Shri Natvarbhai Chaturbhai Patel,, v. The ACIT., Circle-2,, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1707/AHD/2006 ASSESSMENT YEAR: 1988-89 DATE OF HEARING:28.4.10 DRAFTED:30.4.10 SHRI NATVARBHAI CHATURBHAI PATEL AT & P.O. PADMALA DIST. BARODA PAN NO.ACXPP5120B V/S . ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-2 BARODA (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI J.P. SHAH AR RESPONDENT BY:- SHRI C.K. MISHRA DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-II BARODA IN APPEAL NO.CAB/II -349/04-05 DATED 05-06-2006. THE ASSESSMENT WAS FRAMED DCIT (ASSTT.) SPL. RANGE -1 BARODA U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 22-03- 1991 FOR ASSESSMENT YEAR 1988-89. THE IMPUGNED PENA LTY WAS LEVIED BY THE ACIT CIRCLE-2 BARODA U/S.271(1) OF THE ACT VIDE HIS ORD ER DATED 30-04-2003. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE LEVY OF PENALTY BY ASSESSING OFFICER U/S.271(1)(C) OF THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING TWO EFFECTIVE GROUNDS :- 1.01 ON THE FACTS AND CIRCUMSTANCES OF YOUR APPELL ANT CASE AND IN LAW THE HONBLE C.I.T. HAD ERRED IN CONFIRMING THE LEVY OF PENALTY AMOUNTING TO RS.11 57 000/- IMPOSED U/S.271(1)(C) OF THE I.T. AC T 1961 BY THE LD. ACIT CIRCLE 2 BARODA FOR CONCEALING PARTICULARS OF INCO ME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME. ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 2 1.02 YOUR APPELLANT SAYS AND SUBMITS THAT NO PENALT Y CAN BE LEVIED ON PROTECTIVE ASSESSMENT. YOUR APPELLANT FURTHER SUBMI TS THAT THE HONBLE C.I.T. HAD CONFIRMED THE ACTION OF LD. A.C.I.T. CIRCLE 2 BARODA WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 17-03- 1989. A SEARCH OPERATION U/S.132 OF THE ACT WAS CARRIED OUT ON BUSINESS & RESIDENTIA L PREMISES OF THE ASSESSEE ON 12/13-05-1988. DURING THE COURSE OF SEARCH VARIOUS INCRIMINATING DOCUMENTS REGISTERS BOOKS OF ACCOUNT WERE FOUND AND SEIZED B Y THE INVESTIGATION WING OF THE DEPARTMENT AT BARODA. WHEN THESE INCRIMINATING DOCU MENTS WERE CONFRONTED TO THE ASSESSEE AND ITS GROUP CONCERN THEY OFFERED SUCH AM OUNTS AS INCOME EARNED FROM UNDISCLOSED SOURCES IN ITS BOOKS U/S.132(4) OF THE ACT. IT IS AN ADMITTED POSITION THAT LATER THESE AMOUNTS HAVE BEEN RETURNED IN THE INCOM E OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR I.E. 1988-89. THE ASSESSIN G OFFICER ON THE BASIS OF SEIZED DIARY (REGAL) RAJAT FOUND FROM THE RESIDENCE OF AS SESSEES BROTHER SHRI BHARAT B PATEL NOTED THE UNDISCLOSED TRANSACTIONS AS DECLAR ED BY THE ASSESSEE AT RS.61 47 609/- AND SPLIT THE AMOUNTS AMONGST THREE BROTHERS WHO ARE PARTNER IN THE FIRMS M/S. NATVARBHAI C PATEL & CO. AND M/S. CHATUR