M/s Trimurti Engineering Works, Muzaffarnagar V. ITO, Muzaffarnagar

ITA 3889/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61592 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 13-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C B SINGH
• Assessee Lawyers: V K TULSIAN
• Keywords: Income from undisclosed sources; Peak credit; Speculation loss
• Section: 43B; 143(3); 68

Judgement Text

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) (RESPOND ENT) APPELLANT BY : SHRI V.K. TULSIAN, C.A. RESPONDENT BY: SHRI C.B. SINGH, SR. DR DATE OF HEARIN G : 15.03.2012 DATE OF PRONOUN CEMENT: 04 .04.2012 ORDER PER K.G. BANSAL : AM THE FACTS OF THE CASE TAKEN FROM ASSESSMENT OR DER DATED 26.12.2007 PASSED U/S 143(3) OF THE INCOME-TAX A CT, 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 CA SH BALANCE, WHICH WAS ITA NO. 3889(DEL)/2011 2 SOUGHT TO BE EXPLAINED BY FILING CASH FLOW STA TEMENT IN THE CASE OF THE ASSESSEE AND ITS PARTNERS. THE AO DID NOT AC CEPT THE EXPLANATION AND ADDED A SUM OF RS. 8,79,204/- ON THIS GROUND. F URTHER, 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 A SSESSEE WAS INFORMED THAT PROVISION CONTAINED IN EXPLANATION 1 OF THE AFORE SAID SECTION IS APPLICABLE. 1.1 THE ADDITIONS WERE AGITATED IN APPEAL BEFORE THE CIT(APPEALS), MUZAFFARNAGAR. AFTER DETAILED ANALYSIS OF THE EV IDENCE AND SUBMISSION, IT IS MENTIONED THAT THE PEAK OF NEGATIVE CASH O N 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 AMO UNTING TO RS. 16.25 LAKH WAS ONLY ONE COMPONENT OF UNACCOUNTED CAS H 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 ITA NO. 3889(DEL)/2011 3 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 CENTRA L 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 PA GE 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 BASI S HAS BEEN MADE, A SEPARATE ADDITION OF RS. 8,79,204/- ON A CCOUNT OF NEGATIVE PEAK BALANCE CANNOT BE MADE. IN FACT, TH E 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 A SSESSMENT ORDER SHOW THAT THE UNACCOUNTED CASH INTRODUCED IN THE BOOKS OF ACCOUNT WAS ONLY TO COVER THE NEGATIVE CASH B ALANCES AS ARISING FROM TIME TO TIME. BUT AS THE GENUINENE SS OF THE CLAIM OF CASH INTRODUCED OF RS. 16.25 LACS IS IN DISPU TE 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 T HAT THE LD. ITA NO. 3889(DEL)/2011 4 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 INT RODUCED OF RS.16.25 LACS, THE HIGHER THE SAME HAS BEEN RI GHTLY 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 TH IS ISSUE. IN THESE CIRCUMSTANCES, THE FINDINGS OF LD. CIT(A) ON THIS ISSUE STAND CONFIRMED. 1.3 AS MENTIONED EARLIER, PENALTY PROCEEDINGS W ERE INITIATED U/S 271(1)(C) IN THE COURSE OF ORIGINAL ASSESSMENT ORDER. THESE PROCEEDINGS WERE CONCLUDED ON 30.03.2010 BY LEVYING MINIMUM P ENALTY OF RS. 6,76,300/-. IT HAS INTER-ALIA MENTIONED THAT THE ASSESSEE FIRM HAS INTRODUCED UNACCOUNTED CASH IN THE BOOKS TO COVE R NEGATIVE CASH BALANCE BY EXPLAINING IT AS ADVANCE FOR JOB WORK. HOWE VER, THE ASSESSEE FAILED TO ADDUCE ANY EVIDENCE REGARDING RECEIPT OF SUC H ADVANCE OR THE JOB WORK ACTUALLY DONE. THE ASSESSEE HAD ALSO BEE N 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 PROVISIO