TMI Blog2009 (5) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty order is bad in law and is liable to be cancelled. 4. That the authorities below did not appreciate that the penalty proceedings and assessment proceedings are quite separate and distinct and as such the order levying penalty under s. 271(1)(c) of the IT Act, 1961 is bad in law and is liable to be cancelled. 5. That the learned CIT(A) was not justified in confirming the order of the AO where the addition has been (made) on estimate basis and the penalty has been levied on the basis of the same. As such the order levying penalty under s. 271(1)(c) of the IT Act, 1961, is bad in law and is liable to be cancelled. 6. That the authorities below did not appreciate that there was no concealment of income at all and it is prayed that the penalty confirmed by the learned CIT(A) at ₹ 2,05,140 may be cancelled. 7. That the authorities below did not appreciate that there has to be satisfaction by the AO while levying the penalty under s. 271(1)(c) of the IT Act, 1961. As such the order confirmed, by the learned CIT(A), is bad in law and is liable to be cancelled. 8. That the learned CIT(A) did not appreciate that the penalty has been levied merely on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been considered. Limited survey in this case confirmed that no stock inventory was being prepared by the assessee at the end of the year and no such inventory was prepared as on 31st March, 2002, This fact was admitted by the assessee in his statement. In the audit report also, it is clearly stated in para 28 that no opening of closing stock, inventory was provided by the assessee to the auditors. The assessee is showing closing stock on the basis of GP rate. The cash sales or the Galla sales amounting to ₹ 2,61,307 have been shown separately by the assessee. There can be thus no justification to record sales at a higher figure than that appearing on the sale bills other than introduction of undisclosed cash in the books to meet requirements of cash for day-to-day business for making payments for purchases and other expenses. This amount thus represents undisclosed cash introduced in the books and not sales. The books of account of the assessee are held to be not reliable and the same are rejected to this extent. To work out the correct income as per the provisions of the IT Act. The trading account of the assessee would have to be recasted as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh book produced before the AO showed that the excess cash sales were entered in the cash book, but there was neither any need of cash, nor was cash used for payment in subsequent date. The AO stated before the CIT(A) at the time of quantum appeal that there were some bills, in which the assessee had shown gross amount of the bills and less advance had been received; that from this, it was clear that the assessee had mentioned in the bills the advances, wherever such advances had been received; that however, there were entries of bills mentioned in the assessment order where the assessee had sold goods on lesser amount, but in the cash book, enhanced sales had been shown by introducing cash from undisclosed sources; that it was not correct to state that this was a mere irregularity; that the assessee had wilfully and knowingly introduced undisclosed cash and had shown cash sales where no bills were issued; that the discrepancies, as discussed in the assessment order, were pointed out to the assessee; that since the assessee could not explain such discrepancies, its books of accounts were found unreliable and were rejected as such; that cash sales or Galla sales amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1464 and 1465 for ₹ 10,675 whereas the amount entered in the cash books is ₹ 40,675. The difference is ₹ 30,000, on 10th June, 2001 bill Nos. 1518 to 1520 for ₹ 9,400 whereas the amount recorded in the cash book is ₹ 49,400. The difference is ₹ 40,000, on 25th July, 2001 bill No. 1592, for ₹ 2,500, in the cash book amount received is ₹ 22,500 the difference is ₹ 20,000 and on 18th Sept., 2001 bill No. 1672 for ₹ 8,900 whereas the amount entered in the cash book is ₹ 28,900, the difference is ₹ 20,000 and on 6th March, 2002 bill Nos. 1916 and 1917 for ₹ 4,050 whereas the amount entered in the cash book is ₹ 24,050, the difference is ₹ 20,000. The contention of the learned counsel that there is merely irregularity on the part of the assessee to issue bills and these include cash sales is not convincing and satisfactory. He failed to substantiate his contention that huge difference are on account of cash sales. It is surprising that the appellant is issuing sales bills for petty amount of ₹ 750 but he had not issued sales bills/memos for sales for articles exceeding 1,000 rupees. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was less than the sale actually recorded in the cash book. The assessee failed to substantiate that such huge difference was in the cash sales only. 10. In the meantime, the AO vide order dt. 24th Aug., 2005 levied penalty by observing that the contention of the assessee has not been accepted by the learned CIT(A) as well as Tribunal. Hence, the assessee is in default and levied penalty at 100 per cent of the tax sought to be evaded at ₹ 2,05,140. On appeal, the learned CIT(A) confirmed the order of the AO since the assessee has not furnished evidence to prove that the enhancement of the amount in cash book over the amount mentioned in the sale bills represents actual sales and this enhancement has been made by the assessee in the cash books whenever needed. Hence, the assessee is in appeal before us. 11. The learned counsel for the assessee submitted that the AO has not made any charges whether the assessee has concealed any particulars of income or furnished inaccurate particulars of income. The AO cannot wholly base his conclusion only on the basis of assessment proceedings. He submitted that the assessment proceedings and penalty proceedings are two independent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording following findings in paras 7 and 7.1 of the order : 7. I have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material placed on record. The undisputed facts of the case are that the addition made by the AO has been upheld in appeal by the Tribunal. It is settled position in law that both penalty proceedings and assessment proceedings are separate and independent proceedings though findings recorded in the assessment order lay down a foundation for levy of penalty under s. 271(1)(c). Reliance in this regard is placed on the judgment of Hon'ble Punjab Haryana High Court (Full Bench) in the case of Vishwakarma Industries vs. CIT (1982) 29 CTR (P H) 243 : (1982) 135 ITR 652(P H). The same was held by the Madhya Pradesh High Court in the case of CIT vs. Smt. Padma Devi Jain (2000) 158 CTR (MP) 278: (2000) 245 ITR 818(MP). In the case of CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323: (1999) 240 ITR 943(Mad), the Hon'ble Madras High Court held that merely because additions have been made to the income does not mean that there has been concealment of income. It was held that a mere disallowance of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee or whether any inaccurate particulars of such income had been furnished by him. If no such clear-cut finding is reached by the IAC, penalty order cannot be valid. The observations made by the Hon'ble High Court were with reference to penalty order and not with reference to satisfaction recorded by the AO at the time of initiation of penalty proceedings. The same judgment was followed by the Hon'ble Gujarat High Court in the case of New Sorathia Engineering Co. vs. CIT (supra), where it was again held that it was incumbent upon the AO to state whether penalty was being levied for concealment of particulars of income by the assessee whether inaccurate particulars of income had been furnished by the assessee. Failure to make specific charge in the penalty order would render the penalty order as invalid. The two judgments of Hon'ble Gujarat High Court mentioned above are directly applicable to the facts of the present case. No contrary judgment was cited by the learned Departmental Representative. Considering the fact that the AO failed to mention in the penalty order whether the assessee had concealed the particulars of income or furnished inaccurate particulars the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 14A of the Act. The assessee had also furnished the certificates from two persons having received the payments from the assessee. Thus, the factum of assessee having actually incurred the expenses has not been in doubt. The assessee's explanation that such payments have been made in respect of all items of income. It is fact that apart from share of profit from two firms which was exempt the assessee had declared taxable income of ₹ 6,39,179. The submission of the assessee that expenses of ₹ 6,39,179 ? The submission of the assessee that expenses of ₹ 34,400 had been incurred both for taxable and non-taxable income has not been controverted by the Revenue. The AO had made the disallowance under s. 14A only for the reasons that the explanation of the assessee was not satisfactory. Nowhere the AO has recorded in the assessment order that such explanation was either false of claim of the assessee mala fide and was with an intent of evading tax. The mere fact that disallowance has been made and upheld in appeal does not justify imposition of penalty under s. 271(1)(c). Reliance in this regard is placed on the judgment of Punjab Haryana High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty under s. 271(1)(c). In the light of these facts and circumstances of the case, we are of the considered opinion, that well reasoned and well discussed order of CIT(A) does not merit any interference. The same is upheld and the grounds of appeal of the Revenue are dismissed. 