Income Tax Appellate Tribunal - Delhi
Trimurti Engineering Works, ... vs Assessee on 15 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H' DELHI
BEFORE SHRI U.B.S. BEDI AND SHRI K.G. BANSAL
ITA No. 3889(Del)/2011
Assessment year: 2005-06
Trimurti Engineering Works, Income-tax Officer,
A-10, Industrial Estate, Vs. Ward 2(1), Muzaffarnagar.
Meerut Road, Muzaffarnagar.
PAN: AAAFT 9726B
(Appellant) (Respondent)
Appellant by : Shri V.K. Tulsian, C.A.
Respondent by: Shri C.B. Singh, Sr. DR
Date of hearing : 15.03.2012
Date of pronouncement: 04 .04.2012
ORDER
PER K.G. BANSAL : AM The facts of the case taken from assessment order dated 26.12.2007 passed u/s 143(3) of the Income-tax Act, 1961, are that the return was filed on 31.10.2005 declaring loss of Rs. 1,85,499/-. The assessee derives income from manufacturing of M.S.Ingots, job work, and commission. In the assessment the AO made two additions u/s 68, which are material for the purpose of our discussion. On examination of cash book, it was found that there was negative cash balance, which was 2 ITA No. 3889(Del)/2011 sought to be explained by filing cash flow statement in the case of the assessee and its partners. The AO did not accept the explanation and added a sum of Rs. 8,79,204/- on this ground. Further, it was seen that the assessee showed receipts aggregating to Rs. 16.25 lakh as advance for executing job work. No job work was done. The amount was returned on different dates. The amount was not entered in the ledger. After hearing the assessee it was concluded that the amount represents income of the assessee from undisclosed sources. Penalty proceedings were also initiated u/s 271(1)(c) and the assessee was informed that provision contained in Explanation 1 of the aforesaid section is applicable.
1.1 The additions were agitated in appeal before the CIT(Appeals), Muzaffarnagar. After detailed analysis of the evidence and submission, it is mentioned that the peak of negative cash on 19.10.2004 is Rs. 18,48,039/-. On the basis of this finding it has been concluded that cash introduced in the books by way of advances amounting to Rs. 16.25 lakh was only one component of unaccounted cash available with the assessee. However, such cash was at least Rs. 18,48,039/-. In view thereof, he deleted the addition of Rs. 8,79,204/- and replaced the 3 ITA No. 3889(Del)/2011 addition of Rs. 16.25 lakh with Rs. 18,48,039/-. At this stage, it may also be mentioned that the assessee raised an additional ground regarding deduction of excise duty of Rs. 21,02,144/- on the basis of the order of Settlement Commission, Customs and Central Excise, New Delhi, passed on 14.07.2004. This claim was allowed u/s 43B after hearing the AO.
1.2 Dissatisfied with this order, cross appeals were filed by the assessee and the AO. The Tribunal confirmed the findings of the ld. CIT(Appeals) in the aforesaid two matters, combined into one by the ld. CIT(Appeals), by making the following observations:-
"5. We have considered the rival submissions. A perusal of the order of Ld. CIT(A) more specifically at page 8 Para 8.3 clearly shows that the ld. CIT(A) has considered the fact that once an addition of Rs. 16.25 lacs on peak basis has been made, a separate addition of Rs. 8,79,204/- on account of negative peak balance cannot be made. In fact, the peak negative balance of Rs. 8,79,204/- would have to be telescoped into the peak addition of Rs. 16.25 lacs. It is further noticed that a perusal of the Annexures A & B to the assessment order show that the unaccounted cash introduced in the books of account was only to cover the negative cash balances as arising from time to time. But as the genuineness of the claim of cash introduced of Rs. 16.25 lacs is in dispute and the same has not been substantiated by production of details of job work advances received, the cash book would have to be reworked by excluding the same. It is noticed that the Ld. 4 ITA No. 3889(Del)/2011 CIT(A) has done exactly this to arrive at the peak negative cash balance of Rs. 18,48,035/- on 19.10.2004. In these circumstances, as the negative peak cash balance as on 19.10.2004 is higher than the alleged cash introduced of Rs.16.25 lacs, the higher the same has been rightly brought to tax by the ld. CIT(A). In these circumstances, we do not find any error in the finding of Ld. CIT(A) on this issue. In these circumstances, the findings of Ld. CIT(A) on this issue stand confirmed."
