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TMI Blog2012 (11) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations, it is held that the notice is not vague. Intoroduction of cash - held that:- assessee failed to adduce any evidence regarding receipt of such advance or the job work actually done - assessee firm was in possession of unaccounted income by way of cash which was utilized in the course of business without paying tax thereon. Quantum of penalty - AO had made additions and initiated penalty on two grounds- (i) deficiency of cash of Rs. 8,79,204/- in the cash book, and (ii) advances for job work of Rs. 16.25 lakh. - CIT(A) combined the two additions and reduced the amount from Rs. 25,04,209/- to Rs. 18,48,039/-. - held that:- the levy of penalty should be levied on the amount of Rs. 16.25 lakh. - IT APPEAL NO. 3889 (DELHI) OF 2011 - - - Dated:- 4-4-2012 - U.B.S. BEDI, K.G. BANSAL, JJ. V.K. Tulsian for the Appellant. C.B. Singh for the Respondent. ORDER K.G. Bansal, Accountant Member The facts of the case taken from assessment order dated 26.12.2007 passed u/s 143(3) of the Income-tax Act, 1961, are that the return was filed on 31.10.2005 declaring loss of Rs. 1,85,499/-. The assessee derives income from manufacturing of M.S. Ingots, job work, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance cannot be made. In fact, the peak negative balance of Rs. 8,79,204/- would have to be telescoped into the peak addition of Rs. 16.25 lacs. It is further noticed that a perusal of the Annexures A B to the assessment order show that the unaccounted cash introduced in the books of account was only to cover the negative cash balances as arising from time to time. But as the genuineness of the claim of cash introduced of Rs. 16.25 lacs is in dispute and the same has not been substantiated by production of details of job work advances received, the cash book would have to be reworked by excluding the same. It is noticed that the Ld. CIT(A) has done exactly this to arrive at the peak negative cash balance of Rs. 18,48,035/- on 19.10.2004. In these circumstances, as the negative peak cash balance as on 19.10.2004 is higher than the alleged cash introduced of Rs. 16.25 lacs, the higher the same has been rightly brought to tax by the ld. CIT(A). In these circumstances, we do not find any error in the finding of Ld. CIT(A) on this issue. In these circumstances, the findings of Ld. CIT(A) on this issue stand confirmed." 1.3 As mentioned earlier, penalty proceedings were initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) and was based only on general observation. 3. Whether the ld. CIT(A) was justified admittedly that non-issue of notice u/s 271(1)(c) by specifying the nature of default is just a clerical mistake which can be cured under the garb of section 292B. 4. Whether the ld. CIT(A) was justified by not admitting the submission of the assessee filed before A.O. dated 30.10.2009 even without verification from the record. 5. Whether the ld. CIT(A) was justified by not quashing the time barred penalty order which based on notice dated 26.12.2007 fixed for 23.01.2008 when the penalty order passed on 30.03.2010. 6. Whether the ld. CIT(A) was justified by confirming the penalty order without considering the submission/argument advanced by the appellant in the right prospective. 7. Whether the ld. CIT(A) was justified by confirming the penalty order which is solely based on quantum orders instead of independently finding to establish the intentional default on the part of the appellant. 8. Whether the ld. CIT(A) was justified by confirming the penalty order which was based on quantum order where addition was made because of rejection of explanation which was treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work. No direction was issued for levying penalty in respect of enhancement and, therefore, levy of penalty on such enhancement is bad in law. 2.4 In regard to invalidity of the notice, our attention has been drawn towards the notice dated 26.12.2007 placed on page No. 1 of the paper book, in which Explanation 1 has been invoked but inappropriate paragraph has not been cancelled. Therefore, it is argued that no penalty could have been levied on the basis of such a notice. 2.5 In respect of ground No. 4, it has been mentioned that the ld. CIT (Appeals) was not right in rejecting the contention that the explanation filed before the AO was not considered by him. He should have verified the case records rather than stating that there is no evidence of filing the said explanation. 2.6 In regard to ground No. 5, it has been mentioned that hearing was fixed on 23.01.2008 in the notice dated 26.12.2007. However, the order was finally passed on 30.03.2010. No interim order has been passed that the penalty is kept in abeyance due to pendency of appeal. Thus, the order is barred by limitation. 2.7 In regard to ground Nos. 6, 7 and 8, it is submitted that penalty proceedings ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that it is preceded by the assessment order, in which both the additions have been discussed in detail. It has been held that the amounts represent income of the assessee from undisclosed sources, therefore, it is obviously a case of fabrication of books of account with a view to bring concealed income in the books. 3.3 In regard to ground no. 4, it is submitted that even now there is no evidence of filing any reply before the AO and, therefore, no fault can be found with the finding of the CIT (Appeals). 