Income Tax Appellate Tribunal - Jaipur
S.L. Ganeriwal vs Income-Tax Officer on 30 July, 1993
Equivalent citations: [1994]48ITD11(JP)
ORDER
J.K. Verma, Accountant Member
1. The assessee is an Individual. He carried on the business of manufacture and sale of wire nails and panels etc. for which it is claimed that he had maintained regular books of account. He had filed a return of income at Rs. 4,340 on 30-10-1974 which had been assessed under Section 143(1). Therefore, the ITO initiated proceedings under Section 148 on the allegation that there were cash credit entries of Rs. 15,000 in the name of one Rao Bir Bikram Singh on 13-11-1972. Although it is not clear from the orders of lower authorities as to where the said Rao Bir Bikram Singh made a statement on oath, yet it can be gathered both from the assessment order as well as the penalty order that the said Rao Bir Bikram Singh had stated on oath that he gave merely Hawala of Rs. 15,000 to the assessee and no cash was, in fact, given. Thereafter, the ITO added the amount of Rs. 15,000 and the interest thereon amounting to Rs. 230 to the income of the assessee as income from other sources. This addition was confirmed up to the Tribunal stage and even assessee's Reference Application before the Hon'ble Rajasthan High Court in this regard was rejected, because according to the Hon'ble High Court genuineness of cash credit was a question of fact and not a question of law.
2. Thereafter, the ITO imposed a penalty of Rs. 15,230 under Section 271 (1)(c) treating the amount of Rs. 15,000 and the interest of Rs. 230 paid thereon as concealed income of the assessee or regarding which assessee had furnished inaccurate particulars of income and about which the assessee had not filed any explanation which was required from him under a statutory notice under Section 274 read with Section 271 (1)(c) of the I.T. Act.
3. When the matter went in appeal, the Id. DC (Appeals) thought that the ITO had invoked the Explanation to Section 271(1)(c), he rejected the arguments which were advanced on behalf of the assessee and again going by what had been written in the assessment as well as penalty orders, he took the view that the Explanation to Section 271(1)(c) would be straightway operative and the appellant should be held to have concealed particulars of that income. He, therefore, confirmed the imposition of penalty.
4. In the appeal filed before us, Shri Ranka referred to the paper book filed by him where at page 40 is assessee's computation of income; at 41 is his Balance Sheet; 42 is manufacturing and trading account; 43 is details of interest payments including the interest of Rs. 230 paid to Rao Bir Bikram Singh; page 44 is assessee's capital account; page 49 is copy of account of creditor Rao Bir Bikram Singh where on 13-11-1972 there is a credit of Rs, 15,000 through Chiranji Lalji and which bears the signatures of Rao Bir Bikram Singh; page 51 is copy of cash book dated 13-11-1972 which shows Rs. 15,000 received in cash from Rao Bir Bikram Singh through Chiranji Lalji Choudhary; page 52 is copy of cash book dated 26-12-1972 which shows debit of Rs. 10,000 in the name of Rao Bir Bikram Singh through Voucher No. 274 and payment of interest at Rs. 143.34 p. @ 1% for 13-11 to 26.12; page 53 is again a copy of cash book for 5-1-1973 which shows Rs. 5,000 debited to Rao Bir Bikram Singh in cash and Rs. 86.70p. interest. Page 45 of the paper book is a photocopy of Voucher No. 274 showing payment of Rs. 10,000 to Rao Bir Bikram Singh on 26-12-1972 and also shows dated signatures of Bir Bikram Singh on Revenue Stamps. Page 46 is photocopy of Voucher No. 275 for payment of interest of Rs. 143.34 p. and also bears signatures of Bir Bikram Singh on stamps. Similarly pages 47 and 48 are photocopies of Voucher Nos. 319 and 320 for payments of Rs. 5,000 and Rs. 86.70 p. on 5-1-1973 and both bear signatures of Bir Bikram Singh on stamps. Shri Ranka submitted that he was emphasising and highlighting these documents to show that assessee was maintaining regular books of account in which regular entries were made, that they bore acknowledgements from the creditor Rao Bir Bikram Singh and that they were in the normal course for business. He submitted that since the assessee had received the amount through Shri Chiranji Lal Choudhary, when he was required to prove the genuineness of this credit he had filed an affidavit of Shri Chiranjilal dated 22-8-1981 (page 54 of the paper book) before the ITO. Thereafter the ITO had called Shri Chiranjilal Choudhary, the Dalai in this ease, whose statement was recorded by him on the basis of the affidavit on 20-2-1985 and in which statement also Shri Chiranji lal confirmed having procured this loan from Rao Bir Bikram Singh and having given the cash to the assessee. Shri Ranka regretted that on account of some technical reasons the Tribunal had held in the quantum appeal that the assessee had failed to discharge the onus of proving the genuineness of the cash credits but, Shri Ranka insisted, the penalty proceedings were separate proceedings and being proceedings of quasi-criminal nature, even the same evidence which had been considered in the quantum proceedings, had to be re-appreciated in the light