Income Tax Appellate Tribunal - Delhi
Kishan Gupta vs Income-Tax Officer on 16 August, 1989
Equivalent citations: [1989]31ITD448(DELHI)
ORDER
M.C. Agarwal, Judicial Member
1. These are four second appeals by the assessee against the levy of penalty under Section 271(1)(c) for assessment years 1976-77,77-78,78-79 & 79-80.
2. We have heard the learned counsel for the assessee and the learned Departmental Representative and have perused the material placed before us.
3. The assessee is a businessman who was running a sweet shop in the name of Bengal Sweet House at Rajouri Garden, New Delhi. On 1-11-1978, i.e., immediately after Diwali, the heyday for Halwais, the Income-tax Department raided assessee's shop and residential house. The following material things were recovered: -
(1) Cash amounting to Rs. 68,766 (2) F.D.Rs worth Rs. 70,000 (3) Gold jewellery 1030 gms.
4. During the course of the search the assessee was examined by the authorised officer and in his statement, a copy of which has been placed by the assessee's counsel at pages 17 to 19 of the 2nd paper book, the assessee told She authorised officer that at his house about Rs. sixty thousand would be available, out of which about Rs. 38,700 is the cash balance of his shop. In proceedings under Section 132(5) the assessee explained that the cash consisted of Rs. 38,766.45 being the closing cash balance of the business Bengal Sweet House as on 31-10-1978, and Rs. 30,000 belonged to his mother Smt. Radha Devi. The lady was also living in the same house and during the search, a will dated 1st of August, 1976 purporting to be executed by her was also found. By this will the lady claimed to own Rs. 30,000 in cash and 400 gins, of jewellery. Regarding jewellery the explanation offered by the assessee was that 400 gms. of jewellery belonged to Smt. Radha Devi, the mother of the assessee and the rest belonged to Smt. Maya Gupta, the assessee's wife.
5. Regarding the F.D.Rs they were as under:
(i) F.D.R. dated 27-12-1974 for Rs. 10,000 in the name of Km. Suman Gupta, the daughter of the assessee.
(ii) F.D.R. dated 14-10-1977 in the name of the assessee for Rs. 25,000.
(iii) F.D.R. dated 27-10-1977 for Rs. 20,000 in the name of assessee.
(iv) F.D.R. dated 27-10-1977 for Rs. 15,000 in the name of some K.L. Gupta.
6. In his statement during the course of search the assessee had stated that K.L. Gupta was a friend living in Kotla Mubarakpur. However, in proceedings under Section 132(5) he admitted that this F.D.R. also belonged to him. Regarding the source of investment in the three FDRs obtained in October 1977 the assessee's explanation in proceedings under Section 132(5) was that he had obtained a loan of Rs. 50,000 on 10-10-1977 from M/s S.P. Kunchal & Sons, Muzaffarnagar to provide funds for the purchase of a house. Since the deal could not be finalised he put the money in the aforesaid deposits by adding Rs. 5,000 from his personal savings.
7. In the order passed under Section 132(5) the ITO accepted the availability of cash balance of the business plus Rs. 5,000 more and treated cash to the extent of Rs. 25,000 as remaining unexplained. Out of jewellery he accepted the assessee's explanation about 400 gms. of jewellery and treated the balance as unexplained. This value was estimated at Rs. 30,000. Out of the F.D.Rs of Rs. 70,000 a sum of Rs. 50,000 was treated as unexplained. In his petition to the Commissioner under Section 132(11), the assessee repeated the same explanations about the various things found during search giving some more details. The same explanation was also offered in the settlement petition moved before the Commissioner to which reference will be made later.
8. The assessee filed his returns of income for the years under consideration as under: -
---------------------------------------------------------------------------
Asst. Year Original asst. Income assessed
completed on in original asst.
---------------------------------------------------------------------------
1976-77 2-8-1977 7,110.00
1977-78 2-9-1977 13,160.00
1978-79 - - Rs. 7,115
(income returned)
1979-80 - - Rs. 14,520
(income returned)
---------------------------------------------------------------------------
9. Thus at the time of search assessments for 1976-77 and 1977-78 had already been completed and those for the other two years were pending. The return for 1979-80 was filed on 22-9-1979, i.e., after the search.