BHUJ TOBACCO CO. INCLUDING THE ASSESSEE. ACCORDINGLY THE AMOUNT OF RS.21 49 203/- WAS DISCLOSED IN THE RETURN OF INCOME OF THE ASSESSEE ON THIS ACCOUNT. THE ASSESSI NG OFFICER NOTED THAT SINCE THE ASSESSEE FAILED TO DESCRIBE AND EXPLAIN THE SOURCE OF UNDISCLOSED INCOME AND UTILIZATION THEREOF INITIATED PENALTY PROCEEDINGS U/S.271(1) OF THE ACT AND MADE THE ADDITION ON PROTECTIVE BASIS IN THE HANDS OF THE AS SESSEE AND SUBSTANTIVE BASIS IN THE HANDS OF ABOVE SAID TWO FIRMS. AGAINST THE PROT ECTIVE ASSESSMENT THE ASSESSEE FILED APPEAL BEFORE CIT(A) WHO VIDE ORDER DATED 16 -09-2002 DIRECTED THE ASSESSING OFFICER TO MAKE THE ASSESSMENT ON SUBSTANTIVE BASIS . ON THE REQUEST OF THE ASSESSEE AND IN VIEW OF THE ORDERS PASSED BY THE TR IBUNAL IN THE CASE OF THE AFORESAID FIRMS THE CIT(A) DIRECTED THE ASSESSING OFFICER TO CONSIDER THE ASSESSMENT OF THE ASSESSEE ON SUBSTANTIVE BASIS VID E PARA-2.1 TO 2.3 AS UNDER:- 2.1 BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF SEARCH PROCEEDINGS ON 13.5.1988 THE APPELLANT AS WELL AS OTHER GROUP PERSONS MADE DISCLOSURE AT THE TIME OF SEARCH PROCEEDINGS. THE S AME WAS INCLUDED IN THE RETURN FILED BY THE APPELLANT. HOWEVER THE A.O. MA DE THE ADDITION IN THE HANDS OF FIRM IN WHICH THE APPELLANT WAS PARTNER AN D ALSO INCLUDED THE SAME IN THE HANDS OF APPELLANT ON PROTECTIVE BASIS THOUG H THE APPELLANT HAD ALREADY SHOWN THE SAME WHILE FILING THE RETURN OF INCOME. ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 3 2.2 THE LEARNED COUNSEL FOR THE APPELLANT SUBMITTED THAT THE HONBLE ITAT AHMEDABAD VIDE ORDER NO. ITA 4180/AHD/1994 DT. 12.1 0.2001 HAS UPHELD THE ACTION OF THE CIT(A) OF DELETING THE ADDITION MADE IN THE HANDS OF FIRM ON THE GROUND THAT THE SAME WAS PERTAINING TO PARTNERS. IN VIEW OF THIS IT IS PLEADED THAT THE ASSESSMENT IN THE CASE OF APPELLANT BE MAD E ON SUBSTANTIVE BASIS. 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE LE ARNED COUNSEL FOR THE APPELLANT AND ALSO PERUSED THE ORDERS PASSED BY HON BLE ITAT AHMEDABAD NO. ITA 4180/AHD/1994 DATED 12.10.2001 IN THE CASE OF M/S. CHATURBHAI HARIBHHAI PATEL & CO. AND ORDER NO.ITA NO.4189 TO 4 191/AHD/1994 DATED 12.10.2001 IN THE CASE OF M/S. HARSHADKUMAR & CO. M/S. CHATURBHUJ TOBACCO CO. AND M/S. NATWARBHAI C PATEL & CO. THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT THAT THE ADDITIONS MADE IN THE HANDS OF FIRM HAVE BEEN DELETED ON THE PLEA THAT THE DISCLOSURE H AS BEEN OFFERED BY THE PARTNERS (APPELLANT) OF THE FIRMS. IN VIEW OF THIS I FULLY AGREE WIDTH THE VIEW OF THE APPELLANT THAT THE ASSESSMENT BE MADE ON SUBSTA NTIVE BASIS. THE A.O. IS THEREFORE DIRECTED TO UPHOLD THE AMOUNT OF DISCLOS URE IN THE HANDS OF APPELLANT ON SUBSTANTIVE BASIS. 