of quasi-criminal proceedings. He submitted that so far as quasi-criminal proceedings are concerned, the assessee had discharged its burden both as required under that main provisions of Section 271(l)(c) as well as under the Explanation to that section as it existed at the relevant time. He repeated that the assessee had shown that there were relevant entries regarding the credits in the account; that there were entries regarding payment of interest; that he had produced the vouchers bearing the signatures of the depositors and the books of account having been maintained in the regular course of business, Section 34 of the Indian Evidence Act supported the genuineness of these entries. He submitted that so far as the assessee was concerned, since he had received the money through Chiranjilal Choudhary, who had informed that the amount had been brought from Rao Bir Bikram Singh, the assessee had only made entries in the name of Rao Bir Bikram Singh. He submitted that Chiranjilal was an existing assessee who had confirmed the genuineness of the cash credits. On the other hand, so far as Rao Bir Bikram Singh was concerned he had given a similar statement in the case of M.D. Jewellers 1988 Tax World 323, that is, initially he had confirmed advancing of loans to that party but later on denied before the ITO having advanced the loan and had stated that they were only hawala entries but Income-tax Appellate Tribunal in its decision in the case of M.D. Jewellers (supra) (pages 26 to 32 of the paper book ) had deleted the additions holding that the statement of Bir Bikram Singh to the effect that he had given only hawala entries, were not reliable. Shri Ranka further submitted that there was no fraud or gross or wilful neglect in this case and the assessee has discharged the rebuttable presumption under Explanation to Section 271(1)(c).
5. Shri Ranka further submitted the department's sheet anchor in this case was the statement of Bir Bikram Singh. However, despite repeated requests from the department even a copy of the statement of Bir Bikram Singh had not been made available to the assessee much less assessee being given an opportunity to cross-examine him. Besides the requests for being given a copy of the statement and an opportunity to cross-examine which have been referred to in the appellate orders of first appellate authorities both in quantum and penalty proceedings, he referred to a letter dated 11-10-1991 addressed by the assessee to the Income-tax Officer (page 60 of the paper book) so also a copy of a reminder addressed to the ITO dated 12th May, 1993 in which he had requested the ITO to supply certified copies of the statements of Rao Bir Bikram Singh as he required them for producing before the Tribunal in the penalty proceedings, yet till the date of hearing no copy of that statement had been supplied to the assessee. He submitted that these were flagrant violation of principles of natural justice. In this context, the Id. counsel referred to the decision in the case of Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All.) where it was held that the assessment was vitiated by violation of principles of natural justice because the permission to cross-examine the witnesses was given to the assessee without furnishing copies of the statement made by the witnesses or conveying the substance of their statements. He also referred to the decisions given in the cases of Addl. CYT v. Rawalpindi Flour Mills (P.) Ltd. [1980] 125 ITR 243 (All.) in which it was held that the penalty under Section 271 (1)(c) could not be imposed merely on the basis of material collected during assessment proceedings and that statements of alleged name-lenders made before another ITO could not be used against the assessee. He further referred to the decision in the case of Kishinchand Chellaram v. CIT [1980) 125 ITR 713 (SC) where the apex court held that evidence collected but not shown to the assessee was not admissible and that opportunity to controvert that evidence should have been given to the assessee. He also drew our attention to the decision in the case of ITO v. B.D. Yadav & M.R. Meshram [1993] 46 TTJ (Nag.) 241 in which case penalty under Section 271(1)(c) had been cancelled because the statements of the creditors on the basis of which penalty was imposed were never given to the assessee nor was the assessee given an opportunity to cross-examine them. Shri Ranka argued that if the statement of Rao Bir Bikram Singh was excluded there would remain no basis even for addition in this case much less for imposition of penalty. Referring to para 3 of the assessment order Shri Ranka pointed out that the Assessing Officer had only mentioned what Bir Bikram Singh had said but he did not actually quote what he had stated. He submitted that the same language had been extracted and put in the penalty order. The Id. counsel referred to the decision in the case of CIT v. Sah Swaroop Narain [1980] 124 ITR 676 (Raj.) in which case the cash credit additions had been upheld up to the Tribunal stage yet the penalty had been cancelled by the Tribunal because the same evidence had to be examined in a different light and the decision of the Tribunal was upheld by the Hon'ble High Court.
