TMI Blog2022 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that on the basis of bogus purchases/enhancement of GP rate and the addition was made in quantum proceedings cannot be made basis for levy of penalty u/s 271(1)(c) of the Act. Tribunal have considering these facts deleted the penalty. We found merit in the contention raised by the ld. AR and no new facts and circumstances has been put forth by the ld. DR to controvert or rebut the contentions made by the ld. AR, therefore, we direct to delete the penalty. Addition u/s 41(1) of the Act on account of cessation of liability of trade creditors by treating the payments as doubtful - HELD THAT:- We observed that the cash payment amount of ₹ 5,90,320/- was sustained by the ld. CIT(A). In this count the ld. CIT(A) has not given any specific finding with regard to the concealment of income or it has not been established that the payments were not genuine. The purchases made were accepted against which these cash payments were made. When purchases are not doubtful and they have been accepted so there is no reason to doubt on the payments. Since this was a small issue, therefore the assessee has not agitated further. But in penalty proceedings lenient view should be taken and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of mens rea on the part of assessee. This decision was understood to mean that levy of penalty is automatic. Penalty is imposed only when there is some element of deliberate default and not when there is merely a mistake or bona fide claim. Considering the above case laws it is clear that the explanation offered by the assessee was possible one which were rejected by the revenue authorities without assigning any reason or without examining the evidences submitted by the assessee. The A.O. has not proved any mens rea of the assessee in this regard. Therefore penalty is not leviable under the given circumstances and facts of the case of the assessee. Considering the totality of the facts and circumstances of the case, we direct to delete the penalty made and confirmed by the ld. CIT(A). - Decided in favour of assessee. - ITA No. 146/JP/2021 (Assessment Year: 2013-14) - - - Dated:- 27-12-2021 - SHRI N.K. SAINI, VICE PRESIDENT AND SHRI SANDEEP GOSAIN, JM Assessee by : Shri S.L. Poddar (Adv) Revenue by : Smt. Runi Pal (Addl.CIT) ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. CIT(A), Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and relates to challenging the order of the ld. CIT(A), (NFAC), in confirming the penalty imposed U/s 271(1)(c) of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied upon the written submissions filed before the Bench and the same is reproduced below: 1. Show cause notice issued on 30/03/2016 is routine - The perusal of this notice reveal the following: - (i) The notice has been issued in a very routine matter without application of mind. It no where specifies the concealed/inaccurate particular of income on which assessee is required show cause. In fact in the show cause notices the Learned Assessing Officer has not given any ground for levy of penalty for which the assessee could put his defense. (ii) Although the show cause notices did not contain any particular of concealed income/ inaccurate particulars of income with reference to which penalty was leviable. But subsequently while levying penalty the Learned Assessing Officer has observed in the last page no. 3 of the penalty order that In view of the totality of the facts and keeping in view of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 271(1)(c)-Validity-Absence of specific finding-Addition vis-a-vis cash credit upheld by Tribunal-There was no clear-cut finding in the penalty order or the order of the CIT(A) as to whether there was concealment of income or furnishing of inaccurate particulars by the assessee-Tribunal too failed to appreciate this legal issue-Penalty not sustainable-Tribunal having failed to take into consideration and deal with decision of the jurisdictional High Court, it committed an error in law- CIT vs. Manu Engineering Works (1979) 8 CTR (Guj) 141 : (1980) 122 ITR 306 (Guj) followed. It is also worthwhile to mention that subsequently the SLP was also dismissed by the Hon'ble Apex Court in the case of SSAS Emerald Meadows in CC No. 11485 of 2016 order dated 05.08.2016 in which the same law was confirmed by approving the judgment of the Karnataka High Court. The Rajasthan High Court is also following the above judgments. The Latest judgment of the Rajasthan High Court in the case of Sheveta Construction Company Pvt Ltd in DB IT Appeal No. 534/2008 order dated 06.12.2016 wherein it has been held that the Assessing Officer has to give a notice as to whether he proposes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as restricted to 15% only. There is no finding in the assessment order that the assessee has furnished inaccurate particulars of his income. The Learned Assessing Officer has not given any specific finding that the assessee has concealed the income. Simply he has invoked the provision of section 145(3) of the IT Act, 1961 and estimated the income of the assessee by disallowing 25% of unverifiable purchases. Thus it is a case of an estimate against an estimate hence no penalty is leviable in such a case where addition are based purely on estimate basis. The following cases are quoted for support (i) Gulraj Vaswani Vs. ACIT, (ITSSA No. 21/JP/06) in Tax World Vol-XXXIX page-35 held that Before Tribunal it has been submitted that at every level there has been an estimation varying as per difference of opinion from authority to authority and hence penalty cannot be levied on the estimated addition - Assessee has also submitted that no satisfaction about concealment of income has been recorded by the Assessing Officer during the course of assessment proceedings - Tribunal have considering these facts deleted the penalty - (ii) Smt. Bitoli Devi Vs. ACIT(2007), 110 TTJ (Luck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent amount of ₹ 5,90,320/- was sustained by him. In this account the learned CIT(A) has not given any specific finding with regard to the concealment of income or it has not been established that the payments were not genuine. The purchases made were accepted against which these cash payments were made. When purchases are not doubtful and they have been accepted so there is no reason to doubt on the payments. The learned CIT(A) has wrongly sustained this addition. Since this was a small issue, therefore the assesse has not agitated further. But in penalty proceedings lenient view should be taken and no penalty should be levied on the quantum addition which has been sustained only on doubts and surmises and nothing has been brought on the record to prove the concealment of income or furnishing of inaccurate particulars of income. We further rely on the following propositions on this regard 6. Definite Finding about concealment is necessary Under section 271(1)(c) of the Act the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion. Of greater impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mate. No penalty is warranted on addition sustained on estimate basis. It is a case where the explanation of the assessee has been rejected. The assessee fully explained why income was not disclosed at the time of return filing. The addition has been made by rejecting a plausible explanation. It is settled position of law that no penalty is leviable where additions have been made by rejecting the explanation of the assessee. 