4. THE ASSESSING OFFICER DURING THE COURSE OF ASSES SMENT PROCEEDINGS NOTED THAT THE INCOME OF RS.61 47 607/- REPRESENTS THE IN COME OF THE FIRM AND FOR THE SAME THE ASSESSING OFFICER RECORDED THE FACTS IN PARA-6.7 AS UNDER:- 6.7. THE ABOVE DISCUSSION LEADS TO ONLY ONE CONCLUSION. THAT IS THIS AMOUNT HAS BEEN TAKEN BACK FROM THE ACCOUNTS OF THE BENAMI DARS (DALALS) AFTER MAKING PAYMENT BY CHEQUES (REF. QUESTION 32: SHRI N .C. PATELS STATEMENT U/S.132(4) DATED 13.5.88 AT M/S. HARSHADKUMAR & CO. S PREMISES). IN VIEW OF THE FACTS THAT THESE AMOUNTS HAVE BEEN GENERATED OU T OF THE BUSINESS TRANSACTIONS SHOWN IN THE BOOKS OF THE ASSESSEE TH E AMOUNT OF RS.61 47 607/- REPRESENTS THE INCOME OF THE FIRM. 5. FURTHER THE ASSESSING OFFICER NOTED THAT WITH TH IS INCOME BELONGING TO FIRM SUBSTANTIVE ADDITION BE MADE IN THE CASE OF THE ABO VE SAID TWO FIRMS M/S. NATVARBHAI C PATEL & CO. AND M/S. CHATURBHUJ TOBACCO CO. AND T HE ASSESSING OFFICER MADE PROTECTIVE ASSESSMENT IN THE CASE OF ASSESSEE BY GI VING FOLLOWING FINDINGS IN PARA-- 9.7 AND 9.8 OF THE ASSESSING OFFICER:- 9.7. IN VIEW OF THE ABOVE RS.20 49 203/- REPRESENTS IN VESTMENTS OF M/S. NATVARBHAI C. PATEL & CO. AND M/S. CHATURBHUJ TOBAC CO CO- WHICH ARE NOT RECORDED IN ITS BOOKS OF ACCOUNTS. THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS IS N OT SATISFACTORY. ACCORDINGLY THE UNEXPLAINED INVESTMENTS OF RS.20 4 9 203/- IS DEEMED TO BE THE INCOME OF THE ABOVE MENTIONED ASSESSEE-COMPANY- FIRMS FOR S.Y. 2043 UNDER SECTION 69 OF THE ACT. ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 4 9.8. IN VIEW OF THE FACT THAT SHRI NATVERBHAI C PATEL H AS SHOWN THIS AMOUNT OF RS.20 49 203/- AS HIS INCOME IT IS BEING ASSESSED AS HIS INCOME ONLY ON PROTECTIVE BASIS. 6. THE ASSESSEE DURING THE COURSE OF SEARCH HAS BEE N ASSURED BY THE SEARCH PARTY THAT THE INCOME DECLARED BY THE ASSESSEE IS I MMUNE FROM PENALTY AND PROSECUTION IF THE INCOME IS DISCLOSED U/S.132(4) R.W.S. EXPLANATION-5 TO SEC.271(1) OF THE ACT. THE RELEVANT Q. NO.32 OF AS SESSEE RECORDED ON 13-05-1988 U/S./132(4) OF THE ACT READS AS UNDER:- QUE. NO.32: I WISH TO DRAW YOUR ATTENTION TO EXPLA NATION 5 TO SEC.271(1) ACCORDING TO WHICH IF YOUR DECLARE YOUR UNACCOUNTE D MONEY FOUND DURING THE SEARCH NO FINE WILL BE IMPOSED ON YOU. ARE YOU IN FAVOUR OF TAKING ADVANTAGE OF THIS PROVISIONS? IN REPLY THE ASSESSEE HAS DECLARED THE FOLLOWING A S UNACCOUNTED CURRENT INCOME AND REQUEST YOU TO GRANT ME ADVANTAGE UNDER THIS. BUT THE ASSESSING OFFICER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS INITIATED PENALTY PROCEEDINGS U/S.271(1) EVEN THOUGH THE ASS ESSMENT WAS