N 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 LEVIE D. ITA NO. 3889(DEL)/2011 5 1.4 AGGRIEVED BY THIS ORDER, APPEAL WAS FILED BE FORE THE CIT(APPEALS), MUZAFFARNAGAR, WHO DISPOSED IF OFF ON 10.05.2011. RELYING ON THE DECISION IN THE CASE OF UNION OF INDIA VS. DHARMEN DRA TEXTILE PROCESSORS, (2008) 306 ITR 277 (SC), IT HAS BEEN HELD THAT THE LIABILITY INVOLVES AN ELEMENT OF STRICT LIABILITY, IT IS A CIVIL LIA BILITY, IT IS TO PROVIDE REMEDY FOR LOSS OF REVENUE AND MENS REA IS NOT AN ESSEN TIAL INGREDIENT FOR THE LEVY. IN REGARD TO THE FACTS, IT HAS BEEN MENTIONED THA T THE BURDEN IS ON THE ASSESSEE TO PROVE THAT PARTICULARS OF INCOME FUR NISHED 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 A RE 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 REPR ODUCED BELOW:- 1. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY CONFIRM ING THE PENALTY ORDER UNDER SECTION 271(1)(C) CLAUSE (A) OF EXP LANATION 4 WHEN THERE WAS NO NOTICE THEREOF. ITA NO. 3889(DEL)/2011 6 2. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY CONFIRMI NG THE PENALTY ORDER, SPECIFICALLY WHEN NO SATISFACTION RECORDE D AT THE TIME OF MAKING ADDITIONS IN THE ASSESSMENT ORDER FOR INV OKING SECTION 271(1)(C) AND WAS BASED ONLY ON GENERAL OBSERVA TION. 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 G ARB OF SECTION 292B. 4. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY NOT ADM ITTING THE SUBMISSION OF THE ASSESSEE FILED BEFORE A.O. DATE D 30.10.2009 EVEN WITHOUT VERIFICATION FROM THE RECORD. 5. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY NOT QUA SHING THE TIME BARRED PENALTY ORDER WHICH BASED ON NOTICE DATE D 26.12.2007 FIXED FOR 23.01.2008 WHEN THE PENALTY ORDER PASSED ON 3 0.03.2010. 6. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY CONFIRMI NG 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 CONFIRMI NG THE PENALTY ORDER WHICH IS SOLELY BASED ON QUANTUM ORDERS INS TEAD OF INDEPENDENTLY FINDING TO ESTABLISH THE INTENTI ONAL DEFAULT ON THE PART OF THE APPELLANT. 8. WHETHER THE LD. CIT(A) WAS JUSTIFIED BY CONFIRMI NG THE PENALTY ORDER WHICH WAS BASED ON QUANTUM ORDER WHERE ADD ITION WAS MADE BECAUSE OF REJECTION OF EXPLANATION WHICH WAS TR EATED EQUIVALENT TO REJECTION OF BOOKS OF ACCOUNT FOR THE PURPOSE OF PE NALTY. 2. BEFORE US, THE LD. COUNSEL SUBMITS THAT THE A DDITION WAS MADE ON TWO COUNTS, THE SHORTAGE OF CASH AND ADVANCES RE CEIVED IN RESPECT OF JOB WORK. THE ADVANCES SO TAKEN WERE RETURNED BY TH E ASSESSEE. THE ADDITIONS WERE MADE BY REJECTING THE EXPLANATION FURNISHED BY IT. AS AGAINST INVOCATION OF EXPLANATION-1, PENALTY W AS LEVIED UNDER ITA NO. 3889(DEL)/2011 7 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 PROCEE DINGS HAVE FINALLY LED TO DETERMINATION OF A HIGHER LOSS. IT IS NOT A C ASE OF REDUCTION IN LOSS OR ASSESSMENT AT A POSITIVE FIGURE AGAINST THE CLA IM OF LOSS. ACCORDINGLY, THE PROVISION CONTAINED IN EXPLANATION 4 IS NOT AP PLICABLE. IT IS ALSO SUBMITTED THAT THE PENALTY IN RESPECT OF CASH SHO RTAGE 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 IS SUE ANY NOTICE FOR LEVY OF PENALTY ON SUCH ENHANCEMENT. THEREFORE, THE A O COULD NOT HAVE LEVIED PENALTY IN RESPECT OF AN AMOUNT EXCEEDING RS. 16. 