6. The Id. counsel also advanced an alternate argument to the effect that since additions had been made under Section 68 of the IT Act, according to the language of that section that amount could be treated as income of the assessee for quantum purposes but not for imposition of penalty as held in the case of CITv. Bhurarnal Manikchand [1981] 130 ITR 129 (Cal.). He submitted that in any case where cash credits were involved, a simple confirmation from the party without producing that party or proving credit-worthiness of the party was sufficient to delete the penalty. For this proposition, the 1d. counsel relied on the decision in the case of CIT v. Goswami Smt. Chandralata Bahuji [1980] 125 ITR 700 (Raj.) so also decisions in the cases of CITv. Imperial Automobiles [1983] 141 ITR 60 (Mad.), CIT v. H. Abdul Bakshi & Bros. [1986] 160 ITR 94 (AP)(FB), CIT v. Triveni Sheet Glass Works Ltd. [1991] 190 ITR 38 (All.).
7. Another alternative argument which the Id. counsel advanced was that assessee's burden had been discharged as was required in a civil case, by preponderance of probability and it was necessary for the revenue to prove by positive evidence that assessee had committed the default of concealment of income for which it was liable for penalty under Section 271(l)(c). For this proposition, the Id. counsel referred to the decisions in the cases of Addl. CITv. Noor Mohd. & Co. [1974] 97 ITR 705 (Raj.), CIT v. Sankar-sons & Co. [1972] 85 ITR 627 (Ker.), D.V. Patel & Co. v. CIT [1975] 100 ITR 524 (Guj.) and CIT v. Gopal Vastra Jaya [1980] 122 ITR 527 (Pat.).
8. The Id. Departmental Representative, on the other hand, placed reliance on the decision in the case of Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510 (Punj. & Har.) where imposition of penalty on the basis of unproved cash credits had been upheld. For similar proposition, he also referred to the decisions in the cases of Kandaswami Pilled v. CIT [1977] 108 ITR612 (Mad.) and Vijoy Laxmi Stores v. CIT [1986] 159 ITR 333 (Cal.). Regarding the statement of Rao Bir Bikram Singh not being made available to the assessee, the Id. D/R claimed that it was not the duty of the ITO to collect evidence for the assessee as held in the case of CIT v. Westcoast Shipping Agencies (P.) Ltd. [1981] 127 ITR 442 (Ker.). He further argued that as per the decisions in the cases of Mriganka Mohan Sur v. CIT [1979] 120 ITR 529 (Cal.) and Vimal Chandra Golecha v. ITO [1982] 134 ITR 119 (Raj.), rules of evidence do not apply to income-tax proceedings. He heavily relied on the decisions of the Hon'ble Rajasthan High Court in the cases of CITv. Smt. Satnam Malik [1979] ITR 309 (Raj.) and CIT v. Chandi Prasad Khetan [1979] 120 ITR 314 (Raj.) where it had been held that the findings in the quantum order were good evidence for imposition of penalty under Section 271(1)(c). He summed up to the effect that the assessee had not produced any confirmation from the creditor; that the amount of Rs. 15,000 had been brought and given back in cash and not by cheques and that no independent evidence to prove the genuineness of the cash credits had been given were sufficient to impose penalty under Section 271(1)(c) in this case.
9. In his re-joinder, Shri Ranka claimed that although the evidence in the quantum case was good evidence but it could not be treated as the only or irrebuttable evidence. Further, so far as receipt and payments by cheques were concerned, at the relevant time, it was not required by law to receive or make payments by cheques only. Regarding independent evidence, Shri Ranka claimed that the evidence from the broker was independent evidence and in fact, that was the only evidence which was required by the ITO during the course of assessment proceedings. In addition to that, the assessee had produced its regular books of account so also the vouchers bearing the signatures of the creditor which proved the genuineness of the cash credits.
10. We have carefully considered the rival submissions and have taken into account the material on record. In our view, it is a case where the addition of Rs. 15,000 and the interest thereon was sustained on the footing that the assessee could not satisfactorily prove the genuineness of these credits and on that basis itself penalty under Section 271 (1)(c) has been imposed. We agree with Shri Ranka that by now it is a well accepted legal proposition that the assessment order and the evidence referred to therein may be a good piece of evidence yet that cannot be said to be a conclusive or irrebuttable evidence when it comes to deciding the question of imposition of penalty under Section 271(1)(c) on the basis of that evidence. For imposition of penalty under Section 271(1)(c) the burden of proving the concealment is on the Revenue. Thus, whereas for proving the genuineness of the cash credits, the burden of proving their genuineness was on the assessee, when the question of imposition of penalty under Section 271(l)(c) on the basis of same cash credits comes, it is for the revenue to prove, not merely by referring to the assessment order, but by adducing some more evidence that it was the concealed income of the assessee. Examined from this point of view, we find that in this case the ITO initiated the proceedings on the ground that Rao Bir Bikram Singh had stated that he was not giving genuine loans but was only giving Hawala entries. We don't find any material on record nor anything in the assessment order or in the appellate orders to show as to when and before which authority and in connection with which proceedings Rao Bir Bikram Singh made this statement. We do not find any evidence to show, nor even an affirmation by the ITO in his order to show that the statement was recorded by him in connection with the income-tax proceedings of assessee's case. Indeed, the very fact that the reassessment proceedings were initiated on the basis of the statement of Rao Bir Bikram Singh would show that the statement had been recorded before the fresh proceedings for assessment has started. In other words, this would show that the statement of Rao Bir Bikram Singh was not recorded in connection with the assessment proceedings of the assessee as per decision of the Hon'ble Rajasthan High Court in the case of Vimal Chandra Golecha (supra), assessee's assessment proceedings had not commenced when that statement might have been recorded. This would also mean that the statement might have been recorded in connection with proceedings of some other assessees during a time when bogus Hundi Hawala rackets were becoming notorious. If that were so as held in the case of Rawalpindi Flow Mills (P.) Ltd. (supra) the statement recorded by some other ITO could not be used against the assessee in the assessment proceedings, much less in penalty proceedings, because the assessee was not given an opportunity to cross-examine that person. Further, as per the decision in the same case if the assessee failed to prove the genuineness of the loans in assessment proceedings, the addition could be said to be justified but on that ground alone penalty under Section 271(1)(c) could not be imposed [Refer Rawalpindi Flour Mills (P.) Ltd.'s case (supra) at page 246]. In the instant case, it can further be gathered from the fact that the same Rao Bir Bikram Singh had stated in the case of M/s M.D. Jewellers of Jaipur that he had not given a genuine loan to that parry, although earlierne had given an Affidavit in confirmation of loan to M.D. Jewellers. In these circumstances, it is very likely that the revenue should have initiated proceedings in all those cases in which credits in the names of Rao Bir Bikram Singh might have been appearing or regarding which he might have said that he had given only Hawala entries and not genuine loans. Thus, it appears that it is a case in which the penalty has been imposed on the basis of statement given by a depositor in