M/S. CHINTELS INDIA LTD.,NEW DELHI vs. ACIT, NEW DELHI

PER SUDHANSHU SRIVASTAVA, J.M.

These three appeals have been preferred by the assessee against

the order confirming the penalty u/s 271(1) (c) of the Income Tax

Act, 1961. ITA No. 3791 pertains to AY 2008-09, ITA No. 3792

pertains to AY 2009-10 & ITA No. 3193 pertains to AY 2010-11.

These three appeals emanate from the analogous orders dated

30.03.2016 passed by the Ld. CIT (A)-25, New Delhi. For sake of

convenience, these three appeals are disposed by this common

order.

engaged in business of horticulture, agriculture and real estate. On

26.03.2010 a search u/s 132 of the Income Tax Act, 1961 (“The

Act”) was carried out at the business and residential premises of the

assessee who belongs to Ashok Solomen and Chintels Group of

cases. On post search enquiry, it was found that one Shri Tarun

Goyal was subjected to search u/s 132 of the Act on 1st September

2008 wherein it was found that he had created more than 90

companies which were engaged in the business of bogus bills and

providing accommodation entries such as share capital, share

application money, loans and advances and who charged

commission accordingly. During the enquiry it was noted that Shri

Tarun Goyal had more than 120 bank accounts and that he had

deposited more than Rs.250 crores as cash in those bank accounts. 2

It was also found that the Directors of those companies were bogus

and the addresses of those companies were also bogus. Statement of

Shri Tarun Goyal was recorded u/s 132(4) of the Act, wherein he

accepted that he was engaged in providing accommodation entries

and bogus bills to various persons. During the course of

investigation it was found that one company M/s Macro Infotech

Ltd. was also formed by Shri Tarun Goyal, which was engaged in

issuing bogus bills and which did not have any expertise in software

business. During the enquiry after the search and seizure operation

it was found that the assessee had purchased software of Rs.

42,424,550/- from M/s. Macro Infotech Ltd. It was alleged by the

AO that the assessee had taken the bogus bills to inflate their

expenditure. Further vide letter dated 19.08.2011 the assessee was

further asked about the Macro Infotech Ltd and its transaction with

the assessee from Assessment Years 2003-04 to 2009-10 and the

assessee was also asked to prove the genuineness of the transaction

made with M/s. Macro Infotech Ltd. In response to this the assessee

submitted on 28.11.2011 that M/s. Macro Infotech Ltd was engaged

in the business of supply of various kinds of the computer software,

graphics and other elite products and that during FY 2007-08, the 3

assessee had purchased software of Rs. 42,424,550/- from the

company and payment for which was made through account payee

cheques. It was further submitted that these software were installed

in the assesseee company and were recorded in the books of

account. The assessee submitted that the software was

sophisticated and was most effectively used as marketing and sales

tool. It was further submitted that the software was later handed

over to M/s Sobha Developers Limited for joint use of developing and

marketing upon the assessee entering into a Joint Development

Agreement dated 25th September, 2008 with M/s Sobha Developers

Ltd. for 32 acres of group housing project. It was further submitted

before the AO that later on this project was cancelled vide agreement

dated 08.10.2011 and assessee was informed by M/s Sobha

Developers Ltd. that the software had been damaged and destroyed

and, therefore, the same cannot be returned. It was also submitted

before the AO that the bills had been debited in the books of account

and depreciation had been claimed.

2.1 As the AO was not satisfied with the explanation of the

assessee, the depreciation on the software amounting to

Rs.84,84,910/- being 20% depreciation on the cost of software of

Rs.42,424,550/- was disallowed.

2.2 The assessee preferred an appeal before the learned

Commissioner of Income-tax (Appeals), who confirmed the

disallowance on the ground that the assessee had failed to establish

the ownership and the use of the alleged software.

2.3 In appeal before the ITAT, the appeal of the assessee was

dismissed vide order dated 10.03.2016, in ITA no. 4808/2012 to

4810/2012. The relevant findings are contained in paragraphs 32,

33, 34 and 35 of the said order in which the ITAT has observed that

the assessee has not been able to prove that the software purchased

was used in the business of the assessee.

2.4 In the mean while, the AO started penalty proceedings u/s

271(1)(c) of the Act and when the assessee’s appeals in the quantum

proceedings got dismissed by the Ld. CIT (Appeals), the AO

proceeded to levy the penalty amounting to Rs. 28,84,021/-, Rs.

