1. Both these appeals by the assessee are directed against two different orders of the CIT(A), Varanasi, dated 25th March, 1993 for the assessment year 1972-73 by which penalties Under Sections 271(1)(a) and 271(1)(c) of the Income-tax Act were confirmed.
2. During the course of the proceedings, legal heirs of the assessee filed an application stating therein that the assessee had died on 6th January, 2001 leaving behind his legal representatives, namely, Smt.
Gangotri Devi, Shri Devilal Jaiswal, Shri Shambhoo Saran Jaiswal, Shri Ramnivas Jaiswal and Shri Om Prakash Jaiswal. It was prayed that legal heirs may be impleaded in accordance with law. In view of this matter, the deceased assessee is substituted through his legal representatives mentioned above. Since both the appeals are based upon the same set of facts, therefore, both are decided by this common consolidated order.
3. For the sake of convenience, we first take up I.T.A.No. 1076 (Alld) of 1993.
I.T.A.No. 1076(Alld) of 1993 (Under Section 271(1)(c) of the Income-tax Act, 1961): 4. This appeal by the assessee is filed on the following effective grounds of appeal: "1. Because the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in holding that penalty under Section 271(1)(c) was justified and upholding the same.
2. Because the stray piece of paper alleged to be construable as Balance Sheet of some business, already stood adjudicated from the stage of the Hon'ble I.T.A.T. 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 hand-writing 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 for the year under consideration and, therefore, could not have been subject matter of penalty under Section 271(1)(c).
4. Because the other additions as have been referred to by the learned Commissioner of Income-tax (Appeals) in the impugned penalty order also stood modified and the penalty order passed on that basis should have been cancelled by the learned Commissioner of Income-tax (Appeals).
5. Because in any case the penal provisions under which the penalty had been levied/upheld by the learned Commissioner of Income-tax (Appeals) had no application in the instant case and levy of penalty, therefore, is wholly illegal and unjustified." 5. The relevant facts for the purpose of disposal of these appeals, as taken from record, are that the assessee had filed return of income in the status of individual and the return had been filed by the assessee in compliance to notice Under Section 148 dated 15th October, 1982, served upon the assessee on 21-10-1982. The search operation on the assessee's premises was carried on 25/26th November, 1976 and business premises of the assessee was searched alongwith his brother-in-law Shri Asharfilal and Shri Hira Lal. During the course of search, alongwith various important valuables, important papers and documents were found and seized. The assessee is stated to be brother-in-law of shri Asharfi Lal and Shri Hira Lal (husband of sister of Asharfi Lal and Hira Lal).
Asharfilal and Hira Lal are brothers. The assessee, Asharfi Lal and Hira Lal had jointly earned income from their joint effects and had made investments jointly and had jointly constructed house property.
The assessee and his brother-in-laws Shri Asharfi and Hira Lal were assessed in the status of AOP under the name and style of M/s Hira Lal Asharfi Lal and Bhagirathi Ram. During the search operation on 25/26th November, 1976 at the business premises in the status of AOP as well as in the residential premises of the members, the main assessment was made in the case of AOP and assessments as protective measure were made in the case of Shri Bhagirathi Ram, individual assessee, and Asharfi Lal Hira, as IUF. Certain other cash and ornaments were recovered which are not connected with this assessee. However, during the proceedings under Section 132(5), the assessee could not explain the nature and source of acquisition of following assets during the financial year 1971-72 relevant to the assessment year under appeal, i.e., 1972-73: (2) During the search operation carried out at the residential premises of Hiralal at Pokhra Bhinda on 25/26th November, 1976 the balance sheet as on Kartik Badi 14 of St.Year 2028 (18-10-1971) was found. The balance sheet is as under: Asharfi Lal 1,22,343 Sarraffa a/c 31,694 Bhagirathi Ram 1,31,032 Bhandari Ram Kumar 2,708/- Sarrafa 106Laxmi Ram Kalwar 150 Ram Ashrey 399 Bimla Khata 3,420 Sarrafa profit 26,991 Asharfi Lal Exp.
13,775 Intt.
