Shri Madhuram Collection, Baroda V. The ACIT, Circle-2(1), Baroda

ITA 1178/AHD/2008

• Counselvise Citation: 117820514 RSA 2008
• Duration Of Justice: 3 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-01-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 03-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TAKRIWAL SRDR
• Assessee Lawyers: J P SHAH SRAR
• Keywords: Business income; Income from undisclosed sources; Revised return
• Section: 133A; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.1178/AHD/2008 ASSESSMENT YEAR:2001-02 M/S MADHURAM COLLECTION, CENTRE POINT, ALKAPURI, BARODA PAN NO.AAEFM5202E / V/S . ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), BARODA / APPELLANT .. / RESPONDENT /BY APPELLANT SHRI J.P. SHAH, SR-AR / BY RESPONDENT SHRI SAMIR TAKRIWAL, SR-DR / DATE OF HEARING 25-01-2012 / DATE OF PRONOUNCEMENT 31-01-2012 !' !' !' !' / // / ORDER PER B.P. JAIN, ACCOUNTANT MEMBER:- THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F LD. COMMISSIONER OF INC-TAX (APPEALS)-II, BARODA DATED 25-01-2008 FO R THE ASSESSMENT YEAR 2001-02. THE ASSESSEE HAS RAISED THE FOLLOWING GROU ND OF APPEAL:- 1. THE C.I.T.(APPEALS) ERRED IN UPHOLDING THE PENA LTY UNDER SEC. 271(1) OF RS.12,15,000/-. 2. THE C.I.T.(APPEALS) ERRED IN NOT CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE PROCESS ERRED IN CONFIRMING THE PENALTY. 2. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER S TATED IN THE PENALTY ORDER THAT DURING THE COURSE OF THE SURVEY, ON THE BASIS OF LOOSE TORN PAERS, THE PARTNER OF THE FIRM, SHRI MUKUND SHAH ADMITTED THAT THESE PAPERS RELATED TO SALES OF FINANCIAL YEAR 2000-01 AND ON THE BASIS OF THESE PAPERS THE ASSESSEE ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 2 ADMITTED THAT UNACCOUNTED SALES OF RS.25 LAKH ESCAP ED FROM TAX. THE PARTNERS ACCEPTED THAT THE UNACCOUNTED SALE CONSIDERATION HA S BEEN UTILIZED BY THE PARTNERS IN REPAIR OF THEIR RESIDENCE AND OTHER EXP ENSES. HENCE, THIS INCOME HAD ALREADY BEEN EARNED AND INVESTED BY HE ASSESSEE -FIRM AND ITS PARTNERS. THE AO ALSO STATED THAT HAD THERE NOT BEEN THE SURV EY OPERATION, THE UNACCOUNTED INCOME OF THE ASSESSEE WOULD NOT HAVE B EEN SHOWN IN THE RETURN OF INCOME. FURTHER, RETURN FILED BY THE ASSE SSEE CANNOT BE TREATED AS RETURN FILED U/S.139(5) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT) AS THE ASSESSEE HAS NOT RECOVERED ANY OMISSION ON ITS OWN, BUT THIS INCOME IS ADDITIONAL INCOME, WHICH HAS BEEN DETECTED BY THE R EVENUE AS A RESULT OF SURVEY OPERATION. THE AO HAS RELIED ON THE FOLLOWIN G DECISIONS:- I) CIT V. GLAMOUR RESTAURANT (2003) 80 TTJ 763 (MU M) II) MAN MOHAN GUPTA V. CIT (2004) 189 CTR 331 (RAJ ) III) CIT V. LAD DEVI KHOTHARI (2005) 97 TTJ 421 (J P) IN THE PENALTY ORDER IT IS STATED BY THE ASSESSING OFFICER THAT DURING THE ASSESSMENT PROCEEDINGS, IT WAS ALSO FOUND THAT THE ASSESSEE HAS GIVEN INTEREST FREE LOANS/ADVANCES TO VARIOUS GROUP CONCE RN, ON WHICH NO INTEREST WAS CHARGED AND THE ENTIRE TRANSACTIONS WERE FOUND TO BE ROUTED THROUGH THE C.C. ACCOUNT AND THUS, INTEREST BEARING FUNDS HAD B EEN DIVERTED. IN VIEW OF THESE FACTS AND ALSO FOLLOWING THE ASSESSMENT ORDER OF ASSESSMENT YEAR 2000-01, INTEREST @ 18% WAS WORKED OUT ON THE INTER EST FREE LOANS GIVEN OF RS.7,34,699/- AND THEREFORE THE DISALLOWANCE OF RS. 7,34,699/- WAS MADE ON WHICH PENALTY PROCEEDING U/S. 271(1)(C) OF THE ACT INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 3. IN APPEAL THE LD. CIT(A) VIDE ORDER DATED 24-03- 2005 CONFIRMED THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE FUN DS WERE USED FOR NON- BUSINESS PURPOSE, HOWEVER, THE CIT(A) HAS DIRECTED ASSESSING OFFICER TO APPLY RATE OF INTEREST AS PER THE PREVALENT BANK RA TE SINCE ASSESSEE HAS CC FACILITY. AS PER THE DIRECTION OF LD. CIT(A), THE D ISALLOWANCE OF INTEREST WAS ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 3 WORKED OUT AND RESTRICTED TO THE EXTENT OF RS.5,98, 644/-. THE ASSESSEE DURING THE PENALTY PROCEEDINGS SUBMITTED THAT IT HAD NEITH ER CONCEALED INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME AND DISA LLOWANCE OF INTEREST CLAIMED DOES NOT LEAD TO A POSITIVE CONCLUSION THAT SUCH INCOME WERE IN FACT EARNED AND HAD BEEN CONCEALED. ASSESSEES NATURE OF BUSINESS IS SUCH THAT MANY TIMES IT HAS TO BORROW FUNDS FROM ITS ASSOCIAT E CONCERNS, FRIENDS AND RELATIVES AND MANY TIMES SURPLUS FUNDS ARE AVAILABL E WITH THE ASSESSEE AND SAME IS ADVANCED TO SISTER CONCERNS AND OTHER PARTI ES. THE AO IN THE PENALTY ORDER STATED THAT THE ASSESSEE HAS SUBMITTED THAT O N ACCOUNT OF ITS BUSINESS NEEDS IT HAS TO BORROW SIZEABLE FUNDS FROM ITS ASSO CIATE CONCERNS, FRIENDS, ETC. AND THERE FUNDS ALONG WITH SURPLUS FUNDS ARE ADVANC ED TO SISTER CONCERNS AND OTHER PARTIES AS LOANS. THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION RECEIVED INTEREST FROM VARIOUS PARTIES AND ALSO PAI D INTEREST ON THE BORROWINGS MADE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS ESTABLISHED THAT THERE WAS NEXUS BETWEEN INTEREST BEARING FUNDS BORROWED BY THE ASSESSEE AND THE ADVANCES MADE TO THE PARTIES FROM WHOM NO INTEREST WAS CHARGED AS THE ENTIRE FUNDS BORROWED AND ADVANCES W ERE ROUTED THROUGH THE CASH CREDIT ACCOUNT AND AS PER THE PROVISIONS OF SE CTION 36(1)(III) OF THE ACT IN CASE THE LOANS ARE NOT UTILIZED FOR THE BUSINESS PU RPOSE NO DEDUCTION ON ACCOUNT OF INTEREST SHALL BE ALLOWED. THE AO HELD T HAT THE ASSESSEE HAS CONCEALED ITS INCOME. ON THIS GROUND, THE