25 LAKH. 2.1 CONTINUING WITH HIS SUBMISSIONS, IT IS STATE D THAT THE AO HAD MADE THREE ADDITIONS IN RESPECT OF CASH SHORT AGE, ADVANCES FOR JOB WORK AND CASH EXPENDITURE. WHILE LEVYING PENALTY, THE AO HAS DISCUSSED THE ORDERS OF THE CIT(APPEALS) AND THE TRIBUNAL IN QUA NTUM 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 TH IS SUBMISSION IS ACCEPTED, ITA NO. 3889(DEL)/2011 8 IT ONLY AMOUNTS TO IRREGULARITY. THE ASSESSEE HA D FURNISHED SUBMISSIONS ON THE MERITS BEFORE THE AO, WHICH WERE NOT CONSIDE RED. HOWEVER, THE LD. CIT(APPEALS) BRUSHED ASIDE THIS SUBMISSION BY M ENTIONING THAT THERE IS NO EVIDENCE OF FILING ANY REPLY BEFORE THE AO. 2.2 COMING TO GROUND-WISE SUBMISSIONS, IT IS SUB MITTED THAT NO NOTICE WAS ISSUED UNDER EXPLANATION 4 NOR ANY AVERMENT THEREOF WAS MADE IN THE NOTICE OR ASSESSMENT ORDER, THEREFORE, THE LEVY O F PENALTY UNDER THIS EXPLANATION IS BAD IN LAW. 2.3 THE CIT(APPEALS) DELETED THE ADDITION IN RES PECT OF NEGATIVE CASH AND ENHANCED THE ADDITION IN RESPECT OF ADVANCES FOR JOB WORK. NO DIRECTION WAS ISSUED FOR LEVYING PENALTY IN RESP ECT OF ENHANCEMENT AND, THEREFORE, LEVY OF PENALTY ON SUCH ENHANCEMENT IS BAD IN LAW. 2.4 IN REGARD TO INVALIDITY OF THE NOTICE, OUR AT TENTION 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 INA PPROPRIATE PARAGRAPH HAS NOT BEEN CANCELLED. THEREFORE, IT IS ARGUED THAT NO PENALTY COULD HAVE BEEN LEVIED ON THE BASIS OF SUCH A NOTICE. ITA NO. 3889(DEL)/2011 9 2.5 IN RESPECT OF GROUND NO. 4, IT HAS BEEN MENTIO NED THAT THE LD. CIT(APPEALS) WAS NOT RIGHT IN REJECTING THE CONTEN TION 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 MENTIO NED THAT HEARING WAS FIXED ON 23.01.2008 IN THE NOTICE DATED 26.12.200 7. HOWEVER, THE ORDER WAS FINALLY PASSED ON 30.03.2010. NO INTERIM ORD ER 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 SUB MITTED THAT PENALTY PROCEEDINGS ARE TOTALLY DIFFERENT PROCEEDINGS FROM ASSESSMENT PROCEEDINGS. IN PENALTY PROCEEDINGS, AN INDEPEN DENT 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 DI D NOT ARRIVE AT AN INDEPENDENT CONCLUSION ABOUT THE LEVIABILITY OF THE PENALTY BY MAKING ITA NO. 3889(DEL)/2011 10 FURTHER ENQUIRIES. THEREFORE, THE ORDER OF PENALT Y 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 A UTHORITIES HAVE LEVIED AND UPHELD THE PENALTY MERELY ON REJECTION OF THE EX PLANATION 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 IMPUG NED ORDER. IT IS SUBMITTED THAT ALL THE ARGUMENTS OF THE ASSESSE E HAVE BEEN CONSIDERED IN THIS ORDER AND A POSITIVE FINDING HAS BEEN REC ORDED 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 SUBMITTE D THAT FINALLY ASSESSED LOSS OF RS. 4,30,057/- IS ON ACCOUNT OF ADDITION AL GROUND TAKEN BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS) IN RESPECT O F 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 SHOU LD HAVE RIGHTLY BEEN ITA NO. 3889(DEL)/2011 11 MADE IN THE RETURN OF INCOME. UPON DOING SO, THE RETURNED LOSS WOULD HAVE INCREASED BY AN EQUIVALENT AMOUNT AND FINAL LY ASSESSED INCOME WOULD HAVE BEEN A POSITIVE FIGURE. 