10. On 26-12-1979, i.e., more than a year after the search the assessee moved an application to the Commissioner for settlement, offering a sum of Rs. 1,20,000 for taxation by spreading the same in 5 years, i.e., assessment years 1975-76 to 1979-80 and stating, "I have duly explained to the Income-tax Officer the various sources of possessing cash, fixed deposit receipts, bank balances, jewellery etc. I had made the humble attempt to explain these points to the satisfaction of the learned Income-tax Officer by which he does not appear to be satisfied on all the accounts. I have my genuine belief that 1 was put to hardship without appreciating my petty status as small shopkeeper. The loans were secured for purchase of house out of which FDR of Rs. 70,000 were purchased. Since the negotiations prolonged in uncertain manner, the jewellery as per the valuation report belong to my wife and mother and cannot be regarded as excessive to what a Bania family should possess in hands of two married ladies. I have neither the source nor the strength for protracted litigation with the Income-lax department and therefore, want to buy peace. I am approaching your honour to kindly intervene and do a justice in my case. I am a small shopkeeper and am finding it extremely difficult to run my business as well as simultaneously attend to the income-tax hearings. Already my business has been seriously affected and ii this process of constant income-tax hearings continued, I am afraid, 1 will be forced to close down my shop. Therefore, to buy peace 1 am offering a sum of Rs. 1,20,000 for settlement to be spread over a number of 5 years from the assessment year 1975-76 to 1979-80 and no penal action in the form of penalty or prosecution be taken against me and no interest should be charged. The details of the amounts surrendered are as under: -
1. Cash in hand Rs. 25,000
2. Fixed deposits and S/B a/cs Rs. 70,000
3. Jewellery Rs. 15,000
4. Investment in house No. J-168, Rajouri Garden, New Delhi as per the registered price. Rs. 10,000
-------------
1,20,000
-------------
A loan of Rs. 50,000 was raised from S.P. Kunchal & Co. of 18, Civil Line, Court Road, Muzaffarnagar, U.P. on 10th October, 1977 under a promissory Note. This amount was invested for the purchase of F.D.R. of Rs. 25,000 and Rs. 20,000 in the name of Sri Kishan Gupta on 14th October, 1977 and 27th October, 1977 respectively. The balance amount of Rs. 5,000 was also invested in the purchase of FDR in the name of Shri K.L. Gupta subsequently. Since I am unable to produce the party so as to prove the genuineness of this loan, it is being surrendered in its entirety and is covered in the fixed deposit receipts and saving bank accounts of Rs. 70,000 maintained above.
11. The Commissioner agreed to settlement and ordered that Rs. 30,000 be assessed over and above the declared income in each of the years under consideration. Thereafter the assessee filed revised returns accordingly. Proceedings for assessment years 1976-77 & 77-78 were regularised by taking recourse to Sections 147/148 and assessments for all the four years were completed accordingly.
12. The ITO initiated penalty proceedings under Section 271(1)(c) for all the years on the basis of the additional income of Rs. 30,000 offered by the assessee in each of the years. The assessee explained that since the assessments have been made on the basis of settlement no penalty should be levied. The ITO, however, did not agree and levied the following amounts of penalty under Section 271(1)(c): -
Asst. Year 1976-77 Rs. 10,169
" 1977-78 Rs. 10,109
" 1978-79 Rs. 8,593
" 1979-80 Rs. 10,958
13. The assessee appealed to the Commissioner of Income-tax (Appeals) who disposed of the appeals by a consolidated order dated 30-7-1986 and dismissed them. It was contended before the learned CIT(A) that the department had, while settling the case, committed itself not to levy any penalty and that the onus to prove concealment lay on the department and had not been discharged. The learned CIT(A) did not record any finding on the first contention and held that concealment of income by the assessee was patent. He accordingly confirmed the penalties. The assessee is now before us in these appeals.
