ORDER
V.P. Elhence, Judicial Member
1. These 11 appeals filed by the assessee arise out of the orders dated 26-6-1986 (assessment years 1970-71 to 1979-80) and 11-11-1986 (for assessment year 1981-82) of the learned Commissioner of Income-tax (Appeals), Bareilly.
2. The assessee is an individual who carried on business in furniture under the name and style of M/s. Jagat Furniture House, Bareilly in his individual capacity. Returns were filed by the assessee for the assessment years 1970-71 to 1973-74 originally on 26-12-1977. For the assessment years 1974-75 to 1977-78 original returns were filed on 7-11-1977. For assessment year 1978-79, the return was filed on 31-3-1979, and for the assessment year 1979-80, it was filed on 30-8-1979. So far as the assessment year 1981-82 is concerned, return was filed on 19-11-1981. In the original returns filed for the assessment years 1970-71 to 1977-78, income had been returned from house property No. 87-B, Civil Lines, Bareilly. However, in the revised returns filed for all these years on 29-1-1979, the said income was said to belong to the Hindu undivided family of the assessee consisting of himself, his wife and his four daughters. The case of the assessee was that on 31 -3-1968, he had thrown the said property into the hotchpots of the HUF, for which purpose a declaration had been filed to this effect, attested by a Notary Public one Shri R.P. Tayal. The affidavit purported to have been written on 31-3-1968, was typed on two stamp papers of Rs. 2 and 25Ps denominations respectively. On the first page of the affidavit two Notarial stamps of Rs. 3 and Ps 50 were affixed. The affidavit was purported to have been verified by Sh. R.P. Tayal Distt. Notary on 31-3-1968 itself. However, the genuineness of the execution and the attestation of this affidavit on 31-3-1968 was doubted by the ITO. The statement of Sh. Tayal was recorded before the ITO and the ITO obtained the report dated 26-3-1980 of the Senior Scientific Officer (documents)-cum-Asstt. Chemical Examiner to the Government of India (Central Forensic Science Laboratory). The Notary while verifying the document had fixed two seals on the first page and two seals on the second page of the affidavit. Out of them, one seal was quite bright while the other was a faint one. On the brighter seal, telephone No. 3082 was written while on the fainter seal, telephone No. 5108 was mentioned. Similarly on the first and second pages where “Pramanit” is written, telephone No. 5108 was mentioned. The report of the Senior Scientific Officer, referred to above, was that it was not possible to opine as to which of the seal impressions was affixed earlier and that it was also not possible to determine the absolute age of the inks used in the writings and signature. Enquiries in regard to the telephone numbers of Sh. Tayal were also made by the ITO from the Posts & Telegraphs Department. In their written reply, the P & T Department intimated that telephone No. 3082 was installed in the house of Shri Tayal till 22-11-1974 and that from 23-11-1974 it was changed to 5108. Examination with regard to the non-judicial stamp papers and Notarial stamps were also made by the ITO by sending the documents to India Security Press, Nasik Road, Nasikand enquiries were also made from the Senior Treasury Officer, Bareilly. The Notary as well as the assessee resided within the jurisdiction of Bareilly Treasury. The Senior Treasury Officer, Bareilly certified in his letter dated 17-2-1982 that though Notarial stamps of the denomination of Rs. 3 were in circulation from before, stamps of the denomination of 50 ps. came to Bareilly Treasury for the first time on 31-7-1970 and were sent to Notaries for being sold on 11-8-1970 for the first time. The statement of Shri Tayal, the Distt. Notary was that the declaration was presented before him on31-3-1968 on which date itself, he attested the same although he could not say whether the Notarial stamps had been purchased by the assessee from outside or they had been given by him. On the basis of this evidence, the ITO took the view that neither the stamp vendor nor the Notary Sh. Tayal was in a position to have Notarial stamp of 50 ps. on 31-3-1968; and that on 31-3-1968 Shri Tayal could not have affixed the seal containing the telephone No. 5108 which had got changed only from 23-11-1974. He took the view that the document in question had been anti-dated and that, therefore, the affidavit was not at all written or verified on 31 -3-1968, the date on which it was purported to have been made. He further held that it had been thrown up by the assessee with the pure and simple intention of diverting the income from individual status to HUF status and as such, throwing of the individual property by the assessee into common hotchpots was held not proved. Since the assessee had filed HUF returns on 29-1-1979, the assessments were completed on a substantive basis in the hands of the individual whereas the assessments in the case of the HUF were completed on a protective basis.