1.3 As mentioned earlier, penalty proceedings were initiated u/s 271(1)(c) in the course of original assessment order. These proceedings were concluded on 30.03.2010 by levying minimum penalty of Rs. 6,76,300/-. It has inter-alia mentioned that the assessee firm has introduced unaccounted cash in the books to cover negative cash balance by explaining it as advance for job work. However, the assessee failed to adduce any evidence regarding receipt of such advance or the job work actually done. The assessee had also been having negative cash balance of Rs. 8,79,204/- on 29.03.2005 for which there is no satisfactory explanation. He took into account the fact that total addition now stands at Rs. 18,48,039/-, and assessed income at Rs.16,62,540/- against returned loss of Rs. 1,85,499/-. In view of the provision contained in Explanation 4 to the aforesaid section, the base for levy of penalty was taken at Rs. 18,48,039/- and penalty of Rs. 6,76,300/- was levied. 5 ITA No. 3889(Del)/2011 1.4 Aggrieved by this order, appeal was filed before the CIT(Appeals), Muzaffarnagar, who disposed if off on 10.05.2011. Relying on the decision in the case of Union of India Vs. Dharmendra Textile Processors, (2008) 306 ITR 277 (SC), it has been held that the liability involves an element of strict liability, it is a civil liability, it is to provide remedy for loss of revenue and mens rea is not an essential ingredient for the levy. In regard to the facts, it has been mentioned that the burden is on the assessee to prove that particulars of income furnished by it were not inaccurate. Such explanation should be bona fide. Although in the quantum proceedings, two amounts were clubbed and addition of Rs. 18,48,039/- was sustained, both the additions are of the same nature. This amount represents unaccounted income and, therefore, it can be said that inaccurate particulars of income were furnished in respect thereof. Accordingly, the appeal has been dismissed.
1.5 Aggrieved by this order, the assessee has moved an appeal before us. It has taken eight grounds which are reproduced below:-
1. "Whether the ld. CIT(A) was justified by confirming the penalty order under section 271(1)(c) clause (a) of Explanation 4 when there was no notice thereof.6 ITA No. 3889(Del)/2011
2. Whether the ld. CIT(A) was justified by confirming the penalty order, specifically when no satisfaction recorded at the time of making additions in the assessment order for invoking section 271(1)(c) and was based only on general observation.
3. Whether the ld. CIT(A) was justified admittedly that non-issue of notice u/s 271(1)(c) by specifying the nature of default is just a clerical mistake which can be cured under the garb of section 292B.
4. Whether the ld. CIT(A) was justified by not admitting the submission of the assessee filed before A.O. dated 30.10.2009 even without verification from the record.
5. Whether the ld. CIT(A) was justified by not quashing the time barred penalty order which based on notice dated 26.12.2007 fixed for 23.01.2008 when the penalty order passed on 30.03.2010.
6. Whether the ld. CIT(A) was justified by confirming the penalty order without considering the submission/argument advanced by the appellant in the right prospective.
7. Whether the ld. CIT(A) was justified by confirming the penalty order which is solely based on quantum orders instead of independently finding to establish the intentional default on the part of the appellant.
8. Whether the ld. CIT(A) was justified by confirming the penalty order which was based on quantum order where addition was made because of rejection of explanation which was treated equivalent to rejection of books of account for the purpose of penalty."
2. Before us, the ld. counsel submits that the addition was made on two counts, the shortage of cash and advances received in respect of job work. The advances so taken were returned by the assessee. The additions were made by rejecting the explanation furnished by it. As against invocation of Explanation-1, penalty was levied under 7 ITA No. 3889(Del)/2011 Explanation 4 for which notice was not given. As a matter of fact against the returned loss of Rs. 1,85,499/-, the income has been finally assessed at Rs. 4,33,057/-. Therefore, the proceedings have finally led to determination of a higher loss. It is not a case of reduction in loss or assessment at a positive figure against the claim of loss. Accordingly, the provision contained in Explanation 4 is not applicable. It is also submitted that the penalty in respect of cash shortage computed by the AO at Rs. 8,79,204/- could not have been levied as this addition was deleted by the ld. CIT(Appeals). The addition of Rs. 16.25 lakh was enhanced by him to Rs. 18,48,039/-. He did not issue any notice for levy of penalty on such enhancement. Therefore, the AO could not have levied penalty in respect of an amount exceeding Rs. 16.25 lakh. 2.1 Continuing with his submissions, it is stated that the AO had made three additions in respect of cash shortage, advances for job work and cash expenditure. While levying penalty, the AO has discussed the orders of the CIT(Appeals) and the Tribunal in quantum appeals. A plea was taken before the ld. CIT(Appeals) that the notice is vague as the AO did not delete inappropriate words and paragraph from the notice. The finding of the ld. CIT(Appeals) is that even if this submission is accepted, 8 ITA No. 3889(Del)/2011 it only amounts to irregularity. The assessee had furnished submissions on the merits before the AO, which were not considered. However, the ld. CIT(Appeals) brushed aside this submission by mentioning that there is no evidence of filing any reply before the AO.