3.2 IN REGARD TO GROUND NO. 2 , IT IS SUBMITTED T HAT 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 A MOUNT FROM THE REDUCED ADDITION FOR THE PURPOSE OF LEVY OF PENALTY. IN R EGARD 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 D ETAIL. IT HAS BEEN HELD THAT THE AMOUNTS REPRESENT INCOME OF THE ASSESSEE FROM UNDISCLOSED SOURCES, THEREFORE, IT IS OBVIOUSLY A CASE OF FA BRICATION OF BOOKS OF ACCOUNT WITH A VIEW TO BRING CONCEALED INCOME IN THE BOOKS . ITA NO. 3889(DEL)/2011 12 3.3 IN REGARD TO GROUND NO. 4, IT IS SUBMITTED THA T EVEN NOW THERE IS NO EVIDENCE OF FILING ANY REPLY BEFORE THE AO AND, T HEREFORE, NO FAULT CAN BE FOUND WITH THE FINDING OF THE CIT(APPEALS). 3.4 IN REGARD TO GROUND NO. 5, THE ADMITTED POSI TION IS THAT THE ORDER HAS BEEN PASSED WITHIN SIX MONTHS OF THE RECEIPT OF T HE ORDER OF THE TRIBUNAL BY THE CIT. SUCH AN ORDER CANNOT BE HELD TO BE BA RRED BY LIMITATION. EVEN THE LD. COUNSEL HAD NOT MADE ANY SUBMISSION IN T HIS 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 TEXTIL E PROCESSORS & OTHERS (SUPRA), THE PENALTY IS TO BE DECIDED ON THE BASI S OF THE EXPLANATION FURNISHED BY THE ASSESSEE AND THERE IS NO NEED TO PROVE MENS REA AS THE ITA NO. 3889(DEL)/2011 13 PROCEEDINGS ARE CIVIL IN NATURE. THE INSTANT CA SE 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 POSITI VE ELEMENT ABOUT SECRETED CONCEALED INCOME SOUGHT TO BE UTILIZED BY THE AS SESSEE WITHOUT PAYMENT OF TAX. THEREFORE, THE PENALTY HAS BEEN RIGHTLY LEVIED AND CONFIRMED. 3.6 REVERTING TO THE PROVISION CONTAINED IN EXPLAN ATION 4, IT IS SUBMITTED THAT IT IS IN THE NATURE OF THE DEFINITI ON OF THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVADED BUT THE SU BSTANTIVE DEFAULT IS UNDER CLAUSE (III) OF SUB-SECTION (1) OF SECTION 271. 4. IN THE REJOINDER, IT IS SUBMITTED THAT THE EXP LANATION 4 SHOULD BE STRICTLY CONSTRUED AND IN VIEW OF HIGHER LOSS FINA LLY ASSESSED, THE PENALTY IS NOT LEVIABLE. THE LD. CIT(APPEALS) HAS NOT COMBI NED THE TWO ADDITIONS INTO ONE. BOTH OF THEM ARE INDEPENDENT ADDITI ONS AND SHOULD BE VIEWED AS SUCH. THE DEFECT IN THE NOTICE OF PENALTY CANNO T BE CURED U/S 292B AS ARGUED BY THE LD. COUNSEL. ITA NO. 3889(DEL)/2011 14 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS MADE BEFORE US. THE ASSESSEE HAS TAKEN A NUMBER OF T ECHNICAL 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 AS SESSEE WAS NOT APPRAISED THAT THE ASSESSING OFFICER INTENDS TO INVOKE THE PROVISION CONTAINED IN EXPLANATION 4 TO SECTION 271(1)(C). THIS EXPLAN ATION DEFINES THE TERM THE AMOUNT OF TAX SOUGHT TO EVADED FOR THE PURP OSE OF CLAUSE (III) OF SUB- SECTION (1) IN A SITUATION WHERE THE EFFECT OF CO NCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME IS TO REDUCE LOSS DECLARED IN THE RETURN OR CONVERT THE LOSS INTO INCOME. THE E XPRESSION HAS BEEN DEFINED TO MEAN THE TAX WHICH WOULD HAVE BEEN CHARGEABL E 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 ESTABLISHE D. THE ASSESSEE HAS NOT BEEN ABLE TO SUPPORT HIS CONTENTION WITH ANY DECID ED CASE. HOWEVER, IN THE CASE OF CIT VS. K.P. MADHUSUDANAN (2000) 246 IT R 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 RE QUIREMENT EITHER DIRECTLY OR INDIRECTLY. THEREFORE, IT HAS BEEN HELD THAT THE TR IBUNAL WAS NOT JUSTIFIED IN ITA NO. 3889(DEL)/2011 15 CONCLUDING THAT ORDER