3. The incomes declared by the assessee in the individual and Hindu undivided family returns were the following :
Asst. Year Individual HUF
Rs. Rs.
1970-71 9,880 3,170
1971-72 8,970 3,190
1972-73 9,270 1,420
1973-74 9,570 1,390
1974-75 11,480 10,850
1975-76 9,570 15,700
1976-77 11,000 14,930
1977-78 14,240 16,850
1978-79 15,760 16,000
1979-80 18,770 16,220
1981-82 16,650 -
4. Against the said assessment orders, the assessee came up in appeal to the learned A.A.C. who, vide his consolidated order dated 31-3-1983 for assessment years 1970-71 to 1979-80, held that the assessee had made an unequivocal declaration of his intention of throwing the immovable property into common hotchpots of the HUF. According to him, so long as there were two seals of the Notary in one of which the old telephone number was mentioned, it could not be said that the declaration was signed by the Notary after 23-11-1974. He also gave-weight to the assessee’s contention that it could also be possible that 50 ps. stamp was procured ,by the Notary Shri Tayal from some other Treasury as it was only in Bareilly Treasury that this stamp was released for sale w.e.f. 11-8-1970. He was also influenced by the fact that a lease deed had been executed on 15-9-1973 on behalf of HUF in respect of this property in favour of M/s Kashi Nath Seth Jewellers, Bara Bazar, Bareilly w.e.f. 1-4-1973. He, therefore, directed the deletion of the property income from the assessment of the individual.
5. In further appeal, the Appellate Tribunal, vide its order dated 29-1-1985 in I.T.A. Nos. 2889 to 2898,2782 to 2786 and C.O.Nos. 237 to 246 held that the document in question was not executed on 31-3-1968 and had not been executed on any date prior to 23-11-1974. According to the Tribunal, the original seal which had been affixed by the Notary Sh. Tayal, showed that it had been affixed some times after 23-11-1974, when Sh. Tayal was allotted the telephone No. 5108. The Tribunal took the view that the super imposition of the seal by another seal bearing the old telephone No. of the Notary was done in order to show that the document had been genuinely executed on 31-3-1968. It was held that the attempt of the assessee in anti-dating the document stood completely frustrated. It also took the view that on the basis of the report of the Sr. Treasury Officer, Bareilly, the document could not be said to have been executed on any date prior to 23-11-1974. The cumulative impression taken from the abovementioned facts and the fact that the verification of the document was not signed by the Notary was that the document was neither valid nor genuine. The Tribunal also held that the fact that in the assessment years 1968-69 and 1969-70, the assessee had shown the income from the property in question as his own individual income indicated the fact that as on 31-3-1968 there had been no blending of property or its having been thrown into the common stock of the HUF by the assessee individual. The lease agreement dated 15-9-1973, according to the Tribunal was only indicative of the assessee’s intention to throw the property into the common hotchpots and not to show that the document dated 31-3-1968 was a genuine one. In any case, the Tribunal held that even if it was to be accepted that as on 15-9-1973, the assessee was the karta of his HUF as far as the ownership of the property in question was concerned, this date fell after the outside date of 31-12-1969 as mentioned in Section 64(ii) and, therefore, the income from the said property was assessable only in the hands of the individual. One more fact which occurred was that for the assessment years 1970-71 and 1975-76, the Appellate Tribunal vide its order dated 18-12-1982 in wealth-tax appeal Nos. 1642tol644/Del/81,had deleted the inclusion of the value of the property in question in the net wealth of the assessee individual. However, in the order dated 29-1-1985, the Tribunal took the view that the earlier decision dated 18-12-1982 on the wealth-tax side had been given by the Tribunal without taking into account the results of investigations made into the genuineness of the document dated 31-3-1968. It held that the assessee had unsuccessfully attempted to throw his self-acquired property into the common stock of the family which continued to remain his self-acquired property. With these observations, the order of the learned AAC was reversed.
