Income Tax Appellate Tribunal - Ahmedabad
Rajendra M.Shah, Kalol vs Assessee on 11 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH - AHMEDABAD
(BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARODIA, AM)
ITA No.1333/Ahd/2008 and 390/Ahd/2009
A. Y.: 2005-06
Shri Rajendra M. Shah, Vs The Income Tax Officer,
Prop. Shree Valram Steel Ward - 3, Aatajar Bhavan,
Traders, 3, Melamine Mehsana
Compound, Mahendra Mill
Road, Kalol
PA No. ASEDPS 4848M
(Appellant) (Respondent)
Assessee by Shri Tushar Hemani, AR
Respondent by Shri B. L. Yadav, Sr. DR
Date of hearing: 11-01-2012
Date of pronouncement: 25-01-2012
ORDER
PER BHAVNESH SAINI: This order shall dispose of both the appeals filed by the same assessee.
2. We have heard the learned representatives of both the parties and perused the findings of the authorities below.
ITA No.1333/Ahd/2008 and 390/Ahd/2009 2Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana ITA No.1333/Ahd/2008
3. This appeal by the assessee is directed against the order of the learned CIT(A), Gandhinagar dated 28-01-2008 for assessment year 2005-06.
4. On grounds No.1 and 2, the assessee challenged the addition of Rs.19,25,400/- u/s 68 of the IT Act on account of unexplained cash credits.
5. On the above addition of Rs.19,25,400/-, there appears three different categories of additions i.e. addition of Rs.13,85,550/-, addition of Rs.4,46,850/- and addition of Rs.93,000/-. It is noted in the impugned order that the assessee had during the year under consideration showed fresh unsecured loan in cash from 131 persons totaling to Rs.24,47,900/-. All these loans were interest free and were below Rs.20,000/-. On the basis of addresses provided by the assessee, the AO sent inquiry notice u/s 133 (6) of the IT Act to all these persons. Except for 13 notices, rest of the notices came back un-served either via the postal authorities or the Departmental Notice Server. The AO confronted the assessee by making four categories as follows:
a) Notices sent by RPAD and returned by postal authorities un-served - amount involved Rs.13,43,300/-
b) Notices returned un-served by the Notice Server with remarks "No such addressee available on given address"
amount involved Rs.9,02,000/-ITA No.1333/Ahd/2008 and 390/Ahd/2009 3
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana
c) Notices served but no reply received - amount involved.
Rs.2,22,300/-
d) Notices served and confirmation - received amount involved Rs.17,000/-
In response, the assessee submitted as under:
"i) The names and addresses were given as per their record in 2004-05 and the inquiries have been carried out after two years. Some of t he depositors may have shifted their residence or left the city and hence the persons could not be found.
ii) The depositors are uneducated labourers, farmers, etc. and the money have been deposited with the appellant for safe keeping with the expectation that whenever the money required the same shall be refunded back.
iii) The refusal notices may be due to some of the depositors not being at home and the family members having refused to accept the notice.
iv) The deposit being less than Rs.20,000/-, which is not a huge some, the appellant is not required to prove the creditworthiness of the depositors."
The assessee also provided a fresh bifurcation of the depositors where - for Annexure- A, a list of 74 names were provided, with the remarks that "we will provide identification and other evidence later on". The amount involved was Rs.13,85,550/-. For Annexure -B, a ITA No.1333/Ahd/2008 and 390/Ahd/2009 4 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana list of 51 names were provided with the claim that "identification proof is being given." For Annexure -C, a list of 6 names were provided telling the AO about new addresses. The AO in turn completed the assessment by treating the entire sum of Rs.13,85,550/- as per parties falling in Annexure-A as unexplained in the absence of any satisfactory reply from the assessee in spite of giving sufficient time. Regarding the identification proof given for the parties appearing in Annexure-B, the AO pointed out party-wise, the difference between original identification given and the present identification given to hold that most of these cases the assessee have brought in the identification of "look like" to support his version. The AO pointed out the difference between the names and adverse as given in the original list and as per the Annexure-B. The AO accepted only a part of these identification and added back a sum of Rs.4,46,850/-. Out of the list of Annexure-C except for one case, the AO did not accept the rest of the cases as genuine deposit because as per him the assessee could not produce any supporting evidence to establish the identity, creditworthiness and genuineness of the creditors and made the addition of Rs.93,000/-.