15. Further, he relied on the order of the Tribunal in the case of Jullunder Engg. Co. vs. Jt. CIT in ITA No. 295/Asr/2001, dt. 7th June, 2005 for the asst. yr. 1989-90, wherein it has been held as follows : 10. We have further found from the penalty order that the Tribunal on the quantum proceedings confirmed the addition on the issue as assessee has not put any suggestion to Shri V.N. Seth, officer of the bank as regards valuation of the hypothecated stock. The AO, therefore, finding that no suggestion is given to the bank officer imposed penalty without independently examining the material on record. Even if the statement of Shri V.N. Seth, officer of the bank has relied upon by the AO for the purpose of imposing penalty but the AO has not considered the fact that he has mentioned in his statement that figures of hypothecation and pledging are given by the bank on the DP register on the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of income. The AO has merely stated in the assessment order who have initiated penalty. This is sufficient compliance of the law. The Hon'ble Punjab Haryana High Court in the matter of CIT vs. Munish Iron Store (2004) 186 CTR (P H) 159confirming the order of the Tribunal cancelling the penalty in which the Tribunal observed that the AO has not recorded any satisfaction as regards concealment of income in the assessment order. Therefore, the case of the assessee is clearly covered by the decision of the Hon'ble Punjab Haryana High Court in the matter of Munish Iron Store (supra). The assessee has furnished explanation before the authorities below which appears to be bona fide as the assessee has shown his ignorance as regards entries in the DP register as the assessee has not furnished any bank statement to the bank on 28th April, 1988 which is also complied by the bank. Therefore, we are of the opinion that the explanation of the assessee was bona fide in the matter even if the assessee has failed to substantiate the explanation as DP register was not in the possession of the assessee. The Hon'ble Delhi High Court in the matter of CIT vs. Rahuljee Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Bombay High Court in the case of CIT vs. Balraj Sahani (1979) 12 CTR (Bom) 33: (1979) 119 ITR 36(Bom) and the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Clive Mills Co. Ltd. (In Liquidation) (1982) 30 CTR (Cal) 98: (1982) 138 ITR 182(Cal). 20. Further, he relied on the following decisions of Tribunal, Amritsar Bench : (i) In the case of Asstt. CIT vs. Baldeep Singh Swami in ITA No. 302/Asr/2004, order dt. 31st March, 2006 for the asst. yr. 2001-02; (ii) Asstt. CIT vs. Balbir Chand in ITA No. 344/Asr/2002 for the asst. yr. 1990-91, order dt. 6th June, 2005; (iii) Harchan Singh vs. CIT in ITA No. 414/Asr/2000 for the asst. yr. 1995-96, order dt. 3rd June, 2005. He also placed reliance on the following judgments : (i) Hon'ble Bombay High Court in the case of CIT vs. B.S. Badve (1983) 33 CTR (Bom) 150 : (1982) 138 ITR 682 (Bom); (ii) Hon'ble Kerala High Court in the case of CIT vs. Kerala Spinners Ltd. (2001) 166 CTR (Ker) 268 : (2001) 247 ITR 541 (Ker); (iii) Hon'ble Punjab Haryana High Court in the case of Harigopal Singh vs. CIT (2002) 177 CTR (P H) 580 : (2002) 258 ITR 85 (P H); (iv) Hon'ble Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of any finding apart from a mere reference to the conclusion in the assessment where there is no material indicating concealment in the penalty order, no penalty can be imposed. On these grounds, penalty has been cancelled in the case of Krishan Lal Shiv Chand Rai vs. CIT (1973) 88 ITR 293(P H). In that case, the assessee surrendering certain amounts representing certain Hundis shown in the assessment proceedings but in the penalty proceedings, claiming that credits were genuine. That judgment was made only to avoid botheration that it should be given opportunity to prove that the credits were genuine. Penalty levied without affording such opportunity to the assessee was invalid. Further, it was held that it is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi criminal proceedings. The onus was on the Department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. The mere fact of surrender could not necessarily be an admission of that the amounts surrendered were its undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been not accepted by the learned CIT(A). Therefore, I consider the assessee in default and proceed further to impose the penalty under s. 271(1)(c) of the IT Act, 1961. 22.6 Further, the Hon'ble Gujarat High Court in the case of New Sorathia Engineering Co. vs. CIT (supra) held, that it was incumbent upon the AO to state whether penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee. Failure to make specific charge would render penalty order as invalid. 22.7 The learned Departmental Representative stated that in the Hon'ble Punjab Haryana High Court in the case of CIT vs. Rattan Singh Grewal (supra) held as under : Held, that the assessee did not file his return and at first instance, even in response to the notice under s. 148 of the Act, he filed a return declaring nil income. Further when confronted with certain investments made by the assessee; his explanations were found to be false. The assessee had not been able to discharge the onus put on him in terms of the Explanation to s. 271(1)(c) of the Act. It was a clear case where the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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