45,80,882/- and Rs. 27,68,661/- for assessment years from 2008-

09, 2009-10 and 2010-11 respectively .

2.5 Challenging the penalty orders, the assessee filed appeals

before the Ld. CIT (A). The assessee also raised additional ground 5

vide letter dated 16/03/2016 stating that the underlying

assessments u/s 153A were bad for want of incriminating material

which in turn made the penalty orders invalid in law. Further, the

assessee also submitted before the Ld. CIT (A) that the AO had

imposed the penalty in violation of the principles of natural justice.

It was also argued before the Ld. CIT (A) that no independent

enquiry from any external source was made in the quantum

proceedings to establish that the assessee had received the cash

back as alleged. The assessee reiterated in the penalty appeals

before the Ld. CIT (A) that no cash had been received back by

assessee from Micro Infotech Ltd. Request was again made by the

assessee to summon Shri Tarun Goyal during the course of hearing

of the penalty appeals before the Ld. CIT (A). The assessee also

contended before the Ld. CIT (A) that penalty orders were invalid

because the AO had failed to mention as to whether the penalty was

levied for concealment of income or for furnishing inaccurate

particulars of income.

2.6 However, the Ld CIT (A) confirmed the penalties by firstly

rejecting the additional legal ground being not bona fide and

confirming the penalties on merits by observing that assessee had

made bogus software purchases.

2.7 Now, the assessee has approached the ITAT and has

challenged the imposition of penalty in all the three years by raising

the following grounds of appeal:

2.8 Grounds of Appeal in ITA 3791/Del/2016 (A.Y. 2008-09) 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (CITA) upholding the levy of penalty by the AO u/s 271(1)(c) of the Act is bad, both in the eyes of law as well as on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty of Rs. 28,84,021/- on account of disallowance of depreciation software made by the AO. 3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the fact that the AO has not recorded satisfaction as whether the penalty be initiated for concealment of income or for furnishing of inaccurate particulars. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the penalty despite the fact that the disallowance made by AO itself is not sustainable in view of the fact that in the absence of any incriminating material found during the course of search no such addition can be made in assessment under section 153A of the Act. 5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and law in upholding the levy of penalty despite the fact that the disallowance made by the AO and sustained by the learned CIT(A) itself is not sustainable on merits also.

2.9 Grounds of Appeal in ITA 3792/Del/2016 (A.Y. 2009-10) 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (CITA) upholding the levy of penalty by the AO u/s 271(1)(c) of the Act is bad, both in the eyes of law as well as on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty of Rs. 45,80,882/- on account of disallowance of depreciation software made by the AO. 3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the fact that the AO has not recorded satisfaction as whether the penalty be initiated for concealment of income or for furnishing of inaccurate particulars. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the penalty despite the fact that the disallowance made by AO itself is not sustainable in view of the fact that in the absence of any incriminating material

found during the course of search no such addition can be made in assessment under section 153A of the Act. 5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and law in upholding the levy of penalty despite the fact that the disallowance made by the AO and sustained by the learned CIT(A) itself is not sustainable on merits also. 6. (i) On the facts and circumstances of the case, the learned CIT (A) has erred in confirming the levy of penalty despite the fact that the assessee has duly discharged the onus cast upon it to prove the purchase of software. (ii) That the learned CIT(A), both on facts and in law, in upholding the levy of penalty, ignoring the fact that the penalty proceedings are independent proceedings, and as such, mere disallowance or addition could not lead to the levy of penalty. 7. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the levy of penalty, despite the fact that the disallowance of depreciation claimed by the assessee cannot per se be treated as concealment of income or furnishing of inaccurate particulars of income.