2.2 Coming to ground-wise submissions, it is submitted that no notice was issued under Explanation 4 nor any averment thereof was made in the notice or assessment order, therefore, the levy of penalty under this Explanation is bad in law.
2.3 The CIT(Appeals) deleted the addition in respect of negative cash and enhanced the addition in respect of advances for job work. No direction was issued for levying penalty in respect of enhancement and, therefore, levy of penalty on such enhancement is bad in law. 2.4 In regard to invalidity of the notice, our attention has been drawn towards the notice dated 26.12.2007 placed on page no. 1 of the paper book, in which Explanation 1 has been invoked but inappropriate paragraph has not been cancelled. Therefore, it is argued that no penalty could have been levied on the basis of such a notice.
9 ITA No. 3889(Del)/20112.5 In respect of ground no. 4, it has been mentioned that the ld. CIT(Appeals) was not right in rejecting the contention that the explanation filed before the AO was not considered by him. He should have verified the case records rather than stating that there is no evidence of filing the said explanation.
2.6 In regard to ground no. 5, it has been mentioned that hearing was fixed on 23.01.2008 in the notice dated 26.12.2007. However, the order was finally passed on 30.03.2010. No interim order has been passed that the penalty is kept in abeyance due to pendency of appeal. Thus, the order is barred by limitation.
2.7 In regard to ground nos. 6, 7 and 8, it is submitted that penalty proceedings are totally different proceedings from assessment proceedings. In penalty proceedings, an independent finding has to be given that the assessee has concealed income or furnished inaccurate particulars of income. The AO merely considered the assessment order and the appellate orders in quantum appeal but did not arrive at an independent conclusion about the leviability of the penalty by making 10 ITA No. 3889(Del)/2011 further enquiries. Therefore, the order of penalty is bad in law. Further, mens rea on the part of the assessee has not been proved. In regard to ground no. 8, it is submitted that the lower authorities have levied and upheld the penalty merely on rejection of the explanation of the assessee. This is not enough as an independent finding is to be given after evaluating the explanation that the assessee has either concealed income or furnished inaccurate particulars of income.
3. At the outset, the ld. DR relied on the impugned order. It is submitted that all the arguments of the assessee have been considered in this order and a positive finding has been recorded that the amount of Rs. 18,48,039/- represents unaccounted income of the assessee for which he has furnished inaccurate particulars of income. Therefore, the charge of concealment is more than established.
3.1 Coming to ground-wise replies, it is submitted that finally assessed loss of Rs. 4,30,057/- is on account of additional ground taken by the assessee before the ld. CIT(Appeals) in respect of further deduction of Rs. 21,02,144/- u/s 43B representing the excise duty paid in pursuance of the order of the Settlement Commission. This claim should have rightly been 11 ITA No. 3889(Del)/2011 made in the return of income. Upon doing so, the returned loss would have increased by an equivalent amount and finally assessed income would have been a positive figure.
3.2 In regard to ground no. 2 , it is submitted that the ld. CIT(Appeals) combined the additions of negative cash and advances for job work into one addition, being the peak of negative cash in the cash book. The overall addition made by the ld. CIT(Appeals) is lower than the sum of two additions made by the AO. In other words, the additions u/s 68 have been considered together and the addition has been reduced. There is no justifiable reason for excluding certain amount from the reduced addition for the purpose of levy of penalty. In regard to validity of the notice, it is submitted that it is preceded by the assessment order, in which both the additions have been discussed in detail. It has been held that the amounts represent income of the assessee from undisclosed sources, therefore, it is obviously a case of fabrication of books of account with a view to bring concealed income in the books.