6. Before the learned CIT(A), the assessee reiterated the same submission as was made before the AO and submitted that the AO was requested to allow further time to prove genuineness and identification of the depositors, which was not granted by the AO to the assessee. It was submitted that the Accountant has given the name and address of the depositors without verification from the receipt in which the depositors has corrected its name at the time of ITA No.1333/Ahd/2008 and 390/Ahd/2009 5 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana giving the deposit. The Accountant has not corrected the same in the books of accounts and also at the time of giving the information to the AO. It was also submitted that it was due to this that the AO has faced problem of returned RPAD. Some of the copies of the receipts with the changed names were produced. It was further submitted that this evidence is being submitted in appeal because of lack of time given by the AO for finding the depositors who were residing at other places. The assessee also submitted that the assessee had turnover of around Rs.1.3 Crores in the year 2004-05 and his trading is in scrap only. The margin of net profit of all scrap traders is around 0.5% to 1% of the total turnover and that the assessee has shown 0.96% as his net profit which indicates the genuineness of the unsecured loans taken by the assessee. The only issue is it is unable to provide the evidence of some of the parties of the depositors.
7. The learned CIT(A) considering the explanation of the assessee and material on record confirmed the addition. His findings in Para 3.3 to Para 4 are reproduced as under:
"3.3 The matter has been given due consideration. As far as the Authorised Representative's submission that the appellant was not given sufficient time to collect information about the depositors is concerned, both factually and conceptually, the arguments do not appear to be very convincing. The appellant has borrowed money from 131 persons and is not in a business of money lending. Therefore, in such situation, it is normally to be expected that the appellant would keep details of personas from whom he has taken the money for ready reference. I cannot imagine the situation where persons come and deposit money with the appellant and the later has no clue about their existence. Notwithstanding that ITA No.1333/Ahd/2008 and 390/Ahd/2009 6 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana the first notice u/s. 142(1) has been issued on 3/11/2006. The specific notice in the context of the proposed addition has been issued on 16/3/2007. The assessment order has been framed on 4/5/2007. Therefore, the appellant has been given reasonable time at various stages to explain his position and collect the information. Regarding the so called "new" evidence produced before me, I do not think it is an evidence at all to be admitted. What has been produced before me are the copies of the deposit slips issued in the name of various persons, in which details like name and addresses have been overwritten. I fail to apprehend how it is a new evidence and if the appellant has been in the possession of these documents, why this was not produced before the Assessing Officer. The argument that the Accountant of the appellant gage name and addresses from the books of accounts, whereas necessary changes had taken place in the deposit slips also seems to be full of contradiction. As per the normal accounting practice, first, documents is to be prepared is the deposit slip and the ledgerisation take place at the end. The assessee seems to be conveying the reverse, which obviously is unacceptable. Therefore, considering all the aspects of this issue, I refuse to admit the deposit slips as evidences in the case and therefore no further action is needed as far as these are concerned.
3.3.1 Coming to the findings given by the Assessing Officer, I think, he has taken a very judicious approach. Wherever the assessee has been able to prove the identity of the depositor and the depositor has confirmed the factum of loans, he has accepted the same. As stated earlier, the Assessing Officer has already accepted about Rs.5.22 lacs of loans for the parties for whom the details could be filed. However, where the deposit is not identifiable either in terms of non-availability of address non confirmation of proper name the appellant can not get the benefit of doubt. As is well established, the onus of proving the genuineness of cash credits in terms of identification, capacity and genuineness of transaction with the lender is on the assessee only. In the facts and circumstances, the appellant has obviously not discharged the said onus.ITA No.1333/Ahd/2008 and 390/Ahd/2009 7
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana 3.3.2 Therefore, in the facts and circumstances, the addition made by the Assessing Officer u/s. 68 appears to be appropriate and justified and the appeal is dismissed.
