Dy. Cit Vs. Suresh Kumar Jain - Court Judgment

Excerpt:
this is an appeal by the revenue against the order dated 5-9-2000, of the commissioner (appeals)-i, raipur and it relates to the assessment year 1997-98.the assessee is an individual engaged in the business of dealing in coal. in the course of the assessment proceedings for the assessment year 1997-98, the assessing officer was of the view that certain loan transactions shown by the assessee were not genuine. interest was also claimed by the assessee as having been paid on these loans. the following were the details of loans and interest paid by the assessee thereon; in the assessment proceedings, the assessee filed the copies of the confirmation letters from all the creditors. in the assessment proceedings, it appears that the assessing officer recorded the statement of shri a. ravikumar who stated that the assessee had given him money which was deposited in the bank and this money was given back to the assessee in the form of cheque. the other creditors, namely, smt. n. vijayalaxmi, smt. a.v. nagmani were also his relatives and the modus operandi in their case was also similar to that of in the case of shri a. ravikumar. in respect of m/s zubi investment, the said party could not be located as it had shifted its business to hyderabad. the assessing officer, in the course of the assessment proceedings, issued letter dated 26-7-1997, to the assessee pointing out that shri a.ravikumar had given a statement denying the loan transaction and also brought to the notice of te assessee that in respect of m/s zubi investment, the identity of the creditor and the genuineness of the loan transaction remained to be proved by the assessee. the assessing officer also specifically brought to the notice of the assessee that in the event of failure on the part of the assessee to show-cause, the amounts will be added to the income of the assessee under section 68.the assessee by his letter dated 30-7-1999, submitted that the creditors having filed their confirmation letters and having transacted the loan amounts by cheques, the assessing officer was not justified in disbelieving the loan transactions. the assessee also reiterated that the credits were genuine and were supported by the confirmation letters of the creditors. the assessee also that if the creditors were to be cross-examined by the assessee, then the state assessee would not be in a position to get any loan in the market and they would put trouble in the business. the assessee also stated that m/s. zubi investment could not be located as they have shifted their business to hyderabad. the assessee also stated that these loan transactions with m/s zubi investments were through bank channel and if proper efforts are taken by the assessing officer, the said creditor can always be traced. the assessee, however, stated that in order to maintain peace of mind and to devote full energy to the business, the loan transactions were being offered as the assessee's income. while offering these loan truncations as his income, the assessee made it clear that the offer was voluntary and without any default or detection by the department. the assessee also made it clear that no proceedings for levy of penalty for concealment of income should be initiated against the assessee. the assessing officer in the order of assessment referred to the letter dated 30-7-1999, and held that the credits are added under section 68 of the income tax act as the assessee's income. the assessing officer initiated the penalty proceedings under section 271(1)(c) of the act for concealment of income by the assessee. in the penalty proceedings, in reply to the show-cause notice under section 271(1)(c), the assessee submitted that he offered the cash credits in question for taxation voluntarily and there was no detection of concealment of income by the revenue. he also submitted that the offer was made subject to the condition that no penalty under section 271(1)(c) will be levied on the assessee. therefore, the assessee prayed for dropping of the penalty proceedings under section 271(1)(c) in view of the above facts mentioned by the assessee. the assessee also relied on the following decisions : 3. sir shadilal sugar & general mills ltd. & anr. v. cit (1987) 168 itr 705 (sc) the assessing officer has, however, rejected the explanation offered by the assessee. the assessing officer, while levying the penalty on the assessee, relied on the finding in the assessment order. he held that the disclosure made by the assessee was not voluntary and was only after the positive detection by the department. in levying the penalty, the assessing officer, relied on the decision of the hon'ble kerala high court in the case of calicut trading co. v. cit (1989) 178 itr 430 (ker). the assessing officer also relied on the decision of the madras high court in the case of cit v. krishna & co. (1979) 120 itr 144 (mad).aggrieved by the order of the assessing officer, the assessee preferred appeal to the commissioner (appeals). the commissioner (appeals) held that the basis of addition made by the assessing officer was the statement of one of the creditors recorded during the course of the assessment proceedings. he found that this statement was recorded behind the back of the assessee. he also found that the assessee surrendered the income. with a condition that no penalty proceedings for concealment would be initiated against the assessee. he also found that all the creditors were regular income tax payers and the creditors were also assessed in respect of interest income received from the assessee on the loans given by them to the assessee. the commissioner (appeals), therefore, held that the assessee had proved all the essential ingredients of section 68 of the act, he also held that the assessee's offer to tax these credits was made only to buy peace with the department and to avoid prolonged litigation. he also held that subsequent denial by the creditors after having filed the confirmation letter cannot be relied upon for making the addition. he also found that mere admission by the assessee ought not to have been used against the assessee to penalize him under section 271(1)(c), for all these reasons, the commissioner (appeals) deleted the penalty imposed by the assessing officer.aggrieved by the order of the commissioner (appeals), cancelling the penalty levied by the assessing officer under section 271(1)(c), the revenue has filed the present appeal.the departmental representative relied on the order of the assessing officer and submitted that the admission of the assessee in the course of the assessment proceedings is enough to sustain the penalty levied by the assessing officer. in this regard, he relied on the decision of the madras high court (1979) 120 itr 144 (mad) (supra). he further submitted that the burden of proof was on the assessee in terms of expln. 