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TMI Blog1995 (10) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) on account of this addition the penalty levied by the Assessing Officer therefore, deserves to be cancelled. We order cancellation of the penalty and direct the Assessing Officer to refund the penalty amount if any paid by the assessee in the meantime during pendency of the appeal. 3. Regarding penalty levied under section 273(2)(aa) amounting to Rs. 2,000, we are of the view that on the facts of the case the penalty was not exigible. The same is, therefore, cancelled. We direct the ITO to refund the penalty of Rs. 2,000 if the same has been paid by the assessee in the meantime during the pendency of the present appeal. 4. Both the appeals of the assessee are allowed. Per Shri B.L. Chhibber, Accountant Member.--- Regretting my inability to persuade myself to the view taken in the order of my learned Brother, I proceed to write a dissenting order. 2. Penalty under section 271(1)(c) was levied on account of income from undisclosed' sources towards purchases made by the assessee-firm outside the books of account. Similarly penalty under section 273(2)(aa) was levied as the assessee had furnished an estimate of advance tax payable by it which it know or had reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amvat year 2038). 3. The assessee is a partnership doing wholesale business in groundnut oil, vegetable oil, soya bean, grease, yarn and wheat, etc. Return of income was filed on 4-7-1983 showing total income of Rs. 54,915. The assessment was completed under section 143(3) by an assessment order dated 6-1-1986 wherein the total income was computed at Rs. 1,96,526. In the said assessment order, an addition of Rs. 1,28,100 was made towards the alleged purchase of 600 tins of oil and profit on the same on the ground that they were sold outside the books of account. According to the Assessing Officer, who passed the order under section 271(1)(c) of the Income-tax Act, 1961 dated 10-3-1986 in the case of the assessee, M/s. Prabhat Oil Traders, a search under section 132 was carried on 20-1-1984 and books of account and certain other documents besides cash of Rs. 12,550 were seized. Search operations were also carried on in the residential premises of the partner, Shri Shailesh J. Parekh (SJP for short). During the search of the residential premises of SJP, two purchase bills dated 10-4-1982 and 13-4-1982 were found. As SJP could not explain the presence of these appeals in his house, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account and, therefore, the purchases amounting to Rs. 1,25,300 and profit on these tins at Rs. 2,800 were treated as the suppressed income of the assessee-firm. Penalty proceedings under section 271(1)(c) were initiated. 4. In the explanation filed by the assessee, the assessee denied having concealed any income or any particulars thereof. He also urged that the Assessing Officer's inference in regard to the alleged purchases of a consignment of 550 tins and another 50 tins of oil was incorrect in fact and law and that, inasmuch as the said tins were returned to the consignors without taking the delivery, it could not form part of its trading activity. It was further urged that the assessee's books of account and other independent relevant data furnished before the Assessing Officer amply proved the same. It was finally urged that the additions made in the assessment order were under contest and so the penalty proceedings may be kept in abeyance till the disposal of the quantum appeal. The Assessing Officer rejected the plea of the assessee to keep the penalty proceedings in abeyance till the disposal of the quantum appeal. He levied a penalty of Rs. 95,000 vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard of its obligations, which gives rise to contumacious character liable to penalty for concealment of income. He also held that no substantial or cogent reasons have been given by the assessee either before him of before the ITO except that the alleged purchase of a consignment of 550 tins and another 50 tins of oil was incorrect and that the said tins were returned to the consignors without taking delivery. Ultimately, he held that the assessee's case for levy of penalty was governed by the Explanation to section 271(1)(c) and in that view of the matter, he confirmed the levy of the impugned penalty. 