TMI Blog1997 (12) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee failed in the first appeal. However, on the second appeal, the Tribunal restored the matter back to the file of the CIT(A) who in his turn set aside the order of the AO directing that reasonable opportunity of being heard to the assessee should be provided. 4. On examination of books of accounts of Jalan Trading Company, Bombay, cash credits amounting to Rs. 25.49 lakhs stood in the name of Jalan HUF/Lohia Agricultural Farm. A further scrutiny of two other concerns of the same group where close relations of the partner of the assessee-firm, were partners, revealed cash credits of Rs. 11,40,000 and Rs. 7 lakhs, respectively for the asst. yr. 1976-77. Thus, a total cash credit of Rs. 43.89 lakhs appeared in the books of this assessee in the account of Lohia Agricultural Farm A/c in different concerns of the assessee from 26th Nov., 1974 to 7th Oct., 1975. The assessee was asked to explain the sources of cash credit and explanations with regard to the same, if any. The assessee was further required to produce books of account of Lohia Agricultural Farm (LAF) for the relevant period, details of land and cultivation carried on the same, details of the land of LAF, acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment did not go into detail. The AO did not accept the contention on the ground that there was not a single piece of evidence pertaining to the years under consideration of the income from the farm. No details of any Khatauni and no details regarding names and addresses of the parties to whom the goods were sold were given by the assessee. The AO however insisted upon the assessee to provide the evidence regarding irrigation of the farm and its full mechanisation and using of fertilisers of improved seeds, etc. It was submitted that after conducting enquiries during the asst. yr. 1974-75 at Baharaich and examining several witnesses, the Department made various additions in the cases of debtors of LAF which were ultimately confirmed by the Tribunal. It was submitted that during VDS-cum-settlement of 1975, the CIT(A) has accepted that an income of Rs. 2,000 per year per acre should be estimated. The officer, however, found out that the land of 2000 acres was ultimately reduced to 500 acres only. It was stated that an average income per year per acre was Rs. 3,000 to Rs. 6,000. It was submitted that the finding of the CIT(A), Central-I, Bombay that there was 1100 acres of land cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (9) Cash credits 18,75,163 (10) Other credits 35,12,504 (11) Investment in flat at lands-end 80,000 (12) Jewellery 2,50,000 (13) Flat in the name of Mohanlal Jalan 50,000 . . 5,26,75,117 He also found that no IT or WT returns were filed by the HUFs which were supposed to declare in their income or wealth. On the basis of the above material, the ITO came to the conclusion that the cash credits attributable to agricultural income amounted to Rs. 2,98,52,000 while the total agricultural income upto 1972 was estimated at Rs. 1,67,75,000 and after considering the expenses, it was estimated only at Rs. 97,75,000. The position of the income-tax returns of LAF was equally dismal. On the basis of the above material, the AO was of the opinion that the cash credits amounting to Rs. 25,41,000 was not properly explained and added back to the total income of the assessee. Proceedings under s. 271(1)(c) were also initiated against the assessee. 5. The CIT(A) in a very detailed order dismissed the appeal of the assessee. He accepted the findings of the AO. 6. When the matter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice under s. 271(1)(c) to the assessee which did not mention that the Explns. to s. 271(1)(c) are proposed to apply in this case. It was submitted that the assessee was deprived of offering explanation with regard to the application of Explanation to the section. It was submitted that in view of the Bombay High Court decision in the case of CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom), if the show-cause notice does not mention that the reliance was being placed on the Explanation to the section from confirming of the penalty, the notice was invalid and the penalty cannot be imposed. Our attention was also invited to the decision of the Bombay High Court in the case of Bombay Inventors Industrial Corpn. vs. CIT (1991) 96 CTR (Bom) 206 : (1991) 194 ITR 548 (Bom) and in the case of Ahmedabad Electricity Comp. Ltd. vs. CIT (1992) 106 CTR (Bom) (FB) 78 : (1992) 199 ITR 351 (Bom)(FB). It was submitted that in view of the fact that the AO never informed the assessee that the penalty was being imposed under one of the Explanations applicable to s. 271(1)(c) of the Act and that order was illegal and has to be quashed. 9. Coming to the merits of the case, the assessee's counsel submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of different assets. Attention was also invited to the fact that even during the so called Voluntary Disclosure Scheme, no detailed investigations were made by the Departmental officers, whatsoever was stated was accepted and a credit of Rs. 97,75,000 was given to the LAF on account of agricultural income. It could not be taxed as it was agricultural income. It was, therefore, submitted that the decision of the Supreme Court in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), is clearly applicable to the facts of the instant case. This assessee, right from the beginning submitted false documents, showed false expenses, false purchases and false sales. It was submitted that when the assessee was asked during the regular assessment proceedings to prove its case, it has miserably failed to do so. He also invited our attention to the decision of Bombay High Court in the case of CIT vs. Smt. Kaushalya Ors. (1995) 216 ITR 660 (Bom). It was submitted that the assessee very well knew the malafide charges against him were there and did not defend himself at all properly. It was, therefore, submitted that the decision of the Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f various members of the LAF. It is possible to hold that the members of LAF had large agricultural income out of which they could extend the said credits. Thus, the assessee has failed to prove the genuineness of the cash credits but at the same time, the Explanation does not suffer from falsity. Therefore, the provisions of main s. 271(1)(c) can only be applied in this case. As discussed by Hon'ble Bombay High Court in the case of (1992) 203 ITR 792 (Bom), but for such legal fiction of Explanation, it could never have said that there would be concealment or furnishing of inaccurate particulars of income at all. This Explanation has shifted the burden of proof to the assessee and therefore when the Explanation was resorted to by the ITO or by the IAC in penalty proceedings, it was necessary that the assessee must have been informed that the penalty proceedings against him were commenced under the Expln. to s. 271(1)(c) of the Act. 12. The reliance of the standing counsel for the Department on (1995) 216 ITR 660 (Bom) is not very helpful to the Department. In that case, the Hon'ble High Court gave a clear finding that the assessee fully knew in detail the exact charge of the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 125A(1) as well as the notification of the IAC (Asstt.) divesting the ITO of his jurisdiction under s. 125A(2), the Departmental Representative expressed his ignorance about such notifications. 16. After considering the rival submissions and to decide the issue involved, it is necessary to consider the law relating to the concurrent jurisdiction of the IAC, which was prevailing during the period 1st Oct., 1975 till 31st March, 1976, by virtue of the provisions of s. 125A, which were in the following terms. "Prior to its omission, s. 125A, as amended by the Finance (No. 2) Act, 1977, w.e.f. 10th July, 1978, stood as under: (1) The CIT may, by general or special order in writing, direct that all or any of the powers or functions conferred on, or assigned to, the ITO or ITOs by or under this Act in respect of any area, or persons or classes of persons, or income or classes of income, or cases or classes of cases, shall be exercised or performed concurrently by the IAC. (2) Where under sub-s. (1), an IAC exercises concurrent jurisdiction with one or more ITOs in respect of any area, or persons or classes of persons, or incomes or classes of income, or cases or classes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue has not placed any evidence before us to show that the IAC who had passed the penalty orders was concerned with the concurrent jurisdiction by way of an order of the CIT as required under sub-s. (1) of s. 125A and also that there was any direction of the IAC passing the penalty order to divest the ITO of his jurisdiction who had initiated the penalty proceedings of his jurisdiction for imposing the penalties which could be imposed only by the ITO due to omission of sub-s. (2) to s. 274, we have no alternative, but to hold that there were no such orders at all. 19. In view of the above facts and circumstances, I am of the opinion that penalty orders under s. 271(1)(c) in all these assessment years having been passed by the IAC (Asst.), Range, were without jurisdiction and consequently void ab initio. The penalty orders under s. 271(1)(c) for all these assessments, are, therefore, cancelled on this ground also. 20. With regard to the penalties imposed under s. 273, we are of the opinion that during the previous financial year, when according to the Department, the assessee had income from 'undisclosed sources', there was any material on record to show that the content ..... 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