TaxTMI 
TaxTMI 
2003 (2) TMI 151
X X X X Extracts X X X X
X X X X Extracts X X X X
....A No. 1076/Alld/1993 ITA No. 1076/Alld/1993 (under s. 271(1)(c) of the IT Act, 1961): 4. This appeal by the assessee is filed on the following effective grounds of appeal: "1. Because the learned CIT(A) has erred in law and on facts in holding that penalty under s. 271(1)(c) was justified and upholding the same. 2. Because the stray piece or paper alleged to be construable as balance sheet of some business, already stood adjudicated from the stage of the Hon'ble Tribunal in the case of AOP in the following words: "11. The papers seized and referred to at serial No. 12 and 13 even if construable as balance sheets relate to 1971-72 and 1972-73 and neither have they been established to be in the handwriting of any of the three persons in question nor any connection has been established with them." and on a due consideration of the said findings, the learned authorities below should have accepted the appellant's contention and should have deleted the penalty. 3. Because in any case and without prejudice to the aforesaid contention with regard to the major addition of Rs. 1,36,683, whole of the amount could not have been considered to be the income of the appellant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned ornaments Rs. 689 (2) During the search operation carried out at the residential premises of Hiralal at Pokhra Bhinda on 25th/26th Nov., 1976, the balance sheet as on Kartik Badi 14 of St. year 2028 (18th Oct., 1971) was found. The balance sheet is as under: Liabilities Assets Asharfi Lal 1,22,343 Sarrafa a/c 31,694 Bhagirathi Ram 1,31,032 Bhandati (Pawning) 1,39,738 Ram Kumar 2,708 Sarrafa 106 Laxmi Ram Kalwar 150 Ram Ashrey 399 Bimla Khata 3,420 2,518 336 927 12,866 Cash 64,168 2,56,233 2,56,233 Profit (Munafa) Sarrafa profit 26,991 Asharfi Lal Exp. 13,775 Intt. 26,788 Bhagirathi Ram 5,650 Profit 489 Share of profit Asharfi Lal 27,134 Bhagirath Ram 27,134 54,268 54,268 2. From the scrutiny of the balance sheet, it was found that the assessee's capita....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts and circumstances, the AO issued notice under s. 271(1)(c) of the IT Act and, after considering the reply of the assessee and the previous proceedings, imposed the penalty under s. 271(1)(c) vide order dt. 24th Aug., 1987. 8. The penalty order was challenged before the CIT(A) and the learned CIT(A), after considering the facts and circumstances and the reply of the assessee, held that although assessee denied the aforesaid investment, yet he did not lead any evidence to substantiate his claim. The learned CIT(A) further held that the papers found at the time of search clearly indicated his investment and profit in the business. Therefore, there is no scope for accepting the contention of the assessee based on denial only. CIT(A) accordingly dismissed the appeal of the assessee vide impugned order dt. 25th March, 1993. We may mention that none appeared before the CIT(A) on behalf of the assessee at the time of disposal of the appeal against the penalty order. The assessee felt aggrieved with the penalty orders of the authorities below and filed this appeal on the effective grounds of appeal incorporated above. 9. We have heard the learned counsel for the assessee and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that in penalty proceedings, assessment proceedings or order could have been challenged. Learned counsel for the assessee further argued that penalty notice could not be issued to the individual as the Department issued initially for AOP. He has further argued that if the Department was in dilemma about the status of the assessee, then how the assessee could be expected to know the legal implication. Learned counsel for the assessee further argued that though appeal of the assessee was partly allowed on quantum by the Tribunal, yet opening balance in the financial year shown in the balance sheet could not be treated as unexplained investment. He has further argued that the two aspects, i.e., opening balance and the profit earned during the year could not be taken together. He has further argued that the assessee is stated to be working for the last 15-16 years, therefore, no addition of the investment of Rs. 1,09,549 could be made. He has further argued that two balance sheets are stated to have been recovered. Therefore, investment could not be done in one year in view of the Tribunal's order on quantum. He has further argued that internal p. 22 of the Tribunal's order dt. 26th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proceedings assessee cannot rewrite the whole case. 11. In rejoinder, learned counsel for the assessee argued that Explanation is rule of evidence and the case is to be decided on preponderance of probabilities. He has argued that CIT(A) passed his order on quantum as AOP. he has argued that penalty was imposed with regard to unexplained investment in a sum of Rs. 10,150 only on estimated basis. He has relied on (i) CIT vs. S. Devendrasingh (1977) 108 ITR 314 (All) (ii) CIT vs. Ishitiaq Hussain (1998) 150 CTR (All) 444 : (1998) 232 ITR 673 (All) (iii) Pandit Govind Prasad Mishra vs. CIT (1999) 238 ITR 338 (All), and (iv) Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. & Ors. (1979) 118 ITR 326 (SC) 12. We have considered the rival submissions and material on record. 13. We have already indicated in the facts of the case that on quantum the additions on issue Nos. 1 and 2 have been confirmed by the Tribunal, Allahabad Bench, vide order dt. 26th April, 1990 in ITA No. 449/Alld/1987. On issue No. 3, the CIT(A) has partially reduced the unexplained investment in the purchase of land and construction of house. However, the Tribunal Allahabad Bench has delet....