6. The learned Judicial Member opined that the penalty was levied in respect of the addition made on account of income from undisclosed sources towards the purchases made by the assessee firm outside the account books. He observed that he had held that the Assessing Officer erred in making addition of Rs. 1,28,100 and had deleted the additions so made. Accordingly, he held that since the Assessing Officer initiated and levied penalty under section 271(1)(c) on account of the said addition, the penalty levied by the Assessing Officer, therefore, deserved to be cancelled. He cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought by the Assessing Officer under any of the Explanations to section 271(1)(c) during the course of assessment proceedings. The assessee relies on the judgments of the Supreme Court in the cases of CIT v. Anwar Ali [1970] 76 ITR 696, CIT v. N. A. Mohamed Haneef [1972] 83 ITR 215, CIT v. Khoday Eswarsa [1972] 83 ITR 369 and Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705. Even if it is assumed that the Assessing Officer can invoke the Explanation 1 directly in the penalty order, the above decisions still hold good as the presumption laid down by Explanation has been rebutted by the appellant on the basis of balance of probability. Once the initial burden cast on the assessee as per the Explanation was discharged, the burden will shift to the department to prove that the Explanation offered was false. In the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the Supreme Court has held that, where the circumstances do not lead to the reasonable and positive inference that the assessee's Explanation is false, the assessee must be held to have proved that there was no fraud or gross or will ful neglect on his part. In the case of CIT v. K.K. Sadayappan [1990] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the two learned Members differed on the point of addition suggests that the explanation furnished by the assessee was bona fide. The explanation offered by the assessee is act false although the assessee might be treated as not able to substantiate its explanation. So the case of the assessee at best would fall under Explanation 1(B) and not Explanation 1(A). In this case, the assessee is saved by the Proviso to Explanation 1 as all the material facts for computation of the total income were disclosed by the assessee and the explanation was bona fide. In the present case, there is no material on record to come to the conclusion that the explanation furnished by the assessee was false. The assessee's explanation may be treated as unproved but the same has not to be disproved and the circumstances do not lead to the reasonable and positive inference that the assessee's case is false, there being no material on record to show that the amount in question which has been treated as income from undisclosed sources, was the income of the assessee. The mere fact that the assessee's explanation had not been found to be satisfactory would not be conclusive of the fact that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section itself, the ratio of the judgment in the case of Anwar Ali is not applicable. Further the ratio laid down in the case of Vinay Chand Hari Lal is not applicable as the addition was made under section 69 but applies only to the addition made under section 69A. Penalty can be levied under section 271(1)(c) where there was no satisfactory explanation regarding the investment and the unexplained amount was added under section 69. Reliance is placed on the judgments of the Calcutta High Court in the cases of Rahmat Development Engg. Corpn. v. CIT [1981] 130 ITR 602 and Loknath Chowdhury v. CIT [1985] 155 ITR 291. Penalty under section 271(1)(c) can be levied for concealment of deemed income as laid down by the High Courts in the cases of Hindustan Tools Mfg. Co. v. CIT [1976] 102 ITR 174 (Punj. Har.), CIT v. Aya Singh Ishar Singh [1973] 92 ITR 182 (Punj. Har.), CIT v. Behari Lal Pyare Lal [1977] 107 ITR 587 (Punj. Har.). Penalty under section 271(1)(c) is exigible under the main provisions of section 271(1)(c). Reliance is placed on the judgments in the cases of L.K. Shaik Mohd Bros. v. CIT [1977] 110 ITR 808 (Mad.), R.B. Shreeram Durgaprasad and Fatechand Narsinghdas (Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of Rs. 1,28,100. Hence I hold that no penalty under section 271(1)(c) is exigible on this count. 11. In the penalty order under section 271(1)(c), the Assessing Officer in paragraph 7 simply quoted section 271(1)(c)and Explanation 1. He did not state in the said penalty order, whether the assessee's case comes under clause (A) or clause (B) of the said Explanation 1. The Assessee has offered explanation that 600 tins of oil were returned back. The Assessing Officer based on the report dated 8-3-1984 by the Inspector of Income-tax Mr. M.L. Khavadia and letter dated 16-3-1984 from ITO, Bhavnagar concluded in para 13(ix) of the assessment order dated 6-1-1986 that the statement of Jayant Kumar Parekh to the effect that the goods returned by the assessee were directly sent to the SSOI was obviously false. In my order dated 31-8-1995 in the quantum appeal, I have held as under : "A careful perusal of the Inspector's report shows the hollowness of the stand of the department that there is no oil mill in the name of SSOI at Mahuva. This is because the transactions took place in April 1982, while the Inspector conducted the enquiry in March 1984. The Inspector simply repor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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