MADE ON PROTECTIVE BASIS BY STATING AS UNDER:- 10.1. SHRI N.C. PATELS ATTENTION WAS CLEARLY DRAWN TO T HE PROVISIONS OF EXPLANATION 5 OF THE SECTION 271(1)(C)OF THE ACT AN D IT WAS LEFT TO HIS OPTION TO SATISFY HIMSELF ABOUT THE PROVISIONS AND THEN DECID E WHETHER OR NOT HE WANTED TO TAKE ADVANTAGE OF THIS PROVISION. IN VIEW OF THI S IT IS CLEAR THAT HE WAS NOT TOLD OF ANY BLANKET IMMUNITY UNDER THE ACT. SHRI N. C. PATEL MADE THE DISCLOSURE AFTER VERIFYING THE PROVISIONS OF SEC. 2 71(1)(C) EXPLANATION-5. 6. IN VIEW OF THE ABOVE POSITION THE ASSESSING OFF ICER LEVIED THE PENALTY U/S.271(1) OF THE ACT. AGGRIEVED ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING O FFICER BY GIVING FOLLOWING FINDING IN PARA-2.6 AND 2.7 OF HIS APPELLATE ORDER:- 2.6 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. C OUNSEL AND FACTS OF THE CASE. I HAVE ALSO GONE THROUGH THE VARIOUS CASE LAW S RELIED UPON BY THE LD. COUNSEL. THERE IS NO EVIDENCE ON RECORD TO SHOW THA T ANY PROMISE WAS MADE DURING THE COURSE OF SEARCH THAT NO PENALTY SHALL B E LEVIED U/S.271(1). DURING THE COURSE OF SEARCH THE AUTHORIZED OFFICER HAS SIM PLY BROUGHT THE PROVISIONS OF EXPLANATION (5) OF SECTION 271(1)(C) TO THE ATTE NTION OF THE APPELLANT AND HAS POSED THE QUESTION WHETHER HE WAS IN FAVOUR OF TAKI NG ADVANTAGE OF THESE PROVISIONS. IT CANNOT BE SAID THAT ANY ASSURANCE W HATSOEVER HAS BEEN GIVEN TO THE APPELLANT THAT NO PENALTY SHALL BE LEVIED. I T HAS RIGHTLY BEEN HELD BY THE ASSESSING OFFICER THAT THE REQUIREMENTS OF EXPLANAT ION (5) OF SECTION 271(1)(C) SUCH AS POSSESSION OF ASSETS AND THE MANNER IN WHIC H THE INCOME OUT OF ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 5 WHICH SUCH ASSETS WERE ACQUIRED HAVE BEEN DERIVED HAVE NOT BEEN COMPLIED WITH BY THE APPELLANT. 2.7. AFTER HAVING MADE HIS STATEMENT ON OATH U/S.13 2(4) DECLARING RS.20 49 203/- AS UNACCOUNTED CURRENT INCOME AS 1/3 RD SHARE IN UNEXPLAINED TRANSACTIONS AS PER RAJAT (REGAL) DIARY FOUND FRO M THE RESIDENCE OF HIS BROTHER AND DECLARING THE SAME IN THE RETURN OF IN COME FILED SUBSEQUENTLY THE APPELLANT CANNOT NOW TURNAROUND AND SAY THAT IT WAS NOT HIS UNDISCLOSED INCOME. THE SUBSTANTIVE ASSESSMENT IN THE HANDS OF THE TWO FIRMS AS MENTIONED EARLIER WAS MADE BY THE ASSESSING OFFICER FOR THE REASONS GIVEN AT PAGE NO.68 (PARA 9.6) OF THE ASSESSMENT ORDER. IT W AS ONLY WHEN STATEMENT A AND B FILED BY THE APPELLANT TRIED TO EXPLAIN THE DISCLOSURE MADE DURING SEARCH AS CREDITS APPEARING IN THE NAMES OF VARIOUS PERSONS IN THE BOOKS OF ACCOUNTS OF THE AFORESAID TWO FIRMS THAT THE SUBSTA NTIVE ASSESSMENT HAS BEEN MADE. THUS IT IS THE APPELLANT WHO HAS BEEN CHANGI NG HIS STAND WHEN