1 to section 271(1)(c) of the act and since the assessee has not discharged his burden, the penalty was rightly levied by the assessing officer. in this regard, he relied on the decision of the kerala high court in 165 itr 352 (supra). referring to the plea of the assessee that the surrender was made by him with a condition that no penalty will be levied, the departmental representative submitted that there cannot be an estoppel against the statute. he submitted that there is no provisions in the income tax act which permits such compromise. he also submitted that there is no principle of universal application that whenever an assessment has been completed by accepting an offer of the assessee, no penalty can be imposed.the learned counsel for the assessee, while relying on the order of the commissioner (appeals), submitted that the assessee agreed to the addition in the course of the assessment proceedings only with a view to purchase peace and avoid prolonged litigations. mere admission for the purpose stated above, will not amount to concealment. in addition to the case laws relied on before the revenue authorities, he relied on the decision of the madhya pradesh high court in the case of cit v.suresh chandra mittal (2000) 241 itr 124 (mp) and the decision of the guwahati high court in the case of akshya bhandar v. cit (1996) 220 itr 325 (gau).we have heard and considered the rival contentions. it is well settled position that findings in the assessment proceedings are not conclusive in the penalty proceedings. the entire set of facts and circumstances has to be reviewed by the assessing officer in penalty proceedings. the initial burden of proof however, would be on the assessee in view of expln. 1 to section 271(1)(c). the fact that the assessee agreed to the addition at the time of assessment on the condition that he would not be visitied with penalty proceedings, would not be an obstacle while imposing penalty. this is because, the assessing officer has no authority to waive penalty. any such promise by the revenue would also not amount to as there cannot be estoppel against the statute. the decision of the hon'ble kerala high court in the case of cit v. d.k.b.& co. (2000) 243 itr 618 (ker) is on the point. finding that an assessee has concealed the particulars of his income or furnished inaccurate particulars thereof, is essentiafly a question of fact to be decided on the facts and circumstances of a given case. keeping in mind the above principles, we shall analyse the facts of the present case.from the perusal of the order of assessment, it transpires that the assessee had filed the copies of the confirmations in the case of the seven parties. the assessee was asked to produce the creditors for verification. the assessee produced shri a. ravikumar, one of the creditors. shri a. ravikumar deposed before the assessing officer that the money given to the assessee in the form of cheque was in fact given to him by the assessee and that he had not given any money to the assessee out of his own fund. the other creditors, namely, smt. n.vijayalaxmi and smt. a.v. nagmani are aunt and mother of mr. a.ravikumar. he s - tated that in respect of credits in the names of smt.a.v. nagamani and n. vijayalaxmi also, the moneys were given only by the assessee. the assessing officer by his letter dated 26-7-1999, confronted the assessee with the statement of shri a. ravikumar. in reply to this letter of the assessing officer, the assessee vide his letter dated 30-7-1997, offered the credits as income. it is also to be mentioned that one of the creditor was also not produced by the assessee and in respect of this creditor the assessee stated that he has not been able to locate the party as the said creditor had shifted to hyderabad. regarding other credits, the assessee stated in his letter dated 30-7-1999, that the credits were genuine but he did not want to examine the creditors because the borrowings are by cheques.another reason stated by the assessee was that if the creditors were examined, then he would not get credit in the market in future. in the penalty proceedings, the assessee reiterated his submissions as made in the assessment proceedings. the assessee also stated in reply to the penalty notice that the statement of the creditor was recorded behind the back of the assessee, now it has to be examined whether the explanation offered by the assessee is a bona fide explanation. the fact that the assessee did not choose to cross-examine the creditor on his statement that the money represented the assessee's money is a vital factor which will go against the assessee. the assessee was well aware of the fact that if the creditor is not cross-examined, his statement will be used by the assessing officer against the assessee. the assessee thus had sufficient opportunity to prove his case in the assessment proceedings but did not choose to do so. in the penalty proceedings, the assessee did not make any efforts to prove that the explanation offered by him, namely, that he is offering the credits as his income only with a view to purchase peace and considering the fact that if the creditors are cross-examined, he will not be in a position to get the fresh credits in the market. in the light of the clear statement of the creditor that the credit represented the money belonging to the assessee, the onus was greater on the assessee to show that the explanation offered by him was bona fide. in the facts and circumstances, it has to be necessarily concluded that the offer by the assessee was only after a positive detection by the department. it has to be noticed that the hon'ble kerala high court in the case of cit v. calicut trading co. (supra) had an occasion to consider the effect of the expln. 