6. After this order, the assessee had moved an application dated 27-5-1985 Under Section 254(2) for recall of the Tribunal’s order on the ground that the appeals had been decided in an ex pane manner without hearing the assessee. However, the Appellate Tribunal vide its order dated 13-8-1985 (M.A.No.l60/Del/85), rejected the said application.
7. With reference to the additions made and sustained in the hands of the assessee as an individual, the ITO initiated penalty proceedings Under Section 271(1)(c) for all these years. On the basis of the findings on the assessment side, the ITO took the view that the motive behind showing the date of declaration as 31-3-1968 was to get over the provisions of Section 64(ii). It was held that the assessee had taken all possible steps to defraud the Government of its legitimate share of revenue. Therefore, after considering the assessee’s explanation, the ITO considered it a fit case for levy of penalty Under Section 271(1)(c). According to the ITO this was rarest of rare cases where the quantum of penalty was required to be levied at the maximum rate of 200% of the tax sought to be evaded. He, therefore, levied penalties, according to the following table:
Asst.year Tax on assessed Penalty imposed
income after appeal at the rate of 200 per cent
Rs. Rs.
1970-71 7,986 15,268
1971-72 8,338 15,802
1972-73 7,397 13,854
1973-74 7,991 14,976
1974-75 10,472 19,290
1975-76 11,759 22,576
1976-77 11,577 22,032
1977-78 9,438 16,816
1978-79 13,409 24,088
1979-80 13,041 22,098
1981-82 13,145 26,290
8. When the matter came up in appeal before the learned C.I.T. (Appeals), he held that although imposition of penalty was justified in respect of the income from the property at 87-B, Civil Lines, Bareilly, it was not justified with regard to the enhancement in the income from furniture business. He noticed that with regard to the furniture business, the accounts were rejected and the additions to the declared income were made only on account of the application of a certain rate of profit rather than due to the discovery of any specific detection of concealed income. He also noticed that the estimate of sales were considerably reduced by the AAC in appeal which was confirmed by the Tribunal. He, therefore, held that the additions in the furniture business be kept outside the purview of the imposition of the penalty. So far as quantum of penalty is concerned, he held that it required to be reduced to 150% of the tax on concealed income. Therefore/he found that after excluding the additions in the furniture business, the tax on the concealed income and the penalty had to be computed as follows:
Asst.year Tax on concealed Penalties @
income 150%
Rs. Rs.