AO HAS RE LIED ON THE FOLLOWING CASE LAWS:- 1. CIT V. MUSADILAL RAM BHAROSE 165 ITR 14,20 (SC) 2. CIT V. K. R. SADYAPPAN 185 ITR 49 (SC) 3. CIT V. JEEVAN LAL SHAH 205 ITR 244 (SC) 4. B.A BALASUBRAMANIAM & BROS. CO. V. CIT (1999) 2 36 ITR 977, 978 5. K.P. MADHUSUDAN V. CIT 251 ITR 99 THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD CO NCEALED ITS INCOME WILLFULLY OF RS.30,98,611 (RS.25 LAKH + RS.5,98,644 ). THE AO WORKED OUT AND LEVIED PENALTY U/S 271(1)(C) ON BOTH THE ADDITIONS AT RS.12.15 LAKH. ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 4 4. LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFF ICER. 5. LEARNED COUNSEL FOR THE ASSESSEE, MR. J.P. SHAH ARGUED THAT RETURN OF INCOME ORIGINALLY WAS FILED ON 18-09-2001. THE SURV EY OPERATION U/S 133A OF THE ACT WAS CARRIED OUT ON 05-11-2001. THE REVISED RETURN OF INCOME WAS FILED ON 22-11-2001. THE ASSESSEE IS ENGAGED AS A RETAIL DEALER OF RAYMOND COLLECTION IS A PARTNERSHIP FIRM. ON THE BASIS OF C ERTAIN LOOSE TORN PAPERS, SHRI MUKUND SHAH, THE PARTNER WITH THE FIRM ADMITTED THE UNACCOUNTED SALES OF RS.25 LAKH, WHICH WAS DECLARED IN THE REVISED RETUR N. AS PER NOTE APPENDED TO THE RETURN OF INCOME, IT HAS BEEN MENTIONED THAT TH E RETURN IS REVISED PURSUANCE TO THE STATEMENT GIVEN VOLUNTARILY BY THE FIRM THROUGH ITS PARTNER WITHOUT ANY MATERIAL ON RECORD. SINCE THIS IS THE V OLUNTARY OFFER DECLARED WITHOUT ANY CONCEALMENT FINDINGS, IMMUNITY IS SOUGH T FROM PENAL PROVISIONS UNDER THE INCOME-TAX ACT. IT WAS ALSO POINTED OUT B Y MR. SHAH, ADVOCATE IN THE STATEMENT GIVEN BY THE PARTNER OF THE FIRM THAT THE SAID PAPERS WERE TORN BY MISTAKE AND THEY WERE AS A MATTER OF FACT WERE RELA TED FOR COMMISSION ON SALES PAYABLE TO STAFF. IT WAS ALSO POINTED OUT THA T THE SAID DECLARATION IS BEING MADE TO BUY THE PEACE OF MIND. THE ASSESSING OFFICE R HAS NOT POINTED OUT ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURA TE PARTICULARS OF INCOME AND THEREFORE PROVISIONS OF SEC. 271(1)(C) OF THE A CT ARE NOT APPLICABLE. LEARNED COUNSEL FOR THE ASSESSEE, MR. SHAH RELIED U PON THE DECISIONS OF VARIOUS COURTS OF LAW AS UNDER:- 1. CIT V. SURESH CHAND BANSAL (2009) 223 CTR 12812 8 (CAL) 2. CIT V. M. PACHAMUTHU (2008) 214 CTR 524 (MAD) 3. CHEAP CYCLE STORES V. CIT (2005) 196 CTR 173 (A LL) 4. CIT V. RAJIV GARG & ORS (2009) 224 CTR 321 (P & H) MR. SHAH ALSO RELIED UPON THE DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. V. CIT (2006) 282 ITR 642 (GUJ) AND OTHER DECISIONS OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT. V. GURUBACHHAN SINGH J JUNEJIA (2008) AS REPORTED IN ITR 302 AT PAGES 63 AND ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 5 IN THE CASE OF CIT V. PRESIDENT INDUSTRIES (2002) REPORTED IN 258 ITR 654 (GUJ) AND IN THE CASE OF CIT V. SAMIR SYNTHETICS MILL (2010) AS REPORTED IN 326 ITR 410 (GUJ) IN SUPPORT OF HIS ARGUMENT. MOREOVER, THE STATEMENTS DURING THE SURVEY DO NOT HAVE ANY EVIDENTIARY VALUE WAS RELIED UPON BY MR. SHAH AS HELD BY HONBLE KERALA HIGH COURT IN THE CASE OF PAUL MATHUS AND SONS V. CIT (2003) AS REPORTED IN 263 ITR 101 (KER). 