Key Takeaways: - Facts of the Case - Rulings by the Lower Authorities for Quantum Assessment - Penalty Proceedings - Supreme Court Ruling - Conclusion and Key Takeaways

1. CONSIDERATION OF FINAL ORDER IN PENALTY
PROCEEDINGS BY THE APEX COURT
BASIR AHMED SISODIA VS.
INCOME TAX OFFICER
[2020] 116 taxmann.com 375(SC)
CA Jugal Gala

2. R
E
SE
A
R
C
HC
R
E
D
ITS
Harsha D
Gracelin Lita P

3. L
E
G
E
N
D
SU
SE
D
AO Assessing Officer
AY Assessment Year
CIT(A) Commissioner of Income Tax (Appeals)
HC High Court
Hon’le Honourable
ITA Income Tax Act, 1961
ITAT Income Tax Appellate Tribunal
ITO Income Tax Officer
PY Previous Year
SC Supreme Court
Wrt with respect to

4. PR
E
SE
N
TA
TIONSC
H
E
M
A
Facts of the Case
Rulings of Lower
Jurisdictional Authorities
Penalty Proceedings before
CIT(A)
Observations made by the
Supreme Court
Conclusion

5. FA
C
TSOFTH
EC
A
SE

6. FA
C
TSOFTH
EC
A
SE
Scrutiny assessment
A sum amounting to ₹2.26 lakhs was shown standing to the
credit of 15 persons, being unregistered suppliers
(Note: Assessee was a marble dealer)
Such amount was payable towards the
purchase of marble by the assessee
In Assessee’s books for AY 1998-99
Relying on the books of account, AO took note of the
aforementioned credits and called for the assessee to prove
the veracity of credits, vide a notice issued u/s 143(2).
Despite sufficient time and opportunity
being provided, false/wrong particulars or
explanation(s) were submitted with respect to
these credits.
Assessment order dated 30.11.2000
Consequently, upon failure of the assessee to produce correct proof/evidence with respect to the
income of creditors and source of income, such unexplained credits were treated as cash credits u/s
68* and the same was added to the declared income of the assessee
Notice for imposition of penalty u/s 271(1)(c)- for failure to submit information and concealment of income - was
issued separately as per the assessment order.
1
2
3
*Section 68 considers any sum credited to the books of the taxpayer (not already offered to tax) for which
no/unsatisfactory explanation of its source is provided by the taxpayer, and such credit would be added to the
income of the assessee as unexplained credits

7. RU
L
IN
G
SOFL
OW
E
RJU
RISD
IC
TION
A
L
A
U
TH
ORITIE
S

8. R
U
L
IN
G
SB
YTH
EL
OW
E
RJU
R
ISD
IC
TION
A
LA
U
TH
OR
ITIE
S
The assessee, before CIT(A), Tribunal and HC, inter alia, challenged the addition made u/s
68 under the head “Credits”.
CIT(A):
Upheld AO order, taxing such credit u/s 68
ITAT:
Addition u/s 68 upheld
High Court:
Appeal dismissed. It was held that amounts shown as
credits, are nothing but bogus entries and was justly added
to the income of assessee.
Lower
Jurisdictional
authorities ruled
in favour of the
Revenue

9. OB
SE
R
VA
TION
SM
A
D
EB
YTH
EH
ON
’L
EH
IG
HC
OU
R
T
Failure to substantiate
genuineness of the
transaction
• It is clear from the assessment orders and the finding affirmed in the
appeals that:
• Opportunity was given to the assessee to substantiate the genuineness
of the alleged transactions, but the assessee failed.
• Efforts made by the Revenue to investigate the correctness of the
alleged transaction also could not yield any results, in favour of the
assessee.
Bogus Entry
• In the view of the Court, it was clear that no purchase was made, and the
amounts shown to be standing to the credit of the persons was clearly a
bogus entry.
Income from undisclosed
sources
• Since no goods were purchased, the amount did represent income of the
assessee from undisclosed sources, which the assessee had brought on
record (books of accounts), by showing it to be the amount belonging to
the purported sellers, and as the liability of the assessee.
An appeal was filed by the assessee with the Hon’le Supreme Court and during the hearings, he brought on
record, subsequent developments, in relation to the case-in-hand.

