Panwar. These statements were also examined and various defects were noticed. Coming to advances for job work, it is inter-alia mentioned that most of the entries are above Rs. 20,000/-, but in the reconciliation statement the entries have been bifurcated so that each one of them is less than Rs. 20,000/-, which seems to have been done to avoid penalties under sections 271D and 271E of the Act. The assessee has not done any job work and no income has been shown although an amount of Rs. 16.25 lakh is stated to have been taken from a single party on a number of occasions. Finally, it has been recorded in respect of both the additions that the amount is treated as income from undisclosed sources. All these observations made by the AO show that it was his case that particulars of income have been concealed. It is not a case where any disallowance has been made but a case where the assessee was found in possession of certain unaccounted money which was utilized in the course of business without paying tax thereon. Therefore, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this submission can also not be accepted. 6. We now proceed to decide the levy on merits. We have already summarized the quantum proceedings and appeal thereon. The finding of the ld. CIT (Appeals) has been that the assessee has used unaccounted cash available with it in the course of business leading to maximum negative cash of Rs. 18,48,039/- as on 29.03.2005. This finding has been confirmed by the Tribunal by mentioning that unaccounted cash introduced in the books of account was only to cover the negative cash balances arising from time to time. At the same time, the genuineness of cash of Rs. 16.25 lakh has also not been substantiated by production of the details of job work advances. Therefore, the overall negative cash balance had to be worked out excluding this receipt. This is what has been done by the CIT (Appeals). Therefore, the finding of the Tribunal is that the assessee was in possession of unaccounted cash, which was introduced in the books from time to time to get over the position of negative cash and there is no explanation for such cash available with the assessee. In the background of these facts, the submission of the ld. counsel is that the addition has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fabrication of account books. In the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), the question was regarding levy of penalty under the Sales-tax Act in a situation where the assessee held bona fide belief that it was not a dealer in goods. It has been held that levy of penalty is in the discretion of the authority which should be exercised judicially on consideration of all relevant circumstances. Even in a case where minimum penalty is prescribed, the authority may not levy the penalty when there is only a venial or technical breach of the provisions of the Act or where such a breach is on account of bona fide belief that the offender is not liable to act in the manner prescribed by the statute. The facts of this case are also distinguishable. In the first instance, it is not a case of technical or venial breach of the provisions of law. It is rather a case of manipulating account books while utilizing unaccounted income for the business purpose. As explained in the case of Dharmendra Textile Processors (supra), it is for the assessee to initially offer explanation. The explanation that money was received from two partners and that advances were receive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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