6. ON THE OTHER HAND, LD. DR SHRI SAMIR TOKRIWAL AR GUED THAT DURING THE COURSE OF SURVEY EXCESS CASH OF RS.11 LAKH WAS FOUN D AND EXCESS STOCK OF RS.18 LAKH WAS ALSO FOUND APART FROM EXCESS SALES O F RS.25 LAKH. THE ASSESSING OFFICER IN THE PENALTY PROCEEDINGS HAVE G IVEN THE CLEAR-CUT FINDING THAT THE ASSESSEE HAD CONCEALED THE INCOME. THEREFO RE THE LD. DR SUPPORTED THE ORDER OF BOTH THE AUTHORITIES BELOW. LD. DR MR. TOKRIWAL IN SUPPORT OF HIS ARGUMENTS RELIED UPON THE VARIOUS COURTS LAW AS UND ER;- A) DCIT V. JAYANTILAL AMBALAL CHOKSHI (2010) 13 TA XMAN 36 (AHD) B) CIT V. PRASAD GRANITES (2010) 8 TAXMAN 265 (KAR ) C) ACIT V. GOUTHAM PUBLIC SCHOOL (2004) 88 TTJ 933 (VISAKHA) D) CIT V. K.P. SMPATH REDDY (1993) 197 ITR 232 (KA R) E) BILAND RAM HARGAN DASS V. CIT (1988) 171 ITR 39 0 (ALL) F) LMP PRECISION ENGG. CO. LTD. V. DCIT (2011) 330 ITR 93 (GUJ) 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE IN THE PRESENT CASE HAD FILED THE ORIG INAL RETURN ON 18-09-2001. THEREAFTER A SURVEY PROCEEDINGS U/S 133A OF THE ACT WAS CARRIED OUT ON 05- 11-2001 AND THE REVISED RETURN OF INCOME WAS FILED ON 22-11-2001. DURING THE COURSE OF SURVEY IT IS NOT UNDER DISPUTE THAT THE P ARTNER OF THE ASSESSEE-FIRM HAD ADMITTED THE UNACCOUNTED SALE OF RS.25 LAKH AS APPEARING FROM THE STATEMENT OF THE SAID PARTNER POINTED OUT BY BOTH T HE PARTIES FILED SEPARATELY. THE ASSESSING OFFICER HAD ACCEPTED THE SAID REVISED RETURN OF INCOME. ON THE REVISED INCOME TAXES HAD BEEN PAID AND THERE IS NO DISPUTE TO THAT EXTENT. THE AO DID NOT MAKE ANY DISPUTE WITH REGARD TO SAID ADDITIONAL INCOME ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 6 DECLARED IN THE REVISED RETURN. THE AO INITIATED TH E PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THERE IS NO DISPUTE TO THE FA CT THAT ASSESSEE HAD SUBMITTED THE EXPLANATION THAT THE PAPERS WERE TORN DURING THE COURSE OF SURVEY BY MISTAKE AND AS A MATTER OF FACT, THE SAID PAPERS RELATED TO THE COMMISSION PAYABLE TO THE STAFF ON SALES. THE ASSES SEE HAD DECLARED THE TOTAL SALES AS INCOME IN THE REVISED RETURN IS ALSO NOT U NDER-DISPUTE. THE SAID TORN PAPERS WERE NOT LOOKED INTO DURING THE COURSE OF SU RVEY PROCEEDINGS WHICH WERE PACKED AND WERE OPENED DURING THE ASSESSMENT P ROCEEDINGS. WHAT IS THE QUANTUM OF THE SALES IN THE SAID TORN PAPERS HA S NOT BEEN BROUGHT ON RECORD BY ANY OF THE