9. Favourable case laws: - The judicial decisions are to the effect that such proceedings are penal in nature and burden to prove the mens rea and that the receipt in the hands of assessee constitutes income is on the revenue. The assessee is not required to prove his innocence. This was held, considering the old provisions of section 28(1)(c) of Indian I.T. Act, 1922, by the hon'ble Bombay High Court in the case of Gokuldas Harivallabhdas 34 ITR 98 which was approved by the apex court in the case of Anwar Ali 76 ITR 696 SC. It was also held by the apex court that penalty proceedings are independent proceedings and, therefore, findings recorded in assessment proceedings, though may be relevant, but would not be conclusive. Mere rejection of expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t penalty under the section is civil liability,(iv)willful concealment is not an essential ingredient for attracting penalty (v) no discretion with the authority imposing penalty. Hence, revenue is not required to prove the element of mens rea on the part of assessee. This decision was understood to mean that levy of penalty is automatic. The above decision has been explained by the SC in subsequent decision in the case of UOI-v- Rajasthan Spg Wyg Mills 224 CTR 1 SC wherein it is explained that levy of penalty is not automatic. If the conditions specified in the section are satisfied then alone, penalty is leviable. Facts of each case would determine whether such conditions are satisfied or not. In the case of ACIT-v- VIP Industries 122 TTJ 289 (Mum), the effect of above decision was considered by the tribunal. It was opined that SC has not held that in all cases where addition is made, the penalty shall automatically follow. The true effect is that mens rea is not to be proved by the revenue. If the 'A' can successfully prove his bona fide by tendering a valid explanation then, penalty cannot be levied. Hence, in case of genuine difference between AO and ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e estimates were further reduced by ld. CIT(A). After analyzing the order of the A.O. as well as the ld. CIT(A), we also found that both the lower authorities had made respective additions on the basis of estimation and it is settled law that no penalty can be levied on disallowance made on the ground of unverifiable purchases. In this regard, the Hon ble Jurisdictional High Court in the case of CIT Vs. Malpani House of Stones vide order dated 01/03/2017 passed in ITA no. 341 of 2005 has categorically held that on the basis of bogus purchases/enhancement of GP rate and the addition was made in quantum proceedings cannot be made basis for levy of penalty u/s 271(1)(c) of the Act. Similarly the Coordinate Bench of this Tribunal in the case of Kamlesh Dangayach vs. ACIT Jaipur in ITA no. 18/JPR/2012 it has also been held that where addition has been made by disallowing purchases alleging not verifiable then in that eventuality, no penalty u/s 271(1)(c) of the Act can be imposed. We draw strength from the decision in the case of Gulraj Vaswani Vs. ACIT, (ITSSA No. 21/JP/06) in Tax World Vol-XXXIX page-35 held that Before Tribunal it has been submitted that at every level there h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of income. In Section 271(1)(c) of the Act, the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. The mere revision of the income to a higher figure by the assessing authority does not automatically warrant an inference of concealment of the expenditure on the construction. The addition to the income of the assessee based on estimate basis. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the one reported by the assessee does not by itself lead to the inference that there had been concealment. In this regard, we draw strength from the decision in the case of CIT VS. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad.). 11. We also observed that it is a case where the assessee has disclosed all the material facts for the purposes of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings recorded in assessment proceedings, though may be relevant, but would not be conclusive. Mere rejection of explanation of assessee in assessment proceedings would not be sufficient for levy of penalty. The view taken in the case of Anwar Ali has been followed in Khoday Eswarsa and sons 83 ITR 369 SC, in Anantharam Veerasighaiah co 123 ITR 457 SC, in T.Ashok Pal 292 ITR 11 SC and in Dilip N. Shroff 291 ITR 519 . It is to be noted that the provisions of sec 271(1)(c) as considered by the Apex Court in the case of Anwar Ali (supra) were identical to the provisions under the old Act of 1922. In the case of Sir Shadilal Sugar General Mills 168 ITR 705 SC , it was held that penalty could not be imposed merely because the 'A' agreed to be assessed on a particular income. The decision of the Apex Court was based on the provisions as they were originally enacted. The view taken by the division bench in the case of Dilip N. Shroff was doubted and overruled in UOI-v-Dharmcndra Textiles Processors 306 ITR 277 SC by holding that- penalty under the above provision is a civil liability and therefore willful concealment is not an essential ingredient for attracting the civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a valid explanation then, penalty cannot be levied. Hence, in case of genuine difference between AO and 'A', penalty cannot be levied. Same view has been taken by Pune bench in the case of Kanbay Software India 122 TTJ 721. In the case of CIT-v- Sidhanha Enterprises 184 Taxman 460 PH, the 'A' suffered loss on sale of machinery which was set off against other incomes. AO disallowed such claim initiated penalty proceedings u/s 271. Tribunal deleted the penalty. The HC held that Dharmendra's case cannot be read as laying down that in every case where particulars are inaccurate, penalty must follow. What has been held is that the qualitative difference between criminal liability u/s 276C and penalty u/s 271(1)(c) must be kept in mind. The concept of penalty has not been changed by the said decision. Penalty is imposed only when there is some element of deliberate default and not when there is merely a mistake or bona fide claim. Considering the above case laws it is clear that the explanation offered by the assessee was possible one which were rejected by the revenue authorities without assigning any reason or without examining the evidences submitted by the ..... 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