14. The first contention raised before us is that the assessee made the offer of settlement subject to the condition that no penalty shall be levied and this contention had been accepted. Therefore, according to the assessee no penalty should be levied. This plea, in our opinion, is not sustainable. A copy of the petition for settlement has been placed before us at pages 25 to 27 in which there is certainly a request made that no penalty be levied or prosecution launched. But this was not stated as a pre-condition for settlement. No documentary evidence of the alleged commitment or assurance is forthcoming. The assessee filed his revised returns in accordance with the settlement. A copy of the forwarding letter is at page 28 of the paper book in which the assessee asserts that it was agreed that no penalty or interest would be levied. But there is no evidence to show that the CIT communicated in writing to the assessee or to the ITO that no penalty would be levied. The assessee moved a petition under Section 273(A) of the Act to the Commissioner praying that penalty proceedings be dropped. This was rejected. Then the assessee moved another application under Section 273 A(4) for the waiver of penalties levied. In this petition it was asserted that the settlement petition was made on the assurance of the Commissioner that no penalty would be levied. With this petition affidavits of the assessee's counsel, Shri L.N. Malik, Chartered Accountant, and the assessee himself were filed stating that the then Commissioner, Shri K.R. Raghavan had assured that no penalty would be levied or if levied would be waived in the exercise of his powers under Section 273(A). This petition under Section 273 A(4) was heard and decided by Shri Y.P. Sud, Commissioner. He rejected the same holding inter alia, that no such assurance was given. He examined the relevant records and found no evidence of such assurance. Further he found that a decision to launch prosecution had been taken on 25-10-1979 and even a criminal complaint had been filed against the assessee on 28-2-1980. The assessment order was made thereafter in March 1980. In such circumstances the CIT held that there was no such assurance or commitment as alleged.
15. The learned counsel for the assessee laid great stress on the affidavits of the assessee's counsel and the assessee himself to satisfy us that such an assurance was in fact given. The conduct of the department negatives any such assurance which may be given legal effect to. The assessee filed his settlement petition after it had already been decided to prosecute him. Then even after the settlement was arrived at and the assessee filed returns on 18-2-1980, the revenue filed a criminal complaint against the assessee on 28-2-1980. No exception appears to have been taken to this conduct of the Revenue. Even if Shri Raghavan had ever said that he would try to help the assessee such a statement would be of a personal nature and not an official assurance. If the assessee wanted to make this as a condition for agreeing to settlement, it was his duty to procure an assurance in writing. We are of the view that no assurance, as may have any legal effect, was ever given to the assessee and we hold accordingly. The first contention of the assessee, therefore, fails.
16. The next contention raised on behalf of the assessee is that no concealment of income on the part of the assessee is established and hence no penalty is leviable. According to the learned counsel for the assessee, the assessee's explanation about the assets found during the search was bona fide and he had disclosed all material facts regarding the computation of bis income. Hence the assessee's case fall within the proviso to Explanation 1 to Section 271(1)(c) and, therefore, the presumption of concealment created by Explanation-I stood displaced and the burden shifted to the Revenue to prove that the assessee did conceal the particulars of his income. The learned counsel for the assessee took us through the various averments made by the assessee explaining the sources of the things found and also to the assessment orders and penalty orders to show that nothing had been found to indicate either that the assessee's explanation was false or was not bona fide. The learned Departmental Representative on the other hand, toed the line of the authorities below and contended that having been cornered, the assessee ultimately surrendered unexplained investment to the extent of Rs. 1,20,000 and that his conduct showed that he agreed that he had concealed income to the extent of Rs. 30,000 in each of the years. He also laid stress on the fact that initially the assessee had stated that K.L. Gupta, in whose name a fixed deposit of Rs. 10,000 stood, was another person, a friend, and later conceded that he himself had obtained that deposit receipt by giving his own name as K.L. Gupta.
17. Explanation I to Section 271(1) (c) is very important and reads as under: -
Explanation 1: Where in respect of any facts material to the computation of the total income of any person under this Act, -
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Asstt. Commissioner of the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this section, be deemed to represent the income in respect of which particulars have been concealed:
Provided that nothing contained in this Explanation shall apply to a case referred to in Clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him.
18. Admittedly the additions of Rs. 30,000 in each of the years under consideration have been made on account of the assets found during the search. They are not for any other thing beyond those assets. We have stated above how during the search and thereafter the assessee explained the existence of each of the items. The assessee thus offered explanation for each item of property. It is thus not a case in which no explanation was offered. We have to see whether (i) any of the explanations have been found to be false, (ii) whether the assessee was unable to substantiate any explanation, (iii) whether the assessee's explanation was bona fide and all the facts material to the computation of his income had been disclosed.