2.10 Grounds of Appeal in ITA 3793/Del/2016 (A.Y. 2010-11) 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (CITA) upholding the levy of penalty by the AO u/s 271(1)(c) of the Act is bad, both in the eyes of law as well as on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty of Rs. 27,68,661/- on account of disallowance of depreciation software made by the AO. 3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the fact that the AO has not recorded satisfaction as whether

the penalty be initiated for concealment of income or for furnishing of inaccurate particulars. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and law in upholding the levy of penalty despite the fact that the disallowance made by the AO and sustained by the learned CIT(A) itself is not sustainable on merits also. 5. (i) On the facts and circumstances of the case, the learned CIT (A) has erred in confirming the levy of penalty despite the fact that the assessee has duly discharged the onus cast upon it to prove the purchase of software. (ii) That the learned CIT(A), both on facts and in law, in upholding the levy of penalty, ignoring the fact that the penalty proceedings are independent proceedings, and as such, mere disallowance or addition could not lead to the levy of penalty. 6. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the levy of penalty, despite the fact that the disallowance of depreciation claimed by the assessee cannot per se be treated as concealment of income or furnishing of inaccurate particulars of income

bad in law because notices issued u/s 274 in all the three years are

vague and mechanical as the irrelevant columns have not been

struck off. It was submitted that nowhere has it been clearly spelt

out as to under which limb the extant penalty was sought to be

levied i.e. whether for concealment of particulars of income or for

furnishing of inaccurate particulars of income. Reliance was placed

on The Hon’ble Karnataka High Court’s decision in the case of 10

Manjunath Cotton Ginning Factory 359 ITR 565. It was submitted

that this decision of the Hon’ble Karnatake High Court was not

challenged before the Hon’ble Apex Court as recorded in the decision

of the Hon’ble Karnataka High Court in the case of Magnur Builders

in ITA 616/2015 Dated 28/07/2016 in Para 5. Reliance was also

placed on the decision of the Hon’ble Karnataka High Court in the

case of SSA’s Emerald Meadows 73 Taxmann.com 241 wherein the

SLP was dismissed by the Hon’ble Apex Court and reported in 73

Taxmann.com 248). Further reliance was placed on the order of the

Lucknow Bench of the ITAT in the case of Lal Chand Agarwal in ITA

314/LKW/2014 Dated 30/10/2015. Copies of all these decisions are

placed on records.

3.1 Further, the Ld. AR drew our attention to the assessment

orders and the penalty orders for the years involved and submitted

that the same discrepancy existed in as much as the exact limb

under which penalty is initiated and levied remained unspecified.

Continuing his arguments, the Ld. AR submitted that the only basis

for addition and imposition of penalty was a) post search enquiries,

b) search and seizure of Shri Tarun Goyal and c) Un-confronted

Statement of Shri Tarun Goyal. It was vehemently submitted that no

incriminating material was ever found from the premises of

assessee. Further it was highlighted that there was a thorough lack

of cross examination of Shri Tarun Goyal. Addressing his arguments

on ITAT Quantum order findings, the Ld. AR submitted that this can

be a case of fact not proved but not fact disproved. Highlighting this,

the Ld. AR submitted that no penalty can be imposed for facts not

proved which are not disproved. Reliance was placed on Hon’ble

Gujarat High Court’s decision in the case of National Textiles

reported in 249 ITR 125. Further, the Ld. AR placed his reliance on

the very recent Hon’ble Apex Court’s decision in the case of Gopal

Sons HUF (order dated 4/1/2017) to highlight that deeming fiction

needs strict interpretation and any doubt must go to the benefit of

taxpayer.

3.2 Further, the Ld. AR drew our attention to the page 4 of the

Early Hearing Petition of the assessee, dated 15/11/2016, filed

before the Hon’ble VP ITAT Delhi Zone to argue that lack of cross

examination of Shri Tarun Goyal made the entire penalty

proceedings nullity, in spite of the fact that quantum was confirmed.

Reliance was placed on the following judicial precedents:

a) Pune Bench ITAT in Chandrabhan Mugale order dated

30.10.2015

b) Shri Nirmal Commercial Ltd vs CIT 308 ITR 406 (Bom)

c) Calcutta high court CIT Vs Ratal Lal Surekha 61 Taxmann 133

d) Apex Court’s decision in the case of Andaman Timber Industries

vs CCE 281 CTR 472.

AR. The Ld. DR submitted that not mentioning the exact limb under

which the penalty is levied is a mere technical defect and cannot

invalidate the penalty proceedings/orders. Further, the Ld. DR

placed heavy reliance on findings returned by the ITAT in the

quantum order, highlighting that once software purchase stands

rejected, and is denied, the assessee cannot escape from penalty.

