1. This is an appeal preferred by the revenue in which action of the AAC cancelling the penalty of Rs. 20,000 under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act') is contested.
2. The assessment year involved is 1974-75 for which the return of income was filed on 25-11-1574 declaring an income of Rs. 21,861. The assessment was completed on 15-3-1977 at an income of Rs. 73,511. The ITO in the assessment proceedings made the following main additions : Rs. Rs.Trading account 7,744Income from other sources on accountShri Sant Singh 1,000Shri Kewal Singh 1,000Shri Gulzar Singh 2,000Shri Khushi Ram 5,000 9,000Addition in the name of Phulka RiceMills, Sirhind 9,390 ________ 3. The assessee aggrieved by the said assessment order went in appeal before the AAC. The AAC vide his order dated 31-10-1977 reduced the trading addition to Rs. 5,000 but confirmed the rest of the additions.
When the matter came before the Tribunal, the Tribunal deleted even the addition of Rs. 5,000 sustained by the AAC in trading account.
4. The ITO on 17-3-1977 with the original notice of demand issued a penalty notice under Section 271 (1)(c) read with Section 274 of the Act with the following observations : ... have concealed the particulars of your income or furnished inaccurate particulars of such income.
On 28-3-1979, the ITO levied the penalty of Rs. 20,000 under Section 271(1)(c). While doing so he considered it fit to ignore the sum of Rs. 5,000 held by the AAC though deleted by the Tribunal as long as on 27-8-1979, i.e., after five months from the date when the ITO levied the penalty. When this action of the ITO came to be agitated by the assessee before the AAC, she after reproducing various points on which the ITO relied, cancelled the said penalty and allowed the assessee's first appeal as per her order dated 26-3-1981. It is this action of the AAC which is contested by the revenue.
5. The learned departmental representative, after reading the orders of the ITO, the AAC and that of the Tribunal extentio, vehemently argued that this is a clear case where Explanation is applicable and he submitted that Explanation is a statute. He relied on the Orissa High Court judgment in the case of CIT v. Laxmi Auto Stores  106 ITR 626 and the Punjab and Haryana High Court judgment in the case of Vishwakarma Industries v. CIT  135 ITR 652 (FB). He submitted that the Explanation is substantive section and once it is applicable, the onus lies on the assessee. He submitted in respect of additions of Rs. 9,000 on account of cash credits and Rs. '9,390 on account of Phulka Rice Mills, the explanation given by the assessee is frivolous.
He argued at length that even explanations are not given for the cash credits in course of penalty proceedings. He submitted that contention of the assessee that due to business expediency the creditors could not be produced, is a contention which will lead to strange consequences.
He also placed his reliance on CIT v. M. Habibullah  10 Taxman 216 (All). The learned counsel for the assessee, on the other hand, submitted that the ITO never invoked the Explanation. He took us once again through the finding of the Tribunal in quantum appeals and placed his reliance on the Calcutta High Court judgments in the cases of CIT v. Bhuramal Manikchand  130 ITR 129 and CIT v. Bhuramal Manickchand  121 ITR 840. He submitted that observations in the said cases may be enough in quantum appeals but the same are hardly of any worth so far as penalty proceedings are concerned. Onus on the revenue as per substantive law (sic) he attacked the doctrine of automatic application of the Explanation and took us in detail through Third Member case in IT Appeal No. 1354 (Asr.) of 1979 dated 19-6-1982.
He submitted that the Punjab and Haryana High Court decision in Vishwakarama Industries' case (supra) has not been referred in the said case. Thereafter, he relied upon this Tribunal's decision in the case of ITO v. Ramesh Kumar Ved Parkash [IT Appeal No. 799 (Chd.) of 1980 dated 17-6-1982] since reported in  14 TTJ 346 (Chd.). He submitted that unless the total income is determined, the ITO is incapable of applying the Explanation. He submitted that the penalty order in the instant case is dated 28-3-1979 whereas the Tribunal's order is dated 27-8-1979 in which further addition of Rs. 5,000 out of trading account was allowed to the assessee. Penalty is bad in law, he vehemently argued. He then came to a new plea that concealed income in the instant case is more than Rs. 25,000 and the ITO had no power to levy the penalty because return in this case was filed on 25-11-1974 and provision of Sub-section (3) of Section 271 came on the statute with effect from 1-4-1976 where permission of the IAC is contemplated ; earlier it was the 1AC himself who could levy the penalty. In support of his contention that law standing on the date when the return is filed is to apply, he placed his reliance on the case of Brij Mohan v.CIT  120 ITR 1 (SC). Regarding onus, he took us through certain pages of the assessee's compilation, page 26 being the affidavit of Khushi Ram, page 30 being the copy of account of Sirhind Branch. He vehemently argued that Section 68 of the Act is for unproved cash credits and not for penalty.
