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TMI Blog1993 (7) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to the income of the assessee as income from other sources. This addition was confirmed up to the Tribunal stage and even assessee's Reference Application before the Hon'ble Rajasthan High Court in this regard was rejected, because according to the Hon'ble High Court genuineness of cash credit was a question of fact and not a question of law. 2. Thereafter, the ITO imposed a penalty of Rs. 15,230 under section 271(1)(c) treating the amount of Rs. 15,000 and the interest of Rs. 230 paid thereon as concealed income of the assessee or regarding which assessee had furnished inaccurate particulars of income and about which the assessee had not filed any explanation which was required from him under a statutory notice under section 274 read with section 271(1)(c) of the I.T. Act. 3. When the matter went in appeal, the ld. DC (Appeals) thought that the ITO had invoked the Explanation to section 271(1)(c), he rejected the arguments which were advanced on behalf of the assessee and again going by what had been written in the assessment as well as penalty orders, he took the view that the Explanation to section 271(1)(c) would be straightway operative and the appellant should be held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving procured this loan from Rao Bir Bikram Singh and having given the cash to the assessee. Shri Ranka regretted that on account of some technical reasons the Tribunal had held in the quantum appeal that the assessee had failed to discharge the onus of proving the genuineness of the cash credits but, Shri Ranka insisted, the penalty proceedings were separate proceedings and being proceedings of quasi-criminal nature, even the same evidence which had been considered in the quantum proceedings, had to be re-appreciated in the light of quasi-criminal proceedings. He submitted that so far as quasi-criminal proceedings are concerned, the assessee had discharged its burden both as required under that main provisions of section 271(1)(c) as well as under the Explanation to that section as it existed at the relevant time. He repeated that the assessee had shown that there were relevant entries regarding the credits in the account; that there were entries regarding payment of interest; that he had produced the vouchers bearing the signatures of the depositors and the books of account having been maintained in the regular course of business, section 34 of the Indian Evidence Act supported t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated by violation of principles of natural justice because the permission to cross-examine the witnesses was given to the assessee without furnishing copies of the statement made by the witnesses or conveying the substance of their statements. He also referred to the decisions given in the cases of Addl. CIT v. Rawalpindi Flour Mills (P.) Ltd. [1980] 125 ITR 243 (All.) in which it was held that the penalty under section 271(1)(c) could not be imposed merely on the basis of material collected during assessment proceedings and that statements of alleged name-lenders made before another ITO could not be used against the assessee. He further referred to the decision in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC) where the apex court held that evidence collected but not shown to the assessee was not admissible and that opportunity to controvert that evidence should have been given to the assessee. He also drew our attention to the decision in the case of ITO v. B.D. Yadav M.R. Meshram [1993] 46 TTJ (Nag.) 241 in which case penalty under section 271(1)(c) had been cancelled because the statements of the creditors on the basis of which penalty was imposed were neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , D.V. Patel Co. v. CIT [1975] 100 ITR 524 (Guj.) and CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat.). 8. The ld. Departmental Representative, on the other hand, placed reliance on the decision in the case of Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510 (Punj. Har.) where imposition of penalty on the basis of unproved cash credits had been upheld. For similar proposition, he also referred to the decisions in the cases of Kandaswami Pillai v. CIT [1977] 108 ITR 612 (Mad.) and Vijoy Laxmi Stores v. CIT [1986] 159 ITR 333 (Cal.). Regarding the statement of Rao Bir Bikram Singh not being made available to the assessee, the ld. D/R claimed that it was not the duty of the ITO to collect evidence for the assessee as held in the case of CIT v. Westcoast Shipping Agencies (P.) Ltd. [1981] 127 ITR 442 (Ker.). He further argued that as per the decisions in the cases of Mriganka Mohan Sur v. CIT [1979] 120 ITR 529 (Cal.) and Vimal Chandra Golech v. ITO [1982] 134 ITR 119 (Raj.), rules of evidence do not apply to income-tax proceedings. He heavily relied on the decisions of the Hon'ble Rajasthan High Court in the cases of CIT v. Smt. Satnam Malik [1979] 120 ITR 309 (Raj.) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely by referring to the assessment order, but by adducing some more evidence that it was the concealed income of the assessee. Examined from this point of view, we find that in this case the ITO initiated the proceedings on the ground that Rao Bir Bikram Singh had stated that he was not giving genuine loans but was only giving Hawala entries. We don't find any material on record nor anything in the assessment order or in the appellate orders to show as to when and before which authority and in connection with which proceedings Rao Bir Bikram Singh made this statement. We do not find any evidence to show, nor even an affirmation by the ITO in his order to show that the statement was recorded by him in connection with the income-tax proceedings of assessee's case. Indeed, the very fact that the reassessment proceedings were initiated on the basis of the statement of Rao Bir Bikram Singh would show that the statement had been recorded before the fresh proceedings for assessment has started. In other words, this would show that the statement of Rao Bir Bikram Singh was not recorded in connection with the assessment proceedings of the assessee as per decision of the Hon'ble Rajasthan Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness, the principle extends to giving an opportunity to the affected person to cross-examine that witness. In the instant case, as we have already mentioned, it is not known when, before whom, in what connection and what exact statement Rao Bir Bikram Singh had given. It is obvious from record and the orders of lower authorities that the assessee was never given a copy of that statement. We have already mentioned in this order that the assessee had filed an application before the ITO as back as on 11-10-1991 requesting the Assessing Officer to supply him with a certified copy of the statement of Rao Bir Bikram Singh but it was not supplied to the assessee. Thereafter, the assessee had moved an application on 12-5-1993, a copy of which was endorsed to the Sr. D.R. in which the assessee had informed the ITO that the case was fixed for hearing before the Tribunal on 24-5-1993 and he should be given a certified copy of that statement and some other documents mentioned in application dated 11-10-1991. Although, the case was further adjourned from 24-5-1993 for more than a month yet till the date of hearing the assessee was not supplied with a copy of the statement of Rao Bir Bikram Sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is called upon to lead evidence in rebuttal. They further quoted from the decision of the Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 at page 783 to the following effect: "It is.... surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question." Their Lordships observed thereafter that from this it is apparent that the principles of natural justice are applicable to the assessment proceedings. 12. At this stage, we may deal with the case law cited by the ld. D/R and may mention that in the case of Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510 (Punj. Har.) the creditor was produced and was examined and was proved to be false before the penalty was imposed. In the case of Kandaswami Pillai the creditor was examined in the quantum case and was again examined in the penalty proceedings and was proved to be false before the penalty was imposed. In the case of Vijoy Laxmi Stores before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kram Singh. In other words, the assessee adduced that evidence which the assessee thought would discharge its burden. If the Revenue thought that is was essential that a confirmation from Rao Bir Bikram Singh should have been produced or a confirmation letter from him should have been filed, it was for the revenue to ask the assessee to do that. In our view, there would be no justification in punishing the assessee for not adducing that evidence which according to the perception of the Revenue was essential but which the Revenue never asked the assessee to produce. 13. In this back-ground when we further look at the evidence on which the revenue has so heavily relied, we find that Rao Bir Bikram Singh is a person whose reliability and truthfulness has been examined in detail by the Tribunal in the case of M.D. Jewellers and after quoting extensively from the statement and cross-examination of Rao Bir Bikram Singh in that case, in which he had also stated that he had only given a Hawala for Rs. 20,000 to M/s M.D. Jewellers and not a genuine loan of Rs. 20,000 and he was confronted with copy of his bank account, certificate from the bank, his own signatures regarding discharging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case, we find that the addition had been sustained on the allegation that the assessee had not adduced evidence to prove the genuineness of the cash credits. There is no where any finding of the Tribunal to the effect that the impugned amount is the income of the assessee and hence in the instant case whereas the addition has been sustained for alleged failure of the assessee to prove the genuineness of the cash credits, penalty under section 271(1)(c) cannot be sustained merely on that basis because as laid down in a large number of decisions of various High Courts including the jurisdictional High Court in the case of Goswami Smt. Chandralata Bahuji, in order to justify the levy of penalty there had to be some material or circumstances leading to the reasonable conclusion that the amounts added represented the income of the assessee and that too the income of the respective year. 14. In view of what we have discussed above, we do not consider it necessary to deal with the argument of Shri Ranka regarding sustaining or not sustaining penalty under section 271(1)(c) on the basis of cash credit additions. 15. Similarly so far as the argument regarding applicability of Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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