TaxTMI 
TaxTMI 
2009 (5) TMI 927
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....f the IT Act, 1961. As such, the penalty order is bad in law and is liable to be cancelled. 4. That the authorities below did not appreciate that the penalty proceedings and assessment proceedings are quite separate and distinct and as such the order levying penalty under s. 271(1)(c) of the IT Act, 1961 is bad in law and is liable to be cancelled. 5. That the learned CIT(A) was not justified in confirming the order of the AO where the addition has been (made) on estimate basis and the penalty has been levied on the basis of the same. As such the order levying penalty under s. 271(1)(c) of the IT Act, 1961, is bad in law and is liable to be cancelled. 6. That the authorities below did not appreciate that there was no concealment of income at all and it is prayed that the penalty confirmed by the learned CIT(A) at ₹ 2,05,140 may be cancelled. 7. That the authorities below did not appreciate that there has to be satisfaction by the AO while levying the penalty under s. 271(1)(c) of the IT Act, 1961. As such the order confirmed, by the learned CIT(A), is bad in law and is liable to be cancelled. 8. That the learned CIT(A) did not appreciate that the penalty has been le....
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.... : "5. The reply of the assessee has been considered. Limited survey in this case confirmed that no stock inventory was being prepared by the assessee at the end of the year and no such inventory was prepared as on 31st March, 2002, This fact was admitted by the assessee in his statement. In the audit report also, it is clearly stated in para 28 that no opening of closing stock, inventory was provided by the assessee to the auditors. The assessee is showing closing stock on the basis of GP rate. The cash sales or the Galla sales amounting to ₹ 2,61,307 have been shown separately by the assessee. There can be thus no justification to record sales at a higher figure than that appearing on the sale bills other than introduction of undisclosed cash in the books to meet requirements of cash for day-to-day business for making payments for purchases and other expenses. This amount thus represents undisclosed cash introduced in the books and not sales. The books of account of the assessee are held to be not reliable and the same are rejected to this extent. To work out the correct income as per the provisions of the IT Act. The trading account of the assessee would have to be ....
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....k, enhanced sales had been shown by introducing cash from undisclosed sources; that it was not correct to state that this was a mere irregularity; that the assessee had wilfully and knowingly introduced undisclosed cash and had shown cash sales where no bills were issued; that the discrepancies, as discussed in the assessment order, were pointed out to the assessee; that since the assessee could not explain such discrepancies, its books of accounts were found unreliable and were rejected as such; that cash sales or Galla sales amounting to ₹ 2,61,307 had been shown separately by the assessee; that there could be no justification to record sales for figures higher than those appearing in the sales bills, but by way of introduction of undisclosed income in the books of account; that the assessee was not maintaining any stock inventory as on 31st March, 2002 and closing stock was worked out on the basis of GP rate; that though the assessee had shown all the purchases in the books of account, actually, it had made lesser sales; that it was therefore, that the trading account of the assessee had been recast; and that the closing stock had been understated by the assessee. 7. The ....
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.... the amount entered in the cash book is ₹ 24,050, the difference is ₹ 20,000. The contention of the learned counsel that there is merely irregularity on the part of the assessee to issue bills and these include cash sales is not convincing and satisfactory. He failed to substantiate his contention that huge difference are on account of cash sales. It is surprising that the appellant is issuing sales bills for petty amount of ₹ 750 but he had not issued sales bills/memos for sales for articles exceeding 1,000 rupees. The learned AO has noticed that the appellant had shown Galla sales total amounting to ₹ 2,61,307 separately. In view of this appellant's contention that the difference in the sales figures recorded in the cash book is on account of cash sales is not satisfactory and acceptable. The learned Authorised Representative could not explain the reasons for recording the sales in round figures in the cash book against the bill number detailed in the order and not recording the entries separately when himself has shown Galla sales separately. A bare perusal of cash book and cash memos/bills demonstrate that cash is introduced in the garb of sales when....
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....d in the sale bills represents actual sales and this enhancement has been made by the assessee in the cash books whenever needed. Hence, the assessee is in appeal before us. 11. The learned counsel for the assessee submitted that the AO has not made any charges whether the assessee has concealed any particulars of income or furnished inaccurate particulars of income. The AO cannot wholly base his conclusion only on the basis of assessment proceedings. He submitted that the assessment proceedings and penalty proceedings are two independent and distinct proceedings and levy of penalty shall be considered independently. He relied on the order of the Amritsar Bench in the case of Poonam Industries vs. ITO where the Tribunal by relying on the judgments of Hon'ble Gujarat High Court in the cases of New Sorathia Engineering Co. vs. CIT (2006) 202 CTR (Guj) 188: (2006) 282 ITR 642(Guj) and CIT vs. Manu Engineering Works (1979) 8 CTR (Guj) 141 : (1980) 122 ITR 306 (Guj) held as under : "Whether detailed discussion in body of assessment order and then factum of issuance of notice under s. 271(1)(c) for furnishing inaccurate particulars of purchases in concluding part of same asse....