1970-71 6,426 9,639
1971-72 6,643 9,965
1972-73 5,727 8,590
1973-74 5,421 8,130
1974-75 7,713 11,570
1975-76 9,625 14,437
1976-77 8,558 12,837
1977-78 6,787 10,180
1978-79 9,097 13,645
1979-80 8,637 12,956
1981-82 - -
9. The assessee has come up in appeals against the orders of the learned C.I.T. (Appeals). We were given to understand that the department has not filed any appeals against the said order. On behalf of the assessee Shri O.P. Sapra, the learned counsel for the assessee reiterated the submissions made on behalf of the assessee before the Income-tax authorities. He submitted that the declaration dated 31 -3-1968 had been filed before the ITO on the first date of hearing for the assessment year 1970-71. According to him, it was a genuine declaration on the validity of which there was a difference of opinion between the assessing officer and the first appellate authority namely the AAC. He also pointed out that the returns had been voluntarily filed by the assessee and had been voluntarily revised. The returns in the case of the HUF were also said to be voluntary. Reliance in this connection was also placed by him on the fact that on the wealth-tax side, the addition of the property from the net wealth of the assessee had been deleted by the Appellate Tribunal vide its order dated 18-12-1982 (supra). He submitted that the order dated 29-1-1985 of the Appellate Tribunal was an order passed actually ex pane without giving adequate opportunity of hearing to the assessee and on account of which the following three questions were referred by the Appellate Tribunal vide statement of the case dated 22-9-1988 in R.A. Nos. 125 and 445 to 454/Del/85 in compliance of the directions of the Hon’ble High Court Under Section 256(2):-
1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in disposing of the appeals in an ex pane manner by hearing the Departmental Representative only on 16-1-1985 thereby denying the applicant’s valuable right of being heard ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the income from property No. 87, Civil Lines, Bareilly and the income from furniture hiring etc. belong to and assessable in the hands of the applicant individual and not in the hands of the applicant’s HUF, particularly when the Notary had confirmed the execution of declaration on 31-3-1968 and the Tribunal had in the wealth-tax cases of the applicant also held that the property and the business were the ownership of applicant’s HUF ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the estimates of sales made by the AAC and applications of net rate of 16% thereon to arrive at the net income from applicant’s business in the business of furniture carried on under the name of M/s Jagat Furniture House in the assessment years ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in rejecting the misc. application dated 27-5-1985 by refusing to recall its consolidated order dated 29-1-1985 particularly when the assessee had proved reasonable cause for not appearing before the Hon’ble Tribunal on 16-1-1985 ?
Shri Sapra referred to the following decisions in order to show that a finding given in an assessment proceeding, though relevant, was not conclusive and that the finding in the assessment proceedings would only be a piece of evidence in penalty proceedings:
1. CIT v. Raja Mohd. Amir Ahmad Khan [1975] 100ITR 433 (All.).’
2. Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR457(SC).
3. Ratanlal Ramprasad v. CIT [1983] 139 ITR 64 (MP).
Regarding the proof and inference for blending a property as HUF property, he referred to the following decisions :
1. Pushpa Devi v. CIT [1977] 109 ITR 730 (SC).
2. CIT v. Dilbagh Rai [1979] 117 ITR 842 (Punj. & Har.).
He submitted that both the assessee as well as the Notary had withstood their cross-examinations well and that the assessee’s claim was not false, nor there was any conscious’ concealment. Reference was also made by him to the following decisions regarding the discharge of the onus of proof etc. and as to what was to be done if two views were possible:
1. Smt. Laxmibai v. CIT [1983] 144 ITR 82 (MP).
2. M. Radhakrishniah v. CIT [1984] 147 ITR 133 (Mad.).
3. Addl. CIT v. Gokal Chand Jagan Nath [1986] 157 ITR 187(Delhi).
4. CIT v. G:D. Naidu [1987] 165 ITR 63 (Mad.).
5. CIT v. Calcutta Credit Corporation [1987] 166 ITR 29 (Cal.).
6. CIT v. Hari Ram Sri Ram [1987] 167 ITR 578 (All.).
7. CIT v. Pawan Kumar Dalmia [1987] 168 ITR 1 (Ker.).
8. CIT v. Devi Dayal Aluminium Industries (P.) Ltd. [1988] 171 ITR 683 (All.).
Shri Sapra pointed out that for the assessment years 1980-81 and 1983-84, similar penalties imposed by the ITO had been deleted by the AAC vide his order dated 15-9-1988. He submitted that in any case, penalty was not exigible at least from the assessment year 1973-74 as there were no column in the return for the purpose. He further submitted that penalty @ 150% was excessive and that at any rate the computation of income/penalty was not correct. On the other hand, Shri Subhash Kumar, the learned Departmental Representative strongly supported the orders of the learned CIT (Appeals). He argued that after the Tribunal’ s order dated 29-1 -1985, no new facts had been placed in the penalty proceedings and the Tribunal had explained the earlier order dated 18-12-1982 on the wealth-tax side. He referred to the decision of the Supreme Court in the case of Surjit Lal Chhabda v. CIT [ 1975] 101 ITR 776 for the proposition that the joint Hindu family with all its incidents is a creature of law and cannot be created by act of parties except to the extent to which a stranger can be affiliated to the family by adoption. He also referred to the decision of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 for the proposition that the burden placed upon the assessee Under Section 271(1)(c) is not discharged by any fantastic explanation nor is it the law that any and every explanation by the assessee must be accepted. He pointed out that the explanation had to be acceptable to the fact-finding body. Lastly, he referred to the decision of Andhra Pradesh High Court in CIT v. Salt Khubchand Perumal [1988] 169ITR 278 for the proposition that if there was no fresh evidence in the penalty proceedings, the onus could be discharged by the assessee with the help of the material already on record.
