1. This appeal is by the Revenue challenging the order of the learned CIT(A), dt. 18th Sept., 2002 on the following grounds: 1. That the learned CIT(A)-II, Ludhiana has erred in deleting the penalty of Rs. 2,96,340 imposed by the AO under Section 271(1)(c) of the IT Act, 1961.
2. That the order of the learned CIT(A) be reversed and that of the AO be restored.
3. That appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
2. The only ground raised by the Revenue pertains to deleting the penalty of Rs. 2,96,340 imposed by the AO under Section 271(1)(c) of the Act as ground Nos. 2 and 3 being general in nature, requires no deliberation from our side.
3. During arguments, we have heard Smt. Preeti Garg, learned senior Departmental Representative and Shri Sudhir Sehgal and Shri Ashok Goyal, learned counsels for the assessee.
4. The major plea of the learned Counsel for the Revenue is that satisfaction has been duly recorded by the AO in the assessment order while initiating penalty and a detailed penalty order has been passed.
Plea was also raised that the Tribunal on quantum appeal has dismissed the appeal of the assessee and specifically invited our attention to p.
11, para 9 of the order of the Tribunal. It was also contended that the Tribunal has upheld the addition of Rs. 4,84,450 as bogus liability and assessee furnished inaccurate particulars of income. Reliance was also placed on the decision of the Tribunal pronounced in ITA 528/Chd/2005 and also the decision pronounced in Vishwakarma Industries v. CIT , K.P. Madhusudhanan v. CIT and strongly defended the penalty order. On the other hand, the major plea of the learned Counsel for the assessee is that the assessee is doing the business of resale of old machines and no manufacturing is done by the assessee. Our attention was also invited to p. 7 of the assessment order, pp. 20 and 21 of the paper book. It was pointed out from p. 21 of paper book that more purchases were made. At p. 9, the details of purchase from M/s Globe Engineering Works are mentioned. The assessee also furnished copy of bills at pp. 11-19 of paper book and claimed that all these bills were duly furnished before the AO. Plea was also raised that M/s Globe Engineering Works asked the assessee to send certain payments directly to M/s Metro Footwear and confirmation from M/s Metro Footwear was duly filed before the AO. The learned Counsel for the assessee also invited our attention to p. 14, para 10 of the order of the Tribunal by contending that the purchases are not bogus as total purchases are from M/s Globe Engg. Works and part payment has been accepted. This alone cannot be sufficient ground for levy of penalty and the addition has been deleted. Reliance was also placed on the decision pronounced in the decision in that case Hukamchand Shankarlal v. CWT , Ananthamm Veeiasinghaiah & Co. v.CIT , Addl. CIT v. Sadiq M & Bros.
Counsel for the assessee strongly defended the orders of the learned first appellate authority. It was also pinpointed that payments were made in 1981 but inadvertently name of the bank could not be mentioned.
We have considered the submissions.
5. The original assessment in the case of assessee was made by the learned AO on 30th Sept., 1989 determining income at Rs. 2,59,700. The learned AO afterwards received information from the Survey circle, Ludhiana, that the assessee purchased bank draft No. 916964 for a sum of Rs. 80,000 from State Bank of India on 8th Feb., 1988 which was not accounted for in its books of account. Accordingly, the case was reopened under Section 147 and notice under Section 148 was issued on 16th May, 1991. The assessee during original assessment proceedings filed the copy of accounts of M/s Globe Engg. Works indicating that the assessee made purchases worth Rs. 8,22,450 from M/s Globe Engg. Works and the further accounts indicates that the payments worth Rs. 3,38,000 were made during the same year and balance sum of Rs. 4,84,450 was outstanding as liability in the balance sheet. The assessee was asked to prove the genuineness of such purchases The AO also noted that certain payments were made by the assessee but certain other purchase were made by draft in the next year but the amount was debited in the accounts of M/s Globe Engg. Works which was claimed to be debited as per instructions received from those parties. The learned CIT(A), on appeal by the assessee, held that appellant could not have effected the sales without making the purchases of machines and further held that there were certain defects in the books of account and applied only rate of 20 per cent on the sales determining the interest at Rs. 3,85,930 against which the Department filed an appeal before the Tribunal wherein vide order dt. 17th Oct., 2000 the addition of Rs. 4,84,450 was confirmed representing liability in the name of M/s Globe Engg. Works. The AO levied the penalty on the plea that the Tribunal has confirmed the addition of Rs. 4,84,450 as bogus liability. Total penalty of Rs. 2,96,340 being 100 per cent of the tax sought to be evaded under Section 271(1)(c) for concealment of income was levied by AO which was deleted by the learned CIT(A). Now, the question arises, is there any concealment of income or the assessee' has furnished inaccurate particulars of income as has been narrated by the Revenue.
