9911796707
TMI Blog1994 (7) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-1978. It filed a return declaring a loss of Rs. 30,773 on31-7-1979. This was revised to Rs. 30,823 in response to notice issued under section 148 of the Act. The assessment was framed at an income of Rs. 1,36,534 (excluding the tax payable by the firm). The difference between the loss returned and the income assessed arose on account of addition of Rs. 1,43,000 made under the head "Unexplained investment by the partners". In appeal, the learned CIT(A) deleted the addition on the ground that the assessee had not failed to prove or explain the credits made in the books of account. The investments made prior to the actual commencement of business were owned by the partners, the assessments of whom were pending for disposal. The order was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also that the explanation to section 271(1)(c) was not applicable in the case of the assessee, penalty was imposed at Rs. 66,670. The learned CIT(A) before whom the appeal was filed by the assessee confirmed the order of the Assessing Officer after holding that the assessee's case fell squarely under the Explanation 1 to section 271(1)(c). It is this order which is subject of appeal before us. 4. Shri Sandeep Sapra contested order both on facts and proposition of law. It was argued that the CIT(A) without appreciating the facts fully was swayed by the decision of the ITAT without giving weightage to the factor that the material sufficient for sustaining the addition is not enough for imposition of penalty. Otherwise too, while confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same income were in order to explain certain deposits in their names. There was no explanation furnished to show that all the partners were able to earn identical amounts of income in the earlier assessment years. In absence of any evidence that out of the income earned in the earlier years, the partners had certain amounts with them to deposit in the firm, the same could not be accepted. This finding was not controverted by the assessee. Even if the explanation as relied upon by the assessee is taken into consideration, it would be apparent that the same could not be believed. All the partners were either petty hawkers or agriculturists who could not have with them amounts invested in the firm. Thus the explanation was proved to be fals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee can become liable for imposition of penalty---(a) where the assessee fails to offer an explanation; (b) offers explanation which is found to be false by the Assessing Officer; and (c) cannot substantiate the explanation offered. The latter is however, subject to the condition that explanation is otherwise bona fide and all the facts relating to the same and material to the computation of total income have been disclosed. 7. The explanation of the assessee has not been accepted by the ITAT on the ground that all the partners have filed their returns for assessment years 1974-75 to 1977-78 on the same date declaring identical income after the close of the accounting year of the firm. It was also observed that there was no e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference creating belief in the same. While filing of the same income on the same date by all the partners, can raise an inference against the assessee, the acceptance of the income and the investment in the hands of the partners can equally lead to inference in favour of the assessee. There being two probabilities, benefit could be given to the assessee specifically where the penalty proceedings are involved. As held by their Lordships of Supreme Court in the case of CIT v. Khoday Eswarsa Sons [1972] 83 ITR 369, the original proceedings for computing the tax may be a good item of evidence but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment or for that matter on the findings in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crepancy. If the assessee had furnished all details and did not conceal anything, it could not be said that he was not acting bona fide only because his explanation was not accepted. The proviso to the Explanation to section 271(1)(c) was applicable to the case." The explanation having been rendered in good faith, we are of considered view that the assessee's case is also not covered even under clause (B) of Explanation 1 to section 271(1)(c). Thus both the sub-clauses of Explanation 1 to section 271(1)(c) are not applicable in the case of the assessee. 10. As regards the alternative plea of the assessee that as the investment was made prior to the commencement of a business, in view of the clear provision of section 68 of the Act, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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