AUTHORITIES BELOW AND ALSO IT HAS NOT BEEN POINTED OUT BY THE LD. DR THAT WHAT IS THE QUANTUM OF SALES NOT DE CLARED IN THE SAID TORN PAPERS. THE ASSESSEE HAVING GIVEN THE EXPLANATION T HAT THE SAID PAPERS WERE RELATED TO THE COMMISSION ON SALES HAS NOT BEE TAKE N INTO CONSIDERATION, WHILE THE DECIDING THE PENALTY PROCEEDINGS. MOREOVER, THE AO HAS NOT BROUGHT ANY EVIDENCE OR COGENT MATERIAL APART FROM ASSESSEES E XPLANATION FROM WHICH IT COULD BE INFERRED THAT ASSESSEE HAS CONCEALED THE I NCOME OR HAS FURNISHED THE INACCURATE PARTICULARS OF INCOME. WE HAVE PERUS ED VARIOUS CASE LAWS RELIED UPON BY BOTH THE PARTIES. BUT THE FACT REMAI NS THAT THE AO IN THE ABSENCE OF ANY COGENT MATERIAL OR EVIDENCE EVEN THE EXPLANATION OF THE ASSESSEE HAD NOT BEEN PROVED TO BE FALSE. THEREFORE THE AO CANNOT INFER THAT ASSESSEE HAD CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN SUCH CIRCUMSTANCES AND FACTS OF THE CASE 8. SINCE THE ASSESSING OFFICER HAD NOT DISCHARGED I TS BURDEN OF PROVING, THE CONCEALMENT AND HAS RELIED UPON THE VOLUNTARY S URRENDER DONE BY THE ASSESSEE WHICH WAS MADE TO BUY PEACE OF MIND. IN SU CH CIRCUMSTANCES AND FACTS OF THE CASE, NO PENALTY U/S. 271(1)(C) OF THE ACT CAN BE LEVIED. WE RELY UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE C ASE OF CIT V. SUESH CHANDRA MITTAL (2001) AS REPORTED IN 251 ITR 9 (SC). THE HEAD-NOT ES OF THE SAME FOR THE SAKE OF CLARITY ARE REPRODUCED AS UNDE R:- ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 7 THE ASSESSEE HAD ORIGINALLY FILED RETURNS SHOWING MEAGER INCOME. WHEN, AFTER ACTION UNDER SECTION 132 OF THE INCOME- TAX ACT, 1961, A NOTICE UNDER SECTION 148 WAS SERVED ON HIM, HE FILE D REVISED RETURNS SHOWING HIGHER INCOME. EVENTUALLY, ASSESSMENT ORDER S WERE PASSED AND THE RETURNS SUBMITTED REGULARIZED UNDER SECTION 148. IN PENALTY PROCEEDINGS UNDER SECTION 271(1)(C), THE ASSESSEE C LAIMED THAT HE HAD OFFERED ADDITIONAL INCOME TO BUY PEACE OF MIND AND AVOID LITIGATION. PENALTY ORDERS WERE PASSED AND THE COMMISSIONER (AP PEALS) CONFIRMED THE ORDERS. BUT THE APPELLATE TRIBUNAL HELD THAT TH E DEPARTMENT HAD NOT DISCHARGED ITS BURDEN OF PROVING CONCEALMENT AND HA D SIMPLY RESTED ITS CONCLUSION ON THE ACT OF VOLUNTARY SURRENDER DONE B Y THE ASSESSEE IN GOOD FAITH, AND THAT PENALTY COULD NOT BE LEVIED. O N A REFERENCE, THE HIGH COURT HELD THAT NO PENALTY COULD BE LEVIED FOR CONCEALMENT (SEE [2000]241 ITR 124). THE DEPARTMENT PREFERRED APPEAL S TO THE SUPREME COURT. THE SUPREME COURT DISMISSED THE APPEALS HOLD ING THAT NO INTERFERENCE WITH THE ORDER OF THE HIGH COURT WAS C ALLED FOR. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE ORD ER OF THE LD. CIT(A) IS REVERSED AND ASSESSING OFFICER IS DIRECTED TO CANCE L THE PENALTY SO LEVIED. 