6. At the outset, we are of the view that quantum proceedings and penalty proceedings are altogether different as penalty proceedings are penal in nature, so it should be construed strictly. During arguments, learned Departmental Representative placed reliance upon the decision of the Chandigarh Bench of the Tribunal in the case of Shri Mangat Rai Babuta in ITA No. 528/Chd/2005 wherein the appeal of the assessee was dismissed. The Hon'ble High Court of Punjab & Haryana in the case of Vishawkarma Industries v. CIT (supra) has deliberated upon whether the modus of concealment and tax evasion was within the knowledge of the assessee. In that case, the returned income was less than 80 per cent of the assessed income. The Hon'ble Court opined as under: The statute visualised that the assessment proceedings and the penalty proceedings were wholly distinct and independent of each other, at least so far as the applicability of the Explanation is concerned. The assessment proceedings necessarily precede the penalty proceedings and the assessment proceedings are the very foundation of the subsequent penalty proceedings, if any. In true essence, until the assessment proceedings in the shape of the final determination of the assessed income are completed, the provisions of the Explanation could hardly come into play, because the objective and, indeed, the arithmetical test, is raised basically on the assessed income which has been designated as "correct income" for this purpose. It is only when this correct income has been determined, that, by comparing it with the returned income of the assessee, the test of the same being less than eighty percent of the former can be applied. It is only when this test is satisfied and the case squarely falls within the ambit of the higher levels of concealment that the latter part of the Explanation comes into play.
Therefore, the assessment proceedings and penalty proceedings must be kept sharply distinct and independent from each other.
If the aforesaid conclusion of the Hon'ble jurisdictional High Court is analyzed, it speaks about that assessment proceedings and penalty proceedings must be kept sharply distinct and independent from each other. In view of aforesaid observation of the Hon'ble jurisdictional High Court, it can be opined that it is not necessary in all cases that where in quantum proceedings if part addition has been sustained, still the penalty will be livable. This judicial pronouncements of the Revenue rather supports the case of the assessee, Reliance was also placed by the Revenue upon the decision of the Hon'ble apex Court in the case of K.P. Madhusudanan v. CIT (supra) where penalty was imposed for concealment of income. The Hon'ble Court while coming to a particular conclusion overruled the decision of the Hon'ble High Court of Bombay pronounced in the case of CIT v. P.M. Shah and affirmed the decision of the Hon'ble High Court of Kerala pronounced in (supra). In that case, the explanation of the assessee was not found sufficient that sufficient cash balance was not available on particular dates as the assessee was expected to repay such loans in a short time and no entries were made in books of account in respect thereof. The imposition of penalty was held to be valid. The Hon'ble High Court of Rajasthan in the case Hukamchand Shankerlal v. CWT (supra), where the returns were not furnished in time, it was held that penalty proceedings are quasi-judicial in nature, so the order levying penalty should be a speaking order.Addl. CIT v.Sadiq Ali & Bros, (supra) has deliberated upon the issue on imposition of penalty on concealment of income under Section 271(1)(c). We are aware that penalty is not imposable if there is no conscious breach of law. For this proposition, we are fortified by the decision of the Hon'ble apex Court pronounced in the case of Hindustan Steels Ltd. v.State of Orissa . At the same time, the conduct of the assessee must be conscious as was held by the Hon'ble apex Court in the case of K.C. Builders v. Asstt. CIT . The expression that "has concealed the particulars of income" and "has furnished inaccurate particulars of income" have not been defined either in Section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in detail although they may lead to the same effect, i.e., keeping of certain portion of income.
The Hon'ble Madras High Court in the case of CIT v. K.R. Chinni Krishna Chetty held that for imposition of penalty, under Section 271(1)(c) definite finding about concealment is necessary. The Hon'ble High Court of Madhya Pradesh in the case of CIT v. Skyline Auto Products (P) Ltd. mistake is bona fide such a ground cannot be good ground for imposition of penalty under Section 271(1)(c). If the facts of the present case are analyzed with the aforesaid judicial pronouncements, it is seen that the Tribunal affirmed part of the decision (sic-addition) in quantum appeal and the learned AO imposed penalty on the plea that the Tribunal has confirmed the part of the addition. The Chandigarh Bench of the Tribunal in the case of Durga Traders v. ITO ITA No.120/Chd/2003 reported at (2004) 90 TTJ (Chd) 767 Ed. wherein the AO found that closing stock has been valued by the assessee at lesser value than its cost wherein it was claimed that closing stock was of inferior quality so the market price which were lower than the cost price was adopted for valuation of the closing stock. The AO worked out the difference in closing stock at Rs. 2,64,570 and the learned CIT(A) on appeal allowed the relief of Rs. 4,380 and sustained the addition of Rs. 2,60,190. Penalty proceedings under Section 271(1)(c) were initiated. The Hon'ble Bench deliberated upon various judicial pronouncements and deleted the penalty. Reliance can also be placed on the decision of the Chandigarh Bench of the Tribunal in the case of Raunak Ram Nand Lal, Mandi Dabwali v. ITO (2005) 27 W Rep. 108 (Chd).
The Hon'ble Bench placed reliance upon various judicial pronouncements from Hon'ble apex Court and also of various High Courts which are available at p. 109 of the said order. The penalty was held to be not justified. Reliance can also be placed on the decision of the Amritsar Bench of the Tribunal in the case of Jt. CIT v. VXL (India) Ltd. ITA No. B4/Asr/1999 reported at (2005) 94 TTJ (Asi) 513 wherein reliance was placed on various judicial pronouncements and appeal of the Revenue was dismissed.
7. In view of these facts and judicial pronouncements, we have not found any mistake in the order of the learned CIT(A) who deleted the penalty.