12 ITA No. 3889(Del)/20113.3 In regard to ground no. 4, it is submitted that even now there is no evidence of filing any reply before the AO and, therefore, no fault can be found with the finding of the CIT(Appeals).
3.4 In regard to ground no. 5, the admitted position is that the order has been passed within six months of the receipt of the order of the Tribunal by the CIT. Such an order cannot be held to be barred by limitation. Even the ld. counsel had not made any submission in this behalf. His contention is that for keeping proceedings under abeyance an interim order should have been passed, which has not been done. It is argued that there is no such requirement under the law.
3.5 In regard to ground nos. 6, 7 and 8, it is submitted that the AO had issued notices to the assessee to which no reply was furnished. Therefore, he proceeded with various explanations furnished by the assessee in the course of assessment and appellate proceedings. At the same time, the ld. CIT(Appeals) has considered all the submissions of the assessee. In view of the decision in the case of Dharmendra Textile Processors & Others (supra), the penalty is to be decided on the basis of the explanation furnished by the assessee and there is no need to prove mens rea as the 13 ITA No. 3889(Del)/2011 proceedings are civil in nature. The instant case is clearly one of fabrication of account books done with a view to utilize unaccounted income in the course of business. Therefore, there is not only the rebuttal of the explanation but the facts contain positive element about secreted concealed income sought to be utilized by the assessee without payment of tax. Therefore, the penalty has been rightly levied and confirmed. 3.6 Reverting to the provision contained in Explanation 4, it is submitted that it is in the nature of the definition of the expression "the amount of tax sought to be evaded" but the substantive default is under clause (iii) of sub-section (1) of section 271.
4. In the rejoinder, it is submitted that the Explanation 4 should be strictly construed and in view of higher loss finally assessed, the penalty is not leviable. The ld. CIT(Appeals) has not combined the two additions into one. Both of them are independent additions and should be viewed as such. The defect in the notice of penalty cannot be cured u/s 292B as argued by the ld. counsel.
14 ITA No. 3889(Del)/2011
5. We have considered the facts of the case and submissions made before us. The assessee has taken a number of technical objections to the levy of penalty. We think it desirable to dispose off such objections at the very outset. The first objection is that the assessee was not appraised that the Assessing Officer intends to invoke the provision contained in Explanation 4 to section 271(1)(c). This explanation defines the term "the amount of tax sought to evaded" for the purpose of clause (iii) of sub- section (1) in a situation where the effect of concealment of income or furnishing inaccurate particulars of income is to reduce loss declared in the return or convert the loss into income. The expression has been defined to mean the tax which would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished. This provision comes into play only after charge under aforesaid clause (iii) has been established. The assessee has not been able to support his contention with any decided case. However, in the case of CIT Vs. K.P. Madhusudanan (2000) 246 ITR 218 (Ker.), it has been held that the AO is not obliged to intimate the assessee that Explanation-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 indirectly. Therefore, it has been held that the Tribunal was not justified in 15 ITA No. 3889(Del)/2011 concluding that order imposing penalty was vitiated because the AO did not bring to the notice of the assessee that it proposed to rely on the explanation. This provision only raises a rebuttal presumption which the assessee is required to rebut by placing materials on record. The decision, according to us, will apply mutatis mutandis in respect of Explanation-4. Explanation 1 creates a rule of evidence and places burden on the assessee to offer explanation in respect of any income which has been added to the income returned by him. Explanation 4 provides the mode of computation of penalty in a case where returned loss has been reduced or it has been converted into profit. The scheme of the Act does not provide that this explanation should be specifically mentioned in the notice before levy of penalty. The ld. counsel expanded his argument by submitting that while the returned loss was Rs. 1,85,499/-, the assessed loss was Rs. 4,30,057/-, therefore, penalty could not have been levied by invoking this Explanation. We find that this argument is patently incorrect. It is no doubt true that the assessee had filed the return declaring loss of Rs. 1,85,499/-. The assessment was completed at Rs. 23,28,250/-. The assessee made a further claim of Rs. 21,02,144/- u/s 43B before the ld. CIT(Appeals) in respect of amount paid as per order of the Settlement Commission. This deduction should have been claimed in the return of 16 ITA No. 3889(Del)/2011 income. If that had been done, the returned loss would have been Rs. 22,87,643/-. As against the aforesaid, the loss has been finally determined at Rs. 4,30,057/-. This shows that the addition made by the AO had the effect of reducing loss to the extent the additions have been confirmed by the Tribunal. It may be mentioned that the explanation does not use the words "returned loss" or "assessed loss" but uses the word "has the effect of reducing loss". We have already discussed that the effect of the addition is to reduce loss claimed by the assessee at Rs. 22,87,643/-. Therefore, this argument is also not sustainable.