26,788 Bhagirathi Ram 5,650 Profit 489 2. From the scrutiny of the balance sheet, it was found that the assessee's capital account speaks the credit balance of Rs. 1,31,032/-. The assessee had incurred the expenditure of Rs. 5,651/-. The total works out at Rs. 1,36,683/-. This amount included the profit of Rs. 27,134/- and, as such, explained capital became in a sum of Rs. 1,09,549/-. Accordingly, it was stated to be from explained source and found invested in the business and profit.
Total was Rs. 1,36,683/-.
3. The assessee jointly with Shri Hiralal had purchased a plot of land for Rs. 10,000/- and had paid Rs. 5,000/-, which was paid from borrowing from Shri Baijnath Singh. However, the A.O. stated it as unexplained investment in purchase of land and construction of house in a sum of Rs. 15,300/- (Rs. 10,000 + Rs. 5,300).
4. Unexplained investment in the construction of the house was considered in a sum of Rs. 25,500/-.
6. The A.O. gave various reasons for treating all the above items as unexplained and finally assessed the assessee in respect of the income and investment on four issues as under: ornaments: ..
Rs. 689/-(2) Unexplained source of fund invested in business and profit thereon ..
Rs. 1,36,683/-(3) Unexplained investment in purchase of land and construction of house.
Rs. 15,300/-(4) Unexplained investment in the construction of house ..
Rs. 25,500/- ----------------- 7. The A.O. also initiated penalty proceedings Under Section 271(1)(c) of the Income-tax Act vide assessment order dated 28th March, 1985. The action of the A.O. was challenged before the CIT(A) and the ld.CIT(A) confirmed the addition on issue Nos. 1 and 2 in a sum of Rs. 689/- and Rs. 1,36,683/-. However, CIT(A) reduced the unexplained investment of any purchase of land and construction of house from Rs. 15,300/- to Rs. 10,150/- on issue No. 3. The ld.CIT(A), however, enhanced the addition on issue No. 4 with regard to unexplained investment in construction of house in a sum of Rs. 7,000/- and the amount of Rs. 25,500/- on issue No. 4 was enhanced to Rs. 32,500/- vide order dated 9th February, 1987.
The orders of the authorities be low were challenged before the Income-tax Appellate Tribunal in I.T.A.No. 449 (Alld) of 1987 which was decided by the Income-tax Appellate Tribunal, A-Bench, Allahabad vide order dated 26th April, 1990 whereby the first three additions were confirmed. However, the fourth addition of Rs. 32,500/- on issue No. 4 with regard to unexplained investment in construction of house was deleted. On facts and circumstances, the A.O. issued notice Under Section 271(1)(c) of the Income-tax Act and, after considering the reply of the assessee and the previous proceedings, imposed the penalty Under Section 271(1)(c) vide order dated 24th August, 1987.
8. The penalty order was challenged before the CIT(A) and the ld.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 ld.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 dated 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 ld.counsel for the assessee and the ld.D.R. The ld.counsel for the assessee, basis as relying on the grounds of appeal filed Paper Book containing statement showing details of finally assessed income for the assessment year 1972-73, filling of the return, copy of the reply to the penalty proceedings, copy of the assessment order dated 28-3-1985, copy of the order of the CIT(A) on quantum dated 9th February, 1987, copy of the order of the Income-tax Appellate Tribunal, Allahabad, 'B' Bench, dated 26th April, 1990 in I.T.A.No.449(Alld) of 1987 allowing the appeal of the assessee partly, copy of the notice dated 12-3-1981 Under Section 148 of the Income-tax Act and reply filed before the A.O. During the course of argument, we have directed both the ld.counsel for the assessee and ld.D.R. to file copies of statement of Asharfi Lal and of the assessee. Ld.counsel for the assessee in second Paper Book has filed copy of the same.