IMPOSING PENALTY WAS VITIA TED 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 REBUTTA L PRESUMPTION WHICH THE ASSESSEE IS REQUIRED TO REBUT BY PLACING MATERIAL S ON RECORD. THE DECISION, ACCORDING TO US, WILL APPLY MUTATIS MUTANDIS IN RESPECT OF EXPLANATION-4. EXPLANATION 1 CREATES A RULE OF EVIDENCE AND PL ACES 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 RETURNE D LOSS HAS BEEN REDUCED OR IT HAS BEEN CONVERTED INTO PROFIT. THE SCHEM E OF THE ACT DOES NOT PROVIDE THAT THIS EXPLANATION SHOULD BE SPECIFICA LLY 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 COUL D NOT HAVE BEEN LEVIED BY INVOKING THIS EXPLANATION. WE FIND THAT THIS AR GUMENT 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 COMPL ETED AT RS. 23,28,250/-. THE ASSESSEE MADE A FURTHER CLAIM OF RS. 21,02,14 4/- U/S 43B BEFORE THE LD. CIT(APPEALS) IN RESPECT OF AMOUNT PAID AS PE R ORDER OF THE SETTLEMENT COMMISSION. THIS DEDUCTION SHOULD HAVE BEEN CLAIME D IN THE RETURN OF ITA NO. 3889(DEL)/2011 16 INCOME. IF THAT HAD BEEN DONE, THE RETURNED LOS S 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 ADDITI ON MADE BY THE AO HAD THE EFFECT OF REDUCING LOSS TO THE EXTENT THE ADDIT IONS HAVE BEEN CONFIRMED BY THE TRIBUNAL. IT MAY BE MENTIONED THAT THE EXP LANATION DOES NOT USE THE WORDS RETURNED LOSS OR ASSESSED LOSS BUT US ES 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(APP EALS) DELETED THE FIRST ADDITION OF RS. 8,79,204/-. THEREFORE, PENALTY IS N OT 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 AMOUN T 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 CON SIDERATION OF BOTH THE ADDITIONS MADE BY THE AO, HE CAME TO THE CONCLUSI ON THAT THEY ARE OF THE SAME NATURE, I.E., UNACCOUNTED CASH HAS BEEN U SED IN THE BUSINESS EITHER BY NOT MAKING CORRESPONDING ENTRY OR BY MAKING ENTR IES IN CASH BOOK IN THE NAME OF TRIMURTI ENGINEERING WORKS AS ADVANCES F OR JOB WORK. ITA NO. 3889(DEL)/2011 17 THEREFORE, THE REAL SITUATION IS THAT THE TOTAL ADDITION MADE BY THE AO HAS BEEN REDUCED TO RS. 18,48,039/-. WE SHALL AL SO REVERT TO THIS ISSUE WHILE DEALING WITH THE QUANTUM OF LEVY OF PENALT Y. 5.2 IT IS ALSO SUBMITTED THAT THE NOTICE IS VAGU E. 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 L TD., (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 PENAL TY ON THAT GROUND CANNOT FRUCTIFY. THE CIT(APPEALS), HOWEVER, UPHELD THE DISALLOWANCE ON A TOTALLY DIFFERENT GROUND. IN SUCH A SITUATION, THE PENALT Y COULD HAVE BEEN INITIATED BY THE CIT(APPEALS) BUT THAT WILL NOT GIVE JUR ISDICTION 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 ITA NO. 3889(DEL)/2011 18 IS SOUGHT TO BE PENALIZED. THE WHOLE ISSUE HAS T O 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 BO OK 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, T HE RECEIPTS BY WAY OF ADVANCES FROM TRIMURTI ENGINEERING WORKS, HAVING IMPLICATION ON THE SECOND ADDITION, HAVE BEEN REPRODUCED IN THE ASS ESSMENT 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 NOT HING BUT AN AFTERTHOUGHT AND A COLOURABLE DEVISE TO AVOID TAX. THIS C ASH 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 STA TEMENTS WERE ALSO EXAMINED AND VARIOUS DEFECTS WERE NOTICED. COMI