SHRI BHANUPRASAD D. TRIVEDI (HUF),,AHMEDABAD vs. THE DCIT, CENT. CIRCLE-1(3), AHMEDABAD

(Applicant) (Respondent) Assessee by : Ms. Urvashi Shodhan, A.R Revenue by : Shri L.P. Jain, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 08/08/2019 घोषणा क� तार�ख /Date of Pronouncement: 16/10/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), Gandhi Nagar, Ahmedabad [Ld. CIT(A) in short], dated 21/11/2016 arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 26/03/2014 relevant to Assessment Year (AY) 2005-06.

The assessee has raised the following grounds of appeal: Page 1 of 9

1 Ld. CIT (A) erred in law and on facts in confirming penalty levied by AO of Rs. 25,24, 500/- invoking provisions of section 271(l)(c) of the Act. Ld. CIT (A) ought to have deleted penalty levied by AO when appellant neither concealed income nor furnished inaccurate particulars of income. 2 Ld. CIT (A) erred in law and on facts confirming penalty on additions made in re-opened assessment ignoring evidence establishing identity, creditworthiness & genuineness of the transaction in scrutiny assessment. 3 Ld. CIT (A) erred in law and on facts confirming penalty on additions made without affording opportunity for cross examination to the appellant & in absence of cogent evidence of concealment of income. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The only issue raised by the assessee is that the Ld. CIT (A) erred in confirming the penalty for a sum of Rs. 25, 24,500/- under section 271(1)(c) of the Act.

2.1 The assessee in response to the notice issued under section 271(1)(c) read with section 274 of the Act, during the penalty proceedings, claimed that the impugned transaction was carried out through the banking channel and filed a photo copy of the confirmation from the party.

2.2 However, the AO was dissatisfied with the contention of the assessee by observing that the assessee failed to bring sufficient record including the bank statement to justify his stand. Therefore, the AO levied the minimum penalty of Rs. 25,24,500.00 being 100% of the amount of tax sought to be evaded under section 271(1)(c) of the Act on account of furnishing inaccurate particulars of income.

3.1 The assessee also challenged the reopening of the assessment under section 147 of the Act on the ground that the approval was not obtained from the Commissioner of Income Tax before the issuance of notice under section 148 of the Act.

3.2 However, the Ld. CIT (A) disregarded the contention of the assessee by observing that the AO has provided sufficient opportunity to the assessee for the rebuttal of the statement of Shri Mangeram Sharma during the assessment and the penalty proceedings. But the assessee failed to avail the same as well as failed to furnish the identity, genuineness and the creditworthiness of the loan provider.

3.3 The Ld. CIT (A) also observed that the AO has obtained the approval from the Commissioner of Income Tax before the initiation of the proceedings under section 147 of the Act.

In view of the above, the Ld. CIT (A) confirmed the penalty imposed by the AO on account of furnishing inaccurate particulars of income by the assessee.

Being aggrieved by the order of the Ld. CIT (A) the assessee is in appeal before us.

6.1 The Hon'ble Supreme Court, in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, had laid down the position of law by holding that the Assessing Officer is not bound to levy penalty automatically simply because the quantum addition has been sustained.

6.2 Similarly the Hon’ble Supreme Court also in case of CIT v. Khoday Eswara reported in 83 ITR 369 has held that penalty cannot be levied solely Page 4 of 9 on basis of reasons given in original order of assessment. The relevant finding of the Hon’ble Court stands as under:

“No doubt the original assessment proceedings, for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment”. 6.3 The Hon'ble Supreme Court has recently reiterated the law in case of Dilip N. Shroff vs. Jt. CIT reported in 291 ITR 519 by holding that finding in assessment proceedings cannot automatically be adopted in penalty proceedings and the authorities have to consider the matter afresh from different angle. The relevant finding of the Hon’ble Court stands as under:

“Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.” 6.4 The provision of law mandates that the AO, during the penalty proceedings, requires arriving at a satisfaction so as to show that there is primary evidence which is establishing the fact that the assessee had concealed the amount or furnished inaccurate particulars. Such onus lies on the Revenue which needs to be discharged by it while considering whether the assessee has been able to discharge his burden. The Assessing Officer should not begin with the presumption that he is guilty based on a finding in the assessment proceedings, though such finding in the assessment proceedings constitutes good evidence in the penalty proceedings. As such the authorities in the penalty proceedings must consider the matter afresh as the question has to be considered from a different angle. It is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive. Assessment proceedings and penalty proceedings are separate and distinct. Findings in the assessment proceedings do not operate as res judicata in penalty proceedings. It was so held by the Hon'ble Bombay High Court in the case of CIT vs. Dharamchand L. Shah reported in 204 ITR 462 (Bom). The relevant extract of the order reads as under:

“Further, it is by now a trite law that the assessment proceedings and penalty proceedings are two separate and distinct proceedings. The fact that certain additions were made in the assessment proceedings would not automatically justify the revenue to impose penalty under section 271(1)(c ). It is also well established principle that the provisions relating to penalty proceedings are quasi-criminal in nature and, therefore, the burden is large on the revenue to establish the charge before imposing penalty under section 271(1)(c), more so, when the provisions of the Explanation to that section have not been invoked. The Explanation to that section have not been invoked. In the instant case, it was quite apparent from the order of the IAC that he had imposed penalty under section 271(1)(c ) merely on the ground that certain additions were made in the assessment proceedings and that the assessee had accepted the same. The provisions of section 69A are enabling provisions for making certain additions. If the assessee fails to give an explanation pr the explanation given by the assessee is not to the satisfaction of the ITO, surely the additions made on this count would not automatically justify the imposition of penalty under section 271(1)(c ). In that view of the matter, since in the instant case, the IAC had failed to invoke the provision of the Explanation to section 271(1)(c), there was no possibility of confirming the penalty imposed by him under section 271(1)(c).” Further, in Vijay Power Generators Ltd vs. ITO reported in DTR 64 (Del) it was held that "It is well settled that though they constitute good evidence, they do not constitute conclusive evidence in penalty proceedings."

In view of the above, we note that there has to be reappraisal of the very same material on the basis of which the addition was made during the penalty proceedings. However, if the assessee adduces further material in the course of the penalty proceedings, it is all the more necessary that such further material should also be examined in an attempt to ascertain whether the assessee concealed his income or furnished inaccurate particulars.

6.5 Thus, under penalty proceedings assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures were made and that on the basis of material disclosed there cannot be a case of concealment of income or Page 6 of 9 furnishing inaccurate particulars of income. Further, if there is any material or additional evidence which was not produced during assessment proceedings, the same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate.

6.6 In the present case the assessee has discharged the burden by reiterating the submission as made during the quantum proceedings. Accordingly, the Revenue has to discharges its burden by conducting independent/fresh enquiries to arrive at the conclusion that the assessee has concealed/furnished inaccurate particular of income. As such at the time of assessment proceedings it may be possible that the assessee, due to certain reasons, could not explain his part properly or produce the sufficient evidences that the impugned loan was genuine. But the Revenue without doing any further enquiry about the impugned loan has referred the finding of the quantum proceedings and confirmed the penalty. Thus in our considered view the action of the Revenue in the penalty proceedings is not sustainable.

6.7 In this regard, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of National Textiles v/s CIT reported in 114 Taxman 203 wherein it was held as under; In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him were strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances had been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant Page 7 of 9 but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee’s case, that the cash credits were arranged as temporary loans, was false. The facts and circumstances were equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, the circumstance or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department. It was, accordingly, held that the Tribunal was not justified in law in confirming the penalty levied under section 271(1)(c).”

6.8 On applying the principles laid down by the Hon’ble Gujarat High Court in above case, the Revenue was under the obligation to conduct the enquiry independently from the party as discussed above and provide the fresh opportunity to the assessee. But, we note that none of the authorities below has carried out such enquiry during the penalty proceedings. As such, both the AO and the Ld. CIT (A) has relied vehemently on the enquiries/findings conducted during the quantum proceedings.

Thus in the absence of any enquiry carried out by the lower authorities during the penalty proceedings, we are not inclined to uphold their finding for the levy of the penalty under section 271(1)(c) of the Act.

6.9 Thus we are of the view the penalty imposed by the AO and subsequently confirmed by the Ld. CIT (A) in the light of above stated discussion, is not sustainable on the technical count and without going into the merit of the case whether there was concealment of income or furnishing inaccurate particulars of income. Hence we reverse the order of the authorities below and direct the AO to delete the penalty imposed by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 16/10/2019 at Ahmedabad.