4. In the result, the appeal is dismissed."
8. The learned Counsel for the assessee filed brief submission containing the comments of the assessee which have already been taken into consideration by the learned CIT(A). The learned Counsel for the assessee merely relied upon the submissions already made before the authorities below. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the assessee failed to prove the identity, creditworthiness and genuineness of the transactions in the matter.
9. We have considered the rival submissions and perused the findings of the authorities below. Since the assessee claimed genuine credits in the matter, therefore, burden is upon the assessee to prove identity of the creditors, their creditworthiness and genuineness in the transaction in the matter. However, the facts noted above clearly prove that the assessee did not discharge the burden upon him to prove all the above three ingredients of proving genuineness of the credits in the matter. The Hon'ble Calcutta High Court in the case of Bharati Pvt. Ltd. Vs CIT, 111 ITR 951 held as under:
"In the course of assessment proceedings, the Income-tax Officer found that the assessee had shown Rs.20,000 as loan in its books taken from two parties. The assessee produced the alleged confirmatory letters from those parties before the Income-tax Officer in support of the two loans. The ITA No.1333/Ahd/2008 and 390/Ahd/2009 8 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana Income-tax Officer served notices under section 131 of the Income -tax Act, 1961, on the alleged creditors and since those notices came back unserved, the Income-tax Officer treated the loan as assessee's income from undisclosed sources. The Appellate Assistant Commissioner dismissed the assessee's appeal on the ground that the assessee could not even establish the identity of the parties. On further appeal by the assessee, the Appellate Tribunal held that mere filing of confirmatory letters did not discharge the onus that lay on the assessee and there was no material on the record to establish the identity of the creditors:
Held, that the Tribunal had taken all the relevant facts into consideration and the conclusion arrived at by the Tribunal that the loans represented the assessee's income from undisclosed sources was not perverse or unreasonable."
9.1 The Hon'ble Calcutta High Court in the case of CIT Vs United Commercial and Industrial Co. (P) Ltd., 187 ITR 596 held as under:
"The primary onus lies on the assessee to prove the nature and source of credits in its account. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts does the onus shift on to the Department. It is not enough to establish the identity of the creditors. Mere production of the confirmation letters before the Income-tax Officer would not by itself prove that the loans have been obtained from those loan creditors or that they have credit-worthiness.ITA No.1333/Ahd/2008 and 390/Ahd/2009 9
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana Held, that, in the instant case, the Tribunal misdirected itself in holding that the transactions were genuine simply because some of the transactions were made by cheques. The assessee had failed to prove the credit-worthiness of the alleged lenders. A number of other assessees had also admitted that loans obtained from these bankers against hundis were not genuine and such hundi loans really represented their own concealed income. The assessee had not discharged its burden of proving that the loans in question were genuine."
9.2 The Hon'ble Calcutta High Court in the case of M/s. Precision Finance Pvt. Ltd., 208 ITR 465 held that "even the loan through bank cannot be accepted as genuine unless the identity and creditworthiness of the creditors are proved. Mere payment of account payee cheque is not sacrosanct nor can it make a non- genuine transaction genuine."
9.3 The Hon'ble Supreme Court in the case of Durga Prasad More, 82 ITR 540 and Sumati Dayal, 214 ITR 801 held that "the Courts and Tribunal have to judge the evidences before them by applying the test of human probabilities after considering the surrounding circumstances."
10. Considering the facts of the case noted above, it is clearly proved on record that the assessee could prove only identification of some of the creditors but for the remaining even the identity is not proved. The assessee has not proved the creditworthiness of any of the creditors as well as did not prove genuineness of the transaction in the matter. Huge deposits have been received in cash for which no ITA No.1333/Ahd/2008 and 390/Ahd/2009 10 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana satisfactory explanation has been given. The AO gave sufficient opportunity to prove the genuineness of the credits in the matter but the assessee failed to prove the same. The learned Counsel for the assessee during the course of argument could not point out any infirmity in the order of the learned CIT(A). Accordingly, we confirm the order of the learned CIT(A) and dismiss the appeal of the assessee. In the result, appeal of the assessee on Grounds No.1 and 2 is dismissed.