6. The learned departmental representative in the rejoinder submitted that no plea can be taken as done by the learned counsel for the assessee and in that support he relied on CIT v. Raman Industries  121 ITR 405 (Punj. & Har.). Regarding the fact that the ITO did not give any rinding regarding application of the Explanation, he again relied on Vishwakarma Industries' case (supra). He also relied on Habibullah's case (supra) and ultimately on Shiv Narain Khanna v. CIT  107 ITR 542 (Punj. & Har.). He also submitted that penalty levied is Rs. 20,000 which is less than Rs. 25,000.
7. After taking into consideration the rival submissions, we are unable to reverse the finding of the AAC though for different reasons. There is no dispute about the fact that the assessment in this case was framed on 17-3-1977 and it was on this date that the penalty notice was issued. There is also no dispute about the fact that subsequently the assessee travelled up to the Tribunal and finally the Tribunal's decision was made on 27-8-1979. On the basis of above facts, it is clear that finally determined income was not available to the ITO to initiate penalty proceedings. An identical issue came before us in the case of Ramesh Kumar Ved Parkash (supra) and regarding the main contention that applicability of the Explanation can arise only when income is finally determined, we discussed at length the Punjab and Haryana High Court decision in the case of Vishwakarma Industries (supra) as well and certain other cases pertaining to onus, etc, in paras 7 and 8 of the said order at length, the reproduction of which shall only encumber this order. Regarding new plea which is taken by the learned counsel for the assessee before us, there is no controversy about the facts that the return in the instant case was filed on 25-11-1974, the law in form of Sections 271 and 274 standing on that date and provisions and clauses given therein did not authorise the ITO to levy the penalty in cases where concealed income was more than Rs. 25,000. There is also no controversy about the fact that the concealed income taken into consideration by the ITO amounted to Rs. 7,744+9,000+9,320, i.e., Rs. 26,064 which is apparently more than Rs. 25,000. Their Lordships of the Hon'ble Supreme Court in the case of Brij Mohan (supra), have clearly said that law applicable is the law operating on the date when return is filed and this has been the consistent view of this Bench in many cases. This may be a new plea taken by the learned counsel for the assessee but this is one in which no new facts are required to be gone into nor it contemplated any investigation. The reliance of the learned departmental representative on Raman Industries' case (supra), is misplaced because of difference of facts in the said cases. We are afraid the contention of the learned departmental representative supporting the levy of penalty regarding onus, even if it is considered to be on the assessee, cannot support the levy because of the fact that the ITO on the relevant date when he initiated the proceedings had no power under the Act. There is also no dispute that the penalty order in the instant case is dated 28-3-1979 whereas the Tribunal's order which grants further relief of Rs. 5,000 is dated 27-8-1979. The Explanation may be deemed to be applied but at what point of time, is the question. The apparent reply is that when the income assessed is finally determined. We are fortified in this finding by the Punjab and Haryana High Court decision in the case of Vishwakarma Industries (supra) itself.
8. The reliance of the learned departmental representative on the case of Laxmi Auto Stores (supra) in the instant case cannot come to the rescue of the revenue, even if we are with the revenue on the applicability of the Explanation as we are cancelling the penalty on different grounds whatsoever. Regarding reliance on Vishwakarma Industries' case (supra) which was identically placed by the revenue in the case of Ramesh Kumar Ved Parkash (supra), we had dealt with the same at length in the said case. Similar is the reliance of the learned departmental representative on a case of Habibullah (supra) because in the instant case we are not ignoring the application of the Explanation but we are cancelling the penalty on different ground whatsoever.
9. Similarly, reliance of the learned departmental representative on the case of Shiv Narain Khanna (supra) is misplaced. In that case, their Lordships held that material on which assessment is based can also form basis for penalty. We are intentionally not discussing the catena of cases relied upon by the learned counsel for the assessee in support of his contention regarding onus, applicability of the Explanation and whether what is enough for assessment is enough for penalty because the assessee succeeds on the ground that the penalty is bad because it was levied by the ITO when he was not authorised to do so and on a point of time when the income was not finally determined.
On the basis of above stated facts and in the light of the Supreme Court decision in Brij Mohan's case (supra) and the decision of the Chandigarh Bench of the Tribunal in the case of Ramesh Kumar Ved Parkash (supra), the penalty is cancelled.