5.1 The second argument is that the ld. CIT(Appeals) deleted the first addition of Rs. 8,79,204/-. Therefore, penalty is not leviable in respect of this amount. On the other hand, he has enhanced the addition of Rs. 16.25 lakh to Rs. 18,48,039/-, i.e., by an amount of Rs. 2,23,039/-. He has not issued any direction to consider this amount of Rs. 2,23,039/- for levy of penalty. The fact of the matter is that on consideration of both the additions made by the AO, he came to the conclusion that they are of the same nature, i.e., unaccounted cash has been used in the business either by not making corresponding entry or by making entries in cash book in the name of Trimurti Engineering Works as advances for job work. 17 ITA No. 3889(Del)/2011 Therefore, the real situation is that the total addition made by the AO has been reduced to Rs. 18,48,039/-. We shall also revert to this issue while dealing with the quantum of levy of penalty.
5.2 It is also submitted that the notice is vague. We have already seen that in the notice one of the alternatives, i.e., concealment of particulars of income or furnishing of inaccurate particulars of income has not struck off. In the case of Gujarat Credit Corporation Ltd., (2008) 116 TTJ (Ahd.) (SB) 619, relied upon by the ld. counsel, the AO had initiated penalty proceedings for disallowance of loss as capital loss. This ground was not accepted by the CIT(Appeals) as correct. It was held that in view of the finding of the CIT(Appeals), the foundation on which penalty was initiated has fallen down. Therefore, the penalty on that ground cannot fructify. The CIT(Appeals), however, upheld the disallowance on a totally different ground. In such a situation, the penalty could have been initiated by the CIT(Appeals) but that will not give jurisdiction to the AO to levy the penalty. We have given serious consideration to this issue also. This decision may have some implication on the levy of penalty in respect of first addition regarding the cash shortage. At the same time, it is also true that the assessee must be appraised of the charge in the notice for which he 18 ITA No. 3889(Del)/2011 is sought to be penalized. The whole issue has to be decided on the basis of the facts of each case. When we go through the assessment order, it is seen that the AO has examined the cash book in a great detail and various entries therein between 01.07.2004 to 31.3.2005 have been reproduced on page nos. 14 to 27. Similarly, the receipts by way of advances from Trimurti Engineering Works, having implication on the second addition, have been reproduced in the assessment order on page nos. 27 to 29. The finding of the AO in respect of the first addition is that cash flow statement filed by the assessee is nothing but an afterthought and a colourable devise to avoid tax. This cash flow statement was sought to be supported by cash flow statement in respect of two partners, Shri N.S. Panwar and Shri Y.S. Panwar. These statements were also examined and various defects were noticed. Coming to advances for job work, it is inter-alia mentioned that most of the entries are above Rs. 20,000/-, but in the reconciliation statement the entries have been bifurcated so that each one of them is less than Rs. 20,000/-, which seems to have been done to avoid penalties under sections 271D and 271E of the Act. The assessee has not done any job work and no income has been shown although an amount of Rs. 16.25 lakh is stated to have been taken from a single party on a number of occasions. Finally, it has been 19 ITA No. 3889(Del)/2011 recorded in respect of both the additions that the amount is treated as income from undisclosed sources. All these observations made by the AO show that it was his case that particulars of income have been concealed. It is not a case where any disallowance has been made but a case where the assessee was found in possession of certain unaccounted money which was utilized in the course of business without paying tax thereon. Therefore, when we see the notice and the contents of assessment order, it is clear that the notice was issued for concealing particulars of income. The notice is not a stand alone document. It is based on the assessment order. Without finding regarding one or the other charge, the notice cannot be issued. However, if two are read together, it is clear that the notice has been issued in respect of concealment of particulars of income. In view of these observations, it is held that the notice is not vague. 5.3 It has also been submitted that the ld. CIT(Appeals) did not verify the record before coming to the conclusion that no explanation has been furnished before the AO. In this connection, our attention is drawn to a purported explanation placed in the paper book on page nos. 19 and 20. Even before us, the assessee was not able to show any evidence that this reply was filed before the AO. This reply does not show the receipt from 20 ITA No. 3889(Del)/2011 the AO or his dak counter. In such a situation, we cannot find any fault with the finding of the ld. CIT(Appeals).