10. We have carefully considered the rival submissions as also the decisions referred to above. The learned CIT (Appeals) has held in the impugned order that the additions in the furniture business account have to be kept outside the purview of the imposition of penalty Under Section 271(1)(c).The department is not in appeal against the said orders. Therefore, the only question which falls for consideration before us is whether in regard to the income from house property No. 87, Civil Lines, Bareilly, it can be said that penalties were leviable for the assessment years in question Under Section 271(1)(c) and those too at the rate of 150% of the tax payable on the income held concealed.
11. It is an admitted case that all the returns for the assessment years in question (whether original or revised) were filed after 1-4-1976. Therefore, leviability of penalty Under Section 271(1)(c) has to be seen with reference to the law as it stood w.e.f. 1-4-1976. In terms of that explanation, since the finding in the assessment proceedings (including appeal) was that the claim of the assessee was false and that the explanation remained unsubstantiated, the presumption of concealment was raised thereby and it was for the assessee to rebut the said presumption by showing that such explanation was bona fide and that all the facts relating to the same and material to the computation of his total income had been disclosed by him.
12. Before we proceed to discuss the material on the record in the light of the above explanation, it will be necessary to dispose of two other points which were raised during the arguments. The first is that according to the assessee its case had been accepted by the Tribunal vide its order dated 18-12-1982 in W.T.A. Nos. 1642 to 1644 for assessment years 1970-71 and 1975-76 in the case of the assessee. We find from a perusal of the order of the Tribunal that the plea of the assessee regarding the blending of the property in question from individual to HUF had not been considered whereas the order of the AAC against which appeal was being considered by the Tribunal had decided the case “without prejudice to the investigation in respect of this deed which is in progress”. It would, therefore, not help the assessee.
13. Secondly the assessee had placed reliance on the order dated 15-9-1988 of the learned A AC by which similar penalties levied by the ITO for the assessment years 1980-81 and 1983-84 had been deleted. On behalf of the assessee Shri Sapra had, therefore, strongly relied upon that fact. However, it appears that against that order of the learned AAC, the department had filed I.T.A. Nos. ^6743 and 6744/Del/ 88 on 8-12-1988 and which are still pending decision before S.M.C. Bench ‘A’ of the Tribunal. Therefore, this point also would not assist the assessee.
14. The first question which has to be seen is as to what is the relevant of the order passed in the assessment proceedings, so far as penalty proceedings are concerned. So far as this point is concerned, it is a settled proposition by now that no doubt the assessment proceedings may be good items of evidence in penalty proceedings i.e., they may be admissible as well as relevant but they are not conclusive and penalty cannot be levied solely on the basis of the reasons given in the assessment proceedings. However that is not to say that some additional material should always be forthcoming in addition to the material on which the assessment was based.