1 to section 271(1)(c) in the light of the agreed assessment and held as follows : "a conspectus of the explanation added by the finance act, 1964, and the subsequent substituted explanation makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. -in essence, the explanation (both after 1964 and 1976) is a rule of evidence.presumptions which are rebuttable in nature are available to be drawn.the initial burden of discharging the onus of rebuttal is on the assessee. expln. 1 automatically comes into operation when in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the assessing officer or the first appellate authority, or an explanation is offered which is not substantiated. in such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. as per the provision of expln. 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. the assessing officer is not obliged to intimate the assessee that expln. 1 to section 271(1)(c) is proposed to be applied.the scheme of the provisions does not provide for such a requirement either directly or inferentially," the honourable gujarat high court in the case of national textiles v.cit (2001) 249 itr 125 (guj) has again laid down the nature of proof required to discharge the onus that lies on an assessee by virtue of expln. 1 to section 271(1) as follows : "the provisions of section 68 permitting the assessing officer to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the assessing officer. however, the addition made on this count would not automatically justify imposition of penalty under section 271(1)(c) by recourse only to expln. i below section 271(1)(c). in order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. it is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. the explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. absence of proof acceptable to the department cannot be equated with fraud or wilful default. on the state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to expln. 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances would have been amounts received as temporary loans from various parties. the assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead, to a reasonable and positive inference that the assessee's case - that the cash credits were arranged as temporary loans, was false. therefore, even taking recourse to expln. 1, same circumstances or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department." in the light of the decisions of the kerala high court and the gujarat high court, referred to above, we are of the view that the assessee has, not been able to substantiate his explanation as offered before the assessing officer. the circumstances under which the addition was made only leads to an inference that the assessee's explanation was false and that the credits were in fact his income. in the penalty proceedings as well as in the assessment proceedings, the assessee has also not been able to establish that the explanation offered was bona fide. in such circumstances, expln. 1 to section 271(1)(c) will operate against the assessee and it has to be held that the assessee had not discharged his burden in terms of expln. 1 to section 271(1)(c).the commissioner (appeals) has given findings in his order that the creditors are assessed in respect of the interest income received from the assessee on the disputed credits. this finding is not borne out by the records. another finding of the commissioner (appeals) is that the creditor was examined behind the back of the assessee. this finding is again without any basis. the assessing officer had specifically referred to the statement of mr. a. ravikumar and afforded him opportunity to cross-examine. thus, the commissioner (appeals) was not justified in deleting the penalty levied on incorrect findings.now coming to the various decisions relied upon by the learned counsel for the assessee, it is. seen that the decisions in (1986) 162 itr 517 (mp), (1986) 158 itr 705 (mp), (1972) 83 itr 369 (sc) (supra) were the decisions rendered prior to 1-4-1976 when the expln. 1 to section 271(1)(c) was not introduced in income tax act, 1961. thus, these decisions do not help the case pleaded by the assessee. the learned counsel for the assessee also relied on the decision of the hon'ble madhya pradesh high court in (2000) 158 ctr (mp) 26: (2001) 241 itr 124 (mp) (supra). in the said decision, the facts were different. in the said case, the tribunal had found as a fact that the assessee had declared disputed income in the revised return and the revenue had not taken any objection in this regard. in those circumstances, the tribunal came to the conclusion that no penalty was exigible. the tribunal also found that the act of voluntary surrender by the assessee was done in good faith to buy peace. it was on this factual finding and the madhya pradesh high court upheld the cancellation of penalty by the tribunal. we have already found in the present case that the explanation offered by the assessee was not bona fide and the same was made after the positive detection by the department. in view of the above, we are of the view that the penalty levied by the assessing officer was rightly levied by him and the commissioner (appeals) erred in deleting the same. we accordingly reverse the order of the commissioner (appeals) and restore the order of the assessing officer levying the penalty.