NG TO ADVANCES FOR JOB WORK, IT IS INTER-ALIA MENTIONED THAT MOST OF TH E ENTRIES ARE ABOVE RS. 20,000/-, BUT IN THE RECONCILIATION STATEMENT T HE ENTRIES HAVE BEEN BIFURCATED SO THAT EACH ONE OF THEM IS LESS THAN R S. 20,000/-, WHICH SEEMS TO HAVE BEEN DONE TO AVOID PENALTIES UNDER SECTION S 271D AND 271E OF THE ACT. THE ASSESSEE HAS NOT DONE ANY JOB WORK A ND NO INCOME HAS BEEN SHOWN ALTHOUGH AN AMOUNT OF RS. 16.25 LAKH IS ST ATED TO HAVE BEEN TAKEN FROM A SINGLE PARTY ON A NUMBER OF OCCASIONS. FINALLY, IT HAS BEEN ITA NO. 3889(DEL)/2011 19 RECORDED IN RESPECT OF BOTH THE ADDITIONS THAT T HE AMOUNT IS TREATED AS INCOME FROM UNDISCLOSED SOURCES. ALL THESE OBSERVA TIONS 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 PAY ING TAX THEREON. THEREFORE, WHEN WE SEE THE NOTICE AND THE CONTEN TS OF ASSESSMENT ORDER, IT IS CLEAR THAT THE NOTICE WAS ISSUED FOR CONCEA LING PARTICULARS OF INCOME. THE NOTICE IS NOT A STAND ALONE DOCUMENT. IT IS BASED ON THE ASSESSMENT ORDER. WITHOUT FINDING REGARDING ONE OR THE OTH ER CHARGE, THE NOTICE CANNOT BE ISSUED. HOWEVER, IF TWO ARE READ TOGET HER, 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 N O 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 ITA NO. 3889(DEL)/2011 20 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 NOT ICE WAS ISSUED ON 26.12.2007. HOWEVER, THE NOTICE WAS NOT PURSUED. F URTHER NOTICES WERE ISSUED ON THE BASIS OF WHICH PENALTY WAS LEVIED. THUS, THE INITIAL NOTICE ISSUED HAD BECOME BARRED BY LIMITATION. WE AR E 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 BEFO RE THE TRIBUNAL, WHICH WERE DISPOSED OFF ON 04.10.2009. THE PENALTY WAS LE VIED 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 TH AT 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 B EFORE THE TRIBUNAL. ONE WOULD RATHER APPRECIATE SUCH AN APPROACH SO T HAT A FINAL VIEW COULD BE ITA NO. 3889(DEL)/2011 21 TAKEN AFTER RECEIPT OF THE APPELLATE ORDERS RAT HER 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 ASSESS EE HAS USED UNACCOUNTED CASH AVAILABLE WITH IT IN THE COURSE OF BUSINESS LEADING TO MAXIMUM NEGATIVE CASH OF RS. 18,48,039/- AS ON 29.03.20 05. THIS FINDING HAS BEEN CONFIRMED BY THE TRIBUNAL BY MENTIONING THAT UNACC OUNTED CASH INTRODUCED IN THE BOOKS OF ACCOUNT WAS ONLY TO CO VER THE NEGATIVE CASH BALANCES ARISING FROM TIME TO TIME. AT THE SAM E TIME, THE GENUINENESS OF CASH OF RS. 16.25 LAKH HAS ALSO NOT BEEN SUBSTAN TIATED BY PRODUCTION OF THE DETAILS OF JOB WORK ADVANCES. THEREFORE, THE OVER ALL 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 T HE 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 POSIT ION OF NEGATIVE CASH AND THERE IS NO EXPLANATION FOR SUCH CASH AVAILABLE W ITH THE ASSESSEE. IN THE BACKGROUND OF THESE FACTS, THE SUBMISSION OF THE LD. COUNSEL IS THAT THE ITA NO. 3889(DEL)/2011 22 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. DEP UTY CIT (2009) 120 TTJ (CHENNAI) 992, IT HAS BEEN HELD THAT THE BURDE N 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 CA NNOT BE EQUATED WITH THE PAYMENT OF TAX. ON FACTS, IT WAS FOUND THAT DI FFERENT 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 D ISTINGUISHABLE. 