19. Before proceeding further, let us see what the Income-tax Officer finds in the assessment orders and the penalty orders. The ITO has discussed the facts in the assessment order for 1977-78. In the other orders he has merely followed his findings for assessment year 1977-78. Therefore, we reproduce below the assessment order for 1977-78:-
Assessrnent was originally completed in this case on 2-9-77 on a total income of Rs. 13,160. The assessee business and residential premises were searched under Section 132. During the course of search cash of Rs. 60,339 and FDR of the value of Rs. 70,000 were seized. It was also found out that the assessee has purchased a house No. J-168, Rajouri Garden, New Delhi for a sum of Rs. 1,30,000. Total cash found was Rs. 1,30,000 Rs. 67,762 out of which Rs. 60,000 only was seized.
The matter was examined, order Under Section 132(5) was passed. Regarding the total amount of cash found, it was stated by the assessee that a sum of Rs. 38,766 represents his cash balance as per a/c books of M/s Bengal Sweet House. The assessee thus stated that this amount should be treated as explained. Regarding balance cash of about Rs. 30,000 it was stated that this represents the savings of his mother Smt. Radha Devi. The statement of Smt. Radha Devi was recorded. This was not found acceptable. She had evidence for her to prove the savings.
Narrating the source of FDRs of Rs. 70,000 Sh. Sri Kishan Chand explained that he had raised a loan of Rs. 50,000 from M/s S.P. Kunchal & Sons of Muzaffarnagar. The matter was thoroughly examined. The a/c books of M/s S.P. Kunchal & Sons were summoned and on investigation it was found that M/s S.P. Kunchal & Sons was mere name lender and doing hawala business. He had no cash of his own. As such his a/c books were retained by me. This amount of Rs. 50,000 did not appear to me genuine for various reasons firstly the assessee had raised this amount on a rate of 12% interest while he was invested a sum in the purchase of FDRs carrying much lesser rate of interest. The assessee also could not give any other satisfactory explanation regarding the balance amount of Rs. 20,000.
During the course of search a jewellery valuation certificate showing the value of jewellery in possession of the assessee of Rs. 30,000 was also found and seized. The matter was investigated both in the intelligence wing and in this office. Various enquiries letters were exchanged.
When the investigation were going on the assessee, however, came out with a settlement petition disclosing an amount of Rs. 1,20,000 as income from undisclosed sources and also requesting for taxation of this amount over a period of five years. According to the assessee this amount of Rs. 1,20,000 consisted of Rs. 25,000 cash already stated to be a savings of Smt. Radha Devi, Rs. 70,000 invested in the FDRs & Rs. 10,000 invested in the purchase of the house over and above the sale consideration reflected in the sale deed and Rs. 15,000 invested in the purchase of jewellery.
This settlement petition was filed with the CIT Delhi-V, New Delhi. The CIT has accepted the settlement petition but has given a benefit of spread over a period of four years from the 1976-77 to 79-80. Hence an addition of Rs. 30,000 shall be made in this asst. year. Total income is computed as under: -
Share of profit from M/s Bengal Sweet House as per Rs.
assessment order of the firm 17,838
Amount as per settlement with the CIT as discussed
above 30,000
---------
47,838
Less: Deduction under Section 80-C 4,678
---------
Total income: 43,160
---------
Assessed. Issue necessary forms. Penalty proceedings under Section 271(1)(c) has been separately issued, penalty notice Under Section 10(2) of CDS Act have already been initiated.
