ORDER
B.L. Chhibber, A.M.
1. The only ground raised in this appeal by the Revenue reads as under :
“The learned CIT(A) has erred in law and on facts in holding that this is not a fit case for the levy of penalty under s. 271(1) (c) of the IT Act and he cancelled the penalty of Rs. 31,000.”
2. The assessee is a partnership-firm carrying on business of casting on job work basis. The method of accounting followed by the assessee-firm is not purely mercantile but is a hybrid one. The assessee-firm had purchased crucibles needed for moulding purposes during the year under appeal and the value of the said crucibles was debited to production account. Similarly, the fuel in the form of furnace oil was debited to production a/c whenever the purchases of the same were made. The assessee-firm had not taken the stock of unused crucibles and furnace oil.
3. During the course of assessment proceedings, the AO enquired about the materials needed for moulding work. The AO noted that in the subsequent year the crucibles, furnace oil, etc. were not purchased in the beginning of the year and that, therefore, the said materials were out of the stock of the year under appeal and that the assessee-firm should have accounted for the closing stock of the raw materials. At this stage, the assessee with a view to avoid litigation and to be buy the peace of mind agreed with the AO in adding the value of crucibles and furnace oil, etc. as closing stock disregarding the method of accounting followed by the assessee-firm. The assessee-firm surrendered to the addition of Rs. 27,000 i.e., the value of these crucibles and Rs. 12,000 i.e., the value on account of furnace oil. The AO also noted a cash credit of Rs. 6,000 in the name of one Shri Bechar Gordhan. In the following year i.e., S.Y. 2039 the assessee-firm had business dealings with the said creditor but at the time of assessment proceedings for the year under appeal, which were started much later, the assessee-firm had estranged relations with the said creditor. The AO asked the assessee to file a confirmation from the said creditor but since the assessee had estranged relations with the said creditor, was not able to secure the confirmation from the said creditor but readily surrendered the amount of Rs. 6,000. The AO was of the opinion that the assessee had concealed the income to the tune of Rs. 27,000 + Rs. 12,000 + Rs. 6,000 – totalling to Rs. 45,000. He initiated penalty proceedings under s. 271(1) (c), and after giving an opportunity of being heard levied the impugned penalty.
4. On appeal, the CIT(A) deleted the penalty observing as under :
“I have considered the arguments of the learned authorised representative, Shri Raya. As rightly pointed out by him there are several judicial authorities to support his contention that simply because there was a bona fide consent given at the stage of the assessment that consent along should not be made the sole cause for the levy of penalty in the absence of any positive evidence brought on record by the ITO, that the assessee has fraudulently omitted any such particulars. In the instant case, the assessee has all along been following particular system of maintaining its account on its business of moulding of job work of manufacture of brass parts by moulding debited to crucibles and furnace oil, which are (sic) production account as the assessee is not a dealer to keep stock of the goods dealt in. Whatever is left over from the previous stock of purchases is being used in the next year as per the established and recognised system of accounts. When the ITO tried to disturb this system of accounts at the assessment stage all of sudden the assessee on the spur of the moment consented to certain additions to avoid further controversies and complications in the matter. This bona fide move alone should not constitute a cause or charge for the levy of penalty. I am of the opinion that this is not a fit case for the levy of penalty under s. 271(1) (c) on the facts and in the entirety of circumstances. The penalty levied is cancelled and the appeal is allowed.”
5. The learned Departmental Representative submitted that the assessee has not accounted for the value of those crucibles and the value of furnace oil in the closing stock and hence had concealed the particulars of income. He further submitted that the assessee could not prove the genuineness of the cash credit of Rs. 6,000 in the name of Shri Bechar Gordhan. He submitted that though the assessee had surrendered this amount but surrender was after detection and as such levy of penalty was justified. In support of his contentions he relied upon the decisions in Durga Timber Works vs. CIT (1971) 79 ITR 63 (Del), Banaras Chemical Factory vs. CIT (1977) 108 ITR 96 (All), CIT vs. Dr. R. C. Gupta & Co. (1980) 122 ITR 567 (Raj) and Rathnam & Co. vs. IAC & Ors. (1980) 124 ITR 376 (Mad).
6. Shri K. C. Patel, the learned counsel for the assessee strongly supported the order of the CIT(A). He submitted that the crucibles and furnace oil were not the trading items of the assessee and never in the past these were shown in the closing stock but since during the year under appeal the AO insisted that the assessee ought to have disclosed these crucibles and furnace oil in the closing stock, the assessee in order to purchase peace with the Department readily surrendered the amounts of Rs. 27,000 + Rs. 12,000. He submitted that there was no concealment on the part of the assessee and merely because the assessee surrendered these two amounts the assessee will not be liable to penalty. Similarly, cash credit of Rs. 6,000 in the name of Bechar Gordhan was surrendered out of good faith because the assessee could not procure the confirmation letter from the said creditor due to estranged relations and merely because the assessee surrendered the amount to buy peace of mind, will not lead to levy of penalty under s. 271(1) (c). In support of his contentions he relied upon the judgment of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. vs. CIT (1987) 168 ITR 705 (SC).
7. We have considered the rival submissions and perused the facts on record. In our considered view the CIT(A) has rightly cancelled the penalty. The assessee was following hybrid method of accounting. As per the past practice he was not required to declare in the closing stock the value of the consumables like crucibles and furnace oil, etc. As stated above, both these items were debited in the books of accounts and it cannot be said that the assessee furnished inaccurate particulars of income. Similarly, the assessee had a running account with Bechar Gordhan but when Bechar Gordhan did not co-operate with the assessee in the matter of furnishing the confirmation letter the assessee surrendered the amount of Rs. 6,000. The mere acceptance of the additions in question cannot by itself justify the charge of concealment of income because the assessee may chose to surrender/agree to additions for hundreds of reasons as held by the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. (supra). Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceedings. There should be conscious concealment. Penalty proceedings are distinct and different from assessment proceedings. The findings in the assessment proceedings are not conclusive but are relevant. The entire materials should be considered afresh by the authorities below before imposing the penalty. Even if the addition of Expln. to s. 271(1) (c) conscious concealment is necessary. The Explanation provides only a rule of evidence raising rebutable presumption in certain circumstances. No substantive right is created or annulled thereof. The substantive law relating to levy of penalty is preserved. Taking into account these facts and circumstances of the case we are of the view that there is no conscious concealment in this case and accordingly we do not find any infirmity in the order of the CIT(A). We accordingly decline to interfere.
8. In the result, the appeal is dismissed.