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TMI Blog2015 (9) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... lease be deleted. 3. The learned C.I.T.[A] has erred in confirming the penalty on alleged unproved loan of Rs. 11,50,000.00. The order of the leaned C.I.T.[A] being arbitrary, perverse and devoid of merits and based on presumptions and surmises the same may please be deleted. 4. The learned C.I.T.[A] has erred in confirming the penalty on interest of Rs. 2,53,000.00 on alleged unproved loan of Rs. 11,50,000.00. The order of the learned C.I.T.[A] being arbitrary, perverse and devoid of merits and based on presumptions and surmises the same may please be deleted." 4. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of builders and developers. A search u/s.132(1) of the I.T. Act was carried out in the case of Shri Shreeram H. Soni on 29-07-2003. During the course of search a large number of seized documents relating to the money lending business were found and seized. These documents are mostly in the form of blank promissory notes (signed by the borrowers), blank undated cheques duly signed by the borrowers. Some of the documents found during the course of search, i.e. promissory note along with blank cheque of Rs. 5 lakhs are rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.68 of the I.T. Act. Thus in effect he made addition of Rs. 26,20,000/- to the total income of the assessee u/s.68 of the I.T. Act. Since the assessee could not prove the genuineness of the loan creditors the corresponding interest amounting to Rs. 5,76,400/- was also disallowed by the Assessing Officer. The Assessing Officer also made certain other additions to the total income of the assessee such as interest on debit balance of partners amounting to Rs. 8,16,977/- and estimated profit on sales at Rs. 13,55,816/-. He also disallowed donation of Rs. 35,052/-. After setting off the brought forward losses of the preceding assessment years amounting to Rs. 48,79,680/-, the Assessing Officer determined the total income at Rs. 19,28,545/-. 6. The assessee preferred an appeal before the CIT(A) contesting the addition of Rs. 21,20,000/- made u/s.68 of the I.T. Act. The assessee did not contest the addition of Rs. 5,00,000/- u/s.68 being the loan from Shreeram H.Soni. Based on the remand report of the Assessing Officer the Ld.CIT(A) allowed a relief of Rs. 14,70,000/- added u/s.68 of the I.T. Act. He also allowed proportionate interest to the extent of Rs. 3,23,400/- and sustained addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arguments. He submitted that the assessee had filed the original return disclosing the loan creditors. In response to notice u/s.153C the assessee filed the return. The issue of notice u/s.153C was based on some promissory notes of Rs. 5 lakhs found from the residence of Shri Shreeram H. Soni. He submitted that no incriminating materials were found, therefore, in absence of any incriminating materials found, no penalty u/s.271(1)(c) of the I.T. Act can be levied. He submitted that assessment proceedings and penalty proceedings are separate and distinct. Merely because some addition has been made the same does not call for automatic levy of penalty u/s.271(1)(c) of the I.T. Act. The assessee can rely on fresh materials during penalty proceedings. He submitted that due to some reasons the assessee could not challenge the validity of the assessment u/s.153C in absence of any incriminating materials. But the fact remains that based on the creditors appearing in the balance sheet prior to the date of search penalty has been levied. 10.1 Referring to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Continental Warehousing Corporation vide ITA No.523/2013 order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es do not lead to the reasonable and positive inference that the assessee's case is false. The view taken by the Tribunal is a reasonable and possible view. The appeal is without any substance. The same is dismissed in limine with no order as to costs." He accordingly submitted that in absence of any categorical finding by the Assessing Officer that the loan creditors are bogus no penalty u/s.271(1)(c) can be levied. 11. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that the assessee was unable to prove the identity and credit worthiness of the loan creditors and the genuineness of the transactions. Therefore, penalty levied u/s.271(1)(c) was correctly upheld by the CIT(A) on the amount of Rs. 11,50,000/- and the proportionate interest thereon. 12. The Ld. Counsel for the assessee in his rejoinder submitted that the arguments of the Ld. Departmental Representative are applicable to a normal assessment. However, this is an assessment u/s.143(3) r.w.s. 153C. Therefore, in absence of any incriminating material, penalty u/s.271(1)(c) of the I.T. Act is not leviable. 13. We have considered the rival arguments made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g material found and seized from the premises of Shri Shreeram H. Soni which relates to the assessee. The loan amount of Rs. 6,50,000/- obtained from different persons are already appearing in the balance sheet filed in the original return of income and nothing was detected due to the search. Further, the Assessing Officer in the assessment order has made addition on the ground that although the assessee filed the confirmation letters, however, the assessee could not file the PAN numbers, and addresses of the concerned loan creditors. This in our opinion may be sufficient for making addition in the quantum proceedings but certainly not in the penalty proceedings for levy of penalty u/s.271(1)(c) of the I.T. Act in an assessment framed u/s.153C r.w.s. 153A. In this view of the matter we hold that the assessee is not liable to penalty u/s.271(1)(c) of the I.T. Act on the amount of Rs. 6.50 lakhs since the same was not based on any incriminating material found during the course of search and the addition was based on the basis of loan creditors found from the balance sheet already filed prior to the search along with the original return of income. We accordingly set aside the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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