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TMI Blog2010 (5) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... e C.I.T. had erred in confirming the levy of penalty amounting to ₹ 11,57,000/- imposed U/s.271(1)(c) of the I.T. Act 1961 by the ld. ACIT, Circle 2, Baroda for concealing particulars of income or furnishing inaccurate particulars of such income. 1.02 Your appellant says and submits that no penalty can be levied on protective assessment. Your appellant further submits that the Hon ble C.I.T. had confirmed the action of ld. A.C.I.T., Circle 2, Baroda without considering the facts and circumstances of the case. 3. The brief facts leading to the above issue are that the assessee is an individual and filed his return of income on 17-03-1989. A search operation u/s.132 of the Act was carried out on business residential premises of the assessee on 12/13-05-1988. During the course of search, various incriminating documents, registers, books of account were found and seized by the Investigation Wing of the Department at Baroda. When these incriminating documents were confronted to the assessee and its Group concern they offered such amounts as income earned from undisclosed sources in its books u/s.132(4) of the Act. It is an admitted position that later these amounts have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA 4180/Ahd/1994 dated 12.10.2001 in the case of M/s. Chaturbhai Haribhhai Patel Co. and order No.ITA No.4189 to 4191/Ahd/1994 dated 12.10.2001 in the case of M/s. Harshadkumar Co., M/s. Chaturbhuj Tobacco Co., and M/s. Natwarbhai C Patel Co. The contention of the appellant is found to be correct that the additions made in the hands of firm have been deleted on the plea that the disclosure has been offered by the partners (appellant) of the firms. In view of this, I fully agree width the view of the appellant that the assessment be made on substantive basis. The A.O. is therefore, directed to uphold the amount of disclosure in the hands of appellant on substantive basis. 4. The Assessing Officer during the course of assessment proceedings noted that the income of ₹ 61,47,607/- represents the income of the firm and for the same the Assessing Officer recorded the facts in para-6.7 as under:- 6.7. The above discussion leads to only one conclusion. That is, this amount has been taken back from the accounts of the benamidars (dalals) after making payment by cheques (Ref. Question 32: Shri N.C. Patel s statement u/s.132(4) dated 13.5.88 at M/s. Harshadkumar Co. s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to take advantage of this provision. In view of this it is clear that he was not told of any blanket immunity under the Act. Shri N.C. Patel made the disclosure after verifying the provisions of sec. 271(1)(c) Explanation-5. 6. In view of the above position, the Assessing Officer levied the penalty u/s.271(1) of the Act. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the Assessing Officer by giving following finding in para-2.6 and 2.7 of his appellate order:- 2.6 I have considered the submissions of the ld. counsel and facts of the case. I have also gone through the various case laws relied upon by the ld. counsel. There is no evidence on record to show that any promise was made during the course of search that no penalty shall be levied u/s.271(1) . During the course of search the authorized officer has simply brought the provisions of explanation (5) of section 271(1)(c) to the attention of the appellant and has posed the question whether he was in favour of taking advantage of these provisions. It cannot be said that any assurance, whatsoever, has been given to the appellant that no penalty shall be levied. It has rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. counsel that no penalty is leviable since demand raised after assessment is Nil is not tenable since the income of ₹ 20,49,203/- shown in the return of income is admitted by appellant himself to be unaccounted. All the case laws relied upon by the ld. counsel are distinguishable on facts. Two of the case laws on which the ld. counsel strongly relied are discussed here to show how the facts in those cases are different from those of the present case. 7. Before us the Ld. Sr. counsel for the assessee, Shri J.P. Shah argued that no penalty can be levied in case the assessment is made on the basis of protective and not substantive. He stated that it is impossible to gather that the ITO has entertained a reasonable belief that some income of the assessee has been concealed or inaccurate particulars have been furnished till he does not come to a conclusion that the income belongs to assessee. He stated that no doubt it is open to an ITO to make protective assessment but it not open to levy penalty on protective assessment as reason to believe possesses lesser power than the words satisfaction , which is a prerequisite for initiation of penalty proceedings u/s.271(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality, it is thus clear that as per the assessee s own statement recorded u/s.132(4) of the Act, making the disclosure of ₹ 20,49,203/- in his own hand that the Tribunal has directed the substantive addition to be made in the hands of the assessee. Under these circumstances, he finally argued that it cannot be said that penalty has been levied on protective basis or there was no satisfaction recorded by the AO that the disclosure made by the assessee during search and subsequently in the return of income after detection by the Revenue attracted the provisions u/s.s271(1) of the Act. 9. After hearing the rival contentions and going through the case records, we find that the Assessing Officer was of the confirmed view that substantive assessment in the hands of the two firms as mentioned earlier was made for the reasons given at page No.68 of the assessment order and it was only when statement A and B filed by the assessee tried to explain the disclosure made during search as credits appearing in the names of various persons in the books of account of the aforesaid two firms that the substantive assessment has been made. Accordingly, the Assessing Officer was sure that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cold in the same breathe. The notice under section 34 on the assessee and the assessment based on that notice were, therefore, illegal. The Allahabad High Court observed that, though it might be open to an Income-tax Officer to make a protective assessment, it is not open to the Income-tax Appellate Tribunal, which is the final court of fact, to make a protective order. This observation is, however, not relevant for our purpose. Reason to believe is on a lower pedestal then satisfaction , which is requisite for initiation of penalty proceedings under section 271(1)(c) of the Act. If, in the background of the facts stated above, the Income-tax Officer could not have entertained a reasonable belief that some income of the assessee had escaped assessment, the Income-tax Officer must more so in the instant case could not have recorded requisite satisfaction for the initiation of the penalty proceedings against the assessee. The Income-tax Officer, in the instant case, had made up his mind and held that the concealed income belonged to J.M. Shah and not to the assessee and, therefore, he could not have recorded or reached the requisite satisfaction for initiation of penalty proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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