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TMI Blog1991 (4) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. The creditors reaffirmed having advanced loans to the four family members for the purchase of agricultural land. The amount of loan was stated to have been returned to the creditors subsequently. The Assessing Officer, considering the financial position of the creditors and other circumstances, treated only part of the amounts as genuine. The balance amount was treated as assessee's own income from undisclosed sources. The details of creditors, the amounts accepted as genuine and the amount treated as income from undisclosed sources in respect of four assessees is given hereunder : --------------------------------------------------------------------------------------------------------------------------------------------------- Name of the creditor Amount of loan Amount accepted Amount treated Rs. as genuine as income Rs. from undisclosed sources Rs. --------------------------------------------------------------------------------------------------------------------------------------------------- 1. Smt. Shanta Kumari Ram Krishan Rajputa 5,000 5,000 Nil Randhir Singh 20,000 10,000 10,000 Mukhtiar Singh 20,000 7,000 13,000 ------------------ 23,000 ----------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty and there by depriving the assessee a reasonable opportunity of being heard. According to the learned counsel even otherwise penalties under section 271(1)(c) on merits are not warranted in these cases. All the four assessees have furnished evidence in support of the claim of having received the loans from friends, who are agriculturists. The confirmations and affidavits of the parties were filed before the Assessing Officer followed by the personal appearance by the creditors. Their statements have been recorded and the parties have unequivocally confirmed having advanced the money to the assessees. As far as assessees are concerned, they have done their best at their command to furnish the necessary evidence in support of the claims. According to the learned counsel, it is a different matter that the evidence furnished by the assessee has not been believed. Inferences have been drawn by the authorities and the Tribunal has confirmed the additions by holding that the creditors may have been identified and the capacity to pay also proves but the genuineness of the creditors and advancement of money by them to these four persons had not been established. The conclusion drawn by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given in penalty proceedings. However, in a case where assessee had purchased property such a concession, according to the learned D.R., cannot be made as assessee would normally not purchase the property unless it had funds to purchase the same. He relied upon the decision of the Tribunal in quantum appeal and pleaded that the statement of the creditors have been analysed by no less an authority than the Tribunal and the conclusions arrived at regarding the non-genuineness of the loans. It was accordingly pleaded that the penalty imposed may be confirmed. 9. With regard to the alternative contention raised by the learned counsel for the assessee, the learned D.R. stated that the issue may be decided on merits. 10. We have given our careful consideration to the rival contentions and have perused the records. Section 69 of the Income-tax Act, 1961 empowers the Assessing Officer to treat the amounts invested by any assessee which are not recorded in the books of accounts maintained for any source of income and in respect of which assessee offers no explanation about the nature and sources of investment or the explanation offered by him is not in the opinion of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him." As is clear from the above explanation, a fiction has been created for deeming the concealment of particulars of income if in respect of any facts material to the computation of total income any person has failed to offer an explanation or the explanation has been found to be false or where such person has offered an explanation which he is unable to substantiate. Wherein an explanation is furnished which the assessee is unable to substantiate but the assessee establishes that the explanation furnished was bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him Explanation 1(B) will be inapplicable. 11. We have to consider as to whether the four assessees would be liable to penalty for concealment of income by virtue of Explanation 1 to section 271(1)(c) inserted w.e.f. 14-1976. Clause (A) of Explanation ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this case. 13. Explanation 1(B) is applicable in cases where the assessee offers an explanation which he is unable to substantiate. To substantiate the explanation would mean that the assessee has to establish the explanation by proof of competent or acceptable evidence. The proof should create belief. Whereas for the purposes of section 69 substantiating the explanation is to be to the satisfaction of the Assessing Officer, for the purposes of application of Explanation 1(B) one has to consider the evidence furnished by the assessee so as to come to the conclusion whether the evidence creates a belief in favour of the assessee. If it is found that the evidence produced creates a belief in favour of the assessee then in penalty proceedings the benefit of doubt has got to be given to the assessee. In other words whereas for the purposes of section 69 Assessing Officer may reject the evidence furnished by the assessee on the basis of suspicion generated by inferences, it may not be permissible to do so in the matter of levy of penalty by virtue of an explanation referred to above. The explanation is to be so construed as to harmonise it with the basic principle of justice and fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income by the assessees. 14. Assessees also succeed on alternative ground. As is evident from the fact stated above Assessing Officer initiated penalty proceedings during the course of assessment proceedings. Assessments were complete by treating part of the advances as genuine and part as unexplained. Evidently when proceedings for concealment were initiated in respect of the four assessees the satisfaction of the Assessing Officer was to the extent of the income deemed to be income from undisclosed sources by the Assessing Officer. The first appellate authority has enhanced the income and treated the entire advances as income of the respective assessees. There was no satisfaction of the Assessing Officer in respect of the enhanced income as having been concealed by the assessee. The Assessing Officer has imposed the penalty in respect of the entire amount of advances in each case. It is evident from the facts stated above that there has been no satisfaction of the Assessing Officer for levy of penalty for concealment of income is respect of the part of advances which were accepted as genuine by the Assessing Officer at the time of original assessments. 15. In the case of Shadir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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