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 HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA T AXTILE 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 T HE BASIS OF PROVISION ITA NO. 3889(DEL)/2011 23 CONTAINED IN THE STATUTE INCLUDING EXPLANATION 1, WHICH CASTS INITIAL ONUS ON THE ASSESSEE TO FURNISH EXPLANATION AND THER EAFTER 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. (S UPRA), THE IMPORT OF EXPLANATION 1 HAS BEEN EXPLAINED. THE CHARGE AGAINS T 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 VINDICATE D AND, THEREFORE, THE BASIS ON WHICH THE PENALTY WAS INITIATED STANDS DEMO LISHED. IN SUCH A SITUATION, THE PENALTY CANNOT BE LEVIED BECAUSE THE VERY BAS IS 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 BE LIEF THAT IT WAS NOT A DEALER IN GOODS. IT HAS BEEN HELD THAT LEVY OF PENALTY I S IN THE DISCRETION OF THE AUTHORITY WHICH SHOULD BE EXERCISED JUDICIALLY ON CONSIDERATION OF ALL ITA NO. 3889(DEL)/2011 24 RELEVANT CIRCUMSTANCES. EVEN IN A CASE WHERE MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY MAY NOT LEVY THE PENA LTY WHEN THERE IS ONLY A VENIAL OR TECHNICAL BREACH OF THE PROVISIONS OF T HE 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 RAT HER A CASE OF MANIPULATING ACCOUNT BOOKS WHILE UTILIZING UNACCOUNTED INCOME F OR THE BUSINESS PURPOSE. AS EXPLAINED IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS, IT IS FOR THE ASSESSEE TO INITIALLY O FFER EXPLANATION. THE EXPLANATION THAT MONEY WAS RECEIVED FROM TWO PAR TNERS AND THAT ADVANCES WERE RECEIVED FOR JOB WORK CHARGES COULD NOT BE SUBSTANTIATED. IT IS A CASE WHERE DEFICIENCY OCCURRED ON A NUMBER OF O CCASIONS, 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 RESPEC T OF WHICH HAVE ALSO BEEN ALTERED WITH A VIEW TO AVOID APPLICABILITY OF SECT IONS 269SS AND 269T. THEREFORE, THE RATIO OF THIS CASE ARE ALSO NOT A PPLICABLE. 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 ITA NO. 3889(DEL)/2011 25 DEALS IN GARLIC, HAD NOT SHOWN 1383 BAGS OF GA RLIC IN THE STOCK AT THE END OF THE YEAR. THEREFORE, IT WAS CONCLUDED THAT THE SE STOCKS WERE SOLD AND THE SALE PROCEEDS WERE NOT DISCLOSED. AN ADDITI ON OF RS. 58,000/- WAS MADE. THE AAC CAME TO THE CONCLUSION THAT THE BAG S 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 TRIBU NAL HELD IT TO BE A CASE OF UNDER-VALUATION OF STOCK BUT REDUCED THE ADDI TION TO RS. 20,213/-. THE AO ALSO LEVIED THE PENALTY. THE HONBLE COURT ME NTIONED 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 BO NA FIDE. ON THE OTHER HAND, IT HAS BEEN ESTABLISHED THAT THE ASSESSEE F IRM WAS IN POSSESSION OF ITA NO. 3889(DEL)/2011 26 UNACCOUNTED INCOME BY WAY OF CASH WHICH WAS UTILI ZED 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 TR UE 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) ADVAN CES 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 B OTH 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 FIN DING OF THE LD. CIT(A) THE ADDITION OF RS. 8,79,209/- HAS BEEN DELETED. BE ING 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 ITA NO. 3889(DEL)/2011 27 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 O RDERED 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.