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment proceedings." Hon'ble Allahabad High Court in the matter of CIT vs. M.K. Gupta has held: "Held, that, for an individual having professional income besides salary, the prescribed Form was Form No. 2. The original return filed was in Form No. 4. It was not a return in accordance with the provisions of the Act and the Rules and the ITO should not have persisted in computing the total income of the assessee on the basis of that return. The Tribunal was right in holding that the earlier return filed by the assessee was liable to be ignored and so the penalty was not imposable." Hon'ble Allahabad High Court in the matter of CIT vs. Ishtiaq Hussain held as under: "The degree of proof necessary under the Explanation to s. 271(1)(c) of the IT Act, 1961, is that as in a civil suit, viz., preponderance of probability. The Explanation merely raised a rebuattable presumption which could be discharged in a given case by pointing out the factors and materials in favour of the assessee. It is settled that the findings given in assessment proceedings would be relevant and admissible materials in penalty proceedings, but these findings cannot operate as res judiciata because ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the case it is clear that the assessee could challenge the findings in the assessment proceedings to prove that it was not a case of penalty. Therefore, we will have to consider whether the assessee has been able to discharge his initial onus or whether the assessee has been able to shift the burden of profit upon the Department. We will have to consider independently whether the facts and circumstances of the case would justify that it was a case of penalty against the assessee even though additions are confirmed in quantum proceedings. The only evidence and foundation for imposition of penalty on addition on issue Nos. 1 and 2 is the recovery of the balance sheet which we have reproduced in this order. The AO in the assessment order dt. 28th March, 1985, in the case of this assessee has specifically mentioned in para 3 that during the search operation carried out at the residential premises of Hira Lal at Pokhar Bhinda on 25th/26th Nov., 1976, balance sheet as on Kartik Badi 14 of St. year 2028 (18th Oct., 1971) was found and seized and he reproduced the contents of the balance sheet in the assessment order which is also reproduced in this order. At the same time, the AO, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eet was recovered from the house of Hira Lal. 20. We may also refer another order dt. 9th Dec., 1982, of the Tribunal, A-Bench, Allahabad in (ITA No. 451/Alld/1981) in the case of AOP, Hiralal, Asharfi Lal and Bhagirathi Ram. Similar facts were earlier considered by the Tribunal, Allahabad, A-Bench in the case of AOP. The search material seized was the same balance sheet mentioned in this case. The Tribunal clearly recorded at p. 3 of the order the details of the seized balance sheet at serial Nos. 12 and 13 which is the only evidence and foundation of the case. The Tribunal, after considering the search material, i.e., balance sheet, was of the opinion that there is no evidence, oral or documentary, of the association of three persons in question either for making any investment or for carrying on any business or producing any income. The Tribunal had also considered the statement of Asharfi Lal recorded on 26th Nov., 1976, at the time of search and seizure in which he had denied his business relation or connection with the assessee Bhagirathi Ram. The Tribunal in the order dt. 9th Dec., 1982 in the case of the AOP of these three persons held with regard to the evidentiary valu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment has clearly failed to connect this evidence with the assessee. The facts and circumstances of this case clearly point to the conclusion that the assessee cannot be asked to explain the recovery of the balance sheet during the course of penalty proceedings. The only evidence and foundation for the imposition of penalty against the assessee was the recovery of the balance sheet. However, we find contrary and find that there is no foundation in this case for imposing any penalty against the assessee, though in assessment proceedings, the consideration might be different. 23. We may examine the penalty matter from different angles. The Department found that there was credit balance of Rs. 1,09,549 in which profit earned was added in a sum of Rs. 27,134 and made the addition of Rs. 1,36,683. The credit balance of Rs. 1,09,549 could not be added in the present assessment year. It appears that the Department has failed to make any enquiry with regard to the credit balance. Therefore, the imposition of penalty on the entire amount is clearly illegal and unreasonable. Therefore, the penalty could not have been imposed on addition made on issue Nos. 1 and 2. 24. The addition of R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of above findings, there is no need to refer other case laws referred to by the learned counsel for the assessee. 28. The learned Departmental Representative, on the other hand, relied on the following case laws: (1) Judgment of Hon'ble Kerala High Court in the matter of CIT vs. Geo Sea Foods in which reference was answered in favour of the assessee and against the Revenue. (2) Judgment of Hon'ble Supreme Court in the matter of CIT vs. Mussadilal Ram Bharose in which the assessee had discharged his initial onus and appeal of the Revenue was dismissed. (3) Judgment of the Hon'ble Supreme Court in the matter of CIT vs. K.R. Sadayappan. The Tribunal was directed to send the statement of facts. (4) Judgment of Hon'ble Allahabad High Court in the matter of Addl. CIT vs. Irshad Ali (1992) 103 CTR (All) 382 : (1992) 197 ITR 144 (All) in which the Tribunal had placed the burden of proof of concealment of income on the Revenue and held it to be vitiated in law. (5) Learned Departmental Representative relied on 246 ITR 280 (sic). However, no relevant judgment was found at p. 280. (6) Order of the Tribunal, Chandigarh Bench, in the matter of Om Prakash Gupta vs. ITO in wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment order does not record the satisfaction as warranted by s. 271 for initiating the penalty proceedings." 30. Now, we advert back to the facts of the case, to see whether the AO had been satisfied before initiating the proceedings under s. 271(1)(c) in the matter. The AO himself mentioned in the assessment order that main assessment is made in the case of AOP and protective assessment is made in the case of the assessee as individual. Therefore, the AO was satisfied that the entire seized material is connected with the AOP. However, his findings were quashed by the Tribunal vide order dt. 9th Dec., 1982. The proceedings under s.148 were stated to be issued vide notice dt. 12th March, 1981, copy of which is filed in the paper book also. Therefore, the AO remained under the impression that all search material belonged to the AOP. Therefore, the AO could not have been satisfied that he is validly issuing the penalty notice against the assessee in his individual capacity. The judgment of the Hon'ble Delhi High Court is clearly applicable to the case of the assessee. Therefore, on this reason also, the penalty order is clearly vitiated in law. 31. Keeping in view the above discu....