15. Next comes the question of plea or explanation. Even if a plea was not raised in the assessment proceedings, it can be raised in the penalty proceedings. Mere omission does not amount to concealment or deliberate furnishing of inaccurate particulars unless the omission is attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. The mere rejection of the assessee’s explanation is not sufficient to justify the imposition of penalty Under Section 271(1)(c). The learned Departmental Representative is no doubt correct in relying upon the decision of the Supreme Court in the case of Mussadilal Ram Bharose (supra) for the proposition that the burden placed upon the assessee is not discharged by any fantastic explanation nor is it the law that any and every explanation by the assessee must be accepted. It has to be an explanation acceptable to the fact-finding body. The explanation should be cogent and plausible. It may raise probabilities in favour of the assessee or point out the circumstances which create doubts, the benefit of which ought to go to the assessee. This has to be judged on the basis of the preponderance of probability and evidence. There were two properties namely residential house situated at 18, Kucha Sita Ram, Bareilly which belongs to the bigger HUF and land and building at 87, Civil Lines, Bareilly measuring 797 sq. yds. which is the property in respect of the income of which the question of concealment is under consideration. The land and building at 87, Civil Lines, Bareilly appears to have been purchased on 18-8-1963 under a registered sale deed for Rs. 12,400. According to the statement of the assessee recorded before the ITO, the construction of this property started in 1969 and when only part constructions had been completed, it was rented out to a bank towards the end of 1969. Further statement of the assessee was that the constructions were completed in 1973 and that w.e.f. 1-4-1973, this house property was let out to M/s Kashi Nath Jewellers, Bara Bazar, Bareilly vide lease deed dated 15-9-1973 (copy on the paper book). In this lease deed, the lessor was the assessee as karta of his HUF. We will come to this aspect a little later.
16. So far as the residential house belonging to the bigger HUF is concerned, we find from a perusal of the original record of the department made available to us by the learned D.R. that for the assessment years 1971-72 to 1977-78, in Part III, the following note was appended :
Residential house belongs to bigger HUF.
This note obviously had reference to the residential house at 18, Kucha Sita Ram in a part of which the assessee resides along with his wife and four daughters. The assessee’s case is that he made a declaration dated 31-3-1968 (sworn on a stamp paper before the Notary Sh. R.P. Tayal) throwing his self-acquired house property No. 87-B, Civil Lines, Bareilly in the common hotchpots of his HUF. We need not concern ourselves with the point whether the hotchpots of the assessee’s HUF was empty at that time or it had any other property because it is settled law that even if the hotchpots of the HUF is empty, there is no bar to the throwing of a self-acquired property into such an empty hotchpots of the HUF. The statement of the assessee is that the stamp paper (containing 2 pages and being of the denominations of Rs. 2 and Ps. 25 respectively was purchased by him on 28-4-1965 from the stamp vendor one Sh. Ram Avtar. He stated that though he did not know this stamp vendor, he could produce him after finding out his address. In spite of these replies, the ITO did not pursue this lead any further. Therefore, we have to take it as established that the assessee had purchased the stamp paper for the declaration on 28-4-1965 in his name from the stamp vendor. This part of the transaction was genuine beyond doubt.
17. The next stage is of execution of the declaration. The statement of the assessee was that the declaration was executed on 31 -3-1968 and then it was produced on the same day before Shri R.P. Tayal, Notary for being sworn. The statement of Shri R.P. Tayal, the Notary is also to the same effect. Therefore, in the absence of anything to the contrary, it also stands established that the declaration was duly executed by the assessee on 31-3-1968.
18. Then comes the crucial stage of attestation of the declaration or its being sworn before the Notary. The dispute really turns round the date of attestation of the said declaration by the Notary Shri Tayal. The assessee as well as Shri Tayal, both state that this attestation took place on 31 -3-1968 itself. However, the following facts influenced the minds of the Income-tax authorities; namely :
(1) How could the Ps. 50 Notarial stamp be there on 31-3-1968 when it was released to Notaries for sale only on 11-8-1970, having been received in Bareilly Treasury for the first time on 31-7-1970. (There was no dispute that the Notarial stamp of Rs. 3 denomination was so available even on 31-3-1968.)
(2) How could the Distt. Notary seal containing telephone No. 5108 be affixed on the declaration on 31-3-1968 when Shri Tayal had got that telephone number only w.e.f. 23-11-1974.