9. THE ASSESSING OFFICER HAS ALSO LEVIED THE PENALT Y SINCE THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO VARIOUS GROUP CONC ERNS ON WHICH NO INTEREST IS CHARGED. THE ENTIRE TRANSACTIONS HAVE BEEN FOUND TO BE ROUTED THROUGH THE CASH CREDIT ACCOUNT. IT WAS OBSERVED BY THE AO THAT INTEREST BEARING FUNDS HAD BEEN DIVERTED TO THE GROUP CONCERN TO WHICH NO INTE REST HAS BEEN CHARGED. THE CALCULATIONS HAVE BEEN MADE ON THE AMOUNT OUTST ANDING AS AT 31 ST MARCH, 2001 @ 18% WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE AND ACCORDINGLY PENALTY PROCEEDINGS WERE INITIATED. 10. IT WAS SUBMITTED DURING PENALTY PROCEEDINGS THA T ALL THE TRANSACTIONS ARE BUSINESS TRANSACTION DONE FOR THE PURPOSE OF BUSINE SS. MANY TIMES THE ASSESSEE HAS TO BORROW SIZEABLE FUNDS FROM THE ASSO CIATE CONCERN AND OTHER TIMES SURPLUS FUNDS ARE AVAILABLE WITH THE ASSESSEE AND SAME ARE ADVANCE TO SISTER CONCERN AND OTHER PARTIES. THE ASSESSEE-FIRM HAD RECEIVED INTEREST AND PAID INTEREST ACCORDING TO THE NEEDS OF THE FUND AN D AVAILABILITY OF SURPLUS FUNDS. ITA NO.1178/AHD/2008 A.Y. 2001-02 M/S MADHURAM COLLECTION V. ACIT CIR-2(1) BRD PAGE 8 11. IT APPEARS THAT THE ASSESSING OFFICER OR THE LD . CIT(A) HAVE NOT CONSIDERED THE EXPLANATION OF THE ASSESSEE GIVEN DU RING PENALTY PROCEEDINGS. THE PENALTY PROCEEDINGS AND ASSESSMENT PROCEEDINGS BOTH ARE SEPARATE PROCEEDING AND THE EXPLANATION GIVEN DURING PENALTY PROCEEDINGS IS REQUIRED TO BE CONSIDERED BY THE ASSESSING AUTHORITY WHICH I N THE PRESENT CASE HAS NOT BEEN DONE. THE ASSESSEES FUNDS ARE MIXED FUNDS I.E . THE OWN FUND AND INTEREST BEARING FUNDS. THE AO HAS NOT SPECIFICALLY POINTED OUT DURING THE ASSESSMENT PROCEEDINGS OR IN THE PENALTY PROCEEDING S THAT THE FUNDS WHICH ARE INTEREST BEARING AND HAVING USED FOR NON-BUSINE SS PURPOSES I.E. THE AO HAS NOT BROUGHT ON RECORD THE DIVERSION OF FUNDS. T HEREFORE ON SURMISES AND CONJECTURES, THE AO CANNOT LEVY THE PENALTY U/S. 27 1(1)(C) OF THE ACT. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WE REVERSE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO CANCEL THE PENALTY. THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CASE, GROUND OF ASSESSEE IS ALLOWED. 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. # !' $!%& 31 / 01 /201 2 * + , - THIS ORDER PRONOUNCED IN OPEN COURT ON 31/01/ 201 2. SD/- SD/- ( MUKUL KUMAR SHRAWAT ) ( B.P. JAIN ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) $!%&- 31/01/2011 /!! - DKP* !' !' !' !' 001 001 001 001 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. %%05 6 / CONCERNED CIT 4. 6- / CIT (A) 5. 19, 0005, 05, /!! / DR, ITAT, AHMEDABAD 6. ,<= ># / GUARD FILE. BY ORDER/ !' , /TRUE COPY/ ?// %@ 05, /!! -