5.4 It has also been submitted that the first notice was issued on 26.12.2007. However, the notice was not pursued. Further notices were issued on the basis of which penalty was levied. Thus, the initial notice issued had become barred by limitation. We are unable to agree with this submission of the ld. counsel. The reason is that appeal was filed against the assessment order before the ld. CIT(Appeals). On the receipt of his order, both the parties filed appeals before the Tribunal, which were disposed off on 04.10.2009. The penalty was levied on 30.03.2010, i.e., within six months from the end of October, 2009. Admittedly, the order is not barred by limitation, but the case of the ld. counsel is that the Assessing Officer should have recorded a note that penalty has been kept in abeyance on account of the appeals. We find that there is no sanction for such an argument in section 275. No doubt, the AO could have levied penalty on the basis of the first notice. However, he thought it prudent to keep the proceedings pending in view of the fact that matter was disputed in appeal first before the CIT(Appeals) and then before the Tribunal. One would rather appreciate such an approach so that a final view could be 21 ITA No. 3889(Del)/2011 taken after receipt of the appellate orders rather than levying excessive penalty on the basis of assessment order. Thus, this submission can also not be accepted.
6. We now proceed to decide the levy on merits. We have already summarized the quantum proceedings and appeal thereon. The finding of the ld. CIT(Appeals) has been that the assessee has used unaccounted cash available with it in the course of business leading to maximum negative cash of Rs. 18,48,039/- as on 29.03.2005. This finding has been confirmed by the Tribunal by mentioning that unaccounted cash introduced in the books of account was only to cover the negative cash balances arising from time to time. At the same time, the genuineness of cash of Rs. 16.25 lakh has also not been substantiated by production of the details of job work advances. Therefore, the overall negative cash balance had to be worked out excluding this receipt. This is what has been done by the CIT(Appeals). Therefore, the finding of the Tribunal is that the assessee was in possession of unaccounted cash, which was introduced in the books from time to time to get over the position of negative cash and there is no explanation for such cash available with the assessee. In the background of these facts, the submission of the ld. counsel is that the 22 ITA No. 3889(Del)/2011 addition has been made by rejecting the explanation. The question is- whether, the assessee is liable to penalty?
6.1 In the case of Gem Granite (Karnataka) Vs. Deputy CIT (2009) 120 TTJ (Chennai) 992, it has been held that the burden to prove that there is concealment of income with a view to evade tax is on the department. Although the levy may be civil in nature, it cannot be equated with the payment of tax. On facts, it was found that different rates for sale in respect of flats in different floors were recorded, but the Tribunal came to the conclusion that when the document was taken as a whole, it supported the contention of the assessee that there could be a mistake in recording the rate. In the first place, the facts are distinguishable. It is not a case of estimate the rate of sale of the flats but a case where expenses were incurred for which no money was available in the books and, thus, undisclosed money available with the assessee was utilized. Secondly, the ratio of this decision at variance with the view of the decision of Hon'ble Supreme Court in the case of Dharmendra Taxtile Processors & Others, in which it has been held that the levy is a civil levy. It is charged to compensate the revenue for concealment of income etc. Therefore, the proceedings u/s 271(1)(c) have to be decided on the basis of provision 23 ITA No. 3889(Del)/2011 contained in the statute including Explanation 1, which casts initial onus on the assessee to furnish explanation and thereafter the AO has to judge whether the explanation is substantiated or it is bone fide or not. Further, in the case of Gujarat Credit Corporation Ltd. (supra), the import of Explanation 1 has been explained. The charge against the assessee was that it claimed as business loss what in fact was capital loss. The claim of business loss was accepted by the CIT(Appeals). However, he again disallowed it by holding it to be speculative loss. In the facts, it was held that the claim of business loss has been vindicated and, therefore, the basis on which the penalty was initiated stands demolished. In such a situation, the penalty cannot be levied because the very basis does not survive. The facts of this case are also distinguishable. It is a case where penalty has been initiated because the assessee was found in possession of substantial unaccounted money which was introduced in