TaxTMI 
TaxTMI 
2016 (7) TMI 662
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment proceedings, the Assessing Officer required the assessee firm to explain the sources of addition in capital account of partners made during the year under consideration. The assessee firm vide its reply dated 7.12.2007 submitted the explanation regarding the source of addition in capital account of partners as under:- (i) Sh. Sunil Choupal (addition in capital Rs. 11,70,000/-) Amount withdrawn from B.S. Enterprises Rs. 100000/- Sale of Jewellery Rs. 150000/- Cash gifts from one Sh. Sundar Lal Choupal (deceased) Rs. 305000/- Cash loan received from Sh. Ram Kumar Rs. 125000/- Cash loan received from Sh. Shiv Dayal Rs. 125000/- Cash loan received from Sh. Niranjan Singh Rs. 100000/- Cash loan received from Sh. Pritpal Singh Rs. 100000/- Cash loan received from Sh. Phool Singh Rs. 100000/- Addition out of current year income Rs. 65000/- The Assessing Officer accepted the explanation of the assessee regarding the source of addition in capital account to the extent of Rs. 3,15,000/- (Rs. 1,50,000/- + Rs. 65,000/-). In other words, the Assessing Officer accepted the explanation of the assessee regarding Rs. 1 lakh being the amount withdrawn from B.S. E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that the assessee firm has deliberately furnished wrong particulars of income in the return filed and the verification made therein is false and held that assessee is liable to penalty u/s 271(1)(c) of the Act. The Assessing officer levied the minimum penalty of Rs. 4,27,770/- u/s 271(1)(c) of the Act. 5. Aggrieved by the order of the Assessing officer, the assessee carried the matter in appeal before the CIT(A) and the Ld. CIT(A) confirmed the penalty imposed by the Assessing officer and, hence, the assessee is in appeal before the Tribunal. 6. I have heard Shri Rakesh Jain, Ld. Counsel for the assessee and Shri S.K. Mittal Ld. DR at length and have also perused the materials available on record. The main contention of Shri Jain is that the assessee firm has discharged its onus by establishing the identity of the creditors who are the partners of the firm, creditworthiness of the creditors / partners and genuineness of the transactions. He further pointed out that the authorities below, particularly the Assessing officer has admitted the part of the investments made by the partners. The Assessing officer made the addition of Rs. 11,69,000/- out of total contribution of partne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als available on record. At the very outset, I may observe here that the penalty and the quantum proceedings are independent and separate proceedings under the Income-tax Act, 1961. The findings given in the assessment proceedings are certainly relevant and have probative value but such findings are material alone and may not justify the imposition of penalty in a given case because the considerations that arise in penalty proceedings are different from those that arise in assessment proceedings. It is true that the penalty can be imposed in a given case but the entirety of circumstances must be taken into account. In the case of CIT v. Ishtiaq Hussain (1998) 232 ITR 673 (All.), the Hon'ble Allahabad High Court held that the findings given in the assessment proceedings would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in the assessment proceedings. In the instant case, it has to be seen as to whether the assessee is guilty of concealment of income or guilty of furnishing of inaccurate particulars of income. According to Assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... According to CIT(A), the assessee firm itself offered the amount as unexplained capital introduced in the hands of the partners as income of the firm. Shri S.K. Mittal Ld. DR supported the above reasons given by the Revenue authorities while holding the assessee guilty u/s 271(1)(c) of the Act. It is worthwhile to state here that the case of the assessee is that during the year under consideration, the partners have introduced capital in the books of the assessee firm. According to Assessing officer there was addition in the capital account of partners namely Shri Sunil Choupal amounting to Rs. 11,70,000/- and Rs. 5,65,000/- in the capital account of Shri Sudhir Choupal. The details of the capital introduced and source of capital of Shri Sunil Choupal as stated by the assessee are as under:- Date Source from whom amount received by partners Amount Remarks Date Chq No./cash through which payment to firm by partner amount 4.4.2004 Gift from Sh. Sunder Lal Chaupal in cash 85,000 Disputed by Assessing officer 4.4.2004 Cash 85,000 6.4.2004 Cash withdrawn from B.S. Enterprises 1,00,000 Accepted by Assessing officer 6.4.2004 cash 1,00,000 20.4.2004 Gift from Sh. S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e credits clearly