Decided on July 18,1994



Moksh Mahajan, Accountant Member - (1.) IN an appeal filed, the order of the Commissioner of INcome-tax (Appeals), dated 24-12-1986 confirming the penalty imposed under Section 271(1)(c) has been challenged by the assessee.
(2.) Shri Sandeep Sapra appeared on behalf of the assessee and Smt. Ahuja Sarangi represented the department. The assessee-firm was constituted on 12-8-1977 with 10 partners. It acquired licence to carry on the rice milling business on 27-1-1978. The business activity was started on 12-2-1978. It filed a return declaring a loss of Rs. 30,773 on 31-7-1979. This was revised to Rs. 30,823 in response to notice issued under Section 148 of the Act. The assessment was framed at an income of Rs. 1,36,534 (excluding the tax payable by the firm). The difference between the loss returned and the income assessed arose on account of addition of Rs. 1,43,000 made under the head "Unexplained investment by the partners". In appeal, the learned CIT(A) deleted the addition on the ground that the assessee had not failed to prove or explain the credits made in the books of account. The investments made prior to the actual commencement of business were owned by the partners, the assessments of whom were pending for disposal. The order was dated 7-9-1982. The department preferred an appeal and the Income-tax Appellate Tribunal vide their order dated 16-2-1984 restored the appeal to the file of the CIT(A) for fresh decision "in the light of the explanation offered by the assessee-firm and the facts and circumstances of the case and the material if any, on record in accordance with the law". The learned CIT(A) after taking into consideration that the partners have admitted the investments made in respect of which confirmations were filed before the Assessing Officer again, held that the addition on account of Rs. 1,43,000 was not maintainable. While holding so, he also relied on the decision of Hon'ble Supreme Court in the case of CIT v. Bharat Engg. & Construction Co. [1972] 83 ITR 187 wherein it was held that where the large amount appeared as credits in the very first year of business, it could not be said that the firm had earned so much income in the first year and consequently, the addition could not be made in the hands of a firm. Aggrieved by the decision, the department came before the Appellate Tribunal. The ITAT vide their order dated 23-4-1986 in ITA No. 5986/Del/1984 for assessment year 1978-79, restored the order of the learned CIT(A) and upheld the order of the Assessing Officer. The penalty proceedings initiated under Section 271(1)(c) were concluded on 26-11-1986 by the Assessing Officer. After rejecting the assessee's explanation that the investment was made much before the commencement of business and also that the explanation to Section 271(1)(c) was not applicable in the case of the assessee, penalty was imposed at Rs. 66,670. The learned CIT(A) before whom the appeal was filed by the assessee confirmed the order of the Assessing Officer after holding that the assessee's case fell squarely under the Explanation 1 to Section 271(1)(c). It is this order which is subject of appeal before us.
(3.) SHRI Sandeep Sapra contested order both on facts and proposition of law. It was argued that the CIT(A) without appreciating the facts fully was swayed by the decision of the ITAT without giving weightage to the factor that the material sufficient for sustaining the addition is not enough for imposition of penalty. Otherwise too, while confirming addition, the ITAT did not take into consideration the material brought on record in the form of explanation regarding the nature and source of investments made by the partners. This explanation was not only duly considered but was also accepted by the Assessing Officer while finalising assessments in the case of the partners. The assessee's case was fully covered under the Proviso to Clause (B) of Explanation 1 to Section 271(l)(c) of the Act. On the facts as were available it could not be said that the explanation furnished by the assessee has been proved to be false. Reliance in this connection was placed on the following decisions : (1) CIT v. Jaiswal Motor Finance [1983] 141 ITR 706 (All.); (2) CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC); (3) CIT v. Devi Dayal Aluminium Industries (P.) Ltd. [1988] 171 ITR 683 (All.); and ' (4) Smt. Shanta Kumari v. ITO [1991] 38 ITD 175 (Delhi). In the alternative, as the investment was made prior to the commencement of the business, the income could not be assessed in the hands of the assessee as held by the CIT(A) consecutively in their orders dated 7-9-1982 and 26-9-1984.;

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