Ld.counsel for the assessee also filed copy of the order dated 9th December, 1982, passed by the Income-tax Appellate Tribunal, Allahabad, A-Bench, in I.t.A.No. 451(Alld) of 1981 for the assessment year 1968-69 in the case of AOP, Hira Lal Asharfi lal and Bhagirathi Ram. Ld.counsel for the assessee argued that during the search in the house of Asharfi Lal, one balance sheet was found from Pokhra, Bhinda village. He has further argued that the Department treated the same as AOP. He has relied on the order dated 9th December, 1982 of the Income-tax Appellate Tribunal in the case of AOP and further argued that the Tribunal gave a judgment on the aforesaid balance sheet and status of the assessee. Asharfi Lal and Hira Lal and further argued that the Tribunal gave finding against the Department on both the issues. he has further argued that Asharfi Lal has denied having any business connection with Bhagirathi Ram in his statement. Therefore, such material cannot be used against the assessee for imposing penalty.
Ld.Counsel for the assessee further argued that the notice dated 12-3-1981 Under Section 148 was issued to the assessee as AOP, copy of which is filed in the Paper Book and further argued that it was prior to the Income-tax Appellate Tribunal's order on 9-12-1982. Therefore, the alleged balance sheet has no evidentiary value and that no connection with Asharfi Lal had been established. Ld. counsel for the assessee relied on 113 ITR 473 and argued that in penalty proceedings assessment proceedings or order could have been challenged. Ld.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. Ld.counsel for the assessee further argued that though appeal of the assessee was partly allowed on quantum by the In\come-tax Appellate 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 started 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 Income-tax Appellate Tribunal's order on quantum. He has further argued that internal page-22 of the Income-tax Appellate Tribunal's order dated 26-4-1990 show that the balance sheet and profit and loss account were recovered from residential premises of Asharfi Lal. He has further argued that the findings of the Tribunal are that Shri Asharfi Lal and Shri Hira Lal are doing business of Sarrafa and pawning jointly.
Therefore, there is no question of income being assessed in the hands of individual and it could be assessed only in the hands of AOP. He has further argued that the findings of the Income-tax Appellate Tribunal in the case of AOP vide order dated 9th December, 1982. Ld.counsel for the assessee relied on 218 ITR 239. Ld.counsel for the assessee further argued that except alleged balance sheets, there is no evidence that the assessee was doing any business. He has relied on 169 ITR 782 and argued that different view could be taken in the penalty proceedings.
He has further argued that no satisfaction has been recorded by the A.O. in the assessment order while initiating penalty proceedings. He has relied on 246 ITR 568.
10. On the contrary, ld.D.R. argued that initial onus was upon the assessee to prove its case. Ld.D.R. relied on 244 ITR 44. Ld.D.R.further argued that the assessee concealed his income and did not disclose correct income to the A.O. The ld.D.R. relied on the findings of the authorities below and argued that quantum appeals have been decided against the assessee. The ld.D.R. relied on: Ld.D.R. further argued that the assessee has not discharged his burden of proof. He has further argued that the assessee is best observer of his own income and he should have disclosed his income correctly. He has further argued that in penalty proceedings assessee cannot re-write the whole case.
11. In rejoinder, ld.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 investments in a sum of Rs. 10,150/- only on estimated basis. He has relied on 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 I.T.A.T., Allahabad Bench, vide order dated 26th April, 1990 in I.T.A.No. 449(Alld) of 1987. On issue No. 3, the CIT(A) has partially reduced the unexplained investment in the purchase of land and construction of house. However, I.T.A.T., Allahabad Bench, has deleted the entire addition on issue No. 4 in respect of unexplained investment in the construction of house. Therefore, the findings on the quantum have become final against the assessee on issue Nos. 1, 2, and 3 only end, as such, no penalty could have been imposed upon the assessee in respect of issue No. 4, i.e., unexplained investment in the construction of house in a sum of Rs. 25,500/-.
14. However, ld.counsel for the assessee argued that in the penalty proceedings, the assessment proceeding or order could have been challenged.
15. On the other hand, the ld.D.R. argued that in the penalty proceedings the assessee cannot re-write the whole case.
16. It is very clear that the penalty proceedings Under Section 271(1)(c) of Income-tax Act could be initiated by the Income-tax authorities in the course of any proceedings under this Act, if the authority is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income.