HE TRIED TO CONNECT THOUGH WITHOUT SUCCESS THE DISCL OSURE MADE WITH THE CREDITS APPEARING IN THE BOOKS OF ACCOUNTS OF THE FIRMS. IT IS ALSO CLEAR FROM THE ORDER OF HON. ITAT AHMEDABAD PASSED IN THE CASE OF THE F IRMS THAT THE SUBSTANTIVE ADDITION HAS BEEN DELETED IN THE HANDS OF THE FIRMS ON THE GROUND THAT THE PARTNERS OF THE FIRM HAD ALREADY OFFERED THE AMOUNT FOR TAXATION. FOLLOWING THE OBSERVATION OF THE HON.ITAT AHMEDABAD MY LD. PREDE CESSOR HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE ADDITION EARLIER MAD E ON PROTECTIVE BASIS IN THE HAND OF THE APPELLANT AS SUBSTANTIVE ADDITION. VIEW ED IN TOTALITY IT IS THUS CLEAR THAT IT IS AS PER THE APPELLANTS OWN STATEMENT REC ORDED U/S.132(4) MAKING THE DISCLOSURE OF RS.20 49 203/- IN HIS OWN HAND THAT T HE HON/ ITAT AND MY LD. PREDECESSOR DIRECTED THE SUBSTANTIVE ADDITION TO BE MADE IN THE HANDS OF THE APPELLANT. UNDER THESE CIRCUMSTANCES IT CANNOT BE SAID THAT PENALTY HAS BEEN LIVED ON PROTECTIVE BASIS OR THERE WAS NO SATISFACT ION RECORDED BY THE ASSESSING OFFICER THAT THE DISCLOSURE MADE BY THE A PPELLANT DURING SEARCH AND SUBSEQUENTLY IN THE RETURN OF INCOME AFTER DETECTIO N BY THE DEPARTMENT ATTRACTED THE PROVISIONS OF SECTION 271(1)(C). THE CONTENTION OF THE LD. COUNSEL THAT NO PENALTY IS LEVIABLE SINCE DEMAND RAISED AFT ER ASSESSMENT IS NIL IS NOT TENABLE SINCE THE INCOME OF RS.20 49 203/- SHOWN IN THE RETURN OF INCOME IS ADMITTED BY APPELLANT HIMSELF TO BE UNACCOUNTED. AL L THE CASE LAWS RELIED UPON BY THE LD. COUNSEL ARE DISTINGUISHABLE ON FACT S. TWO OF THE CASE LAWS ON WHICH THE LD. COUNSEL STRONGLY RELIED ARE DISCUSSED HERE TO SHOW HOW THE FACTS IN THOSE CASES ARE DIFFERENT FROM THOSE OF THE PRES ENT CASE. 7. BEFORE US THE LD. SR. COUNSEL FOR THE ASSESSEE SHRI J.P. SHAH ARGUED THAT NO PENALTY CAN BE LEVIED IN CASE THE ASSESSMENT IS MAD E ON THE BASIS OF PROTECTIVE AND NOT SUBSTANTIVE. HE STATED THAT IT IS IMPOSSIBLE T O GATHER THAT THE ITO HAS ENTERTAINED A REASONABLE BELIEF THAT SOME INCOME OF THE ASSESSE E HAS BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED TILL HE DOES NOT COME TO A CONCLUSION THAT THE INCOME BELONGS TO ASSESSEE. HE STATED THAT NO DOUBT IT IS OPEN TO AN ITO TO MAKE PROTECTIVE ASSESSMENT BUT IT NOT OPEN TO LEVY PENALTY ON PROTECTIVE ASSESSMENT AS REASON TO BELIEVE POSSESSES LESSER POWER THAN TH E WORDS SATISFACTION WHICH IS ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 6 A PREREQUISITE FOR INITIATION OF PENALTY PROCEEDING S U/S.271(1) OF THE ACT. HE REFERRED TO THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SHRI BANKIM J SHAH TAX REFERENCE NO.117 OF 1979 DATED 10-07-1991. THE LD. COUNSEL FOR THE