The Ld. DR argued that no case is made out by the assessee to

escape from clutches of penalty provisions. Ld. DR prayed for total

confirmation of penalty relying on orders of lower authorities.

material on record. 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. Also, in case of CIT v. Khoday Eswara (83 ITR 369)

(SC), incidentally reported in same ITR Volume, it is held that

penalty cannot be levied solely on basis of reasons given in original

order of assessment. The Hon’ble Supreme Court has also reiterated

the law in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 by

holding in Para 62 that finding in assessment proceedings cannot

automatically be adopted in penalty proceedings and that the

authorities have to consider the matter afresh from different angle.

The statute requires a satisfaction on the part of the Assessing

Officer. He is required to arrive at a satisfaction so as to show that

there is primary evidence to establish that the assessee had

concealed the amount or furnished inaccurate particulars and this

onus is to be discharged by the Department. While considering

whether the assessee has been able to discharge his burden, the

Assessing Officer should not begin with the presumption that he is 14

guilty. Since the burden of proof in penalty proceedings varies from

that in the assessment proceedings, a finding in the assessment

proceedings that a particular receipt is income cannot automatically

be adopted, though a finding in the assessment proceedings

constitutes good evidence in the penalty proceedings. In the penalty

proceedings the authorities 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 don’t operate as res judicata in the penalty proceedings.

For this proposition reliance is placed on the decision in CIT vs.

Dharamchand L. Shah (1993) 204 ITR 462 (Bom). In Vijay Power

Generators Ltd vs. ITO (2008)6 DTR 64 (Del) it was held that “It is

well settled that though they constitute good evidence do not

constitute conclusive evidence in penalty proceedings.” During

penalty proceedings, there has to be reappraisal of the very same

material on the basis of which the addition was made and if further

material is adduced by the assessee in the course of the penalty

proceedings, it is all the more necessary that such further material 15

should also be examined in an attempt to ascertain whether the

assessee concealed his income or furnished inaccurate particulars.

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 furnishing inaccurate particulars of

income. Further if there is any material or additional evidence which

was not produced during assessment proceedings, same can be

produced in penalty proceedings as both assessment and penalty

proceedings are distinct and separate. In CIT vs. M/s Sidhartha

Enterprises (2009) 184 Taxman 460 (P & H)(HC) it was held that the

judgment in Dharmendra Textile cannot be read as laying down that

in every case where particulars of income are inaccurate, penalty

must follow. Even so, the concept of penalty has not undergone

change by virtue of the said judgment. Penalty is imposed only when

there is some element of deliberate default.

5.1 At this juncture it may also be apposite to refer to the

decision of the Hon’ble Supreme Court in the case of CIT v. Reliance

Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322, wherein 16

the Hon’ble Apex Court, while interpreting the provisions of section

271(1)(c) of the Act, has held that a glance at the said provision

would suggest that in order to be covered by it, there has to be

concealment of the particulars of the income of the assessee.

Secondly, the assessee must have furnished inaccurate particulars

of his income. In the facts of that case, the court found that it was

not a case of concealment of the particulars of the income, nor was

it the case of the revenue either. However, the counsel for the

revenue suggested that by making an incorrect claim for the

expenditure on interest, the assessee had furnished inaccurate

particulars of income. The court observed that it had to only see as

to whether in that case, as a matter of fact, the assessee had given

inaccurate particulars. The court noted that as per Law Lexicon, the

meaning of the word "particular" is a detail or details (in the plural

sense); the details of a claim, or the separate items of an account.

Therefore, the word "particular" used in section 271(1) (c) would

embrace the meaning of the details of the claim made. The court

further observed that in Webster's Dictionary, the word "inaccurate"

has been defined as: "not accurate, not exact or correct; not

according to truth; erroneous; as an inaccurate statement, copy or 17

transcript." The court observed that reading the words "inaccurate"

and "particulars" in conjunction, they must mean the details

supplied in the return, which are not accurate, not exact or correct,

not according to truth or erroneous. The court noted that it was an

admitted position that no information given in the return was found

to be incorrect or inaccurate. It was not as if any statement made or

any detail supplied was found to be factually incorrect and

accordingly, held that, prima facie, the assessee could not be held

guilty of furnishing inaccurate particulars. The court repelled the

contention raised by the counsel for the revenue that "submitting an

incorrect claim in law for the expenditure on interest would amount

to giving inaccurate particulars of such income". The court held that

in order to expose the assessee to the penalty, unless the case is

strictly covered by the provision, the penalty provision cannot be

invoked. By any stretch of imagination, making an incorrect claim in

law cannot tantamount to furnishing inaccurate particulars.

