TMI Blog1979 (11) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... de on February 19, 1963, on a total loss of Rs. 34,537 which was later on modified to Rs. 45, 108. Subsequently, on information received that during the relevant previous year the assessee had allegedly taken hundi loans from persons who were name lenders, the ITO initiated proceedings under s. 147 of the Act. Pursuant to the notice under s. 148, the assessee filed a return showing a loss of Rs. 45,108. The ITO, however, completed the assessment and determined the total income at Rs. 56,722 which included Rs. 95,000 representing the peak credit as income from undisclosed source. For the assessment year 1963-64, the position was the same and the amount added for bogus hundi loans was Rs. 1,00,000. On being satisfied that the assessee had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was that when the assessee had furnished evidence in support of those loans in the form of hundis, cheque payments and broker's certificate, it had placed material which prima facie supported the genuineness of the loans. The Tribunal accepted the genuineness of those transactions, In this way, addition of credits falling in category (a) was due to the fact that the explanation offered by the assessee was found to be unreasonable. That being the position the Tribunal in the penalty appeals held that the principle laid down by the Supreme Court in the aforesaid cases was squarely applicable to this case and hence they deleted the penalty and allowed the appeals. Now, at the instance of the Addl. Commissioner and according to the direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the explanation was not regarded as reasonable. The IAC while imposing the penalty only relied on the material collected during the assessment proceedings and the findings arrived at therein. That material was firstly that the ITO, Bombay, had recorded the statements of some of the creditors who had accepted that they were mere name-lenders and, secondly, that the assessee could not prove the genuineness of loans in assessment proceedings. In our opinion, the statements recorded by the ITO, Bombay, could not be used against the assessee in the assessment proceedings, much less in penalty proceedings, because the assessee was not given an opportunity to cross-examine those persons. As for the second aspect if the assessee failed to prove th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed in N. A. Mohamed Haneef [1972] 83 ITR 215 (SC) as also in Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC). In the later case, after referring to the decision of Anwar Ali's case [1970] 76 ITR 696 (SC), it was observed (at p. 376): "From the above it is clear that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 369 (SC), as applicable prior to the insertion of the Explanation to s. 271(1)(c), still holds good and it squarely applies to the facts of the present case. Here penalty was imposed by the IAC solely on the basis of material collected during the assessment proceedings and findings arrived at therein. Those findings certainly can be relied upon in penalty proceedings but on their basis alone the imposition of penalty cannot be sustained. This being the position, we agree with the view taken by the Appellate Tribunal. Our answer to the question referred, therefore, is in the affirmative, in favour of the assessee and against the department. The assessee is entitled to its costs which we assess at Rs. 200 and counsel's fee in like amount. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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