TMI Blog2003 (6) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... n under VDIS on 30th Dec., 1997, declaring an amount of Rs. 4,02,947 on account of creditors in 5 cases. However, the ITO was still not satisfied and proceeded with his enquiries. Therefore, the assessee filed a revised return declaring an additional income of Rs. 1,52,807. There was another dispute regarding the genuineness of the salary paid to a minor daughter Miss Jigana Shah of Rs. 48,000. Thus, in the revised return the assessee declared an additional income of Rs. 1,52,807 (Rs. 1,04,807 on account of unproved sundry creditors and Rs. 48,000 on account of salary paid to Miss Jigana Shah). The ITO completed the assessment on a total income of Rs. 3,12,320 and initiated penalty proceedings under s. 271(1)(c). The AO levied penalty of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: "Reference to the then CIT(A), Belgaum's, order of 12th Dec., 2000, in ITA No. 16/BJP/1990-2000 shows that he had "partly allowed" the appeal filed by the assessee against the original penalty order of 3rd Dec., 1999, The then CIT(A), Belaum, had directed the AO to determine concealed income after giving the assessee an opportunity of being heard and then to recompute the penalty under s. 271(1)(c) accordingly. As such, it is not correct on the part of the learned CIT(A) to presume that his predecessor has "set aside" the said original penalty order of 30th Dec., 1999. In view of the facts brought out in Ground No. 2 above, it is evident that the penalty order in question had been passed by way of an order giving effect to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this copy the Addl. CIT Belgaum range, Belgaum, issued certain directions through his letter dt. 15th May, 2001. The learned CIT(A) has taken note of the said letter of 15th May, 2001, to come to the conclusion that the penalty order was passed by the AO without the approval of the Addl. CIT. However, as evident from the foregoing, this finding is not based on the material available on record. The learned CIT(A) failed to appreciate that the additional income brought to tax in the assessee's hands by way of trade creditors of Rs. 1,04,807 amounted to income liable to tax under s. 41(1). The assessee was unable to show that the liability did exist as on the last day of the previous year. As such, the provisions of Expln. 1 to s. 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records were persued. The additions made during the order under s. 143(3) on which penalty has been levied consists of two parts. (i) A sum of Rs. 1,04,807 being unproved sundry creditors, and (ii) An amount of Rs. 32,000 being salary paid to Ms. Jigana Shah. Admittedly, the assessee has offered both these amounts in the revised return filed by the assessee. However, as has been held by the Supreme Court in the case of Sir Shadilal Sugar General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 33 Taxman 460 (SC) merely because of certain amounts have been declared in the revised return, the same does not authorize the AO to levy a penalty under s. 271(1)(c). There may be hundred and one reasons for the assessee to declare a ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sundry creditors of the previous year under consideration. Therefore, even if it is held that these outstanding sundry creditors are not genuine, the same cannot be taxed in the year under consideration. They have to be taxed in the year in which they arose for the first time in the books of accounts of the assessee. At the most, these outstanding sundry creditors can be taxed under s. 41(1) by invoking the Explanation. However, the primary condition for the same is that they should be written off in the books of account of the assessee. In the present case, these sundry creditors continue to be in the books of account of the assessee. Therefore, even under s. 41(1) these could not have been taxed as an income of the assessee for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry paid to her has to be allowed irrespective of the fact that whether she is a minor or major during the previous year under consideration. The AO has not brought on record any material to prove that the services have not been rendered by Miss Jigana Shah. In fact, he has allowed the salary paid to Miss Jigana Shah, after she had attained the majority implying thereby that Ms. Jigana Shah was rendering the services. Therefore, this amount also cannot be considered for the levy of penalty since the AO has not discharged initial burden that lay upon him for imposing the penalty." 11. From the above, it is clear that the AO before imposing penalty did not obtain the approval of the Addl. CIT, which is a statutory requirement under the IT A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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