Judgment:
ORDER
R. M. MEHTA, A.M. :
The assessed in this appeal is aggrieved with the order passed by the CIT(A) confirming a penalty of Rs. 7,869 imposed on the assessed by the ITO under s. 271(1)(c).
2. I have heard both the parties and have also perused the orders passed by the tax authorities. It is accepted between the parties that the penalty proceedings were initiated and the penalty levied in respect of a sum of Rs. 15,000 purported to have been received as a loan from one Shri Adarsh Arora, but which the assessed was not able to substantiate in the course of the assessment proceedings. The addition ultimately came to be confirmed by the Tribunal in the quantum proceedings and a copy of the order of the Tribunal has been placed on record.
3. Adverting to the assessment order it is seen that the assessed derives income from interest in respect of advances made to various members of the family as also on deposits with the companies, firms, etc. For advancing the aforesaid loans the assessed has borrowed funds from outsiders and which in the year under appeal aggregated Rs. 2,00,000 and odd from seven parties which included the amount in question. As per the observation in the assessment order no confirmation was filed during the course of the assessment proceedings and the Inspector deputed to verify the alleged loan could not locate the person at the address furnished by the assessed and nor could the file be located in the survey ward where the alleged creditor was stated to be assessed. The residential address was found to be incomplete. It is also seen that the AO asked the assessed to produce the creditor, but this was not done leading to the impugned addition under s. 68 of the IT Act, 1961. Another observation in the assessment order is to the effect that on 3rd March, 1988 a different address of the alleged creditor was furnished. There is no further discussion on this aspect of the matter.
4. The next step in the proceedings is the penalty order in a sum of Rs. 7,869 whereby the ITO rejected the plea of the assessed to keep the proceedings in abeyance till the disposal of appeal by the Tribunal. Taking note of the observations in the assessment order, he levied the impugned penalty and which on further appeal came to be confirmed by the CIT(A) on the same set of facts.
5. Before me the learned counsel reiterated the arguments advanced before the CIT(A), but highlighting the following :
(i) The assessed was engaged in the business of obtaining and giving loans and in this process he utilised the services of brokers without being in direct touch, with the lender;
(ii) The onus which lay on the assessed had been discharged by filing the confirmation of the creditor and admittedly at the first instance the address which was furnished was not correct, but this was rectified during the course of the assessment proceedings itself, but no further action was taken by the ITO by issuing summons under s. 131; and
(iii) The penalty proceedings were quite separate and distinct from quantum proceedings and an addition in the latter did not necessarily mean a penalty under s. 271(1) (c).
6. In support of the aforesaid arguments and more so in support of the stand that no penalty under s. 271(1) (c) was leviable, the learned counsel placed reliance on various reported decisions, a list of which was furnished during the course of the hearing, more so, the following :
(i) CIT vs. C.J. Rathnaswamy (1997) 223 ITR 5 (Mad);
(ii) Sir Shadilal Sugar and General Mills Ltd. & Anr. vs . CIT : [1987]168ITR705(SC) ; and
(iii) Jawahar Lal Goyal vs . ITO
7. The learned Departmental Representative, on the other hand, supported the orders passed by the tax authorities contending in the process that the assessed had failed to prove the credit in the quantum proceedings inasmuch as the identity and capacity of the alleged creditor had not been proved and so also the genuineness of the transaction. According to her, Expln. (1) to s. 271(1) (c) was squarely applicable.
8. After considering the rival submissions, I am of the view that there is substantial merit in the arguments advanced by the learned counsel for the assessee. No doubt, the addition has been made in the quantum proceedings and confirmed by the Tribunal, but this by itself does not mean that the levy of penalty under s. 271(1) (c) is automatic. The assessed filed the confirmation of the alleged creditor during the course of the assessment proceedings, but admittedly the address given was not the correct one and the enquiries made by the ITO were fruitless. The assessee, however, furnished an address, which according to him, was the correct one to the ITO on 3rd March, 1988, as stated in the assessment order passed on 15th March, 1988, but no further action was taken in the form of summons under s. 131. It is the assessees case before me that he is obtaining loans from outsiders in substantial quantities and passing these on to his family concerns and other members and inasmuch as the loans are obtained through brokers, he may or may not be in direct touch with the creditors. During the year under appeal loans aggregating Rs. 2,00,000 and odd have been received from seven parties and the addition has been made only in respect of one of them, the amount being Rs. 15,000. Even before the first appellate authority the Dy. CIT(A) in November, 1990 the assessees counsel addressed a communication to the effect that another opportunity may be given for producing the creditor for necessary verification by the AO more so, when the earlier request made after giving the new address did not bring about any response. Another letter dt. 3rd September, 1990, addressed to the Dy. CIT(A) categorically stated that the interest payment along with the principal amount had been made through account payees cheque and that the credit was raised in the normal course of business through the finance broker, Shri Rajender Prasad Aggarwal. Any relationship between the assessed and the alleged creditor has also been ruled out.
9. The aforesaid facts do establish the bona fides of the assessed and although the degree of proof placed on record was not good enough for assessment purposes, the same could not be conclusive for purposes of penalty under s. 271(1) (c). It is not the case where the assessed has not brought any material on record or failed to furnish any Explanationn and, in my opinion, Expln. (1) to s. 271(1) (c) would not be attracted. The various decisions relied upon by the learned counsel do aptly support his arguments and the present case is quite akin to the one decided by the Delhi Bench of the Tribunal i.e. Jawahar Lal Goyal vs. ITO (supra). In the final analysis, I accept the arguments advanced by the learned counsel for the assessed and cancel the penalty under s. 271(1) (c) sustained by the CIT.
10. In the result, the appeal is allowed.