Therefore, it is obvious that it must be shown that the conditions

under section 271(1)(c) must exist before the penalty is imposed. The

court further observed that there can be no dispute that everything

would depend upon the return filed because that is the only 18

document, where the assessee can furnish the particulars of his

income.

5.2 Reverting to the facts of the present case, the AO, in

the assessment orders, in the notices issued u/s 274 and in the

penalty orders, has not stated the exact limb (concealment of

particulars of income or furnishing of inaccurate particulars of

income) under which the penalty is initiated and levied. We have

very carefully considered this aspect. We have no hesitation in

accepting assessee’s contention that nowhere has the exact limb of

penalty been specified. The Hon’ble Karnataka High Court in case of

CIT vs. Manjunatha Cotton and Ginning Factory & Ors. (Supra)

dealt with the identical issue threadbare and came to the following

conclusion:-

“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271.

e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would

have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principle of natural justice is offended. On

the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.” 5.3 Respectfully following the law laid down by Hon’ble

High Court, we are of the considered view that when the assessee

has not been specifically made aware of the charges leveled against

him as to whether there is a concealment of income or furnishing of

inaccurate particulars of income on his part, the penalty u/s

271(1)(c) of the Act is not sustainable. We are also supported in our

conclusion by the Hon’ble Karnataka High Court’s decision in the

case of SSA Emerald Meadows (supra) against which the 22

Department’s SLP was dismissed by the Hon’ble Apex Court. In

reaching this conclusion we also find support from the decision of

the Hon’ble Apex Court in the case of Ashok Pai reported in 292 ITR

11 (relied upon in Manjunath Cotton Ginning Factory (Supra)

wherein it has been observed that concealment of income and

furnishing of inaccurate particulars of income carry different

meanings/connotations.

5.4 We would also like to underline the settled position of

law that penalty proceedings are independent of assessment

proceedings and that a mere confirmation of addition cannot be the

sole ground to levy penalty. In the penalty orders, the AO has

himself observed that the entire proceedings of assessments were

based on a) post search enquiries b) statement of Shri Tarun Goyal,

which have been the key factors to impose the penalty u/s 271(1)(c).

In the present appeals, it is undisputed that no incriminating

material was unearthed during assesssee’s search u/s 132 of the

Act, that no independent enquiry and examination took place during

assessment proceedings qua Shri Tarun Goyal and Micro Infotech

Ltd, that only post search enquiries were made the basis of the

entire assessment and penalty proceedings/orders, that no cross 23

examination of Shri Tarun Goyal took place, that no effort was made

to find out the status of the supplier independently, that the

assessee’s contention that software purchase was genuine was

discounted on the basis of preponderance of probabilities and

inferences, that no material was brought on record to establish that

cash found its way back to the coffers of the assessee. It is apparent

that no independent inquiry was made from the concerned party by

issuing notices u/s 133(6)/131 and the entire foundation is laid on

post search enquiries, search and seizure operation of Shri Tarun

Goyal and statement of Shri Tarun Goyal. On an overall

consideration of all these facts, we are inclined to agree with the Ld.

AR’s argument that the present case may lie in the realm of “facts

not proved” but cannot fall in the realm of “facts disproved”. We have

gone through the orders of the co-ordinate Bench of the ITAT in the

quantum proceedings confirming the additions. However, since the

scales are different in penalty and quantum proceedings and penalty

cannot be automatic to the confirmation of addition in the quantum

proceedings, we are disinclined to agree with the contention of the

department that the confirmation of the quantum by the ITAT would

automatically result in confirmation of the penalty. We are of the 24

considered opinion that mere probability can, at most, be the basis

of addition but same cannot be good enough in penalty proceedings.

Further, the findings in the quantum order of the ITAT on merits do

not reflect any incriminating material unearthed from the search of

the assessee. This fact assumes significance because assessments

were framed u/s 153A r.w.s. 143(3) of the Act. Therefore, we accept

the arguments of the Ld. AR and direct the AO to delete the

penalties in all the three years.

Order pronounced in the open court on 31.03.2017.

Sd/- Sd/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 31st March, 2017 ‘GS’