11. On ground No.3, the assessee challenged levy of interest u/s 234B, 234C and 234D of the IT Act which is consequential and mandatory and no arguments have been made on the same. Ground No.4 is regarding initiation of penalty proceedings u/s 271 (1) (c) of the IT Act which is separate proceedings and is pre-matured. These grounds of appeal are accordingly dismissed.
12. In the result, the appeal of the assessee is dismissed.
ITA No.390/Ahd/200913. This appeal by the assessee is directed against the order of the learned CIT(A), Gandhinagar dated 28-11-2008 for assessment year 2005-06, challenging levy of penalty on account of confirming the unaccounted cash credit in the matter.
14. The learned Counsel for the assessee argued documentary evidences were filed to prove the genuine credits but the same could not be produced to the satisfaction of the AO. Therefore, it would not be ITA No.1333/Ahd/2008 and 390/Ahd/2009 11 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana sufficient to hold that the assessee concealed particulars of income or filed inaccurate particulars of income. He has submitted that the issue is covered by the order of ITAT Ahmedabad "D" Bench in the case of Mohd. Soeb Haji Moosa Tumbi in ITA No.2747/Ahd/2010 in which the Tribunal vide order dated 12-08-2011 cancelled the penalty. On the other hand the learned DR relied upon the orders of the authorities below.
15. On consideration of the facts of the case, we are of the view penalty is not leviable in the matter. Similar issue is considered in the case of Mohd. Soeb Haji Moosa Tumbi (supra) in which in Para 8 to Para 11 the Tribunal held as under:
"8. We have considered the rival submissions. The facts noted above are not disputed. It is settled law that penalty proceedings are independent and separate proceedings. Before proceeding further, we may note the relevant finding of the Tribunal on the quantum order dated 09-01-2009 while deciding the appeal of the assessee in ITA No.3449/Ahd/2007 (PB-30 and 31) as under:
"This is an admitted fact in the case of the assessee that 10 donors have appeared before the AO and confirmed that they have made the gifts to the assessee. They have filed their IT returns also. Copies of their capital accounts and the copies of acknowledgement of IT returns were also filed. In the capital accounts the gifts given to the assessee have duly been shown. But when we asked for the PAN, PAN was filed only in respect of 9 persons out of 10 persons. Five donors did not appear on the ground that they were the Pardanashin ladies.ITA No.1333/Ahd/2008 and 390/Ahd/2009 12
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana Even no confirmations on their behalf have been filed.
In our opinion, once the donors are the income- tax assessees and the gifts given by the donors have duly been shown by them in their respective capital accounts, the AO should have taken action against the donors while making their assessments. A specific query was raised from the learned Departmental Representative but no action seems to have been taken in the cases of the donors. This is also a fact on record that the assessee has not commenced the business. The restaurant was under construction only. The assessee therefore, could have not earned this much income from the business. The onus is on the assessee to prove the course of the amounts received by him. The assessee has produced some of the donors out of which nine are having PANs. Therefore, to the extent the five parties have not confirmed which are appearing at serial Nos. 11 to 15 amounting to Rs.5,50,000, Rs.5,75,000, Rs.5,75,000, Rs.4,50,000 and Rs.4,75,000 totaling to Rs.26,25,000, there is no evidence on record about the confirmations from the donor side that they have gifted the money to the assessee. We, therefore, confirm the addition to the extent of Rs.26,25,000.
Now coming to the gift received from Faruk Mohmad H. Ghaniwala amounting to Rs.5,00,000, since the assessee could not place on record his PAN, therefore, we also treat this gift to be non-genuine and the addition in that regard is also confirmed.