ASSESSEE FURTHER STATED THAT AT THE TIME OF RECORDING OF SATISFACTION THE ASSESSING OFFICER WAS NOT SURE ABOUT THE OWNERSHIP OF INCOME TO WHOM THIS INCOME BELONGS. HE STATED THE FACT THAT THE PENALTY PROCE EDINGS WAS INITIATED AT THE TIME OF COMPLETION OF ASSESSMENT ON 22-03-1991 AND THE TRIB UNAL IN THE CASE OF THE FIRM HAS HELD THAT THE INCOME BELONGS TO THE PARTNER-ASSESSE E AND NOT TO THE FIRM ON 12-10- 2001 THEREBY TREATING THE INCOME IN THE HANDS OF A SSESSEE ON SUBSTANTIVE BASIS. ACCORDINGLY HE STATED THAT THE PENALTY IS WITHOUT SATISFACTION AND CANNOT SUSTAIN IN PROTECTIVE ASSESSMENT. 8. ON THE OTHER HAND LD. SR-DR SHRI C.K. MISHRA H EAVILY RELIED ON THE PENALTY ORDER AND THE ORDER OF CIT(A) AND STATED THAT THE S TATEMENT ON OATH U/S.132(4) OF THE ACT DECLARING RS.20 49 203/- AS UNACCOUNTED CURRENT INCOME AS 1/3 RD SHARE IN UNEXPLAINED TRANSACTIONS AS PER RAJAT (REGAL) DIA RY FOUND FROM THE RESIDENCE OF ASSESSEES BROTHER AND DECLARING THE SAME IN THE RE TURN OF INCOME FILED SUBSEQUENTLY THE ASSESSEE CANNOT NOW TURNAROUND AN D SAY THAT IT WAS NOT HIS UNDISCLOSED INCOME. HE STATED THAT THE SUBSTANTIVE ASSESSMENT IN THE HANDS OF THE TWO FIRMS AS MENTIONED EARLIER WAS MADE BY THE ASSE SSING OFFICER FOR THE REASONS GIVEN AT PAGE NO.68 OF THE ASSESSMENT ORDER AND IT WAS ONLY WHEN STATEMENT A AND B FILED BY THE ASSESSEE TRIED TO EXPLAIN THE DISC LOSURE MADE DURING SEARCH AS CREDITS APPEARING IN THE NAMES OF VARIOUS PERSONS I N THE BOOKS OF ACCOUNT OF THE AFORESAID TWO FIRMS THAT THE SUBSTANTIVE ASSESSMENT HAS BEEN MADE. ACCORDING TO HIM IT IS THE ASSESSEE WHO HAS BEEN CHANGING HIS S TAND WHEN HE TRIED TO CONNECT THOUGH WITHOUT SUCCESS THE DISCLOSURE MADE WITH TH E CREDITS APPEARING IN THE BOOKS OF ACCOUNT OF THE FIRMS AND IT IS ALSO CLEAR FROM T HE ORDER OF THIS TRIBUNAL PASSED IN THE CASE OF FIRMS THAT THE SUBSTANTIVE ADDITION HAS BEEN DELETED IN THE HANDS OF THE FIRMS ON THE GROUND THAT THE PARTNERS OF THE FIRM H AD ALREADY OFFERED THE AMOUNT FOR TAXATION. FOLLOWING THE OBSERVATION HE STATED THAT THIS TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE ADDITION EARLIER MAD E ON PROTECTIVE BASIS IN THE HAND OF THE ASSESSEE AS SUBSTANTIVE ADDITION AND VIEWED IN TOTALITY IT IS THUS CLEAR THAT AS PER THE ASSESSEES OWN STATEMENT RECORDED U/S.132(4) OF THE ACT MAKING THE DISCLOSURE OF RS.20 49 203/- IN HIS OWN HAND THAT THE TRIBUNAL HAS DIRECTED THE SUBSTANTIVE ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 7 ADDITION TO BE MADE IN THE HANDS OF THE ASSESSEE. U NDER THESE CIRCUMSTANCES HE FINALLY ARGUED THAT IT CANNOT BE SAID THAT PENALTY HAS BEEN LEVIED ON PROTECTIVE BASIS OR THERE WAS NO SATISFACTION RECORDED BY THE AO THA T THE DISCLOSURE MADE BY THE ASSESSEE DURING SEARCH AND SUBSEQUENTLY IN THE RETU RN OF INCOME AFTER DETECTION BY THE REVENUE ATTRACTED THE PROVISIONS U/S.S271(1) O F THE ACT. 9. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS WE FIND THAT THE ASSESSING OFFICER WAS OF THE CONFIRME D VIEW THAT SUBSTANTIVE ASSESSMENT IN THE HANDS OF THE TWO FIRMS AS MENTION ED EARLIER WAS MADE FOR THE REASONS GIVEN AT PAGE NO.68 OF THE ASSESSMENT ORDER AND IT WAS ONLY WHEN STATEMENT A AND B FILED BY THE ASSESSEE TRIED T O EXPLAIN THE DISCLOSURE MADE DURING SEARCH AS CREDITS APPEARING IN THE NAMES OF VARIOUS PERSONS IN THE BOOKS OF ACCOUNT OF THE AFORESAID TWO FIRMS THAT THE SUBSTAN TIVE ASSESSMENT HAS BEEN MADE. ACCORDINGLY THE ASSESSING OFFICER WAS SURE THAT TH E INCOME TO THE EXTENT OF RS.61 47 609/- IS ON ACCOUNT OF DISCLOSURE MADE AS CREDIT APPEARING IN THE NAMES OF VARIOUS PERSONS IN THE BOOKS OF ACCOUNT OF THE TWO FIRMS AND ON THAT BASIS SUBSTANTIVE ADDITION WAS MADE IN THE CASE OF THESE TWO FIRMS. THE AO OF THE ASSESSEE MADE ADDITION ON PROTECTIVE BASIS TO THE E XTENT OF 1/3 RD SHARE JUST TO PROTECT THE REVENUE BUT HE WAS NOT SURE ABOUT THE ADDITION AND THERE COULD HAVE NO SATISFACTION ON THE PART OF THE ASSESSING OFFICER FOR INITIATING PENALTY PROCEEDINGS UNDER THESE CIRCUMSTANCES AS HE WAS NOT SURE IN WH OSE HAND THIS INCOME WILL BE ASSESSED. WE FIND FROM THE RECORDS THAT THERE IS N O MATERIAL WHICH PROVED THE EXISTENCE OF CIRCUMSTANCE LEADING TO A SATISFACTION FOR INITIATING THE PENALTY PROCEEDINGS U/S.271(1) OF THE ACT FOR THE REASON T HAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME. HERE WE ARE DRAWING ST RENGTH FROM THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI BANKIM J SHAH (SUPRA) REFERRED BY LD. COUNSEL FOR THE ASSESSEE WHEREIN THE HONBL E COURT DISCUSSING THE FACTS HELD AS UNDER:- SUBSEQUENTLY THE OFFICER ISSUED A NOTICE UNDER SE CTION 34(1)(A) OF THE INDIAN INCOME-TAX ACT 1922 TO THE ASSESSEES HUSBAND AND ASSESSED THIS AMOUNT OF RS.24 500/- IN HIS HANDS STATING IN THE ORDER THAT IT COULD NOT BE THE INCOME OF THE WIFE SINCE SHE HAD NO BUSINESS AND HENCE NO S OURCE OF INCOME. ON THE NEXT DAY THE OFFICER ISSUED NOTICE UNDER SECTION 3 4 TO THE ASSESSEE AND THOUGH THE APPEAL BY HE HUSBAND WAS PENDING BEFORE THE APPELLATE AUTHORITY ASSESSED THIS AMOUNT IN HER HANDS IN ORDER TO GUARD AGAINST THE EXPIRY OF LIMITATION FOR ASSESSMENT ON THE WIFE. APPEALS TO T HE APPELLATE AUTHORITY AND ITA NO.1707/AHD/2006 A.Y. 1988-89 SH. NATVARBHAI C PATEL V. ACIT CIR-2 BARODA PAGE 8 THE TRIBUNAL FAILED. ON A REFERENCE TO THE HIGH COUR T IT WAS HELD THAT THE CONDITIONS PRECEDENT FOR THE