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TMI Blog1993 (4) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... tent of Rs. 47,100 in the personal accounts of the partners. The particulars of the cash credits found in the personal accounts of each of the partners are given by the Income-tax Officer in his penalty order dated 21-3-1985 and, therefore, they need not be repeated here. As usual in the earlier years, the assessee's A.R. who appeared before the Income-tax Officer with accounts etc. surrendered the above total credits as income of the assessee since even after adjustment of Rs. 41,000. It results in a small tax effect of Rs. 328. Penalty proceedings under section 271(1)(c) were initiated during the course of assessment proceedings. On behalf of the assessee, a reply was sent on 20-3-1985. It was contended that the credits noted in the personal accounts of each of the partners represent their agricultural income. However, the same was agreed to be added as income of the assessee-firm as the firm could not readily explain the credits. In fact the amounts of credit should not have been taken and computed in the total income of the assessee-firm. However, by virtue of his letter dated 27-12-1982, the total of the credits were added to the firm's income. The Income-tax Officer, B-Ward, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department and the said onus was never discharged. In view of the large agricultural holdings of the partners, it would not be difficult for the assessee-firm to prove that the cash credits of Rs. 47,100 shown in the personal accounts of each of its partners really represented agricultural incomes of the respective partners. The Income-tax Officer did not bring any evidence on record disproving this basic contention of the assessee that the credits represented agricultural incomes of the partners. Hence there was no justification at all in levying penalty by invoking the provisions of section 271(1)(c). The contention of the assessee is found to have the support of the following decisions: (1) CIT v. Punjab Tyres [1986] 162 ITR 517 (MP) (2) Addl. CIT v. Burugupalli China Krishnamurthy [1980] 121 ITR 326 (AP) (3) CIT v. M. George Bros. [1986] 160 ITR 511 (Ker.) (4) Gumani Ram Siri Ram v. CIT [1972] 85 ITR 67 (Punj. Har.) (5) Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC) (6) Girdharilal Soni v. CIT [1989] 179 ITR 111 (Cal.). Therefore, the learned Commissioner (Appeals) had allowed the appeal filed by the assessee and cancelled the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned appellate orders. The penalty relates to assessment year 1982-83. The income-tax return disclosing loss of Rs. 31,143 was filed on 25-10-1982. The assessee was a firm of five partners. In the capital accounts of these five partners some credits were found totalling to Rs. 47,100 and when the Income-tax Officer had asked for the source of the credits, the assessee-firm did not have any explanation whatsoever and surrendered the same as income of the assessee-firm. In the assessment order dated 27-12-1982, the following is what is stated by the Income-tax Officer justifying the addition of Rs. 47,100 to the returned loss of Rs. 31,143: "The assessee's A.R. says that there is no explanation to offer regarding the source of the credits. In the circumstances all these credits are treated as income of the firm for which the assessee's A. R. has no objection. Total income is computed as under: Loss admitted Rs. 31,140 Less : Credits in partner's capital accounts treated as income of the firm Rs. 47,100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. Therefore, even though it is not specifically invoked in the course of the penalty proceedings or even the Income-tax Officer fails to do so, the appellate authorities like the Deputy Commissioner and the Tribunal must examine its applicability before arriving at their decision whether the penalty is or is not leviable. This proposition of law was found enunciated at page 5977 of Sampat Iyengar's Law of Income-tax, 8th Edn. revised by Justice S. Ranganathan. In that treatise it is stated as follows:--- "It follows, from the view that the Explanation only postulated a rule of evidence and procedure, that no specific reference and reliance need be placed on the Explanation in the show-cause notice itself. The Assessing Officer can invoke it in the course of the penalty proceedings and, even if he fails to do so, the Deputy Commissioner and the Tribunal must examine its applicability before arriving at their decision whether a penalty is or is not leviable." This legal position is supported by the decision in Kantilal Manilal v. CIT [1981] 130 ITR 411 (Guj.), CIT v. Drapco Electric. Corpn. [1980] 122 ITR 341 (Guj.), Addl. CIT v. Motisingh [1983] 144 ITR 133 (MP), CIT v. Prabh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In those circumstances, the Calcutta High Court held that penalty order passed by the Inspecting Asstt. Commissioner was void. Thus in the understanding of this Tribunal, there are at least three specific offences now found in the provisions of section 271(1)(c) read with Explanations 1 to 6 which was in vogue from 1-4-1976 onwards. The three specific offences are: (i) Concealing particulars of income; (ii) Furnishing of inaccurate particulars of income; (iii) Committing the offence of deemed concealment under Explanation 1 to section 271(1)(c). All the three offences adumbrated above are substantial provisions. In the understanding of the Tribunal penalty proceedings cannot be initiated under one such substantial provision and it cannot be justified under another substantial provision for which notice of penalty was not issued. In Padma Ram Bharali's case the Gauhati High Court had the occasion to consider a case of penalty which was initiated for concealing the income and which was substantiated on another ground, namely, furnishing of inaccurate particulars of income. The question at issue before their Lordships was whether in those circumstances such penalty can be sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the ground on which it was issued were stated by the Income-tax Officer in his penalty order dated 21-3-1985. He stated in the penalty order as follows: "A penalty notice under section 271(1)(c) of the Act was initiated for concealing particulars of such income." Thus, it can be seen that the Income-tax Officer had issued notice under the two limbs of the main section and he never touched Explanation 1 to section 271(1)(c) or he never wanted to justify the penalty under Explanation 1 to section 271(1)(c). Thus when there is no charge under Explanation 1 to section 271(1)(c), the penalty cannot be sustained under a provision for which the assessee was not even charged and in this regard there is clear justification which can be derived from the decision of the Gujarat High Court in CIT v. Lakhdhir Lalji [1972] 85 ITR 77 which was extracted by the Gauhati High Court in Padma Ram Bharali's case. Therefore, for this reason, the impugned order of the Commissioner (Appeals) should be sustained. Further the only other ground on which penalty was imposed by the Income-tax Officer was the following:--- "Having agreed to the addition in the course of assessment proceedings, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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