10. PE
N
A
L
TYPROC
E
E
D
IN
G
SB
E
FOREC
IT(A
)

11. OR
D
E
RIM
POSIN
GPE
N
A
L
TYB
YITO
It may be noted that owing to the time-limits prescribed in the Act for passing of assessment orders, filing of
appeals & levy of penalties, penalty proceedings are usually initiated, and penalty is levied at a stage when the
issue of quantum addition (additions based on normal scrutiny assessment) on merits is at large before the
Tribunal.
The ITO had passed the order u/s 271(1)(c)* imposing a penalty of ₹ 98,153, as a consequence of the
conclusion reached in the assessment order which had by then become final up to the stage of ITAT vide order
dated 27.4.2006 to the effect that the stated purchases from unregistered dealers were bogus entries.
*Penalty levied on account of lack of sufficient evidence to support a particular claim of the assessee or when a
claim has been treated as bogus by the Revenue.

12. C
OU
R
SEOFPE
N
A
L
TYPR
OC
E
E
D
IN
G
SB
E
FOR
EC
IT(A
)
The CIT(A), in the penalty proceedings, considered additional evidences submitted by the assessee by way of:
• Affidavits from 13 creditors
• Sales tax order of the assessee for PY 1997-98 showing purchases from unregistered dealers of ₹228,900
• Cash vouchers duly signed on the revenue stamp for receipt of payment by the unregistered dealers, and
• Copy of Ration Card / Voter Identity Card to show identity of the unregistered dealer.
The additional evidence, was considered vide an application made under Rule 46A and a subsequent direction
by the CIT(A) to examine such additional evidence.
Further, during remand proceedings (on direction from the CIT(A)), the AO recorded statement of 12
unregistered dealers out of 13 and all of them admitted to having sold marble to the assessee during the PY
1997-98 and having received money after two or three years.
However, it was observed by the appellate authority that none of them produced any evidence in support of
their statement since all are petty unregistered dealers of marble and doing small business and therefore, no
books of account were maintained. Small diaries, maintained by some, couldn’t be preserved for so long.

13. R
U
L
E46A
-PR
OD
U
C
TIONOFA
D
D
ITION
A
LE
VID
E
N
C
E
Rule 46A of the ITA relates to production of additional evidence before the first appellate authority after
an assessment being made by the AO, where the assessee was :
• Prevented from producing relevant evidence, without sufficient cause or
• Evidence, which ought to be admitted, was refused to be admitted or
• The order was passed without sufficient opportunity being given to adduce relevant additional
evidence.
- It is unclear as to how the assessee had invoked the provisions of this rule to produce additional evidence,
where the lower courts have definitively held that despite sufficient opportunity being given to the
assessee, satisfactory evidence was not produced during the assessment proceedings
- The Case Law is silent, in this regard.
Note

14. FIN
A
LOR
D
E
ROFC
IT(A
)
Separately, as result of the CIT(A)’s penalty order, criminal proceedings initiated by the Court of Additional Chief
City Magistrate (Economic Offence) against the taxpayer were also terminated.
Based on the order, the penalty amount was refunded along with interest to the taxpayer.
Thus, the CIT-A, after taking a view that there was neither concealment of income nor furnishing of any
inaccurate particulars of income, accepted the purchase, cancelled the penalty levied on the taxpayer in
relation to cash credits, vide order dated 13.01.2011.
The CIT(A) made the following observations:
Without purchases of marbles worth ₹4.78 lakhs,
there could not have been sale worth ₹3.57 lakhs and
disclosure of closing stock of ₹2.92 lakhs in the trading
account.
Together with the affidavits filed and statements made
by the unregistered dealers, nothing objectionable
was found by the AO, in respect of the identity of the
unregistered dealers and claim of sales made.