So far as the first point is concerned, it will be noticed that the statement of the assessee was that the Notarial stamps had been affixed by the Notary himself. However, so far as Shri Tayal is concerned, his statement was that he could not say whether he had put these stamps or they were already there but he did state that Notaries also kept those stamps and stamp vendors also sold these stamps. However, he could not produce the Notarial register before the ITO because he was preserving registers only for the last three years. The statement of the assessee and the Notary had been recorded on!6-ll-1979 and 20-11-1979 respectively whereas the report of the Senior Treasury Officer is dated 17-2-1982. We are pointing out these dates only to show that in the light of the report of the Senior Treasury Officer. no further cross-examination of the assessee or of the Notary was undertaken by the ITO before drawing an adverse inference from the existence of 50 ps. Notarial stamp. This assumes importance. Therefore, the possibility of 50 Ps. stamp having been secured from any Treasury other than Bareilly Treasury either by the assessee or by the Notary could not be excluded.
So far as the second point is concerned, prima facie it does appear that if the attestation took place on 31-3-1968 there could not be notary’s seal thereon containing a telephone number which the assessee got only w.e.f. 23-11-1974. In this connection, it may be mentioned that the first seal (which was fainter) had telephone No. 5108 mentioned thereon and thereon another seal appears to have been super-imposed (which was brighter and in which the older telephone No. 3082 was written). During his examination, Shri Tayal continued to insist that to him what appeared to the ITO to be telephone No. 5108 was really telephone No 3082. Therefore, the ITO had sent the declaration for the report of the Central Forensic Science Laboratory, New Delhi. Their report dated 26 March, 1980 was to the effect that there were two distinct seals one containing the telephone number 3082 and the other containing the telephone number 5108, though it could not be said as to which of the seal impressions was affixed earlier and as to what was the age of the inks used in the writings and signature. Again, after this report of the Central Forensic Science Laboratory, the matter was not put to the assessee or the notary Shri Tayal for any explanation which they sought to offer in the light thereof. Obviously, the Notary was keeping with him two seals, one for the period prior to 23-11-1974 when his telephone number was 3082 and the other after 23-11-1974 when that telephone number got changed to 5108. The statements of the assessee and Shri Tayal are as if there was only one seal containing one number namely 3082. However, if the attestation took place on 31-3-1968, there could be only one seal of the Notary containing telephone No. 3082. If the declaration was attested after 31-3-1968, the assessee or the Notary could not be expected to be so foolish as to exhibit an error on its face by having the Notary’s new seal with telephone No. 5108, affixed when the idea was to pass it on as a declaration executed on 31 -3-1968, itself. The only possibility could be that if the declaration was executed after 31-3-1968, the seal with telephone No. 5108 was affixed inadvertently. It could also be that before filing the declaration, the other seal may have been affixed, if the existing seal was not appearing clear. In any case, as we have already observed above, no further enquiry or investigation was made by the ITO and he proceeded on the basis as if it did not need any further elucidation or explanation. For the purposes of imposition of penalty, it would not be enough.