(B.L. Gupta) Income-tax Officer Dated: 11-3-1980. Distt. VII(1), New Delhi
20. The penalty orders for all the years are almost identically worded and hence we reproduce the penalty order for 1977-78 as below: -
Original assessment in this case was made on an income of Rs. 13,160 on 3-9-77. Premises of the assessee was searched on 1-11-1978 when the following valuables were found: -
F.D.Rs Rs. 70,000 Cash Rs. 68,872 Jewellery Rs. 30,000
Investigations were launched and the assessee filed an application for settlement before the CIT, Delhi-V, New Delhi and offered an addition of Rs. 1,20,000 spread over 5 years. The CIT, Delhi-V, New Delhi accepted the petition of the assessee and agreed to an addition of Rs. 1,20,000 spread over 4 assessment years, i.e., 76-77 to 79-80. Assessment was made on an income of Rs. 43,160 on the basis of return filed by the assessee as per settlement with the CIT. During the course of assessment proceedings under Section 271(1) (c) were initiated and assessee was served with a notice Under Section 271 read with Section 274. The assessee did not file any explanation in response to this notice. The assessee was given another opportunity and a letter dated 25-6-1981 was served on the assessee. In response to which he filed a letter stating that assessment was completed under Section 144 after the settlement with the CIT on the basis of settlement application filed by him with the CIT and it has further been stated that the CIT had agreed to settle the case on the application of the assessee and no penalty was to be imposed on the assessee and as such question of imposing penalty under the circumstances question of imposing penalty does not arise. The explanation of the assessee is not in accordance with the fact on record. The CIT, Delhi-V, New Delhi has rejected the petition of the assessee under Section 273 A vide his order dated CIT/V/D-4/273-A/90 to 94/80-81670 dt. 14-6-1981. Under these circumstances I proceed to decide the question of levy of penalty on the merits of the case.
During the course of search operations certain valuables and incriminating documents were found. One of the FDRs found was in the name of Shri K,L. Gupta. The assessee who was questioned in the matter, stated that the FDR belonged to his friend, Shri K.L. Gupta and he disowned the FDR in the beginning. The Manager of the bank the FDR stood was examined and he stated the FDR was purchased by the assessee by giving his name as K.L. Gupta. The original statement of the assessee was found to be false and prosecution was launched by the Department in respect of false statement. Regarding source of investment in F.D.R. of Rs. 70,000 Shri Kishan Gupta explained that he had raised a loan of Rs. 50,000 from S.P. Kunchal & Sons of Muzaffarnagar. This amount was alleged to have been borrowed on interest @2% per annum whereas the interest receivable on FDR was of lower rate. This did not appear to be genuine. On investigations it was found that Shri S.P. Kunchal & Sons were money name lenders. Assessee also failed to give satisfactory explanation regarding the balance amount of Rs. 20,000. Thus, the explanation offered by the assessee regarding source of investment was found to be false.
It was under the circumstances that after being cornered from all sides the assessee came out with a petition of settlement and the case was thus settled. It was in pursuance of this settlement that assessee filed the revised return of income and ITO completed assessment. The assessee has concealed particulars of income amounting to Rs. 30,000 and has furnished explanation which was found to be false, and it could not be substantiated by him. Assessee's case for levy of penalty is thus covered by Explanation-IA under Clause (iii) of Section 271(1)(c) of the I.T. Act, 1961 and I impose a penalty of Rs. 10,109.
This order is issued with the prior approval of the IAC, Range VB, New Delhi.
Issued. Necessary forms.
(Thakar Das) Income-tax Officer, Dated: 20-3-1982. Distt. VII(1), New Delhi.
21. A perusal of the above orders would show that they are based on some tentative conclusions arrived at in investigations Under Section 132(5) of the Act. So far as the assessments are concerned no findings were arrived at after giving the assessee an opportunity of controverting adverse material, if any. It is further clear from the assessment orders that in view of the offer of settlement, the ITO did not proceed with the investigation and did not examine the assessee's explanation on merits and did not record and findings that the explanations offered by the assessee was false or not bona fide or that the assessee had not disclosed the material facts about his income.
22. Now let us examine the character and worth of the assessee's explanations with regard to each item.
CASH The total cash found at the residence of the assessee was Rs. 68,766 out of which Rs. 38,766.45 was claimed to belong to the assessee's business. This has been found to be correct. As regards the balance of Rs. 30,000, the assessee's case was that the money belonged to his mother Suit. Radha Devi, who had even executed a will in respect thereof. A will duly executed was found during the search. In his statement recorded during the search the assessee had stated that the excess over the book balance of the business belongs to his wife, mother and daughter. Smt. Radha Devi was examined on 27-1-1979 and she affirmed the ownership of cash. She explained that her husband died when they were in Pakistan leaving 15-16 thousand rupees with her and she had added to that by doing embroidery, knitting and stitching. No evidence to the contrary has been procured by the revenue. How can, therefore, the assessee's explanation be said to be not bona fide. The assessee's explanation about Rs. 30,000 alleged to belong to his mother stood substantiated by his own statement during the search, the will recovered during the search and the statement of Radha Devi recorded on 27-1-1979. The word 'substantiate' cannot mean "proved beyond reasonable doubt". An explanation by the assessee would be said to have been substantiated if either by its very nature in absence of material to the contrary it is acceptable or if the assessee has led prima facie acceptable evidence in support thereof, which has not been contradicted by better evidence. We, therefore, hold that the assessee's explanation with regard to the cash stood substantiated by the material on record.
23. JEWELLERY Jewellery weighing J.030 gras. is said to have been found during the search. The perfunctory approach of the ITO is evident from the fact that he nowhere mentions whether it is made of gold or silver or was studded with diamond or precious stones etc. Further, Annexure-D to the Panchnama shows that only two items of ornaments weighing about 4 tolas were found and were not seized. Even this important document (Annexure-D to Panchnama) does not mention whether the ornaments appear to be made of gold or silver etc. etc. Anyway, before us the jewellery was supposed to consist of gold ornaments only and the basis for the quantity is said to be a valuation report found during the search. The assessee's explanation was that about 400 gms. belonged to his mother and the rest of his wife. In the order Under Section 132(5) the explanation about 400 gms. was accepted and only 600 gms. was treated as unexplained. No finding about the assessee's explanation has been recorded either in the assessment order or in the penalty order. The ownership of Radha Devi in respect of about 400 gms. of jewellery finds support from her statement and which have been discussed above. In his petition under Section 132(11) to the Commissioner the assesses had asserted as under: -
17. The sources of the acquisition of jewellery by my wife are followings:
(i) From her parents at the time of her marriage in the year 1962. About 25 tolas
(ii) From my mother on the occasion on my marriage About 25 tolas
(iii) From my uncle Sh. Ram Parsad and other relatives. About 6 tolas
(iv) Purchased by my wife out of her savings About 7 tolas
---------------
About 63 tolas
---------------
24. The assessee had stated that he was married in 1962 and he came from a well off family. In 1962 gold was not as precious as it is today and its price was around Rs. 100 per tola. Therefore, there is nothing unnatural if a bride of a middle class was given about 55 tolas of jewellery in the year 1962. The ITO in his order Under Section 132(5) has supposed that Smt. Radha Devi had accumulated this jewellery between 1976 and 1978, i.e., after the execution of the will. This suspicion is based on a valuation report found during the search showing that the entire jewellery belonged to Radha Devi. This suspicion is misplaced. The ITO nowhere says that the jewellery appeared to be new. No document showing the purchase of jewellery in recent years has been found and it is improbable that the assessee's wife did not own any gold jewellery whatsoever. But for the assessee's admission, no tangible evidence of the existence of more than 4 tolas of ornaments of unspecified material is shown to us. The assessee's story had to be accepted or rejected in toto. It is not possible to accept the assessee's statement about the existence and extent of jewellery and reject the same about source. Therefore, the assessee's explanation about jewellery was not only bona fide, it stood substantiated from the circumstances of the case.