the books of account from time to time and, thus, it is a case of fabrication of account books. In the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26 (SC), the question was regarding levy of penalty under the Sales-tax Act in a situation where the assessee held bona fide belief that it was not a dealer in goods. It has been held that levy of penalty is in the discretion of the authority which should be exercised judicially on consideration of all 24 ITA No. 3889(Del)/2011 relevant circumstances. Even in a case where minimum penalty is prescribed, the authority may not levy the penalty when there is only a venial or technical breach of the provisions of the Act or where such a breach is on account of bona fide belief that the offender is not liable to act in the manner prescribed by the statute. The facts of this case are also distinguishable. In the first instance, it is not a case of technical or venial breach of the provisions of law. It is rather a case of manipulating account books while utilizing unaccounted income for the business purpose. As explained in the case of Dharmendra Textile Processors & Others, it is for the assessee to initially offer explanation. The explanation that money was received from two partners and that advances were received for job work charges could not be substantiated. It is a case where deficiency occurred on a number of occasions, the peak of which is Rs. 18,48,039/-. Further, no evidence exists in respect of receipt of advances for job work, the entries in respect of which have also been altered with a view to avoid applicability of sections 269SS and 269T. Therefore, the ratio of this case are also not applicable. 6.2 In the case of CIT Vs. Lakhdhir Lalji (1972) 85 ITR 77 (Guj.), the facts are that the AO came to the conclusion that the assessee firm, which 25 ITA No. 3889(Del)/2011 deals in garlic, had not shown 1383 bags of garlic in the stock at the end of the year. Therefore, it was concluded that these stocks were sold and the sale proceeds were not disclosed. An addition of Rs. 58,000/- was made. The AAC came to the conclusion that the bags were not sold but were shown in the stocks, which was under-valued. On this basis, he confirmed the addition of Rs. 34,000/-. The Tribunal held it to be a case of under-valuation of stock but reduced the addition to Rs. 20,213/-. The AO also levied the penalty. The Hon'ble Court mentioned that the findings of the AAC were there before the AO which showed that there was no suppression of sale. However, the AAC did not chose to initiate penalty for furnishing inaccurate particulars of income. In such circumstances, there was no jurisdiction to levy the penalty u/s 271(1)(c). The facts of this case are also distinguishable because the CIT(Appeals) came to the conclusion that the two types of discrepancies described by the AO were of the same nature.
6.3 Having considered the facts on record and the rival submissions, we are of the view that the assessee has completely failed to substantiate its explanation or to show that the explanation is bona fide. On the other hand, it has been established that the assessee firm was in possession of 26 ITA No. 3889(Del)/2011 unaccounted income by way of cash which was utilized in the course of business without paying tax thereon. Accordingly, it is held that the lower authorities were right in levying and upholding the penalty. 6.4 Reverting to the quantum of penalty, it is true that the AO had made additions and initiated penalty on two grounds-(i) deficiency of cash of Rs. 8,79,204/- in the cash book, and (ii) advances for job work of Rs. 16.25 lakh. The CIT(Appeals) altered the basis of addition in respect of the sum of Rs. 8,79,204/-. It is mentioned that both the amounts represent deficiency of cash in the cash book. Thereafter, he worked out the actual deficiency of Rs. 18,48,039/-. He combined the two additions and reduced the amount from Rs. 25,04,209/- to Rs. 18,48,039/-. Although the ld. DR has vehemently argued that it is not a case of enhancement of income on one ground but a case of reduction of income in respect of the two grounds, it remains a fact that as per finding of the ld. CIT(A) the addition of Rs. 8,79,209/- has been deleted. Being a case of penalty, the provisions should be construed more strictly than one would do in the case of assessment. The ld. CIT(Appeals) has not initiated penalty in respect of the amount of Rs. 2,23,039/- enhanced in respect second 27 ITA No. 3889(Del)/2011 addition. Therefore, we are of the view that the levy of penalty should be levied on the amount of Rs. 16.25 lakh. It is ordered accordingly.
7. In the result, the appeal is partly allowed.
Sd/- sd/- (U.B.S. Bedi) (K.G. Bansal) Judicial Member Accountant Member Dated: 04.04.2012 SP Satia Copy of the order forwarded to:- Trimurti Engineering Works, Muzaffarnagar. ITO, Ward 2(1), Muzaffarnagar. CIT(A) CIT, The D.R., ITAT, New Delhi. Assistant Registrar.