ISSUE OF NOTICE UNDER SECTION 34(1)(A) OF THE I NDIAN INCOME-TAX ACT 1922 WAS REASON TO BELIEVE WHICH MEANS ANYTHING BUT REASON TO SUSPECT THAT INCOME HAD ESCAPED ASSESSMENT. THERE MUST BE SOME MATERIAL ON THE RECORD FO R THE REASON ENTERTAINED BY THE INCOME-TAX OFFICER. WHEN THE TRIBUNAL ITSELF IS NOT ABL E TO MAKE UP ITS MIND AND THE INCOME- TAX OFFICER WAS ALSO NOT ABLE TO MAKE UP HIS MIND IT IS IMPOSSIBLE TO SAY THAT THE INCOME-TAX OFFICER ENTERTAINED A REASONABLE BELIEF THAT SOME I NCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. THE INCOME-TAX OFFICER CAN NOT BLOW HOT AND COLD IN THE SAME BREATHE. THE NOTICE UNDER SECTION 34 ON THE ASSESSEE AND THE ASSESSMEN T BASED ON THAT NOTICE WERE THEREFORE ILLEGAL. THE ALLAHABAD HIGH COURT OBSERVE D THAT THOUGH IT MIGHT BE OPEN TO AN INCOME-TAX OFFICER TO MAKE A PROTECTIVE ASSESSMENT IT IS NOT OPEN TO THE INCOME-TAX APPELLATE TRIBUNAL WHICH IS THE FINAL COURT OF FACT T O MAKE A PROTECTIVE ORDER. THIS OBSERVATION IS HOWEVER NOT RELEVANT FOR OUR PURPOSE. REASON TO B ELIEVE IS ON A LOWER PEDESTAL THEN SATISFACTION WHICH IS REQUISITE FOR INITIATION OF PENA LTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. IF IN THE BACKGROUND OF THE FACTS STATED ABOV E THE INCOME-TAX OFFICER COULD NOT HAVE ENTERTAINED A REASONABLE BELIEF THAT SOME INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT THE INCOME-TAX OFFICER MUST MORE SO IN THE INSTANT C ASE COULD NOT HAVE RECORDED REQUISITE SATISFACTION FOR THE INITIATION OF THE PENALTY PROCEED INGS AGAINST THE ASSESSEE. THE INCOME-TAX OFFICER IN THE INSTANT CASE HAD MADE UP HIS MIND AND HELD THAT THE CONCEALED INCOME BELONGED TO J.M. SHAH AND NOT TO THE ASSESSEE AND T HEREFORE HE COULD NOT HAVE RECORDED OR REACHED THE REQUISITE SATISFACTION FOR INITIATION OF P ENALTY PROCEEDINGS AGAINST THE ASSESSEE. THE DECISION OF THE ALLAHABAD HIGH COURT TO THE EX TENT STATED ABOVE STRENGTHENS THE VIEW TO WHICH WE HAVE TAKEN. 10. IN VIEW OF THE ABOVE FACTS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI BANKIM J SHAH (SUPRA) REFERRED BY LD. COUNSEL FOR THE ASSESSEE WE AR E OF THE VIEW THAT IN THE INSTANT CASE THE REQUISITE SATISFACTION RECORDED BY THE ASSESSING OFFICER FOR INITIATING PENALTY PROCEEDINGS IS WITHOUT ANY BASIS AND COULD NOT SURVIVE. ACCORDINGLY W E DELETE THE PENALTY LEVIED BY ASSESSING OFFICER AND CONFIRMED BY CIT(A). THE ORDERS OF THE LO WER AUTHORITIES ARE REVERSED AND THIS APPEAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07/05/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 07/05/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-II BARODA 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD