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2006 (1) TMI 160 - AT - Income TaxPenalty proceedings initiated u/s 158BFA - Search And Seizure - No reasonable opportunity provided - HELD THAT - Assessee filed, confirmations of all the depositors, which contained names and addresses, in consideration of all these material, assessee furnished explanation in respect to corrections, insertions and cash credits. Assessee volunteered to produce creditors but only one day's time was given. Be that as it may, additions are now confirmed and we are concerned with imposition of penalty u/s 158BFA(2). Assessee relied on Tribunal judgment in the case of Nemichand vs. Asstt. CIT (Inv.) 2004 (12) TMI 303 - ITAT BANGALORE-A and Smt. Mala Dayanidhi VB. Dy. CIT 2003 (11) TMI 280 - ITAT BANGALORE-C , Tribunal has taken a view that s. 158BFA is not mandatory but discretionary and the assessee's explanation has to be considered. We find merit in the contentions of the learned counsel that this penalty proceeding is akin to s. 271(1)(c) proceedings, main clause and in sum and substance Department has to prove factum of concealment. Quantum and penalty proceedings are distinct and separate and while deciding the issue of penalty, facts can be reconsidered. Thus, assessee's explanation to confirmations, etc. have been rejected on assumptions drawing adverse inference based on probabilities, i.e., existence of insertions and corrections and probability of accountant knowing fact of cash credits. Since we hold that it was burden of the Department, AO should have separately investigated matter in penalty proceedings by calling these parties and accountant to discharge burden. Therefore, assessee has discharged its burden of giving explanations as well as supporting the same by filing confirmations. Our views are supported by Hon'ble Supreme Court judgment in the case of Orissa Corporation 1986 (3) TMI 3 - SUPREME COURT . Department would have discharged its burden by proving that assessee's explanation was false based on only finding of facts and not on assumptions. Our views are further fortified by the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan 1997 (1) TMI 6 - SUPREME COURT wherein it has been held that the word may in s. 69 cannot be interpreted to be shall . The same word appears in same context in s. 68 dealing with cash credit, which is applicable to assessee's case. In view thereof, we delete penalty. Since we have deleted penalty on merits, we need not address to the technical issue about applicability of provisions of s. 158BA(1). In the result, the appeal of the assessee is allowed.
Issues Involved:
1. Legitimacy of penalty levied under Section 158BFA(2) of the IT Act, 1961. 2. Whether the material used for addition in block assessment was found during the search. 3. The distinct nature of assessment and penalty proceedings. 4. Adequacy of the opportunity provided to the assessee to produce evidence. 5. The burden of proof in penalty proceedings under Section 158BFA(2). Detailed Analysis: 1. Legitimacy of Penalty Levied under Section 158BFA(2): The primary issue in the appeal was whether the CIT(A) erred in confirming the AO's action of levying a penalty of Rs. 11,40,780 under Section 158BFA(2) without providing a reasonable opportunity to the assessee. The assessee argued that the penalty was levied based on corrected regular books of accounts, which were not part of the seized material during the search. The Tribunal noted that penalty under Section 158BFA(2) is not mandatory and should be considered based on the assessee's explanation and the circumstances. 2. Material Used for Addition in Block Assessment: The assessee contended that the addition made in the block assessment was not based on the material found during the search. The rough cash book seized from the partner's residence tallied with the regular books maintained by the assessee. The Tribunal observed that the material on which the addition was based was not part of the seized material but was produced subsequently by the assessee during inquiries. Therefore, the addition should not have been made in the block assessment as per Section 158BB(1). 3. Distinct Nature of Assessment and Penalty Proceedings: The assessee argued that assessment and penalty proceedings are separate and distinct, and an addition in assessment does not automatically lead to concealment proceedings. The Tribunal agreed that quantum and penalty proceedings are distinct, and facts can be reconsidered during penalty proceedings. The Tribunal emphasized that the burden of proof in penalty proceedings lies with the Department to establish the fact of concealment. 4. Adequacy of Opportunity to Produce Evidence: The assessee claimed that the AO did not provide reasonable time to produce the depositors, giving only one day's notice. The Tribunal found merit in the assessee's contention that sufficient opportunity was not provided to produce evidence. The Tribunal noted that the assessee had furnished confirmations from all depositors and explained the reasons for corrections and insertions in the books of accounts. The Tribunal held that the AO should have investigated the matter further during penalty proceedings by calling the concerned parties and the accountant. 5. Burden of Proof in Penalty Proceedings: The Tribunal highlighted that the burden to prove concealment lies with the Department. The Tribunal referred to the Supreme Court judgment in CIT vs. Anwar Ali, which laid down that the burden to prove concealment is on the Department. In this case, the assessee had provided explanations and confirmations, and the AO did not make efforts to issue summons to the depositors. The Tribunal concluded that the Department failed to discharge its burden of proving that the assessee's explanation was false based on facts, not assumptions. Conclusion: The Tribunal deleted the penalty imposed under Section 158BFA(2) on the grounds that the Department did not adequately prove concealment and did not provide a reasonable opportunity to the assessee to produce evidence. The appeal of the assessee was allowed, and the penalty was deleted. The Tribunal did not address the technical issue regarding the applicability of Section 158BA(1) since the penalty was deleted on merits.
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