In respect of the gifts received by the assessee which relate to the nine parties who appeared and confirmed hat they have gifted the amounts ITA No.1333/Ahd/2008 and 390/Ahd/2009 13 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana to the assessee, we are of the view that the assessee has discharged the onus and in our opinion the AO was bound to take action in their respective cases. We, therefore, delete the additions in view of the case laws as discussed above as in our opinion on the basis of these case laws the assessee has duly discharged his onus and the assessee is not supposed to prove the source of sources. Therefore, we delete the additions with the direction that the AO should taken action in the cases of those parties in respective assessment years for examining the source of the gifts made by those parties to the assessee under the applicable provisions of the IT Act. Thus, this ground stands partly allowed."
9. In the finding of fact noted above, the Tribunal noted that 10 donors have appeared before the AO and have confirmed giving of gifts to the assessee. They have filed their IT returns also and filed copies of their capital accounts and copies of the acknowledgement of returns to show that gifts have been given to the assessee. Five donors could not be produced being pardanashin ladies. In the opinion of the Tribunal, once the donors are income tax assessee and gifts given by the donors have been duly shown by them in their respective capital accounts, the AO should have taken action against the donors while making their assessments. But no action has been taken against the donors. The restaurant was under
construction only. Therefore, it was held that the assessee could not have earned this much income from the business. Addition in the case of donor Farooq Moh. H. Ghaniwala was confirmed because no P. A. Number was placed on record. The Tribunal in the order also noted that once the persons appeared before the AO and statements have been recorded u/s 131 of the IT Act and they are income tax assessees, the identity is duly proved. It is therefore clear that in the case of donor Farook Moh. H. Ghaniwala, he has appeared before the AO and his statement u/s 131 of the IT Act was recorded.ITA No.1333/Ahd/2008 and 390/Ahd/2009 14
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana He was assessed to tax. May be in quantum proceedings addition is made but penalty is not leviable in his case on the face of the findings of fact recorded by the Tribunal that identity of such donor is proved who has also confirmed giving of gifts to the assessee. The decision of the Hon'ble Gujarat High Court in the case of Murlidhar Lahorimal Vs CIT, 280ITR 512 would apply in the case of the assessee in which it was held as under:
"Held, that the Tribunal failed to note the fact that the identity of the donor was established, the donor having appeared in person before the Assessing Officer, the genuineness of the transaction was established, not only by the receipt of the bank draft, but also by the fact of the transaction having borne gift tax once the assessment was framed. The primary onus which rested with the assessee, thus, stood discharged. Thereafter, if the Revenue was not satisfied with the source of the funds in the hands of the donor, it was up to the Revenue to take appropriate action. The Tribunal considered the motivation for making the gift which was not relevant. The addition of Rs.50,000 was not justified."
10. The assessee further explained that 5 lady donors were pardanashin ladies; therefore, they could not be produced before the AO for examination. Since pardanashin ladies would not expose to public, therefore, explanation of the assessee was correct that these ladies could not be produced before the AO for examination. The explanation of the assessee was bona fide and relevant being this practice commonly followed in Muslim Community. It is also a fact that all these lady donors were assessed to income tax. The assessee filed all relevant documents to explain the gifts. The explanation of the assessee was bona fide and it is not a case where the assessee failed to offer any explanation to the penalty matter. The AO made the addition in case of one of the ITA No.1333/Ahd/2008 and 390/Ahd/2009 15 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana donor having no P. A. Number and in other cases addition was confirmed because no confirmation was filed despite they have filed their P. A. Number. Thus, the assessee filed adequate explanation before the AO who has given contradictory finding with regard to availability of P. A. Number in one case. No material is brought on record to show that gifts in question were bogus or false. The assessee made all efforts to prove all the gifts by producing the substantial donors before the AO but some of them could not be produced being the donors pardanashin ladies. The explanation of the assessee is thus bona fide and is substantiated by documentary evidence on record. The explanation of the assessee was not found to be disproved.
10.1 The Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd., 322 ITR 158 held as under:
"A glance at the provisions of section 271(1) (c) of the Income-tax Act, 1961, suggest that in order to be covered by it, there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1) (c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When ITA No.1333/Ahd/2008 and 390/Ahd/2009 16 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1) ( c ). A mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Decision of the Gujarat High Court affirmed."