the proceedings connected with some other case and not with the case of the assessee. In any case, as already mentioned, there is no evidence before us that the statement of Rao Bir Bikram Singh was recorded in the proceedings of assessee's own case. This according to us is a serious flaw insofar as-the validity of imposition of penalty under Section 271(1)(c) in this case is concerned. To this may be added another important factor namely a flagrant violation of the principles of natural justice. It is a basic principle that no evidence can be used against a person unless the concerned person has been confronted with that evidence and has been given a reasonable opportunity to rebut it. When it comes to using a statement given by any witness, the principle extends to giving an opportunity to the affected person to cross-examine that witness. In the instant case, as we have already mentioned, it is not known when, before whom, in what connection and what exact statement Rao Bir Bikram Singh had given. It is obvious from record and the orders of lower authorities that the assessee was never given a copy of that statement. We have already mentioned in this order that the assessee had filed an application before the ITO as back as on 11-10-1991 requesting the Assessing Officer to supply him with a certified copy of the statement of Rao Bir Bikram Singh but it was not supplied to the assessee. Thereafter, the assessee had moved an application on 12-5-1993, a copy of which was endorsed to the Sr. D.R. (page61 of the paper book) in which the assessee had informed the ITO that the case was fixed for hearing before the Tribunal on 24-5-1993 and he should be given a certified copy of that statement and some other documents mentioned in application dated 11-10-1991. Although, the case was further adjourned from 24-5-1993 for more than a month yet till the date of hearing the assessee was not supplied with a copy of the statement of Rao Bir Bikram Singh nor has the revenue filed a copy of that statement before us. This, in effect, would mean that the penalty has been imposed on the basis of some evidence which, according to the revenue existed, but which so far as we are concerned, does not exist. This would further show that far from proving the allegation of concealment against the assessee with "something more" or with some "positive evidence", over and above the evidence relied upon while framing the assessment order, the revenue has not been able to prove even that evidence on the basis of which the re-assessment proceedings had been initiated much less complying with the principles of natural justice of having given the assessee an opportunity to cross-examine Rao Bir Bikram Singh as laid down by apex court in the case of Kishinchand Chellaram (supra). The Department ought to have confronted the assessee with the statement of the Rao Bir Bikram Singh and should have given the assessee an opportunity to cross-examine him. As for the argument of the Id. D/R that rules of evidence do not apply to income-tax proceedings, we may refer to the observations of their Lordships of the Supreme Court in the case of Kishinchand Chellaram (supra) where they have laid down that it was true that proceedings under the Income-tax Law were not governed by the strict rules of evidence, yet before Income-tax authorities could rely upon a document, they were bound to produce it before the assessee so that the assessee could controvert the statement contained in it by asking for an opportunity to cross-examine the person concerned with reference to the statement made by him.
11. In the case of Gargi Din Jwala Prasad (supra) additions had been made to the income of the assessee on the basis of statements of some other persons which they had proved with the books of their firm. However, in spite of requests of the assessee, the assessee was not given a copy of that statement nor was allowed to cross-examine those persons. The Hon'ble Allahabad High Court while deleting those additions observed on the basis of ruling in the case of Suraj Mall Mohta & Co. v. A. V. Visvanatha Sastri [1954] 26 ITR 1 (SC) that assessment proceedings before the ITO are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. The assessee has a right to inspect the record and all the relevant documents he is called upon to lead evidence in rebuttal. They further quoted from the decision of the Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 at page 783 to the following effect:
It is----surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question.
Their Lordships observed thereafter that from this it is apparent that the principles of natural justice are applicable to the assessment proceedings.
