DEEPAK RAJESH BHANDARI,THANE vs. ACIT CIRCLE - 1, THANE

The only issue in this appeal of assessee is against the order of CIT(A) confirming the penalty levied by AO under section 271(1)(c) of the Act. For this assessee has raised the following ground No. 1: -

Briefly stated facts are that the AO levied the penalty under section 271(1)(c) of the Act on unsecured loan added by the AO amounting to ₹ 272500/- and sundry creditors outstanding amounting to ₹ 1,03,41,196/-. The learned Counsel for the assessee now before us filed complete details of addition made by AO and relief allowed by CIT(A) in quantum confirmed by CIT(A) and further the result of appeal in ITAT. The details are as under: - Sr. Issue Addition mde Relief CIT(A) Confirmed Appeal by Result of No. in by CIT(A) department appeal to assessment to Hon. Hon. ITAT order ITAT

Unsecured loan 5,35,000/- 2,62,500 2,72,500 -- -- u/s 68 2. Disallowance of 22,06,541/- 22,06,541/- -- -- -- 20% of expenses debited to P&L A/c. 3. Entire sundry 1,03,41,196/- 82,09,795/- 21,31,401/- 73,07,027/- Set aside for creditors re- considered as verification unexplained genuineness expenditure u/s of S. Crs to 69 C of the I.T. the extent of Act, 1961. rs. 66,64,328/- accepted. 4. Disallowance of 2,36,306/- 2,36,306/- -- -- -- Die making charges u/s 40(a)(ia) Total 1,33,19,043/- 1,09,15,142/- 24,03,901/- 73,07,027/-

The CIT(A) retain the penalty in respect to final addition confirmed by CIT(A) of unsecured loans added under section 68 of the Act amounting to ₹ 2,72,500/- and outstanding sundry creditors considered as unexplained expenditure under section 69C of the Act at ₹ 21,31,401/-. The CIT(A) confirmed the penalty vide Para 11, 12 and 13 as under: -

Before us, the learned Counsel for the assessee stated the facts that the assessee is engaged in the manufacturing of blister packing material in the proprietary concern of M/s Plast-O-Pack Industries. Due to diverse problems faced by assessee, the proprietary business of the assessee of manufacturing of blister packing material was closed down and majority of these sundry creditors outstanding as on 31.03.2007 have been subsequently repaid by the assessee and for this reason alone the proceedings were set aside by the ITAT and genuineness of the creditors to the extent of ₹ 66,64,378/- out of the addition challenged before Tribunal amounting to ₹ 73,07,027/- was accepted by the AO himself. The learned Counsel explained that the assessee is making payment to outstanding creditors slowly as per arrangement of funds over a period of time and for this reason, could not furnish the confirmations of sundry creditors before the lower authorities. Further, as regards to the addition of unsecured loans of ₹ 2,72,500/-, the learned Counsel for the assessee stated that due to various problems faced by assessee his business was closed down and hence, he could not get the confirmation from the unsecured loans. But the learned Counsel for the assessee took us through the order of CIT(A) at para 11 and 12 and argued that the CIT(A) has nowhere proved that the assessee has either concealed the particulars of its income or furnished inaccurate particulars of income. He read out the Paras 11,12 and 13 of the order of CIT(A), which are reproduced above in our order at para 4. On the other hand, the learned Sr. Departmental Representative relied on the order of CIT(A).

We have heard rival contentions and gone through the facts and circumstances of the case. The above facts are undisputed and the penalty is levied by AO and confirmed by CIT(A) partly on unconfirmed unsecured loans and unconfirmed creditors because the assessee’s business was closed down and the assessee could not provide the documentary evidences to support its case. It seems that this is a case of estimation and for this our reason is that neither the AO nor CIT(A) could identify which are the unsecured loans or sundry creditors the assessee could not explain which attracted penalty proceedings under section 271(1)(c) of the Act i.e. the concealment of particulars of income. In such eventuality, can the penalty under section 271(1)(c) of the Act for concealment of particulars of income can be levied. We are of the view that the intention of the assessee was bonafide in declaring the income during assessment proceedings and also paid taxes. In view of the provisions of section 271(1)(c)of the Act, disclosure which has been made in any part of the return which is incorrect or false to the knowledge of the assessee and if that fact is established, such disclosure cannot take it out from the purview of the act of concealment of particulars of income or act of furnishing inaccurate particulars for the purpose of levy of penalty. But we are of the view that the process of inquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee cannot be closed at the threshold by looking at the return. That would negative and render otiose the very provisions of the statute. We are of the view that as per rule of evidence, there is distinction between set of facts “not proved” and facts disproved and facts unproved. Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reaches to a stage where it can only conclude that the fact alleged is “not proved” which would result that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. But, on the other hand, if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of explanation cannot result in levy of penalty will have no application. To reach this stage also, inquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful, or false or not proved to be satisfactory. In the first case, it would be a positive case of no concealment, in the second stage, it would be a positive case of concealment and in the third case, benefit of doubt will go in favour of assessee. But in either case, inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. In the present case also the Revenue has no where proved the allegation of concealment despite explanation offered by the assessee. The AO has not detected the income rather assessee suo moto declared the same and that also without any enquiry. The actual position in law is that merely because the assessee’s addition has been confirmed, that cannot automatically bring in levy of penalty for concealment. If the assessee offers an explanation, the Revenue authorities have to consider the acceptability of the explanation and pass necessary orders. In the present case, the Revenue has not rejected the explanation of the assessee and merely levied the penalty on the basis that income of the assessee is assessed. In view of the above facts, we are of the considered view that CIT(A) has erred in confirming the action of the AO in levying penalty for furnishing of inaccurate particulars of income u/s 271(1)(c) of the Act. We delete the penalty and allow the appeal of the assessee.

In the result, the appeal of assessee is allowed.