15. C
H
R
ON
OL
OG
YOFE
VE
N
TS
Final assessment
Order for AY 1998-99
CIT(A) order for
quantum proceeding
relating to addition
u/s 68, favouring
Revenue
ITAT order for
quantum proceeding,
favouring Revenue
Notice issued by ITO
u/s 271(1)(c) for
imposition of penalty,
based on ITAT’s order
HC order for quantum
proceeding, favouring
Revenue
Order passed by CIT(A)
for penalty
proceedings, favouring
assessee
Criminal proceedings
initiated u/s 276,
dropped
Assessee submitted
the CIT(A)’s ruling
during representations
to SC, vide an Interim
Application
SC order for quantum
proceedings, favouring
assessee, based on
CIT’s penalty
proceeding order
A snapshot of the events in chronological order, is presented below, for more clarity:

16. OB
SE
RVA
TION
SM
A
D
EB
YTH
ESU
PRE
M
E
C
OU
RTA
N
DFIN
A
LRU
L
IN
G

17. OB
SE
R
VA
TION
SM
A
D
EB
YTH
EH
ON
’L
ESU
PR
E
M
EC
OU
R
T
It was noted that the penalty proceedings were a direct outcome of the assessment order for AY 1998-99, passed
on 30.11.2000
The affidavits and statements of the concerned unregistered dealers fully supports the claim of the assessee that a
sum was payable to them, for purchases made from such unregistered dealers
Accordingly, the factual basis on which AO formed his opinion in the assessment order dated 30.11.2000, in regard
to addition of ₹2,26,000 stands dispelled by additional evidence accepted in penalty proceedings.
CIT(A) vide order dated 13.1.2011, had not only accepted the explanation offered by the assessee but also
recorded a clear finding of fact that there was no concealment of income or furnishing of any inaccurate
particulars of income by the assessee.
The Hon’le SC held that indisputably on nothing objectionable to the facts, it must necessarily follow that the
addition cannot be justified.

18. C
ON
C
L
U
SION

19. W
H
YRE
VE
N
U
ECOU
L
DN
OTCH
A
L
L
E
N
G
ECIT(A
)’SPE
N
A
L
TYORD
E
R?
The tax-effect involved in the penalty appeal was ₹ 98,513.
On the date of the order of the CIT (A) deleting the penalty, a monetary limit of ₹2,00,000 for filing
appeals by the Revenue was in force.
That is, unless the tax effect involved in an appeal exceeded ₹2,00,000, the Revenue could not have
filed an appeal before the Tribunal.
Therefore, due to low tax-effect involved, the Revenue was unable to file an appeal against the
order passed by the CIT (A).
It is believed that the course of the judgement could be different, if the tax effect involved was
significantly higher and filing appeal was available as an option for the Revenue.

20. SU
PR
E
M
EC
OU
R
T’SC
ON
VE
R
SEL
OG
IC
It is an accepted position under the Income-tax law that though the findings rendered in assessment
proceedings constitute good evidence, they do not constitute conclusive evidence in penalty proceedings
When an addition itself is made on account of lack of sufficient evidence to support a particular claim of the
assessee or when a claim has been treated as bogus by the Revenue, levy of penalty on the same is quite
routine in respect of such additions
In many cases, the Tribunal and the higher Courts have, notwithstanding the findings in assessment
proceedings, deleted the penalty even though the quantum additions have been sustained.
However, this is one of the rare cases where the deletion of penalty and findings in penalty proceedings
have been used by an assessee to succeed against the quantum addition.

21. K
E
YTA
K
E
A
W
A
YS
However, it is imperative that the appeal against the quantum addition on merits must be pending before some
forum.
Thus, precedence has been established that an assessee, not having produced adequate evidence during
assessment proceedings but filing them subsequently in penalty proceedings, can benefit from such submission.
Rule 46A prescribes rationale for submitting additional evidences, which were not evident in the assessee’s case,
but still additional evidences were allowed, to which Hon’le SC was silent while giving the ruling
This ruling lays down the key principle that documents / information if accepted during penalty proceedings may
also be relied upon for the purposes of quantum proceedings.
- From AY 2017-18 onwards, penalty under section 271(1)(c) for concealment or furnishing inaccurate
particulars of income is not leviable; Instead, penalty under section 270A for underreporting or misreporting of
income is leviable.
- However, assessees should be in a position to cite this ruling even in cases where additional evidence is
furnished during penalty proceedings from AY 2017-18

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