Judgment:
This is an appeal by the revenue against the order dated 5-9-2000, of the Commissioner (Appeals)-I, Raipur and it relates to the assessment year 1997-98.

The assessee is an individual engaged in the business of dealing in coal. In the course of the assessment proceedings for the assessment year 1997-98, the assessing officer was of the view that certain loan transactions shown by the assessee were not genuine. Interest was also claimed by the assessee as having been paid on these loans. The following were the details of loans and interest paid by the assessee thereon; In the assessment proceedings, the assessee filed the copies of the confirmation letters from all the creditors. In the assessment proceedings, it appears that the assessing officer recorded the statement of Shri A. Ravikumar who stated that the assessee had given him money which was deposited in the Bank and this money was given back to the assessee in the form of cheque. The other creditors, namely, Smt. N. Vijayalaxmi, Smt. A.V. Nagmani were also his relatives and the modus operandi in their case was also similar to that of in the case of Shri A. Ravikumar. In respect of M/s Zubi Investment, the said party could not be located as it had shifted its business to Hyderabad. The assessing officer, in the course of the assessment proceedings, issued letter dated 26-7-1997, to the assessee pointing out that Shri A.Ravikumar had given a statement denying the loan transaction and also brought to the notice of te assessee that in respect of M/s Zubi Investment, the identity of the creditor and the genuineness of the loan transaction remained to be proved by the assessee. The assessing officer also specifically brought to the notice of the assessee that in the event of failure on the part of the assessee to show-cause, the amounts will be added to the income of the assessee under section 68.