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....High Court (Full Bench) in the case of Vishwakarma Industries vs. CIT (1982) 29 CTR (P&H) 243 : (1982) 135 ITR 652(P&H). The same was held by the Madhya Pradesh High Court in the case of CIT vs. Smt. Padma Devi Jain (2000) 158 CTR (MP) 278: (2000) 245 ITR 818(MP). In the case of CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323: (1999) 240 ITR 943(Mad), the Hon'ble Madras High Court held that merely because additions have been made to the income does not mean that there has been concealment of income. It was held that a mere disallowance of expenditure does not result in imposition of penalty under s. 271(1)(c). In the case of Durga Kamal Rice Mills vs. CIT (2003) 183 CTR (Cal) 223: (2004) 265 ITR 25(Cal), the Hon'ble Calcutta High Court has held that when two views are possible and when no clear and definite inference can be drawn in a penalty proceedings, penalty could not be imposed. In the case of CIT vs. Balraj Sahani (1979) 12 CTR (Bom) 33: (1979) 119 ITR 36(Bom), the Bombay High Court held that findings of Tribunal given in quantum appeal are not binding in penalty appeal. In the case of CIT vs. Clive Mills Co. Ltd. (In Liquidation) (1982) 30 CTR (Cal) 98: (1982) 138 IT....
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....the assessee whether inaccurate particulars of income had been furnished by the assessee. Failure to make specific charge in the penalty order would render the penalty order as invalid. The two judgments of Hon'ble Gujarat High Court mentioned above are directly applicable to the facts of the present case. No contrary judgment was cited by the learned Departmental Representative. Considering the fact that the AO failed to mention in the penalty order whether the assessee had concealed the particulars of income or furnished inaccurate particulars thereof, the order for imposing penalty is invalid. Therefore, the order of the CIT(A) is set aside and order for imposing penalty is quashed. The grounds of appeal of the assessee are allowed." 13. Further, he submitted that this order of the Tribunal was confirmed by the Hon'ble High Court of Punjab & Haryana by its judgment in CIT vs. Shere Punjab Agricultural Works, dt. 18th May, 2007 in ITA No. 210 of 2007 by holding as follows : "A perusal of the order dt. 24th Nov., 2006, passed by the Tribunal shows that categorical findings have been recorded as to the failure of the AO to mention in the penalty order whether t....
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....and non-taxable income has not been controverted by the Revenue. The AO had made the disallowance under s. 14A only for the reasons that the explanation of the assessee was not satisfactory. Nowhere the AO has recorded in the assessment order that such explanation was either false of claim of the assessee mala fide and was with an intent of evading tax. The mere fact that disallowance has been made and upheld in appeal does not justify imposition of penalty under s. 271(1)(c). Reliance in this regard is placed on the judgment of Punjab & Haryana High Court in the case of CIT vs. Ajaib Singh & Co. (2001) 170 CTR (P&H) 489where it was held that merely because expenses had been disallowed does not mean that the assessee had furnished inaccurate particulars. 6.1 It is settled position in law that both penalty proceedings and assessment proceedings are separate and independent proceedings though findings recorded in the assessment order lay down a foundation for levy of penalty under s. 271(1)(c). Reliance in this regard is placed on the judgment of Hon'ble Punjab & Haryana High Court (Full Bench) in the case of Vishwakarma Industries vs. CIT (1982) 29 CTR (P&H) 243 : (1982) 135 I....
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....e issue as assessee has not put any suggestion to Shri V.N. Seth, officer of the bank as regards valuation of the hypothecated stock. The AO, therefore, finding that no suggestion is given to the bank officer imposed penalty without independently examining the material on record. Even if the statement of Shri V.N. Seth, officer of the bank has relied upon by the AO for the purpose of imposing penalty but the AO has not considered the fact that he has mentioned in his statement that figures of hypothecation and pledging are given by the bank on the DP register on the statement filed by the assessee. However, the AO has not clarified as to where are those statements filed by the assessee. Even Shri V.N. Seth in his statement has not tried to accept as to where are those statements. Even it is not clarified as to why the statement furnished by the assessee, if any, were not brought on record. Rather the bank certificate issued by the bank on 24th March, 1992 clearly certified that the assessee has not filed any hypothecation statement of stock on 28th April, 1988. Copy of the bank certificate is filed at p. 13 of the paper book. Copy of the bank statement dt. 31st March, 1988 is also ....
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....has furnished explanation before the authorities below which appears to be bona fide as the assessee has shown his ignorance as regards entries in the DP register as the assessee has not furnished any bank statement to the bank on 28th April, 1988 which is also complied by the bank. Therefore, we are of the opinion that the explanation of the assessee was bona fide in the matter even if the assessee has failed to substantiate the explanation as DP register was not in the possession of the assessee. The Hon'ble Delhi High Court in the matter of CIT vs. Rahuljee & Co. (2001) 167 CTR (Del) 286 held : 'that whether the explanation given by the assessee was bona fide or not was a pure question of fact. The cancellation of penalty levied under s. 271(1)(c) of the Act by the Tribunal was proper'." 16. The Hon'ble Kerala High Court in the matter of CIT vs. Kerala Spinners Ltd. (2001) 166 CTR (Ker) 268 held : "that mere failure on the part of the assessee to substantiate its explanation was not enough to warrant penalty if such explanation was bona fide and all facts relating to the same were disclosed by it. The assessee had offered an explanation in respect o....
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....han Singh vs. CIT in ITA No. 414/Asr/2000 for the asst. yr. 1995-96, order dt. 3rd June, 2005. He also placed reliance on the following judgments : (i) Hon'ble Bombay High Court in the case of CIT vs. B.S. Badve (1983) 33 CTR (Bom) 150 : (1982) 138 ITR 682 (Bom); (ii) Hon'ble Kerala High Court in the case of CIT vs. Kerala Spinners Ltd. (2001) 166 CTR (Ker) 268 : (2001) 247 ITR 541 (Ker); (iii) Hon'ble Punjab & Haryana High Court in the case of Harigopal Singh vs. CIT (2002) 177 CTR (P&H) 580 : (2002) 258 ITR 85 (P&H); (iv) Hon'ble Punjab & Haryana Court in the case of CIT vs. Suresh Kumar Bansal & Anr. (2002) 173 CTR (P&H) 7 : (2002) 254 ITR 130 (P&H); (v) Hon'ble Punjab & Haryana High Court in the case of CIT vs. Dhillon Rice Mills (2002) 256 ITR 447 (P&H); (vi) Hon'ble Allahabad High Court in the case of CIT vs. Devi Dayal Aluminium Industries (P) Ltd. (1988) 72 CTR (All) 7 : (1988) 171 ITR 683 (All); (vii) Hon'ble Bombay High Court in the case of R.B. Bansilal Abirchand Spinning & Weaving Mills Ltd. vs. CIT (1970) 75 ITR 260(Bom). 21. The learned Departmental Representative, on the other hand, relied on the orders of the authorities b....
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....ffording such opportunity to the assessee was invalid. Further, it was held that it is to be borne in mind that the penalty proceedings are distinct from the assessment proceedings and are in the nature of quasi criminal proceedings. The onus was on the Department to positively prove and produce for that purpose, certain other material besides the factum of surrender that the amounts in dispute were the undisclosed income of the assessee. The mere fact of surrender could not necessarily be an admission of that the amounts surrendered were its undisclosed income. 22.1 Further, it is mandatory on the part of the AO to specifically mention in the penalty order whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income, unless he has mentioned any one of these two, penalty order is invalid. 22.2 Penalty proceedings are quasi criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in the defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whethe....
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.... in the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Rattan Singh Grewal (supra) held as under : "Held, that the assessee did not file his return and at first instance, even in response to the notice under s. 148 of the Act, he filed a return declaring nil income. Further when confronted with certain investments made by the assessee; his explanations were found to be false. The assessee had not been able to discharge the onus put on him in terms of the Explanation to s. 271(1)(c) of the Act. It was a clear case where the assessee had concealed the particulars of his income. In such a situation, the penalty was rightly levied on the assessee. The Tribunal was not right in cancelling the penalty imposed on the assessee." In the case before the jurisdictional High Court, the issue is not relating to the failure to make specific charge by the AO in the penalty whether penalty was being levied for concealment of particulars of income or for furnishing inaccurate particulars of income. The question before the High Court was : "Whether, on the facts and in the circumstances of the case and in view of the provisions contained in s. 271(1)(c) of the IT ....