ORDER
Hari Om Maratha, J.M.
1. This appeal by the assessee arises out of penalty levied under Section 271(1)(c) of the IT Act, 1961 (hereinafter referred as the Act for-short), for asst. yr. 1997-98.
2. Briefly stated, the facts of the case are that learned AO issued a notice for levying penalty under Section 271(1)(c) of the Act, because various additions were made while framing the assessment order under Section 143(3). It was a case of survey under Section 133A carried out on 19th March, 1997. The details of additions, which are the subject-matter of penalty are as under :
S. Addition made in assessment order Additions subject-
No. matter of penalty
1. Trading addition on estimation Rs. 38,562 on Nil
account of estimating sales without any
supporting material
2. Unexplained investment of Rs. 37,394 invested Rs. 37,394
in Sahara India Corporation, Sumerpur Branch,
para 7, p. 6 of assessment order
3. Unexplained cash found, para 6 p. 6 of Rs: 10,858
assessment order
4. Expenses disallowed Rs. 3,000 Nil
5. Income from sale of cloth Katran (Residual Rs. 7,200
cutting of cloth) para 8, page Nos. 6 & 7 of
assessment order.
6. Total Rs. 55,452
3. A penalty of Rs. 19,012 was imposed by learned AO under Section 271(1)(c) of the Act, which was confirmed by the learned CIT(A). The assessee is further aggrieved and has filed this appeal.
4. I have heard the rival submissions and have perused the evidence on record.
5. It is clear from the above chart that the penalty was levied on account of addition of Rs. 37,394 made on account of unexplained investment in Sahara India Corporation (vide para 6 of assessment order), an addition of Rs. 10,858 made on account of unexplained cash found during survey (vide para 7 of the assessment order); an addition of Rs. 7,200 made on account of ‘Katran of cloth’ (added vide para 8 of the assessment order), totalling to Rs. 55,452.
6. The learned Authorised Representative has submitted that from the perusal of the assessment order, it would be seen that the trading additions were simply made on estimation of the sales after rejecting the books of account and invoking the provisions of the Section 145 of the Act. The learned AO, however, did not have any material to justify the enhancement of sales by estimation because he has assumed the rotation of stock found short at the time of survey, which the assessee has tried to explain at the time of survey and also during the course of assessment. The assessee has also explained the reason as to why the stock was found short at the time of survey. The assessee has also explained that he is surrendering the deposits made by him in Sahara India to co-operate with the Department and to avoid any penalty action. The learned Authorised Representative has referred to assessee’s letter furnished on record as Annex. 4. In the reply filed by the appellant in response to the show-cause notice under Section 271(1)(c), i.e., annex. 2, the appellant had submitted and objected to the proposition to levy the penalty on account of the facts that no penalty can lawfully be levied when the additions are made on estimation basis. It has been explained by the learned Authorised Representative that as a matter of law, when the books of account are rejected, then no disallowance or for that matter any addition emerging from the maintenance of books of account, etc., could be made. Accordingly, the cash, if in fact, was found excess from the book figure, that cannot be a subject-matter of addition even while framing the assessment order though in this case of the appellant there was no discrepancy in the cash balance. The income, from sale of cuttings of residual cloth was got surrendered during the course of hearing. Thus, whatever additions made in the assessment order were either on estimation or could not have been made as per the provisions of law. In so far as investment in Sahara India are concerned, as per the papers filed on record as annex, 5 which clearly reveal that the entire deposits did not relate to the year under consideration, but to the earlier years. The appellant had admitted this as his income and had offered the same for tax, to buy peace and to avoid the levy of penalty.
7. The perusal of all the facts as stated above makes it amply clear that in the facts and circumstances of this case, the learned AO has wrongly invoked the provisions of Section 271(1)(c) and has unlawfully levied the penalty. Though the appellant has not filed appeal against the additions in question, it does not necessarily lead to levy of penalty, automatic. In this connection, the learned Authorised Representative has relied on the Supreme Court decision in the case of Shri Shadilal Sugar & General Mills Ltd. v. CIT’ (1987) 168 ITR 705 (SC). wherein the Hon’ble Supreme Court held as under :
“From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the wens rea of quasi-criminal offence.”
8. Further learned Authorised Representative has submitted that the. appellant had given reasonable explanation in respect of each and every addition but the learned AO had not accepted the same and had made these additions and treated the same as concealed income. The mere fact that during the course of survey proceedings the assessee had surrendered income, cannot be made a basis for levy of penalty. The learned Authorised Representative has placed reliance on various decisions including :
(i) CIT v. Tyaryamal Bal Chand (1987) 165 ITR 463 (Raj)
(ii) CIT’ v. S. Rahamat Khan Birbal Khan Badruddin & Party (1999) 240 ITR 778 (Raj)
(iii) Beerbal Khan Chandra Khan & Party v. Asstt. CIT’ (1995) 52 ITD 476 (Jp)
(iv) Kanhaiya Lal Doshi v. Asstt. CIT (1996) 56 TTJ. (Jp) 207
9. A careful perusal of the impugned orders clarify that although the assessee has surrendered these amounts during the course of survey, but the same were not reflected in the ensuing returns of income. The explanations tendered were not accepted by the learned AO. So, non-acceptance of the explanation of the assessee, and mere non-filing of appeal against the impugned additions, do not ipso facto lead to the finding that the assessee had concealed the income. There may be hundred and one reasons for such action of surrender of the assessee. Something more is required under the penalty proceeding to nail the assessee for concealment of income or of filing of inaccurate particulars of income. This aspect is missing from the penalty order. The parameters for penal proceedings are entirely different from making addition in quantum of income declared. When the additions are made on estimation, no penalty can be levied. When explanation of the assessee is not found to be plausible and hence rejected, this is again not a just reason to levy penalty under Section 271(l)(c) of the Act. Consequently, penalty under Section 271(1)(c) is not leviable in this case. 1 draw support from the abovementioned decisions.
10. In the result, the appeal is allowed and the penalty is set aside.