25. FIXED DEPOSIT RECEIPTS The fixed deposit receipt dated 27-12-1974 in the name of assessee's daughter Km. Suman Gupta was relevant for assessment year 1975-76 and cannot be considered for the years under consideration. What was required to be explained was Fixed Deposit Receipts worth Rs. 60,000 i.e., F.D.Rs dated 14-10-1977 and 27-10-1977 for Rs. 25,000 and Rs. 20,000 each in the name of assessee and F.D.R, dated 27-10-1977 in the name of K.L. Gupta for Rs. 15,000. The assessee's explanation is that they were financed from a loan of Rs. 50,000 raised on 10-10-1977 from S.P Kuchhal & Sons of Muzaffarnagar and Rs. 10,000 belonging to the assessee himself. The need for raising a loan of Rs. 50,000 is stated to be that the assessee was negotiating purchase of some house and since the bargain could not be finalised he deposited the money in the bank. The fact that the assessee was negotiating purchase of some house has not been doubted. Even during the search blank stamp papers worth Rs. 10,400 were found and in his statement recorded on the date of search itself, the assessee stated that they were purchased for getting a sale deed of house No. J-160, Rajouri Garden executed. Therefore, the theory of raising loan and depositing the unutilised amount in bank is not unnatural and finds support from the attending circumstances. During the proceedings the assessee did file a confirmation certifying that they had deposited Rs. 50,000 with the assessee at an interest rate of 12%. A copy thereof is at page 41 of the paper book. The certificate shows that S.P. Kuchhal & Sons is an income-tax assessee with ITO, Muzaffarnagar and mentions the permanent account No. The party has been found to be existing. In proceedings Under Section 132(5) the party (S.P.Kuchhal & Sons) was summoned and they attended with their books of accounts. The books supported the case of assessee but the ITO states in the assessment order for 1977-78 that on investigation, it was found that M/s. S.P. Kuchhal and Sons were mere name lenders and doing Hawala business. What was the nature of investigation and what were the facts found in investigation has nowhere been disclosed. Even the learned Departmental Representative did not clarify the facts. The ITO's observations made above appear to be of a subjective nature and that is why the matter was not processed in the assessment proceedings. The ITO Muzaffarnagar does not appear to have been contacted. Although the FDRs were recovered during the search and the assessee was available and examined at that very time, he was not asked about the sources of the aforesaid deposits. It was in his explanation under Section 132(5) that the assessee advanced the aforesaid explanation. In the absence of anything to the contrary, the assessee's explanation cannot be termed as lacking bona fide and having filed a certificate of confirmation and the party having appeared in proceedings under Section 132(5) and confirmed the transaction with books of accounts, it cannot be said that the assessee had not been able to substantiate his explanation. We hold that the assessee's explanation was bona fide and had been substantiated.
26. The balance of Rs. 10,000 is said to have been contributed by the assessee out of his own savings. He is an old income-tax assessee engaged in a flourishing Halwai business. Admittedly he was keen to purchase a house and, therefore, must gather his resources. The ITO has made no attempt to show that he could not be possessed of Rs. 10,000 in October 1977. In our view, therefore, this explanation too was bona fide and substantiated.
27. On behalf of the Revenue stress is laid on the circumstance that initially the assessee had stated that K.L. Gupta was a friend but later when the Bank Manager told that the assessee himself had obtained the F.D.R. adopting the name of K.L. Gupta, the assessee acknowledged the F.D.R. No doubt this is an adverse circumstance but this cannot clinch the issue. What we are concerned here is the source of the deposit and the same should be examined on merits unprejudiced by the above circumstance.
28. In conclusion he hold that the source of the deposits in FDRs had been satisfactorily explained.
29. EFFECT OF SURRENDER The main stress of the revenue is on the fact that the assessee himself agreed to surrender Rs. 1,20,000 and to be assessed thereon @ Rs. 3(),000 for each year. The learned Departmental Representative contended that once the assessee agreed to surrender Rs. 30,000 for each of the years and filed revised returns it means that the assessee concedes the concealment and penalty has to be levied. It was also contended that by making the offer of surrender the assessee cut short the investigation, which the ITO would have otherwise undertaken. As regards the surrender of certain amounts, i.e., agreeing to be assessed on certain amounts it is now almost settled that penalty cannot be levied merely because the assessee agrees to be assessed on a particular amount unless it is shown that the amount was the income of the assessee for the relevant year. In Krishan Lal Shiv Chand Rai v. CIT [1973] 88ITR 293, the Punjab & Haryana High Court held that the onus was on the department to positively prove that besides the factor of surrender the amounts in dispute were the undisclosed income of the assessee. The surrender by the assessee could have been for more than one reason. In CIT v. Vmaychand Harilal [1979] 120 ITR 752 (Guj.) it was held that admission by the assessee before the AAC that a property belonged to him does not amount to admission that it