The assessee by his letter dated 30-7-1999, submitted that the creditors having filed their confirmation letters and having transacted the loan amounts by cheques, the assessing officer was not justified in disbelieving the loan transactions. The assessee also reiterated that the credits were genuine and were supported by the confirmation letters of the creditors. The assessee also that if the creditors were to be cross-examined by the assessee, then the state assessee would not be in a position to get any loan in the market and they would put trouble in the business. The assessee also stated that M/s. Zubi Investment could not be located as they have shifted their business to Hyderabad. The assessee also stated that these loan transactions with M/s Zubi Investments were through Bank channel and if proper efforts are taken by the assessing officer, the said creditor can always be traced. The assessee, however, stated that in order to maintain peace of mind and to devote full energy to the business, the loan transactions were being offered as the assessee's income. While offering these loan truncations as his income, the assessee made it clear that the offer was voluntary and without any default or detection by the department. The assessee also made it clear that no proceedings for levy of penalty for concealment of income should be initiated against the assessee. The assessing officer in the order of assessment referred to the letter dated 30-7-1999, and held that the credits are added under section 68 of the Income Tax Act as the assessee's income. The assessing officer initiated the penalty proceedings under section 271(1)(c) of the Act for concealment of income by the assessee. In the penalty proceedings, in reply to the show-cause notice under section 271(1)(c), the assessee submitted that he offered the cash credits in question for taxation voluntarily and there was no detection of concealment of income by the revenue. He also submitted that the offer was made subject to the condition that no penalty under section 271(1)(c) will be levied on the assessee. Therefore, the assessee prayed for dropping of the penalty proceedings under section 271(1)(c) in view of the above facts mentioned by the assessee. The assessee also relied on the following decisions : 3. Sir Shadilal Sugar & General Mills Ltd. & Anr. v. CIT (1987) 168 ITR 705 (SC) The assessing officer has, however, rejected the explanation offered by the assessee. The assessing officer, while levying the penalty on the assessee, relied on the finding in the assessment order. He held that the disclosure made by the assessee was not voluntary and was only after the positive detection by the department. In levying the penalty, the assessing officer, relied on the decision of the Hon'ble Kerala High Court in the case of Calicut Trading Co. v. CIT (1989) 178 ITR 430 (Ker). The assessing officer also relied on the decision of the Madras High Court in the case of CIT v. Krishna & Co. (1979) 120 ITR 144 (Mad).

Aggrieved by the order of the assessing officer, the assessee preferred appeal to the Commissioner (Appeals). The Commissioner (Appeals) held that the basis of addition made by the assessing officer was the statement of one of the creditors recorded during the course of the assessment proceedings. He found that this statement was recorded behind the back of the assessee. He also found that the assessee surrendered the income. with a condition that no penalty proceedings for concealment would be initiated against the assessee. He also found that all the creditors were regular income tax payers and the creditors were also assessed in respect of interest income received from the assessee on the loans given by them to the assessee. The Commissioner (Appeals), therefore, held that the assessee had proved all the essential ingredients of section 68 of the Act, He also held that the assessee's offer to tax these credits was made only to buy peace with the department and to avoid prolonged litigation. He also held that subsequent denial by the creditors after having filed the confirmation letter cannot be relied upon for making the addition. He also found that mere admission by the assessee ought not to have been used against the assessee to penalize him under section 271(1)(c), For all these reasons, the Commissioner (Appeals) deleted the penalty imposed by the assessing officer.

Aggrieved by the order of the Commissioner (Appeals), cancelling the penalty levied by the assessing officer under section 271(1)(c), the revenue has filed the present appeal.

The Departmental Representative relied on the order of the assessing officer and submitted that the admission of the assessee in the course of the assessment proceedings is enough to sustain the penalty levied by the assessing officer. In this regard, he relied on the decision of the Madras High Court (1979) 120 ITR 144 (Mad) (supra). He further submitted that the burden of proof was on the assessee in terms of Expln. 1 to section 271(1)(c) of the Act and since the assessee has not discharged his burden, the penalty was rightly levied by the assessing officer. In this regard, he relied on the decision of the Kerala High Court in 165 ITR 352 (supra). Referring to the plea of the assessee that the surrender was made by him with a condition that no penalty will be levied, the Departmental Representative submitted that there cannot be an estoppel against the statute. He submitted that there is no provisions in the Income Tax Act which permits such compromise. He also submitted that there is no principle of universal application that whenever an assessment has been completed by accepting an offer of the assessee, no penalty can be imposed.