12. At this stage, we may deal with the case law cited by the Id. D/R and may mention that in the case of Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510 (Punj. & Har.) the creditor was produced and was examined and was proved to be false before the penalty was imposed. In the case of Kandaswami Pillai (supra) the creditor was examined in the quantum case and was again examined in the penalty proceedings and was proved to be false before the penalty was imposed. In the case of Vijoy Laxmi Stores (supra) before sustaining the penalty it was noted that the assessee (i) did not file confirmation letter from the creditor, (ii) that summons could not be served on the creditor, (iii) that the discharged Hundis and signatures of the creditor could not be verified, and (iv) assessee did nothing to prove the genuineness of the loans. In the case before us, as per the photostat copies of the order sheets of the Income-tax proceedings filed before us it is gathered that the ITO required the assessee to produce Shri Chiranji Lal Choudhary, Dalai on 29-8-1981. The order sheet-entry does not mention that the the assessee was either required to prove the genuineness of the cash credit in the name of Rao Bir Bikram Singh nor that he was required to produce or file confirmation from Rao Bir Bikram Singh. The case was then taken up for hearing on 24-9-1981 when the assessee did produce Shri Chiranji Lal. Dalai but the case was adjourned sine die. Thereafter again the proceedings were taken up in January 1985 and on 21-1-1985 the assessee was again required to produce Chiranji Lal Choudhary, Broker on 4-2-1985. Again on this date there is no mention that the assessee was required to produce either Rao Bir Bikram Singh or any confirmation from Rao Bir Bikram Singh. The assessee produced Chiranji Lal Choudhary and his statement was recorded by the ITO and again there is no mention that the assessee was required to produce Rao Bir Bikram Singh or file any confirmation from him regarding the genuineness of the cash credits. Thus, it would appear that since the assessee had shown the credits as having been brought in cash by Chiranji Lal Choudhary, although in the name of Rao Bir Bikram Singh, the ITO perhaps insisted on examining Chiranji Lal Choudhary whose affidavit dated 22-8-1982 was filed before the ITO and whose statement was recorded by the ITO on 20-2-1985 (pages 55-56 of the paper book) and who confirmed the transaction regarding the cash credits in the name of Rao Bir Bikram Singh. In this back-ground, it would not be correct on the part of the revenue to allege that the assessee had not proved the genuineness of the cash credit and that they were false when the assessee adduced the evidence in shape of an affidavit from Chiranji Lal Choudhary who had physically brought the cash to the assessee as evidenced by the account books of the assessee and who produced the discharged -stamped vouchers signed by Rao Bir Bikram Singh. In other words, the assessee adduced that evidence which the assessee thought would discharge its burden. If the Revenue thought that is was essential that a confirmation from Rao Bir Bikram Singh should have been produced or a confirmation letter from him should have been filed, it was for the revenue to ask the assessee to do that. In our view, there would be no justification in punishing the assessee for not adducing that evidence which according to the perception of the Revenue was essential but which the Revenue never asked the assessee to produce.
13. In this back-ground when we further look at the evidence on which the revenue has so heavily relied, we find that Rao Bir Bikram Singh is a person whose reliability and truthfulness has been examined in detail by the Tribunal in the case of M.D. Jewellers (supra) (pages 26 to 32 of the paper book) and after quoting extensively from the statement and cross-examination of Rao Bir Bikram Singh in that case, in which he had also stated that he had only given a Hawala for Rs. 20,000 to M/s M.D. Jewellers and not a genuine loan of Rs. 20,000 and he was confronted with copy of his bank account, certificate from the bank, his own singatures regarding discharging the Hundis, regarding issue of his cheques, the Tribunal had finally come to the conclusion that "it is plain that the party's subsequent statement is not reliable in the light of the overwhelming evidence, which directly pin-point (sic) that the amount was, in fact, advanced by him and later collected by him along with the interest thereon. The party has accepted that it was his bank account and he has shown it in his wealth-statement as well and therefore, his statement that the account was operated by a Dalai Shri Champalalji Chordia is clearly an unreliable statement" and thereafter the Tribunal deleted the addition of Rs. 20,000 and interest of Rs. 395 which was made in that case. In the instant case, we agree with Shri Ranka that for some technical reason the cash credit addition has been sustained till the Tribunal stage but again as already mentioned an addition made in an assessement order cannot lead to an automatic conclusion that penalty under Section 271 (1)(c) has also to be imposed with respect to that amount. In this background, we may refer to the decision of the Hon'ble Rajasthan High Court in the case of Shah Swaroop Narain (supra). In that case addition of cash credits to the tune of Rs. 17,000 had been