10.2 The Hon'ble Supreme Court in the case of M/s. Rajasthan Spinning & Weaving Mills 2009 - TIOL - 63 - SC held that "on every demand penalty is not automatic".
10.3 The Hon'ble Delhi High Court in the case of CIT Vs A. D. Kohli, 173 ITR 223 held as under:
"Held, dismissing the appeal, that, in the instant case there were two sets of evidence, one produced by the assessee in the form of a pass book and another copy of the bank ledger. The pass book normally reflects whatever is in the ledger, but, in respect of two entries there was an error committed by the bank officials and the same had been relied upon by the assessee and the assessee had given an explanation and paid the tax. The explanation having been accepted the cancellation of penalty was valid. No substantial question of law arose from the order."ITA No.1333/Ahd/2008 and 390/Ahd/2009 17
Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana 10.4 The Hon'ble Gujarat High Court in the case of CIT Vs Jalaram Oil Mills, 253 ITR 192 held as under:
"Held accordingly, that, in the present case, on the basis of the assessee agreeing to have credit entries in its books of account treated as its income by virtue of the provisions of section 68 of the Act, the said sums would be deemed to be income of the year under consideration. However, de hors the said provision, it was not possible to state with certainty that the said sums would be "concealed income" of the assessee for the year under consideration. The Tribunal had recorded a finding of fact to the effect that there was no past history of the assessee to show that the assessee had been earning business income outside the books, nor was there in the books relating to the year under consideration any instance pointed out indicating any transaction outside the books. The Tribunal was justified in holding that the penalty of Rs.30,000 imposed by the Inspecting Assistant Commissioner under section 271 (1) (
c) could not be sustained."
10.5 The Hon'ble Gujarat High Court in the case of National Textiles Vs CIT, 249 ITR 125 held as under:
"Held, that, in the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed nor were there any supporting documents on record. The accountant, who had arranged the loans was not produced and it was stated that he had left the service as relations with him were strained. In this 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 ITA No.1333/Ahd/2008 and 390/Ahd/2009 18 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana on that basis by recourse to Explanation 1, penalty under section 271 (1) (c) could not have been imposed without the Department making any other effort to come to the conclusion that the cash credits could in no circumstances have been amounts received as temporary loans from various parties. Admittedly, the assessee in the quantum proceedings failed to produce the accountant but the Department also in penalty proceedings made no effort to summon him. Therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the explanation that cash credits were arranged as temporary loans was false. The facts and circumstances were equally consistent with the hypothesis that they could have been sundry loans in small amounts obtained from different parties. Therefore, the imposition of penalty was not justified."
10.6 The Hon'ble Karnataka High Court in the case of CIT Vs M. M. Gujamgadi, 290 ITR 168 held as under:
"A reading of sections 271and 271 (1) ( c ) of the Income-tax Act, 1961, and the Explanation appended thereto manifestly makes it clear that every addition of income by the Income-tax Officer will not automatically attract levy of penalty. It is clear from Explanation 1 (B) to section 271 (1) ( c ) of the Act that while computing the total income of an assessee, if the assessee, fails to prove that such explanation is bona fide then there will be a deemed concealment by the assessee.
The assessee filed his return of income for the assessment year 1993-94 disclosing an income of Rs.97,920. The return of income was taken up for scrutiny assessment. The Income- tax Officer found from the books of account of ITA No.1333/Ahd/2008 and 390/Ahd/2009 19 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana the assessee a sum of Rs.2,01,000 and a notice was issued to the assessee to explain the same. The assessee stated that he had borrowed the same from different creditors who are all agriculturists. When the assessee was asked to substantiate this claim, the assessee made attempts to secure those creditors to be examined before the Income-tax Officer. Despite the best efforts of the assessee, he could not secure the creditors as witnesses to substantiate his claim before the Income-tax Officer. Having no other alternative, the assessee voluntarily agreed for addition of Rs.2,01,000 to his income as cash credit. Penalty was imposed under section 271 (1) ( c) but it was canceled by the Tribunal. On a reference"
Held, that it could not be said that the explanation of the assessee for non-inclusion of an income of Rs.2,01,000 in his return of income was not bona fide. The explanation offered by the assessee was available on record. Bona fide failure on the part of the assessee in not substantiating his claim was also available on record. The Income-tax Officer, while passing the order of penalty under section 271 (1) ( c ) of the Act, had not considered the available explanation of the assessee and whether the explanation so offered was bona fide or not. The cancellation of penalty was justified."
