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Issues Involved:
1. Penalty imposed under Section 271(1)(c) of the IT Act regarding the addition of Rs. 90,097. 2. Penalty imposed under Section 271(1)(c) of the IT Act regarding the addition of Rs. 2,50,580. Detailed Analysis: 1. Penalty for Addition of Rs. 90,097: Background: The Assessing Officer (AO) added Rs. 90,097 to the income of the assessee-firm based on certain loose chits found during a search, which were initially surrendered by one of the partners, Shri Narinder Kumar, in his individual capacity. The AO, however, assessed this amount in the hands of the assessee-firm and not in the hands of the partner. Tribunal's Decision: - The Tribunal noted that the addition of Rs. 90,097 made in the hands of the assessee-firm was confirmed by the CIT(A). - However, in a second appeal, the Tribunal held that the amount could not be assessed in the hands of the assessee-firm, observing that the Department "burnt its boat" by not accepting the surrender in the hands of Shri Narinder Kumar. - Consequently, the addition of Rs. 90,097 was deleted from the total income of the assessee-firm. - Since the basis for the penalty had disappeared, there was no justification for its imposition. The Tribunal concurred with the CIT(A) and dismissed the Revenue's appeal against the deletion of the penalty. 2. Penalty for Addition of Rs. 2,50,580: Background: The AO added Rs. 2,50,580 to the income of the assessee-firm, which was the value of 805 grams of gold jewellery found during the search. Initially, the partners claimed the jewellery belonged to them individually, but the AO assessed it in the hands of the firm. Tribunal's Decision: - The Tribunal noted that the partners had initially surrendered the amounts of Rs. 1,26,000 and Rs. 1,24,400 in their individual capacities but later agreed to have the total amount of Rs. 2,50,580 assessed in the hands of the firm to avoid protracted litigation. - The Tribunal emphasized that the Department had not brought any independent material to justify the penalty and had based the levy solely on the surrendered amounts. - It was demonstrated that had the partners' plea been accepted, the Department would have benefited by an additional tax of Rs. 30,000, indicating the bona fide nature of the partners' actions. - The Tribunal observed that the AO's use of terms like "improbable" and "doubt" indicated a lack of certainty, which is insufficient for imposing a penalty under Section 271(1)(c). - Citing various judicial precedents, the Tribunal held that agreeing to an addition does not equate to an admission of concealment of income. - The Tribunal concluded that the penalty was not justified as the assessee-firm and the partners had acted in good faith and accepted the addition to avoid litigation. Conclusion: - The Tribunal deleted the penalty of Rs. 2,50,580 imposed under Section 271(1)(c) of the IT Act. - The assessee's appeal was allowed, while the cross-appeal of the Revenue and the cross-objection of the assessee were dismissed.
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