upheld till the Tribunal stage. In fact, in that case the ITO had invoked the Explanation to Section 271 (1)(c) as it then existed for the assessment year 1972-73. Still the penalty under Section 271(1)(c) was cancelled by the Tribunal because the Tribunal held that the assessee had rebutted the presumption against it as assessee's explanation regarding the entry in question was supported by two witnesses, namely, the creditor and the Dalai through whom it was brought. The Tribunal had come to the conclusion that in the absence of positive evidence from the side of the Revenue that the amount of Rs. 17,000 was derived from an undisclosed source, no penalty could be imposed and this view of the Tribunal was upheld by the Hon'ble High Court. We may mention that in the cases of Smt. Satnam Malik (supra) and Chandi Prasad Khetan (supra) referred to by the Id. D/R the facts were that the Tribunal had given a finding of fact that the impugned amounts were income of the concerned assessees and when in spite of that finding, the Tribunal had cancelled the penalties imposed on those assessees, ignoring those findings the Hon'ble High Court had restored the penalties. In the instant case, we find that the addition had been sustained on the allegation that the assessee had not adduced evidence to prove the genu neness of the cash credits. There is no where any finding of the Tribunal to the effect that the impugned amount is the income of the assessee and hence in the instant case whereas the addition has been sustained for alleged failure of the assessee to prove the genuineness of the cash credits, penalty under Section 271(1)(c) cannot be sustained merely on that basis because as laid down in a large number of decisions of various High Courts including the jurisdictional High Court in the case of Goswami Smt. Chandralata Bahuji (supra), in order to justify the levy of penalty there had to be some material or circumstances leading to the reasonable conclusion that the amounts added represented the income of the assessee and that too the income of the respective year.
14. In view of what we have discussed above, we do not consider it necessary to deal with the argument of Shri Ranka regarding sustaining or not sustaining penalty under Section 271 (1)(c) on the basis of cash credit additions.
15. Similarly so far as the argument regarding applicability of Explanation to Section 271 (1)(c) is concerned, in our view, in the first instances, the ITO has not imposed the penalty on the ground that the returned income was less than 80% of the assessed income; the ITO has imposed the penalty merely because in his opinion cash credits had been added to the income of the assessee which he considered to be assessee's income from undisclosed sources. In this background, it may not be necessary for us to deal with the arguments of Shri Ranka advanced on this basis. It appears that these arguments have been given because the Id. DC (A) thought, perhaps erroneously, that the ITO had imposed the penalty by invoking the provisions of Explanation to Section 271(1)(c). However, even if the the Explanation to Section 271(1)(c) is taken into consideration, we agree with Shri Ranka that the assessee had discharged the burden cast upon it under that Explanation by showing that he had maintained regular books of account in which these entries were made in the regular course of business, by filing affidavit of Chiranjilal Choudhary, Dalal and producing him for cross-examination before the ITO, in both of which Shri Chiranjilal confirmed that he had brought Rs. 15,000 in cash from Rao Bir Bikram Singh and given to the assessee and by producing the discharged, signed and stamped vouchers from Rao Bir Bikram Singh regarding the cash credit and the interest paid thereon.
16. Taking all the facts and circumstances of the case in account the situation which emerges is that it is a case where penalty has been imposed on the basis of a statement of Rao Bir Bikram Singh, which statement was never made available to the assessee in spite of assessee's repeated requests and the assessee was never given an opportunity to cross-examine that party which shows that the principles of natural justice have been violated. For this lapse alone the penalty was liable to be cancelled. Secondly, the penalty has been imposed merely on the basis of alleged failure of the assessee to prove the genuineness of the cash credit. Since the Revenue has not brought any material on record by way of positive evidence to prove that this was assessee's own income nor could the Revenue prove with any positive evidence that the entries in the books of account of the assessee were false, the penalty cannot be sustained. Thirdly, the assessee has discharged the burden cast upon it to prove that these were genuine cash credits by filing evidence in the shape of affidavits from the Dalai who had brought the cash personally and by producing the Dalai for cross-examination on his affidavit and the discharged, signed and stamped vouchers from the creditor which the Revenue could not prove to be false. Hence the penalty cannot be sustained either under the main provisions of Section 271 (1)(c) of the IT Act nor under Explanation to Section 271(1)(c) as it existed at the relevant time.
17. The penalty under Section 271(1)(c) sustained by the DC (Appeals) is, therefore, cancelled. Appeal filed by the assessee is allowed.