The learned counsel for the assessee, while relying on the order of the Commissioner (Appeals), submitted that the assessee agreed to the addition in the course of the assessment proceedings only with a view to purchase peace and avoid prolonged litigations. Mere admission for the purpose stated above, will not amount to concealment. In addition to the case laws relied on before the revenue authorities, he relied on the decision of the Madhya Pradesh High Court in the case of CIT v.Suresh Chandra Mittal (2000) 241 ITR 124 (MP) and the decision of the Guwahati High Court in the case of Akshya Bhandar v. CIT (1996) 220 ITR 325 (Gau).

We have heard and considered the rival contentions. It is well settled position that findings in the assessment proceedings are not conclusive in the penalty proceedings. The entire set of facts and circumstances has to be reviewed by the assessing officer in penalty proceedings. The initial burden of proof however, would be on the assessee in view of Expln. 1 to section 271(1)(c). The fact that the assessee agreed to the addition at the time of assessment on the condition that he would not be visitied with penalty proceedings, would not be an obstacle while imposing penalty. This is because, the assessing officer has no authority to waive penalty. Any such promise by the revenue would also not amount to as there cannot be estoppel against the statute. The decision of the Hon'ble Kerala High Court in the case of CIT v. D.K.B.& Co. (2000) 243 ITR 618 (Ker) is on the point. Finding that an assessee has concealed the particulars of his income or furnished inaccurate particulars thereof, is essentiafly a question of fact to be decided on the facts and circumstances of a given case. Keeping in mind the above principles, we shall analyse the facts of the present case.

From the perusal of the order of assessment, it transpires that the assessee had filed the copies of the confirmations in the case of the seven parties. The assessee was asked to produce the creditors for verification. The assessee produced Shri A. Ravikumar, one of the creditors. Shri A. Ravikumar deposed before the assessing officer that the money given to the assessee in the form of cheque was in fact given to him by the assessee and that he had not given any money to the assessee out of his own fund. The other creditors, namely, Smt. N.Vijayalaxmi and Smt. A.V. Nagmani are aunt and mother of Mr. A.Ravikumar. He s - tated that in respect of credits in the names of Smt.

A.V. Nagamani and N. Vijayalaxmi also, the moneys were given only by the assessee. The assessing officer by his letter dated 26-7-1999, confronted the assessee with the statement of Shri A. Ravikumar. In reply to this letter of the assessing officer, the assessee vide his letter dated 30-7-1997, offered the credits as income. It is also to be mentioned that one of the creditor was also not produced by the assessee and in respect of this creditor the assessee stated that he has not been able to locate the party as the said creditor had shifted to Hyderabad. Regarding other credits, the assessee stated in his letter dated 30-7-1999, that the credits were genuine but he did not want to examine the creditors because the borrowings are by cheques.

Another reason stated by the assessee was that if the creditors were examined, then he would not get credit in the market in future. In the penalty proceedings, the assessee reiterated his submissions as made in the assessment proceedings. The assessee also stated in reply to the penalty notice that the statement of the creditor was recorded behind the back of the assessee, Now it has to be examined whether the explanation offered by the assessee is a bona fide explanation. The fact that the assessee did not choose to cross-examine the creditor on his statement that the money represented the assessee's money is a vital factor which will go against the assessee. The assessee was well aware of the fact that if the creditor is not cross-examined, his statement will be used by the assessing officer against the assessee. The assessee thus had sufficient opportunity to prove his case in the assessment proceedings but did not choose to do so. In the penalty proceedings, the assessee did not make any efforts to prove that the explanation offered by him, namely, that he is offering the credits as his income only with a view to purchase peace and considering the fact that if the creditors are cross-examined, he will not be in a position to get the fresh credits in the market. In the light of the clear statement of the creditor that the credit represented the money belonging to the assessee, the onus was greater on the assessee to show that the explanation offered by him was bona fide. In the facts and circumstances, it has to be necessarily concluded that the offer by the assessee was only after a positive detection by the department. It has to be noticed that the Hon'ble Kerala High Court in the case of CIT v. Calicut Trading Co. (supra) had an occasion to consider the effect of the Expln. 1 to section 271(1)(c) in the light of the agreed assessment and held as follows : "A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanation makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. -In essence, the Explanation (both after 1964 and 1976) is a rule of evidence.