19. There is another important aspect which cannot be lost sight of here. It would be one thing to say that the entire declaration was executed and attested after 31 -3-1968 with the intention of passing it off as one executed on 31-3-1968. It would be quite another thing if the purchase of the stamp paper on 28-4-1965 was genuine and the typing and execution of the declaration on 31-3-1968 thereon was also genuine, and only its attestation took place after 31-3-1968 with the intention of making it appear that an attested declaration would command greater credence and acceptability before the ITO. In other words, it would mean that though the claim in regard to the blending of an individual property into HUF property was not a false one, it was desired to be established by means of evidence about the genuineness of which there was a prima facie doubt. These two things would be entirely distinct and separate and in the latter case, it would not be feasible to impose penalty with reference thereto. Blending is a unilateral act and all that is required is the declaration or expression of a clear and unequivocal intention to abandon all claims upon the property and to voluntarily throw it in the common hotchpots of the HUF. No formalities are necessary nor a declaration, if made in writing, requires any attestation before the notary or registration. It could also be by a course of conduct. On behalf of the department, much stress was laid on the point that for the asset. years 1968-69 and 1969-70, no such claim was made by the assessment that this was also a circumstance which went against the assessee if the assessee had really executed a declaration on 31-3-1968 as alleged. This question was put to the assessee in his statement and he stated that he did not claim it. The explanation given by Shri O.P. Sapra at the time of hearing was that the property income being only Rs. 100 much attention may not have been paid to making the claim for the assessment years 1968-69 and 1969-70. Here it may be noticed that so far as the assessment year 1968-69 is concerned, it already came to a close on 31-3-1968 itself and for the assessment year 1969-70, though the assessment was framed on 24-4-1970, the date of filing the return is not known. In any case, this circumstance though relevant would not be conclusive and has to Be considered alongwith the other circumstances. Though the assessee does not appear to have filed any covering letters while filing the revised returns for the assessment years in question on 29-1-1979, showing the reason for the revision, the assessee had given an explanation vide letter dated 10-12-1979 which is quoted in the assessment order dated 27-3-1982 for the assessment year 1970-71. The returns had been filed by the assessee voluntarily, (original as well as the revised ones). The fact also remains that the letting out of the house to M/s Kashi Nath Seth jewelers, Bara Bazar, Bareilly vide lease deed dated 15-9-1973 did describe the lessor as karta of his HUF. The lease deed was executed long before the present controversy arose. No doubt in the order sheet entry dated 22-12-1977 for the assessment year 1974-75, the assessee had stated that the property was constructed in the name of his wife Smt. Satya Bhama but that fact by itself cannot go against the assessee as the constructions were commenced in 1969 and completed in 1973 and it is admitted on all hands that the property did not belong to the assessee’s wife but to the assessee. No doubt the HUF did not file any returns till 29-1-1979 and that too for the assessment years 1970-71 onwards but as already stated above, this fact by itself would not be conclusive.
20. In the Tribunal’ s order dated 29-1 -1985 it has been mentioned that the appeal had been heard partly on 2-1-1985 and thereafter it was adjourned to 16-1-1985 for further hearing on which date only the Departmental Representative could be heard as none appeared on behalf of the assessee. The assessee had raised this aspect in his misc. application referred to above and as we have already seen, the Hon’ble High Court has been pleased to direct the reference of that question by drawing up of a statement of the case Under Section 256(2) with reference to that controversy. The finding of the Tribunal in para 9 of its order dated 29-1-1985 referred to above was in the following terms:
The cumulative impression that one gets from all the above mentioned facts and the tact that the verification of the document was not signed by the Notary is that the document was neither valid nor genuine.
This finding, in our view would not come in the way of the assessee in the penalty proceedings, particularly in the light of the fact that the Hon’ble High Court has directed the Tribunal to refer the questions and to draw up a statement of the case with reference to its finding regarding the execution of the declaration dated 31-3-1968. Having regard to the entirety of all the facts and circumstances of the case, the evidence on the record and the probabilities, we are of the view that the explanation offered by the assessee in the penalty proceedings could be said to be bona fide in terms of Explanation 1(B) to Section 271(1)(c) as operative for the assessment years in question since the claim regarding the throwing of the property in question to the hotchpots of his HUF was a contestable one and which could not be said to be false. Since the claim had been raised on the basis of material, though that material was not considered sufficient on the assessment side, the explanation could not be said to be false nor could it be said to be other than bona fide. This is not a case where the assessee can be said to have suppressed or concealed his income simpliciter. The assessee was only raising the claim that instead of the income being assessed in his individual hands, the same was assessable in the hands of his HUF. Returns had been filed in both the capacities. If the assessee was to be visited with the peril of a penalty Under Section 271(1)(c) in such circumstances, it would be impossible for an assessee to raise a claim unless the merits of it had been prejudged as it were before being placed before the income-tax authorities. This is not the purpose of the penalty proceedings. Therefore, having regard to the above, we are of the view that in the peculiar facts and circumstances of this case as discussed above, no penalties were leviable on the assessee Under Section 271(1)(c) for any of the assessment years in question.
21. In the result, the appeals filed by the are allowed.