was income of the relevant year and such admission was not sufficient for the levy of penalty. In CIT v. Mansa Ram & Sons [1977] 106 ITR 307 (All.) it was held that where a cash credit was surrendered by the assessee, as desired by the ITO, no penalty could be levied. In Durga Timber Works v. CIT [1971] 79 ITR 63 (Delhi) it was held that where the assessee failed to produce any explanation in respect of cash credits and agreed to inclusion of the amounts in his income there was no further burden on the department to adduce independent evidence of concealment. It is in the light of the law, as aforesaid, that we have to see whether in the case before us penalty could be levied without proving actual concealment. We have stated in detail above how the assessee had explained the sources of the various things and have held that the assessee's explanations were bona fide and stood substantiated. We have also point out how the approach of the Revenue has throughout been perfunctory. In the search a Valuation Report of 1031 gms. of jewellery was found while the jewellery actually found on the spot was only about 45 gms. Nobody appears to have bothered to ask where the rest of the jewellery was. This is the nature of the investigation conducted in this case and the Departmental Representative himself conceded that investigation in this case was not proceeded with because the assessee proposed a settlement. The settlement petition is at pages 25 to 27 of the paper book and in this petition too the assessee explained the sources of some of the assets. In para 5 of the petition, which we have quoted above, the assessee re-asserted that he had duly explained to the ITO the various sources of cash, fixed deposits, jewellery etc. The reason for surrender was not the falsity of the assessee's explanation but the fact that the assessee was feeling harassed because of frequent attendance at the Income-tax office which resulted in neglect of his business. It was in these circumstances that he offered to be assessed on a sum of Rs. 1,20,000 without admitting anywhere that this amount represented his income, what to say of concealed income. It was, therefore, a case of agreeing to be assessed on a certain amount to buy peace without conceding that there was any income whatsoever. Apart from the explanation contained in the settlement petition the assessee was offering explanations right from the time of search. The Commissioner in his order under Section 273 A(4) has stated that the decision to prosecute the assessee has been taken on 25-10-1979. The Settlement Petition was moved thereafter and this circumstance too must have acted as a complainant on the assessee to induce him to suffer some tax even if it was not legally assessable. If in such compelling circumstances a person in order to make an, attempt to buy peace agrees to be assessed on certain amount without admitting having earned any income, he cannot be burdened with penalty under Section 271(1)(c) unless the Revenue proves actual concealment. In this case there is complete lack of evidence of concealment and therefore, the penalties in question could not have been imposed.
30. The learned CIT (A) has in his order referred to Explanation-2 to Section 271(1)(c) and Section 271(1A) and has stated that the appellant's case was covered by the said Explanation, The said Explanation had no application whatsoever to the facts of the case. Sub-section (1A) of Section 271 applies to a case where penalty is imposable by virtue of Explanation-2 to Section 271(1) and permits initiation of penalty proceedings in respect of an earlier assessment year for which assessment had already been completed. Explanation-2 says that where the source of any receipt, deposit, outgoing or investment in any assessment year is claimed by any person to be an amount which had been added in computing the income in any earlier assessment year, then that amount shall be treated as the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the first preceding year. Thus, Explanation-2 read with Sub-section (1A) permit initiation and levy of penalty in respect of an earlier assessment year though that assessment has already been completed and no penalty proceedings were initiated while completing that assessment. In the case before us the assessee has not claimed that the amounts in question represent any amount added in any earlier year and penalty proceedings were levied in the assessment orders for the years under consideration. Therefore, there was no scope for the application of Explanation-2 or Sub-section 1(A) and the CIT(A)'s observations depict a misguided approach.
31. It was also contended by the learned Departmental Representative that penalty under Section 271(1)(c) is leviable on the basis of original returns in which lesser income was disclosed. This proposition of law is not disputed. The question merely is whether the amount offered by the assessee for taxation in the subsequent returns was accepted or proved to be the income of the assessee for the relevant years. We have already held that it was not so and, therefore, it cannot be said that the income shown in the original returns was not the correct income of the assessee or that the income shown in the subsequent returns was the Correct income of the assessee for the relevant years. No other point was raised before us from either side and in view of our above findings, the penalties in question have been cancelled.
32. The appeals are, therefore, allowed and the penalties in question levied on the assessee are hereby cancelled.