Therefore, penalty proceedings, though initiated in the proceedings under Income-tax Act, yet it is independent in nature and have to be considered separately. The quantum proceedings and penalty proceedings are essentially different proceedings altogether.
Hon'ble Supreme Court, in the matter of CIT v. Anwar Ali (76 ITR 696) on this proposition held that the penalty proceedings are penal in character. It is further held that it cannot be said that the finding given in the assessment proceedings for determining or concluding the tax is conclusive. However, it is a good evidence. Before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income.
Hon'ble Allahabad High Court in the matter of Banaras Textorium v. CIT (169 ITR 782) held as under: "In the scheme of the Act, the proceedings for imposition of penalty, though emanating from proceedings of assessment, are essentially independent and a separate aspect of the proceedings which closely follow the assessment proceedings. Penalty proceedings are quasi-criminal. Findings given in 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 these that arise in assessment proceedings.
Hon'ble Allahabad High Court in the matter of CIT v. M.K. Gupta (113 ITR 473) 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 Income-tax Officer 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 v. Ishtiaq Hussain (232 ITR 673) hold as under: "The degree of proof necessary under the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, is that as in a civil suit, viz., preponderance of probability. The Explanation merely raises a rebuttable 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 those findings cannot operate as res-judicata because the considerations that arise in penalty proceedings are different from those in assessment proceedings." "Held, that the Tribunal and recorded a categorical finding that on the evidence led by the assessee it could not be said that on the balance of probabilities, the amounts in question were not received by the assessee from R. In the opinion of the Tribunal the assessee had discharged the onus that lay upon him under the Explanation to Section 271(1)(c) as it stood at the relevant time. The findings record by the Tribunal are pure findings of fact based on appreciation of evidence. The Tribunal was right in cancelling the penalties." 17. The ratio of the aforesaid authorities clearly show that the penalty and quantum proceedings are entire different proceedings. The findings given in the assessee proceedings are relevant and have probative value but such proceedings are not material alone and may not justify imposition of penalty. The assessee could have challenge the finding given in the assessment proceedings in the penalty proceedings.
The onus is upon the assessee to rebut the presumption of concealment of income by cogent, material and reliable evidence. The assessee could prove from the facts and circumstances of the case that it was not a case of penalty and could shift his burden of proof upon the Department and then the Department will have to prove that it was a case of penalty on the facts and circumstances of the case.
18. In this case, after the search, the Department has initiated proceedings against the AOP in the name of Hira Lal Asharfi Lal and Bhagirathi Ram and later by findings of the Income-tax Appellate Tribunal in the case of AOP vide order dated 9th December, 1982 such proceedings in the status of AOP were quashed.
Hon'ble Supreme Court in the matter of ITO v. Atchaiah (218 ITR 239) held: "Under the present Act, the Income-tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person' is meant the person who is liable to be taxed, according to law, with respect to a particular income. The expression 'wrong person' is obviously used as the opposite of the expression 'right person'. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income." 19. From the above discussions and facts 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 proof 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 eventhough 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 A.O. in the assessment order dated 28th March, 1985 in the case of this assessee has specifically mentioned in para 3 that during the search operation carried on that the residential premises of Hira Lal at Pokhar Bhinda on 25/26-11-1976 balance sheet as on Kartik Badi 14 of St.Year 2028 (18-10-1971) 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 A.O., while making the addition on issue Nos. 1 and 2, has mentioned that the balance sheet in which the amount of investment fond was recovered from the house of the assessee. The A.O. further mentioned that mere denial of the assessee has not been able to explain the nature and source of investment of Rs. 1,09,549/- and, as such, added this amount towards assessee's total income alongwith the profit of Rs. 27,134/- and thus total income was added in a sum of Rs. 1,36,683/-. Similar is the addition made of unexplained investment in pawning ornaments in a sum of Rs. 689/-. On the face of these findings of the A.O., the same appears to be contradictory and cannot stand to reason. It had never been the case of the Department that the balance sheet was recovered from the house of the assessee.