Presumptions which are rebuttable in nature are available to be drawn.

The initial burden of discharging the onus of rebuttal is on the assessee. Expln. 1 automatically comes into operation when in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the assessing officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Expln. 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. The assessing officer is not obliged to intimate the assessee that Expln. 1 to section 271(1)(c) is proposed to be applied.

The scheme of the provisions does not provide for such a requirement either directly or inferentially," The Honourable Gujarat High Court in the case of National Textiles v.CIT (2001) 249 ITR 125 (Guj) has again laid down the nature of proof required to discharge the onus that lies on an assessee by virtue of Expln. 1 to section 271(1) as follows : "The provisions of section 68 permitting the assessing officer to treat unexplained cash credit as income are enabling provisions for making certain additions, where there is failure by the assessee to give an explanation or where the explanation is not to the satisfaction of the assessing officer. However, the addition made on this count would not automatically justify imposition of penalty under section 271(1)(c) by recourse only to Expln. I below section 271(1)(c). In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. Where the circumstances do not lead to the reasonable and positive inference that the assessee's explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part. Absence of proof acceptable to the department cannot be equated with fraud or wilful default. On the state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Expln. 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances would have been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead, to a reasonable and positive inference that the assessee's case - that the cash credits were arranged as temporary loans, was false. Therefore, even taking recourse to Expln. 1, same circumstances or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department." In the light of the decisions of the Kerala High Court and the Gujarat High Court, referred to above, we are of the view that the assessee has, not been able to substantiate his explanation as offered before the assessing officer. The circumstances under which the addition was made only leads to an inference that the assessee's explanation was false and that the credits were in fact his income. In the penalty proceedings as well as in the assessment proceedings, the assessee has also not been able to establish that the explanation offered was bona fide. In such circumstances, Expln. 1 to section 271(1)(c) will operate against the assessee and it has to be held that the assessee had not discharged his burden in terms of Expln. 1 to section 271(1)(c).

The Commissioner (Appeals) has given findings in his order that the creditors are assessed in respect of the interest income received from the assessee on the disputed credits. This finding is not borne out by the records. Another finding of the Commissioner (Appeals) is that the creditor was examined behind the back of the assessee. This finding is again without any basis. The assessing officer had specifically referred to the statement of Mr. A. Ravikumar and afforded him opportunity to cross-examine. Thus, the Commissioner (Appeals) was not justified in deleting the penalty levied on incorrect findings.

Now coming to the various decisions relied upon by the learned counsel for the assessee, it is. seen that the decisions in (1986) 162 ITR 517 (MP), (1986) 158 ITR 705 (MP), (1972) 83 ITR 369 (SC) (supra) were the decisions rendered prior to 1-4-1976 when the Expln. 1 to section 271(1)(c) was not introduced in Income Tax Act, 1961. Thus, these decisions do not help the case pleaded by the assessee. The learned counsel for the assessee also relied on the decision of the Hon'ble Madhya Pradesh High Court in (2000) 158 CTR (MP) 26: (2001) 241 ITR 124 (MP) (supra). In the said decision, the facts were different. In the said case, the Tribunal had found as a fact that the assessee had declared disputed income in the revised return and the revenue had not taken any objection in this regard. In those circumstances, the Tribunal came to the conclusion that no penalty was exigible. The Tribunal also found that the act of voluntary surrender by the assessee was done in good faith to buy peace. It was on this factual finding and the Madhya Pradesh High Court upheld the cancellation of penalty by the Tribunal. We have already found in the present case that the explanation offered by the assessee was not bona fide and the same was made after the positive detection by the department. In view of the above, we are of the view that the penalty levied by the assessing officer was rightly levied by him and the Commissioner (Appeals) erred in deleting the same. We accordingly reverse the order of the Commissioner (Appeals) and restore the order of the assessing officer levying the penalty.