3.4 In regard to ground no. 5, the admitted position is that the order has been passed within six months of the receipt of the order of the Tribunal by the CIT. Such an order cannot be held to be barred by limitation. Even the ld. counsel had not made any submission in this behalf. His contention is that for keeping proceedings under abeyance an interim order should have been passed, which has not been done. It is argued that there is no such requirement under the law. 3.5 In regard to ground nos. 6, 7 and 8, it is submitted that the AO had issued notices to the assessee to which no reply was furnished. Therefore, he proceeded with various explanations furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter charge under aforesaid clause (iii) has been established. The assessee has not been able to support his contention with any decided case. However, in the case of CIT v. K.P. Madhusudanan [2000] 246 ITR 218/[2002] 125 Taxman 265 (Ker.), it has been held that the AO is not obliged to intimate the assessee that Explanation-1 to section 271(1)(c) is proposed to be applied. The scheme of the provisions does not provide for such a requirement either directly or indirectly. Therefore, it has been held that the Tribunal was not justified in concluding that order imposing penalty was vitiated because the AO did not bring to the notice of the assessee that it proposed to rely on the explanation. This provision only raises a rebuttal presumption which the assessee is required to rebut by placing materials on record. The decision, according to us, will apply mutatis mutandis in respect of Explanation-4. Explanation 1 creates a rule of evidence and places burden on the assessee to offer explanation in respect of any income which has been added to the income returned by him. Explanation 4 provides the mode of computation of penalty in a case where returned loss has been reduced or it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady seen that in the notice one of the alternatives, i.e., concealment of particulars of income or furnishing of inaccurate particulars of income has not struck off. In the case of Gujarat Credit Corpn. Ltd. v. Asstt. CIT [2008] 113 ITD 133 (Ahd.) (SB), relied upon by the ld. counsel, the AO had initiated penalty proceedings for disallowance of loss as capital loss. This ground was not accepted by the CIT (Appeals) as correct. It was held that in view of the finding of the CIT (Appeals), the foundation on which penalty was initiated has fallen down. Therefore, the penalty on that ground cannot fructify. The CIT (Appeals), however, upheld the disallowance on a totally different ground. In such a situation, the penalty could have been initiated by the CIT (Appeals) but that will not give jurisdiction to the AO to levy the penalty. We have given serious consideration to this issue also. This decision may have some implication on the levy of penalty in respect of first addition regarding the cash shortage. At the same time, it is also true that the assessee must be appraised of the charge in the notice for which he is sought to be penalized. The whole issue has to be decided on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no explanation has been furnished before the AO. In this connection, our attention is drawn to a purported explanation placed in the paper book on page nos. 19 and 20. Even before us, the assessee was not able to show any evidence that this reply was filed before the AO. This reply does not show the receipt from the AO or his dak counter. In such a situation, we cannot find any fault with the finding of the ld. CIT (Appeals). 5.4 It has also been submitted that the first notice was issued on 26.12.2007. However, the notice was not pursued. Further notices were issued on the basis of which penalty was levied. Thus, the initial notice issued had become barred by limitation. We are unable to agree with this submission of the ld. counsel. The reason is that appeal was filed against the assessment order before the ld. CIT (Appeals). On the receipt of his order, both the parties filed appeals before the Tribunal, which were disposed off on 04.10.2009. The penalty was levied on 30.03.2010, i.e., within six months from the end of October, 2009. Admittedly, the order is not barred by limitation, but the case of the ld. counsel is that the Assessing Officer should have recorded a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the contention of the assessee that there could be a mistake in recording the rate. In the first place, the facts are distinguishable. It is not a case of estimate the rate of sale of the flats but a case where expenses were incurred for which no money was available in the books and, thus, undisclosed money available with the assessee was utilized. Secondly, the ratio of this decision at variance with the view of the decision of Hon'ble Supreme Court in the case of Dharmendra Taxtile Processors ( supra ), in which it has been held that the levy is a civil levy. It is charged to compensate the revenue for concealment of income etc. Therefore, the proceedings u/s 271(1)(c) have to be decided on the basis of provision contained in the statute including Explanation 1, which casts initial onus on the assessee to furnish explanation and thereafter the AO has to judge whether the explanation is substantiated or it is bone fide or not. Further, in the case of Gujarat Credit Corporation Ltd. ( supra ), the import of Explanation 1 has been explained. The charge against the assessee was that it claimed as business loss what in fact was capital loss. The claim of business loss was ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shown 1383 bags of garlic in the stock at the end of the year. Therefore, it was concluded that these stocks were sold and the sale proceeds were not disclosed. An addition of Rs. 58,000/- was made. The AAC came to the conclusion that the bags were not sold but were shown in the stocks, which was under-valued. On this basis, he confirmed the addition of Rs. 34,000/-. The Tribunal held it to be a case of under-valuation of stock but reduced the addition to Rs. 20,213/-. The AO also levied the penalty. The Hon'ble Court mentioned that the findings of the AAC were there before the AO which showed that there was no suppression of sale. However, the AAC did not chose to initiate penalty for furnishing inaccurate particulars of income. In such circumstances, there was no jurisdiction to levy the penalty u/s 271(1)(c). The facts of this case are also distinguishable because the CIT (Appeals) came to the conclusion that the two types of discrepancies described by the AO were of the same nature. 6.3 Having considered the facts on record and the rival submissions, we are of the view that the assessee has completely failed to substantiate its explanation or to show that the explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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