The claim of A.O. in the assessment order had been that on search balance sheet was recovered and seized from the residential house of Hira Lal at Pokhar Bhinda. The residential address of the assessee, as given in the assessment order is Mundera Bazar, Chauri Chaura, Gorakhpur. The same address is given everywhere in other orders also which clearly shows that the assessee had not been residing at the place of recovery of the balance sheet at Pokhar Bhinda. Therefore, there is no question of recovery of balance sheet at the residence of the assessee. We have also directed the parties to file statement of Asharfilal recorded on the date of search, i.e., 26-11-1997. Copy of the same is filed before us. We have gone through the statement of Asharfilal made on 26-11-1976 at the time of search and seizure. He had denied his association with the assessee Bhagirathi Ram. He also denied any business connection with the assessee in the said statement. Thus, no adverse inference could have been drawn against the assessee from the statement of Shri Asharfi Lal. We have also gone through the order of the Income-tax Appellate Tribunal, Allahabad, 'B' Bench, dated 26th April, 1990 in I.T.A.No. 449(Alld) of 1987 by which appeal of the assessee on quantum was decided. However, we find at internal page-22 of this order in which it is observed by Income-tax Appellate Tribunal "that the balance sheet and profit and loss account were recovered from the residential premises of Shri Asharfi lal and which clearly went to show that Asharfi Lal and Bhagirathi Ram were doing business of Sarafa and pawning jointly." The stand of the Department has been that the balance sheet was recovered from the house of Hira Lal.
20. We may also refer another order dated 9th December, 1982 of the Income-tax Appellate Tribunal, A-Bench, Allahabad in I.T.A.No.451(Alld) of 1981 in the case of AOP, Hiralal, Asharfi Lal and Bhagirathi Ram. Similar facts were earlier considered by the Income-tax Appellate 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 page-3 of the order the details of the seized balance sheet at serial No. 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 caring on any business or producing any income. The Tribunal had also considered the statement of Asharfilal recorded on 26-11-1976 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 dated 9th December, 1982 in the case of the AOP of these three persons held with regard to the evidentiary value of the balance sheet: "The papers seized as referred to at serial Nos. 12 and 13, even if construable as balance sheet of 1971-72 and 1972-73 and neither have been established to be in the handwriting of any of the three persons in question nor any connection has been established with them. They are therefore, not relevant." During the course of argument, ld.D.R. could not point out whether the aforesaid order of the Income-tax Appellate Tribunal, Allahabad 'A' Bench, dated 9th December, 1982 was at all challenged by the Department or was reversed by the highest judicial authority. The finding of facts are clearly against the revenue Department. The Tribunal clearly held that there was no AOP as alleged by the Department and further no business relation has been established amongst Hira Lal, Asharfi Lal and Bhagirathi Ram (assessee). No handwriting of these persons was found on the alleged balance sheet. Accordingly the Tribunal held that the same evidence is not relevant in the case of AOP. These findings of fact have become final between the parties. During the course of penalty proceedings the assessee has denied having any connection with the Balance Sheet found from the residence of Hira Lal during the course of search on 25-11-1976. No balance sheet was recovered from the house of the assessee. Therefore, assessee was not at all under any legal obligation to explain the recovery of the balance sheet from the house of Hira Lal for the purpose of imposition of penalty.
22. We may mention here that the A.O. made the addition on issue Nos. 1 and 2 on the basis of recovery of the balance sheet as mere denial of the assessee was not enough. We do not approve the findings of the A.O.Assessee was not found in possession of any balance sheet. Therefore, under law he could not be asked to explain the recovery of the balance sheet during the course of penalty proceedings which was not recovered either at his instance or from his possession. The facts and circumstances of the case and the findings of the Income-tax Appellate Tribunal, Allahabad Bench, in the order dated 9th December, 1982, clearly proves that the alleged balance sheet cannot be relied upon for the purpose of penalty. This balance sheet is not incriminating evidence against assessee either in its contents or in its recovery.
The Department 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 considerations might be different.
