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TMI Blog2006 (1) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... n sum and substance Department has to prove factum of concealment. Quantum and penalty proceedings are distinct and separate and while deciding the issue of penalty, facts can be reconsidered. Thus, assessee's explanation to confirmations, etc. have been rejected on assumptions drawing adverse inference based on probabilities, i.e., existence of insertions and corrections and probability of accountant knowing fact of cash credits. Since we hold that it was burden of the Department, AO should have separately investigated matter in penalty proceedings by calling these parties and accountant to discharge burden. Therefore, assessee has discharged its burden of giving explanations as well as supporting the same by filing confirmations. Our views are supported by Hon'ble Supreme Court judgment in the case of Orissa Corporation [ 1986 (3) TMI 3 - SUPREME COURT] . Department would have discharged its burden by proving that assessee's explanation was false based on only finding of facts and not on assumptions. Our views are further fortified by the decision of Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan[ 1997 (1) TMI 6 - SUPREME COURT] wherein it has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account than the amount shown in the said Silak account. When asked, partner contended that he had raised certain loans on various dates, which were deposited on behalf of the firm, along with Silak account in bank, this fact was not known to accountant who used to keep books. These entries were corrected in the books of accounts, AO raised objections on these overwriting, insertion etc., assessee furnished confirmation from all the depositors and explained reasons for making corrections, overwriting, insertion in the books of accounts. Claim of assessee is, at any stage of proceedings, AO did not ask assessee to produce depositors, seeing this assessee showed its willingness to produce lenders and AO gave only one day's time. AO made addition, which was carried to the Tribunal where the assessee challenged merits of addition and raised legal plea that addition has been made not on the basis of seized material; seized material was only rough cash book, which tallied with regular books maintained by the assessee and AO has recorded a finding to this effect. Addition has been made on the basis of books subsequently produced by the assessee which contained these corrections, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee explained the discrepancy in best possible manner. Assessee also explained reasons for making erasing and overwriting in the books of account. Assessee filed confirmations of all depositors with their names and addresses. At any stage of proceeding, the Revenue has never asked assessee to produce lenders. It is the assessee who showed his willingness to produce the lenders. However, the AO has not given reasonable time for producing lenders. He allowed time of only one day for producing lenders. As assessee and other partners were not searched, no evidence was collected in regard to borrowings. It is natural that accountant cannot have knowledge of each and every transaction of the firm. The lenders are person of means. The amounts were borrowed free of interest owing to assessee's close relation with lenders. Moreover, only sum of Rs. 16,35,000 represents loans and balance sums represent, other things as indicated at para no. 9. The amount deposited into bank out of sale proceeds cannot be disbelieved. The credits of Rs. 2,50,000 represent the rectification entries. In this connection, it is submitted that the assessee's practice is to debit the account of Kadoda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 158BFA(2)-Penalty under s. 158BFA(2) is not mandatory-If the assessee offers a convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income, the penalty is not attracted-Addition not based on material found during search or material in possession of AO, but based on difference in valuation of property as disclosed by assessee and as estimated by DVO- There was no concealment attracting penalty under s. 158BFA(2) 7. It was contended that this judgment further laid down that additions which are not based on material found during the course of search, but based on subsequent investigation, cannot be added by following observations: 6. In view of the above principle, let us examine whether there was any reasonable cause or bona fide belief on the part of the assessee for not disclosing the so-called income brought to tax under s. 158BC. In the present case, it is seen that the income assessed is the difference between the value as determined by the DVO and as disclosed by the assessee. There is no finding that any material was found during search which suggested additional investment by the assessee in acquisition of the property leading to compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. Assessee expressed his willingness to produce lenders, AO did not ask for it initially and when asked, gave only one day's time to produce them, which was humanly impossible; assessee having furnished confirmations, names and addresses discharged its part of burden, therefore, penalty cannot be imposed on assessee who has discharged its burden. 9. Regarding discharge of burden, reliance was placed on Supreme Court judgment in the case of CIT vs. Orissa Corporation (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC). Assessee furnished explanation about ignorance of accountant, who wrote cash book without knowing that partner at Surat had borrowed some amounts and deposited in the bank. If the AO had any objections, accountant should have been called and enquired. AO, without examining all these vital aspects, levied penalty without establishing fact of concealment of undisclosed income, addition of which itself is questionable. Further reliance was placed on : (A) CIT vs. Jalaram Oil Mills (2001) 171 CTR (Guj) 426 : (2002) 253 ITR 192 (Guj) for the following proposition. Penalty under s. 271(1)(c)-Concealment-Unexplained cash credits-Merely because addition has been made by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be strictly construed and being totally ambiguous, have to be construed in favour of the assessee-Proviso to s. 158BFA(2) enumerates circumstances under which penalty shall not be levied and the argument that absence of those circumstances will automatically attract penalty is not acceptable, more so, when the main section uses the word may which gives a discretion to the AO and such discretion should have been exercised in favour of assessee in view of the fact that assessee had filed return only after a delay of 15 days and declared most of income, accepted the additions and did not file appeal against assessment-Under s. 158BFA(2), the AO may demand 240 per cent of undisclosed income by way of tax plus penalty (60 per cent + 180 per cent) which is obnoxious-The Finance Bill, 1995 and the CBDT Circular No. 717, dt. 14th Aug., 1995, also do not throw any light on the nature of offence on which penalty is imposable under s. 158BFA(2)-Provisions read down (D) Morarjee Goculdas Spg. Wvg. Co. Ltd. vs. Dy. CIT (2005) 98 TTJ (Mum)(TM) 201 : (2005) 95 ITD 1 (Mum)(TM) for the proposition that- Search and seizure-Block assessment-Computation of undisclosed income-Documents in respect of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished explanation in respect to corrections, insertions and cash credits. Assessee volunteered to produce creditors but only one day's time was given. Be that as it may, additions are now confirmed and we are concerned with imposition of penalty under s. 158BFA(2). Assessee relied on Tribunal judgment in the case of Nemichand vs. Asstt. CIT (Inv.) and Smt. Mala Dayanidhi VB. Dy. CIT. Tribunal has taken a view that s. 158BFA is not mandatory but discretionary and the assessee's explanation has to be considered. We find merit in the contentions of the learned counsel that this penalty proceeding is akin to s. 271(1)(c) proceedings, main clause and in sum and substance Department has to prove factum of concealment. Quantum and penalty proceedings are distinct and separate and while deciding the issue of penalty, facts can be reconsidered. In the given facts and circumstances, assessee's explanation to confirmations, etc. have been rejected on assumptions drawing adverse inference based on probabilities, i.e., existence of insertions and corrections and probability of accountant knowing fact of cash credits. Since we hold that it was burden of the Department, AO should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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