established that firm has discharged its onus. The said plea has been rejected by the CIT(A) stating that there is no such provision in the Income tax Act that in case of acceptance of part of the credit as genuine, the entire credit is to be taken as genuine. In my opinion, these findings have no relevancy in the penalty proceedings. However, in quantum proceedings, while making the addition on account of unexplained cash credits, such findings may be relevant. In the instant case, the Revenue authorities have accepted that out of Rs. 17,55,000/-, Rs. 5,66,000/- has been deposited by the partners in their respective capital account. In other words, the Revenue authorities below have accepted partly that the partners have deposited the money in their respective capital account. Now, this aspect of the matter is required to be seen together with other circumstances of the case. It appears that the Assessing officer asked the assessee firm to establish the genuineness of other credits amounting to Rs. 8.55 lacs and Rs. 3.15 lakhs. In this regard, the assessee firm submitted the affidavits of five persons from whom Shri Sunil Choupal claimed to have taken the loans a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary 2005. In the assessment order at page-1, the Assessing officer has admitted this fact that the assessee started its production during January, 2005. The relevant observations made by the Assessing officer at page 1 of the assessment order reads as under;- "The assessee firm has debited Rs. 18505/- on account of bank charges, Details have been filed. The assessee firm has started its production during Jan. 2005. As such bank charges up to December, 2004 amounting to Rs. 17,670/- being pre-operative expenses is disallowed." 11. There is no material on record to controvert the above contention of Shri Rakesh Jain, Ld. Counsel for the assessee. It is also worthwhile to mention that the assessee firm has received capital from partners during the period 1.4.2004 to 13.7.2004, as per the details reproduced herein above, i.e. before the assessee firm started its business in January, 2005. Thus, it was for the partners to explain the source of the capital introduced and in case of having been failed to discharge the onus, then such deposits could be added in the hands of the partners of the firm; particularly when the assessee firm started its business in January, 2005. There is no ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribunal was not justified in holding that the unexplained cash credit recorded in the assessee's books be added in the hands of the assessee. There was no material before the Tribunal to hold that the capital introduced by the minor partner at the time of starting of the business, was income of the assessee-firm. The Tribunal erroneously came to the conclusion that the deposits represented undisclosed income of the assessee-firm. All the three authorities below committed the same mistake and in this regard their orders cannot be allowed to stand." 12. At this stage, I may also refer to the decision of the Hon'ble High Court of Rajasthan in the case of CIT v. Kewal Krishan & Partners [2009] 18 DTR 121 wherein the Hon'ble High Court held that capital contribution made by the partners on the first day of commencement of business could not be added in the hands of the firm u/s 68 of the Act. The Hon'ble High Court further held that addition if at all can be made u/s 69 in the hands of the partners, if they failed to discharge the onus. In the instance case, first sale bill of the assessee firm is dated 1.1.2005. Admittedly, the assessee firm is manufacturing and tradin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The Revenue filed an appeal before the Tribunal. The appeal was dismissed by the Tribunal. The Revenue challenged the order of the Tribunal in appeal u/s 260A of the Act before the Hon'ble High Court of Andhra Pradesh. The Hon'ble Andhra Pradesh High Court rejected the appeal of the Revenue, observing as under;- "The principle that runs cutting across any systems of law is that before person is visited with punishment or penalty, the wrongful act on his part must be established. If not a deliberate intention, at least, intention, as such, must be proved to be existing. The intention of this nature may not be equated to the concept of mens rea. At the same time, the minimum contrast with an instance of mere omission, or failure must be made. Otherwise, every inadvertent omission, or a bona fide understanding of a particular provision, which is not accepted by the Income Tax Officer may expose the assessee to penalty. If that time is pursued, Act may turn out to be the one of the collection of penalties than the income tax. Recently, in I.T.A. No.180 of 2003, we observed as under: The levy of penalty cannot be resorted to as a matter of course. By their very nature, the ret....