23. We may examine the penalty matter from different angle. 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. 1,09,54/- 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 Rs. 10,150/- on issue No. 3 was confirmed by the Income-tax Appellate Tribunal vide order dated 26-4-1990 on quantum appeal against the assessee in I.T.A.No. 449(Alld) of 1987. The A.O.has estimated the unexplained investment in purchase of land and construction of house in a sum of Rs. 15,300/-. Such estimate unexplained investment was not approved by the CIT(A) vide his order dated 9th February, 1987. The CIT(A) granted partial relief to the assessee in a sum of Rs. 5,150/- and accordingly estimated the unexplained investment in a sum of Rs. 10,150/-. This addition was made primarily on estimated investment. There is no definite finding of fact with regard to concealment of income for filing of inaccurate particulars. Mere revision of income would not amount to concealment.
The findings of the A.O. himself are modified by the CIT(A). Therefore, on such estimation no penalty should have been imposed by the A.O.25. The fourth addition made by the A.O. was with regard to the unexplained investment in construction of house which has been deleted by the Income-tax Appellate Tribunal, Allahabad, vide order dated 26-4-1990. Therefore, this addition could not be made basis for imposition of penalty. Therefore, the CIT(A) has clearly erred in confirming the penalty on this issue.
26. Ld.counsel for the assessee relied on the decision of Allahabad High Court, reported in 108 ITR 314 in the matter of CIT v. S. Devendra Singh in which it was held "that the Explanation merely raises a presumption which is rebuttable. It merely shifts the burden of proof from the Department to the assessee. But when the question of concealment is decided on the evidence on record, the question of burden of proof becomes immaterial. The Tribunal has come to the conclusion that the "omission to include Rs. 2,400/- in the return was accidental and was not due to any deliberate design, it could be safely presumed that the presumption raised by the Explanation stood rebutted.
The presumption can be rebutted not only by direct evidence but also by circumstantial evidence. In this case, the presumption raised by the Explanation stood rebutted. The Tribunal was right in cancelling the penalty." 27. Keeping in view the aforesaid facts and circumstances, discussions and authorities referred to above, the assessee clearly discharged his initial onus of proof and the Department has not brought any evidence on record contrary to that. In view of above findings, there is no need to refer other case laws referred to by the ld.counsel for the assessee.
(1) Judgment of Hon'ble Kerala High Court in the matter of CIT v. Geo Sea Foods (244 ITR 44) 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 v. Mussadilal Ram Bharose (165 ITR 14) 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 v. K.R. Sadayappah (185 ITR 49). The Tribunal was directed to send the statement of facts.
(4) Judgment of Hon'ble Allahabad High Court in the matter of Addl.CIT v. Irshad Ali (197 ITR 144) 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) Ld.D.R. relied on 246 ITR 280. However, no relevant judgment was found at page-280.
(6) Order of the Income-tax Appellate Tribunal, Chandigarh Bench, in the matter of Om Prakash Gupta v. I.T.C., reported in 81 ITD 55, in which the assessee had failed to establish the source and genuineness of the amount credited in the names of 51 parties.
All these authorities would not support the contention of the ld.D.R.and are clearly distinguishable on facts. In view of above findings, the penalty is liable to be cancelled against the assessee.
29. The ld.counsel for the assessee lastly argued that no satisfaction has been recorded by the A.O. in the assessment order while initiating penalty proceedings and he relied upon the judgment of Hon'ble Delhi High Court, reported in 246 ITR 568 CIT v. Ram Commercial Enterprises Ltd. The ld.counsel for the assessee in his Paper Book filed copy of the notice Under Section 148 issued to the assessee bearing dated 12th March, 1981. Ld.counsel for the assessee argued that it was issued to the assessee being member of the AOP. Ld.counsel for the assessee further argued that it was issued prior to the order of the Income-tax Appellate Tribunal, in the case of AOP, dated 9-12-1982 referred to above. We have already indicated that the Income-tax Appellate Tribunal, Allahabad Bench, vide order dated 9-12-1982 has quashed the assessment in the status of AOP. These findings became final between the parties. The penalty Under Section 271(1)(c) was issued vide assessment order dated 25-3-1985. The details of the search and incriminating material are mentioned in the assessment order and on the basis of the identical facts and circumstances, it was stated in the assessment order that the main assessment is made in the case of AOP and the assessments in the protective measure are made in the case of Bhagirathi Ram, individual, and Asharfi Lal Hira Lal, HUF. Hon'ble Delhi High Court in the matter of CIT v. Ram Commercial Enterprises Ltd., reported in 246 ITR 568, after considering the judgment of the Hon'ble Supreme court in the matter of CIT v. S.V. Agidi Chettiar (44 ITR 739) held: "A bare reading of the provisions of Section 271 and the law laid down by the Supreme court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority.
Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by Section 271 for initiating the penalty proceedings." 30. Now, we advert back to the facts of the case to see whether the A.O. had been satisfied before initiating the proceedings Under Section 271(1)(c) in the matter. The A.O. 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 A.O. was satisfied that the entire seized material is connected with the AOP. However, his findings were quashed by the Income-tax Appellate Tribunal vide order dated (SIC) 9th December, 1982. The proceedings Under Section 148 were stated to be issued vide notice dated 12-3-1981, copy of which is filed in the Paper also.
Therefore, the A.O. remained under the impression (SIC) search material belonged to the AOP. Therefore, the A.O. 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 discussions, we allow the appeal of the assessee by setting aside the impugned orders of the authorities below and cancel the penalty Under Section 271(1)(c) of the Income-tax Act.
32. This appeal by the assessee is filed on the following effective grounds of appeal: "1. Because the learned Commissioner of Income-tax (Appeals) was not justified in passing the order ex-parte and in confirming the levy of penalty under Section 271(1)(a).
2. Because the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in holding that 'the appellant had taxable income which was determined on the basis of documents found (SIC) course of search of his premises.' 3. Because the documents referred to by the authority below stood already adjudicated from the sage of the Hon'ble I.T.A.T. in the case of AOP and the learned Commissioner of Income-tax (Appeals) on a due consideration of the said adjudication should have held that the appellant had nothing to do with the business alleged to have reflected in the said documents and therefore he carried no obligation to file the return.
4. Because on a due consideration of the attendant facts and circumstance of the case, the authorities below should have held that the appellant was under no obligation to file the return and the same should have been held to be constituting reasonable and sufficient cause for not filing the return and no penalty should, therefore, have been levied." 33. According to the fact of the case, the assessee was to file his return of income Under Section 139(1) on or before 31st July, 1972. He filed the same on 9th April, 1981 in compliance to the notice Under Section 148. The A.O. found that there was delay of 104 months and accordingly levied the penalty Under Section 271(1)(a) of the Income-tax Act. The action was challenged before the CIT(A) and the appeal of the assessee was dismissed. The assessee is in appeal before us on the effective grounds of appeal incorporated above.
34. We have heard the ld.counsel for the assessee and the ld.D.R. We have considered the rival submissions and material available on record.
35. The facts for imposition of penalty are similar to that of raised in I.T.A.No. 1076(Alld) of 1993 Under Section 271(a)(c) of the Income-tax Act. The same seized material i.e., the balance sheet was the basis for making the addition in the assessment proceedings. The assessee has shown the income below taxable in his return filed in pursuance of the service of notice Under Section 148. Only on the basis of the details mentioned in the balance sheet income of the assessee was determined above taxable limit. Hence the assessee was under bonafide belief that his income is not taxable. This was the reason for delay in filing of the return. On the same set of facts, we have decided in I.T.A.No. 1076(Alld) of 1993 that the recovery of the balance sheet is not at all connected with the assessee and we have given various reasons after discussing the same in detail and cancelled the penalty Under Section 271(1)(c). Therefore, by relying on our finding in the connected appeal of the assessee mentioned above, we are of the considered view that there appears to be a reasonable and sufficient cause for the assessee in not filing the return as he was under the impression that his income was below taxable limit.
Accordingly, we set aside the orders of the authorities below and allow the appeal of the assessed and cancel the penalty Under Section 271(1)(a) of the Income-tax Act. We may mention that our findings are only in relation to penalty proceedings and have no bearing on the assessment of income.