10.7 The Hon'ble Delhi High Court in the case of CIT Vs Span Holdings Ltd., 294 ITR 83 held as under:
"Depreciation in respect of the sale and lease back of the bio gas plant in the assessment year 1993-94 was allowed.
Subsequently, in the reassessment proceedings after a gap of five years the assessee was ITA No.1333/Ahd/2008 and 390/Ahd/2009 20 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana required to produce the managing director of the lessee company which the assessee could not do for reasons beyond the control. The Assessing Officer disallowed the depreciation. The assessee appealed to the Commissioner of Income-tax (Appeals). Meanwhile, the Assessing Officer also initiated penalty proceedings under section 271 (1) (c) of the Income-tax Act, 1961, imposed a penalty on the assessee. The Commissioner of Income-tax (Appeals) set aside the penalty proceedings. This was confirmed by the Tribunal. On appeal:
Held, dismissing the appeal, that the Tribunal had considered the findings arrived at by the Commissioner. The Tribunal had also taken into consideration the fact that more than five years had gone by between the original assessment and the reassessment proceedings and it was under these circumstances that the assessee was unable to produce the managing director of the lessee company. The Tribunal also noted that the Assessing Officer had merely stated after referring to the assessee's submission that the entire depreciation was disallowed. There was no material or evidence to show that the transaction of sale and lease back was not genuine or was bogus nor was any material brought on record in the course of the reassessment proceedings. In the absence of any material having been produced by the Revenue to show that transaction of sale and lease back was not genuine or was bogus, there was no reason to interfere with the concurrent findings arrived at both by the Commissioner as well as by the Tribunal. No substantial question of law arose for determination."
10.8 The facts noted above, clearly prove that even the Tribunal on quantum noted that despite the above ITA No.1333/Ahd/2008 and 390/Ahd/2009 21 Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana additions on account of gifts, the assessee could not have earned undisclosed business income being the business yet to commence in the assessment year under appeal. Thus, no definite or concrete material has been brought on record by the AO to prove that the assessee concealed the particulars of income or filed inaccurate particulars of income. It is settled law that quantum and penalty proceedings are all together different and distinct proceedings, therefore, the facts and circumstances noted above would clearly reveal that the assessee made bona fide explanation explaining the above gifts and the explanation of the assessee was substantiated through evidence and materials on record. The explanation of the assessee was not found to be false or bogus. Levy of the penalty is discretion of the AO based upon particular facts. In the facts and circumstance of this case, there may not be concealment of particulars of income or furnishing of inaccurate particulars of income for levy of penalty. Therefore, the discretion vested on the AO should have been exercised in favour of the assessee.
11. Considering the above discussions, we are of the view that no case of levy of penalty is made out in the facts and circumstances of the case. We accordingly, set aside the orders of the authorities below and cancel the penalty."
16. Considering the facts and circumstances noted above in the light of the order of the Tribunal above, we set aside the orders of the authorities below and cancel the penalty.
17. In the result, the appeal of the assessee is allowed.
ITA No.1333/Ahd/2008 and 390/Ahd/2009 22Shri Rajendra M. Shah Vs ITO, Ward-3, Mehsana
18. In the result, the appeal of the assessee in ITA No.1333/Ahd/2008 is dismissed and the appeal of the assessee in ITA No.390/Ahd/2008 is allowed. Order pronounced in the open Court.
Sd/- Sd/-
(A. K. GARODIA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Deka/--
Lakshmikant Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad