P.N. PARASHAR, J.M. : Order October, 2004 This appeal, preferred by Department, is directed against CIT(A) s order dt. 17th Feb., 1 99 7 relating to asst. yr. 1 99 -91. 2 . Revenue has taken two grounds in this appeal to challenge deletion of penalty of Rs. 4,03,600 imposed by AO under s. 271(1)(c) of IT Act, 1961. 3 . Shri R.A. Gupta, senior Departmental Representative appeared for assessee (sic-Revenue) whereas Shri Rajesh Jain, FCA, represented assessee. 4. facts concerning this matter are as under : 4.1 assessee was engaged in business of publication and sale of books. Return of income for asst. yr. 1 99 -91 was filed by assessee on 30th Aug., 1 99declaring total income at Rs. 52,110. assessee had shown GP rate of 14.05 per cent. On direction of AO, assessee filed details of month-wise purchases (direct) sales and production vide letter dt. 23rd Dec., 1 99 1. same were scrutinized by AO. On scrutiny AO found that GP rate for eleven months period ending on 28th Feb., 1 99was 30 per cent approximately whereas GP rate for whole year was only 14.05 per cent as declared by assessee. Despite specific direction assessee could not explain GP rate applied by him nor could furnish full particulars of trading nor submitted monthly reconciliation of trading. Hence AO asked assessee to furnish quantitative details of books purchased (direct), published, sold, sales return and books left in closing. However, assessee again failed and could not satisfy AO. assessee also could not substantiate quantitative details with help of vouchers/bills and ultimately vide letter dt. 24th March, 1 99 3 submitted that due to gross negligence on part of his accountants accounts could not be properly maintained. Through this letter he offered additional amount of Rs. 3 lakhs for taxation in trading result on account of his failure to furnish complete quantitative tally of books purchased (direct), published, sold and sales returns. 4.2 On basis of letter of assessee dt. 24th March, 1 99 3 AO made addition of Rs. 3 lakhs to income of assessee. 4.3 AO also examined books of account produced by assessee and found following debit entries : Date Particulars Debit 31-3-1 99 To amount paid 1,75,750 31-3-1 99 To amount paid 1,87,318 4.4 He also found credit entry in name of M/s G.K. Fine Art Press under head "Printing account". This entry showed credit balance of Rs. 87,611.75. 4.5 So far as first two entries are concerned, these were in names of M/s S.U. Book Binding House and M/s K.R. Book Binding House. AO required assessee to show ledger and cash book and bills etc. to substantiate these entries. assessee produced books of account and on scrutiny of binding account, it was found that cash book did not reflect any payments made in respect of these two concerns. Hence, AO required assessee to explain discrepancy. It was submitted by assessee that due to mistake on part of accountant these entries had wrongly been shown as "amount paid" whereas in fact they related to amount credited to account of two parties against their bills for binding. It was stated that parties had given various bills for binding work done by them on different occasions but some of bills of each party was credited to account of that period on 31st March, 1 99only and also debited to binding account on 31st March, 1 99 . In this regard copies of bills and other details of these parties were furnished. On going through details of bills, AO issued summons under s. 131 to two parties for their appearance on 2nd March, 1 99 3. In response, Shri Salauddin, proprietor of M/s K.R. Book Binding House on his own behalf and on behalf of his wife Mrs. Hamid-ul-Nisha, proprietor of M/s S.U. Book Binding House appeared but he did not produce books of account. AO recorded his statement in detail and also examined returns filed by these two concerns. After thorough investigation it was found that entries of debit were wrongly made by assessee. Shri Salauddin admitted that under pressure and under instructions of Shri J.L. Kumar, proprietor of M/s Anmol Publications, he confirmed balance of Rs. 1,75,750 in account of M/s Anmol Publication without referring to his books of account. He also made following statement : "I do hereby declare that balance in account of M/s Anmol Publication as on 31st March, 1 99was Rs. 27,246 only out of which Rs. 26,000 was received on 5th April, 1 99by cheque as per my bank statement submitted with you today." 4 . 6 So far as other concern, namely, S.U. Book Binding House is concerned, statement of Shri Salauddin was recorded and even Smt. Hamid-ul- Nisha confirmed that statement of her husband was correct. According to his statement, bills which were shown by M/s Anmol Publication were issued to other parties and not to M/s Anmol Publication. He also confirmed that photocopies of bills shown to him on behalf of M/s Anmol Publications were bogus and were not prepared by any person in his touch. 4.7 On basis of above AO has held as under : "Thus, as per statement of Sh. Salauddin recorded on 1st March, 1 99 3, photocopies of five bills, each filed by M/s Anmol Publications and alleged to have been issued by M/s K.R. Book Binding House and S.U. Book Binding House stand totally denied. This also proves that two entries of Rs. 1,87,318 and Rs. 1,75,750 credited on 31st March, 1 99in their respective accounts are not genuine credits but represent only fabricated credit balances. Since version of assessee and that of Sh. Salauddin was contradictory, books of account produced by assessee on 11th March, 1 9 9 3 during course of assessment, books of account produced by Sh. Salauddin in respect of M/s K.R. Book Binding House and only two bill books of M/s S.U. Book Binding House produced on 11th March, 1 99 3 in response to summons under s. 131 of IT Act, 1961 were impounded and have been retained." 4.8 assessee was confronted with entire evidence collected by AO with regard to three concerns mentioned above. Although, earlier assessee expressed his desire to cross-examine witnesses but ultimately vide letter dt. 24th March, 1 99 3 he surrendered amount of Rs. 4,50,6 79 . relevant part of letter as produced in assessment order is as under : "17. That, for reasons stated in preceding paras and in interest of avoidance of any litigation, on matters where assessee was himself at default, for mistake of his own, it was thought expedient to avoid any confrontation by way of prolonged litigation and following two amounts are being voluntarily surrendered for being added to taxable income of said year, with humble submission that assessee, whose innocence is unquestionable beyond any doubt, shall be kept immune from all kinds of penalty/prosecution proceedings as far as possible, assessee after lot of hardships and keeping in vogue provisions of Act shall be prepared to bear brunt of heavy interest on tax due on these amounts. amount of Rs. 4,50,6 79 (Rupees four lakhs fifty thousand six hundred and seventy nine) on account of following credits standing/recorded in books of account where assessee could not substantiate on differences in his own books and books of account of said parties namely : M/s K.R. Book Binding House 1,87,318 M/s S.U. Book Binding House 1,75,750 M/s G.K. Fine Art Press 87,611 Total amount of difference 4,50,6 79 " 4.9 In view of above letter, AO made addition and also made following observations in assessment order : "Although in his reply assessee has surrendered amounts of following three credit balances but surrender cannot be said to be voluntary because non-genuineness of these amounts had already been detected by Department and proved beyond doubt by evidence collected from witnesses as discussed in above paras, penalty proceedings under s. 271(1)(c) are, therefore, initiated against assessee : M/s K.R. Book Binding House 1,87,318 M/s S.U. Book Binding House 1,75,750 M/s G.K. Fine Art Press 87,611 4,50,6 79 above credit balances of Rs. 1,87,318 in name of M/s K.R. Book Binding House, Rs. 1,75,750 in name of M/s S.U. Book Binding House and Rs. 87,611 in name of M/s G.K. Fine Art Press have been totally denied by concerned parties and have been proved to be fabricated amounts credited to account of these parties by assessee in his books of account as on 31st March, 1 99 . total amount of Rs. 4,50,6 79 comprising above three entries is, therefore held to be assessee s own income from undisclosed sources and is added to his income." 4.10 Thus, on account of surrender made of Rs. 3 lakhs and Rs. 4,50,6 79 , AO initiated penalty proceedings. During penalty proceedings, detailed reply which is available at pp. 4 to 13 of paper book was submitted under s. 274. However, AO after discussing entire relevant material held that assessee had concealed taxable income and defaulted in furnishing of inaccurate particulars of income. He held that fault stood proved against assessee. He thus imposed penalty of Rs. 4,10,600 under s. 271(1)(c) of IT Act, which was hundred per cent of tax evaded. 4 . 1 1 assessee preferred appeal before learned CIT(A) who cancelled penalty. It may be pointed out that order of learned CIT(A) runs into 19 pages out of which page Nos. 1 to 4 contain narration of facts and page Nos. 4 to 16 are reproduction of written submissions of assessee. learned CIT(A) has made reference to certain decisions and has observed that surrender of assessee vide letter dt. 24th March, 1 99 3 was conditional in terms and there must have been some understanding between AO and assessee for non-initiation of penalty proceedings under s. 271(1)(c). 5. Before us, learned senior Departmental Representative argued that this is clear case for levy of penalty for concealment. According to him surrender made by assessee was not voluntary and was made only to avoid furnishing of explanation in relation to defects and discrepancies detected by AO. 6 . learned counsel for assessee Shri Rajesh Jain, FCA, on other hand, supported order of learned CIT(A). He submitted that assessee had shown bills received by him and also fact that payments were made to them. According to him if other parties had not maintained correct account books, then no fault could be found on part of assessee. learned counsel further submitted that addition of Rs. 3 lakhs was made on basis of surrender of assessee, which surrender was made conditional and AO could not really find concealment of this amount by assessee. 7. We have carefully considered entire material on record and rival submissions. So far as addition of Rs. 3 lakhs is concerned, on perusal of assessment order and penalty order we find that this addition is based mainly on surrender of Rs. 3 lakhs made by assessee. issue raised by AO was about GP rate. It may be pointed out that in earlier year assessee had disclosed GP rate of 7.98 per cent. AO required assessee to furnish month-wise details of purchase, sale and publication, etc. assessee plainly admitted that due to inexperienced accountant, proper details could not be maintained. assessee definitely submitted month-wise tally and other quantitative details but AO could not be satisfied and ultimately assessee made surrender of Rs. 3 lakhs. It may be pointed out that AO himself had not found any particular and positive concealment on part of assessee with regard to sale or purchase of publication. After considering nature of work done by assessee which involved purchase and sale of books and also after considering fact that assessee was not having sufficient experience of his trade and other fact that his accountant was also inexperienced it could not be said that there was suppression of sale or there was sale outside books or that there was concealment of income in showing GP. In view of above, we agree with learned CIT(A) in cancelling penalty in relation to amount of Rs. 3 lakhs. 7.1 Coming to other amount, i.e., Rs. 4,50,6 79 , it is found that AO made very detailed and thorough investigation. He provided full opportunity to assessee to produce books of account to substantiate entries of debit and credit made by him. He also summoned concerned owners/proprietors of concerned firms and recorded their statements in detail. They were further required to produce bills, cash memos and ledger books, but it was found that entries made by assessee were bogus. assessee was also afforded opportunity and was confronted with statements recorded by AO. 7.2 On perusal of assessment order it is found that verifying particulars of debit entries shown by assessee for amounts of Rs. 1,75,750 and Rs. 1,27,318 AO examined pp. 19 and 20 of computerized cash book of assessee and found that it did not reflect any payments made in respect of these two entries in binding account. Thereafter, assessee was asked to explain this discrepancy. assessee filed details vide letter dt. 13th Dec., 1 99 1. Vide letter dt. 24th Feb., 1 99 3, assessee came with excuse that due to mistake on part of accountant entries were wrongly shown as amount paid while in fact these related to amount credited to account of two parties against bills of parties for binding work. However, explanation was furnished after two and half years of filing of return. On 24th March, 1 99 3, first surrender of Rs. 3 lakhs was made and truth regarding false debit or credit entries were not conveyed at this stage. 7.3 AO vide order-sheet entry dt. 18th Jan., 1 99 3, 9th Feb., 1 99 3 and 16th Feb., 1 99 3 gave opportunity to assessee and asked him to furnish complete copy of books of account of two parties but assessee failed to do so and in last AO invoked his powers and summoned parties under s. 131 of IT Act. As pointed out earlier Shri Salauddin appeared and he firstly supported assessee but subsequently on further examination he was led to reveal true position categorically stating that photocopies of bill Nos. 77, 78, 79 , 80 and 89 filed by assessee were not issued by his firm and he has nothing to do with these bills. AO also checked returns filed by M/s K.R. Book Binding House and found that in computation debit or credit against assessee was not shown. Similar statement was made by Shri Salauddin on behalf of his wife and he denied bills. On other hand, he disclosed that bills Nos. 671, 672, 673, 661 and 662 were issued in name of different parties and not in name of Shri J.L. Kumar, proprietor of M/s Anmol Publication. Thus, as per statement of Shri Salauddin, it was clearly established that fake bills were got prepared by assessee in names of these two concerns and amount was wrongly shown in debit entries. 7.4 AO fully exposed falsehood of entries by examining books of account of assessee and books of account of those parties against whom debit balances were shown by assessee in his book. AO invoked his powers conferred under s. 131 of IT Act and deputed his Inspectors to check books of account of such parties. He also examined Sri Salauddin, proprietor of K.R. Book Binding, on behalf of his firm and on behalf of another firm namely, M/s S.U. Book Binding, proprietor of which was his wife. We consider it proper to reproduce some portions of his statement recorded by AO. These are being reproduced below : "Q. From balance sheet filed with return of income for asst. yr. 1 99 -91, you have shown debit balance towards M/s Anmol Publications as on dt. 31st March, 1 99Rs. 27,246 only. Please explain difference between closing balance as per your balance sheet and copy of account duly confirmed by you in books of account of M/s Anmol Publication as on 31st March, 1 99 . A. In absence of books of account at moment it is not possible for me to explain difference. Q. Please confirm correctness of signatures made on return of income filed on 6th Feb., 1 99 1 for asst. yr. 1 99 -91 vide acknowledgement receipt No. 7494 with Income-tax Office, Ward-16(3), New Delhi, declaring total income of Rs. 20,180 and signatures on trading account, P&L a/c and balance sheet filed with return where debit balance has been shown in name of M/s Anmol Publication as Rs. 27,246.50 and also on confirmation already filed in case of M/s Anmol Publication. A. Yes, signatures at both places have been made by me." 7.5 As Shri Salauddin did not produce books of account in his case or in case of M/s S.U. Book Binding House, AO deputed his Inspectors to conduct inquiry and to identify account of M/s Anmol Publication in books of account of two parties. This was done by taking recourse to provisions contained under s. 133A of IT Act. Inspector so deputed identified books of account of two parties and their business premises. ITO issued summons to such parties for producing books of account identified by Inspectors. In response to summons, Shri Salauddin along with his accountant appeared and produced books of account. He also filed power of attorney on behalf of his wife who was Parda Nashin lady. AO placed before him photocopies of bills filed by assessee on 16th Feb., 1 99 3 . Shri Salauddin on seeing photocopies emphatically stated that none of these bills were issued from his bill book or from bill book of his wife who was proprietor of M/s S.U. Book Binding House. He also showed counter foils of t h e bills actually received by them in respect of bills issued to M/s Anmol Publications. It was specifically pointed out that bills bearing serial numbers shown by assessee were actually issued to some other different parties for whom also binding work was done. 7.6 AO recorded statement of Shri Salauddin on 11th March, 1 99 3. relevant portion of this statement is as under : "Q. What was reason of your confirming debit balance in account of M/s Anmol Publication as on 31st March, 1 99at Rs. 2,75,750 as per y o u r balance confirmation certificate dt. 1st Feb., 1 99 3 as well as confirmation of your account in books of M/s Anmol Publication ? A. On 2nd March, 1 99 3, I had confirmed debit balance of Rs. 1,75,750 i n account of M/s Anmol Publication but I had also stated that correct balance can be given only after referring to my books of account. At that time, i.e., on 2nd March, 1 99 3 my accountant was out of station and I could not contact my chartered accountant Sh. Rakesh Mahajan (telephone No. 6437091). I was under pressure at that time and to save my bread and butter I chose to obey instructions of Sh. J.L. Kumar, proprietor of M/s Anmol Publication and accordingly I confirmed balance of Rs. 1,75,750 in account of M/s Anmol Publication without referring to my books of account. I do hereby declared that balance in account of M/s Anmol Publication as on 31st March, 1 99was Rs. 27,246 by cheque as per my bank statement submitted with you today. Q. What is your turnover for year ended 31st March, 1 99and what was your billing to M/s Anmol Publication during this period ? A. My turnover is reflected under account job work appearing on page Nos. 45 to 47 of my ledger and total turnover for period aggregated to Rs. 3,47,564.15. My total billing to M/s Anmol Publication was Rs. 1,35,748.65 only out of which Rs. 27,246.50 was outstanding as on 31st March, 1 99and balance amount was received during year itself by way of cheques and cash as per my ledger. Q. On 2nd March, 1 99 3 you were confronted with photocopies of your sales bill Nos. 77, 78, 79 , 80 and 89 for Rs. 48,750, 22,750, 12,350, 16,250 and Rs. 87,218 and respectively, and were asked to reply as to genuineness thereof and to state whether those bills were recorded in your books of account. At that time you had stated that those bills seem to have been issued by your firm. Now when books of account and bill books of your firm are with you, what is your reply ? A. As per my books of account, sales bills referred to above have been issued to following parties and not in favour of M/s Anmol Publication : Bill Date Name of party Amount No. 3- M/s Neel Kamal 77 5,813 77 5,813 10-1989 Prakashan, Delhi 4- M/s Akash Deep 78 16,875 10-1989 Publishing House, Delhi 4- M/s University 79 2,189.25 10-1989 Book House, Jaipur Not M/s Discovery 80 16,302.50 written Publishing House, Delhi Not M/s Eastern Book 89 1000 written House, Delhi My statement referred to above can be verified from my ledger for relevant period and bill books produced herewith for your verification. It is confirmed that photocopies of bill Nos. 77, 78, 79 , 80 and 89 filed with you by M/s Anmol Publication were not issued by my firm and I have nothing to do with those bills. I am willing to file with you confirmation of my above named parties to extent possible in this short period. I assure you of my full co-operation with Department at any point of time for verification of these bills. Q. Whether bill Nos. 77, 78, 79 , 80 and 89, filed by M/s Anmol Publications, were shown to you on 2nd March, 1 99 3 and are being shown now, were prepared by Mr. Mujibur Rehman, Mr. Ashok Kumar or any other person known to you and state who had signed those bills ? A. I had shown my original sale bill-books to you and it is not clear that above bills were not issued in favour of M/s Anmol Publication and as such question of issuing those bills in favour of M/s Anmol Publication from my office does not arise. I am also producing my ledger before you and you will very kindly observe that those bills were entered in accounts of different parties and not in account of M/s Anmol Publication. Q. Do you understand implications of replies given by you today in your statement and do you have any pressure to give this statement ? Do you understand as to what has been written in this statement ? A. My chartered accountant Shri Rakesh Mahajan and my accountant Sh. Ashok Kumar have explained to me very clearly questions and replies thereto as recorded in my above statement and I do hereby declare that statement is given by me under my own sweet will and was without any pressure on me from any side. implications of this statement have also been explained to me." 7.7 On behalf of his wife Mrs. Hamid-ul Nisha, Shri Salauddin made statement on same date, i.e., 11th March, 1 99 3, relevant extracts from which are reproduced : "Q. Sh. J.L. Kumar, proprietor, M/s Anmol Publication has filed photocopies of following bills of M/s S.U. Book Binding House : Bill Date Party s name Amount No. Anmol 671 8-8-1989 26,000 Publication 15-9- 672 -do- 6,750 1989 10-10- 673 -do- 19,500 1989 22-6- 661 -do- 81,250 1989 20-7- 662 -do- 42,250 1989 You are required to verify genuineness of above bills. A. As per bill books produced before you, we have issued above numbered bills to various parties and amount of those bills is stated as under : Bill Date Name of party Amount No. 19- Himalaya Publishing 661 1,155 9-1989 House 20- Common Wealth 662 3,030 9-1989 Publishing, Delhi Atlantic Publishers Not 671 and Distributors, New 1173.90 written Delhi 672 -do- -do- 696 673 -do- -do- 1,170 From above details you will appreciate that photocopies of bills shown to me are bogus and have not been made by any person in our touch. I will try to collect original copy of my sale bill from my customers to whom above invoices have been issued. Q. Do you understand implications of replies given by you today in your statement and do you have any pressure to give this statement ? Do you understand as to what has been written in this statement ? A. My chartered accountant Sh. Rakesh Mahajan and my accountant Sh. Ashok Kumar have explained to me very clearly questions and replies thereto as recorded in my above statement. I do hereby declare that this statement is given by me on behalf of my wife Mrs. Hamid-Ul-Nisha and was without any pressure from any side. implications of statement have also been explained to me." 7 . 8 AO also contacted Smt. Hamid-ul-Nisha and read out statement of her husband to her, who acknowledged by putting her signatures that statement made by her husband on 11th March, 1 99 3 was correct. 7.9 In view of thorough interrogation and on closer and deeper scrutiny of books of account of assessee as well as of M/s K.R. Book Binding and M/s S.U. Book Binding House, it was proved to hilt that assessee had forged entries in his books of account and deliberately showed incorrect particulars in return of income filed by him. 7.10 AO took all precaution and recorded statement of Shri Salauddin after observing all formalities. He also contradicted assessee against version given by Shri Salauddin. AO also impounded books s o that assessee may inspect same, if so desired. assessee was, thus cornered fully from all sides and under such circumstances he gave up right to cross-examination and made surrender. 7.11 In respect of third party, i.e., G.K. Fine Arts Press also, similar fake entries were recorded by assessee and debit balance of Rs. 83,486 was shown as on 31st March, 1 99 . To prove falsehood of this entry, AO examined Shri Gulshan Kumar Wason, who categorically submitted that there was no debit balance in his copies of accounts in name of M/s Anmol Publication as on 31st March, 1 99 . As Shri Wason could not explain discrepancy, Inspectors were deputed in his case also and full fledged enquiry was made which disclosed that assessee had made fake entries in his case also. We do not consider it proper to reproduce his statement. 7.12 It may be pointed out that total of fake entries was Rs. 4,50,6 79 and surrender was not on account of sweet will of assessee, but was on account of efforts made by AO. In case ofOm Parkash Gupta vs. ITO (2002) 75 TTJ (Chd) 984 : (2002) 81 ITD 55 (Chd), on similar facts Bench has made following observations : "The facts of case as indicated and findings given by various authorities, coupled with fact that assessee had not adduced any evidence before any of authorities to prove genuineness of credits of Rs. 4,08,300, established charge of concealment of income against assessee. Further enquiries were made by AO during course of assessment proceedings where letters addressed to all creditors were returned by Postal authorities unserved and Inspector deputed by AO also reported that none of parties were existing at given addresses. Though results of such enquiries were duly confronted to assessee, but he made no efforts either during course of assessment proceedings or during penalty proceedings to prove hisbona fide. No doubt both assessment proceedings and penalty proceedings are separate proceedings but material gathered during course of assessment proceedings is quite relevant for deciding issue of penalty under s. 271(1)(c). Even during course of penalty proceedings assessee had not made n y effort to lead any evidence than what was adduced before various authorities during quantum appeals. In light of evidence already collected by AO, which also remained uncontroverted by assessee till date, no further material was required to be produced by AO to prove charge of concealment against assessee. assessee had only raised technical objection that AO had not recorded finding whether penalty was initiated for concealment of income or for furnishing inaccurate particulars of income. But assessee had not been able to make any submission as to how case of assessee was prejudiced on account of failure on part of AO to clearly mention facts. Taking into account totality of facts and circumstances of case, penalty under s. 271(1)(c) was leviable even for concealment of income where onus on Revenue is greater in establishing concealment of income. sequence of events as detailed above and stand taken by assessee before various authorities established contumacious conduct on part of assessee." 7.13 These observations are fully applicable in present case also as in this case during assessment proceedings as well as during penalty proceedings full opportunity was provided by AO to assessee to explain discrepancies found in his books of account. In our considered opinion, facts of this case demonstrate conscious and deliberate concealment on part of assessee who contumaciously made false and fake entries in his books of account, which entries were totally baseless. Had AO not taken extraordinary pains, fraudulent act of assessee could not have been brought to books. In our opinion, it is one of rarest cases which fully establishes guilt of assessee and penal action has to be taken against assessee for such wilful and deliberate act of concealment in relation to figure of Rs. 4,59,6 79 . 7.14 In case ofCIT vs. D.K.B. & Co. (2000) 161 CTR (Ker) 187 : (2000) 243 ITR 618 (Ker), search was conducted at premises of assessee-firm and further investigation revealed suppression by assessee. partners of firm wrote letter to AO indicating that they were agreeable for addition of Rs. 41 lakhs but only if penal provisions were not applied. ITO wrote letter suggesting assessee that it may file revised return. assessee filed revised return adding Rs. 41 lakhs, already disclosed and assessment was accordingly completed. Penalty proceedings were also initiated. Tribunal upheld addition of Rs. 41 lakhs in quantum appeal but in view of alleged agreement for not initiating penalty proceedings, Tribunal observed that it was not open to Revenue to initiate penalty proceedings. On reference, Hon ble Kerala High Court set aside order of Tribunal and remanded matter back to it by observing as under : "Held, that it is settled position in law that there cannot be estoppel against statute. It is for Department to consider explanation offered by assessee in respect of amount, which was offered to be taxed. It is not automatic that whenever amount has been offered by assessee, penalty is not to be levied. Therefore, in penal proceedings which conceptually differ from assessment proceedings, assessee can file explanation justifying its action in not including particular item of income in its return, though it may have offered amount not be taxed subsequently. If such explanation is offered, Department has to examine its acceptability and record finding as to whether explanation is acceptable or not. Only if explanation is not found acceptable, question of penalty will arise. In other words, explanation of assessee has to be considered on merits. Tribunal has not kept this aspect in view." 7.15 In case ofK.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), assessee-firm had taken certain bank drafts for payment to suppliers of rice. It had made entries in accounts not on dates on which they were obtained but few days later. explanation of assessee was that as sufficient cash balance was not available on those dates, it had obtained hand loans from friends, and, as it had expected to repay such loans within short time, no entries were made in its books of account in respect thereof. Under these circumstances, as assessee was unable to furnish evidence of such loans, it offered amount of Rs. 93,000 as additional income. Penalty proceedings were initiated by AO under s. 271(1)(c) and rejecting explanation, AO imposed penalty which was cancelled by Tribunal for reason that in notice initiating penalty proceedings, assessee was not intimated about proposed action under Expln. 1(B) to s. 271(1)(c). But on reference, Hon ble High Court held that imposition of penalty was valid. decision of Hon ble High Court was affirmed by Supreme Court. Hon ble Supreme Court observed as under : "The Explanation to s. 271(1)(c) is part of s. 271. When AO or A C issues notice under s. 271, he makes assessee aware that provisions thereof are to be used against him. These provisions include Explanation. By virtue of notice under s. 271 assessee is put to notice that, if he does not prove, circumstances stated in Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed particulars of his income or furnished inaccurate particulars thereof, and consequently be liable to penalty under section. No express invocation of Explanation to s. 271 in notice under s. 271 is necessary before provisions of Explanation are applied." 7.16 facts concerning present matter are of more severe nature because in this case there was no written agreement or any understanding for not initiating penalty proceedings. AO has dealt with each aspect of matter including explanations offered by assessee and various pleas raised by him during penalty proceedings. It is surprising that learned CIT(A) who has recorded arguments of assessee in verbatim, has not bothered to go through penalty order and has not properly appreciated same. In our considered opinion, learned CIT(A) has not correctly appreciated gravity of matter and circumstances under which charge of concealment was proved by AO beyond any shadow of doubt. Hence, we are unable to was proved by AO beyond any shadow of doubt. Hence, we are unable to accord our approval to findings of learned CIT(A). 7.17 On basis of above discussion, it is established beyond any scintilla of doubt that assessee deliberately furnished incorrect and inaccurate particulars and it was only on account of extra pains taken by AO in making thorough investigation that malicious design of assessee could be detected. assessee did not disclose truth till last and even made prayer for cross-examination of witnesses examined by AO and it was only in last that he had to give up his stand and did not press prayer for cross- examination and being fully cornered, he had no other way but to surrender amount of Rs. 4,50,6 79 . Thus, it could not be said that assessee voluntarily surrendered amount. In fact, it was on account of very effective measures taken by AO that in last assessee virtually felt guilt on his part. AO had detected concealment of exact amount by making thorough probe from all concerned parties and persons and by examining entire relevant material. In our considered opinion, therefore, penalty was correctly imposed in relation to entire amount of Rs. 4,50,6 79 . 7.18 In view of above, we restore order of AO in respect of imposition of penalty under s. 271(1)(c) in relation to surrendered amount of Rs. 4,50,6 79 and set aside order of learned CIT(A) in cancelling penalty in relation to that amount. So far as imposition of penalty in relation to other amount of Rs. 3,00,000 is concerned, we uphold order of learned CIT(A) in cancelling penalty. To that extent, order of learned CIT(A) stands affirmed. AO is directed to work out minimum penalty imposable under s. 271(1)(c) on amount of Rs. 4,50,6 79 . 8. In result, Revenue s appeal is partly allowed. 14th June, 2005 Unable to agree with my learned colleague for setting aside decision of learned CIT(A) in cancelling penalty under s. 271(1)(c) of Act on agreed addition of Rs. 4,50,6 79 , I proceed to write my separate order. learned CIT(A) has also cancelled penalty on amount of addition of Rs. 4,50,6 79 by recording finding that merely because assessee has agreed for inclusion of certain amount in computation of income would not mean that assessee has concealed income and held that there was no justification in initiation of penalty and imposition thereof under s. 271(1)(c) of Act. It is revealed that addition related to three credits on account of book binding expenses in account of following three parties : (a) M/s K.R. Binding House 1,75,750 (b) M/s S.U. Book Binding House 1,87,318 (c) M/s G.K. Fine Arts Press 87,611 4,50,6 79 2. record reveals that assessee had written its cash book manually and computerized ledger account. cash book did not show that payment of aforesaid amounts has been made to these parties. computerized ledger, however, contained narration of payment and fact remained that in ledger itself amounts were reflected as payable. ledger thus itself did not conclusively reveal that payment had been made and that is how amount was shown as payable in aforesaid three accounts. AO did not doubt correctness of cash book but accounts stood rejected merely on basis of entries contained in ledger account which was mistake committed by accountant in giving such narration of payment due to in-built programming of computer. Such mistake could not be said as intentional nor conscious act of assessee. In fact assessee had incurred liability for expenses incurred on account of book-binding charges and claimed same as expenses in trading account. These expenses were duly supported by bills issued by all three aforesaid parties and confirmation thereto from respective parties had also been brought on record by assessee. AO himself had taken into account claim of these expenses while estimating profit after rejecting books of account and trading addition made is only Rs. 3 lakhs as against claim of expenses of Rs. 4,50,6 79 . estimation is not confined to binding charges but is also attributable to erroneous methodology adopted by assessee in his trading activities. AO thus himself has accepted that method of book-keeping is erroneous and that is how profits from business have been estimated. job charges thus have already taken part of such estimate made by AO and penalty on that count has been deleted by learned CIT(A) whose decision stands confirmed by our order in para 7 hereinbefore. 3. It is also interesting to note as to how assessee had to surrender amount of Rs. 4,50,6 79 standing to credit of aforesaid three parties. AO being persuaded with narration of payment given in ledger account of these parties initiated enquiries. Summons were issued to M/s K.R. Book Binding House and M/s S.U. Book Binding House. In response to summons, Shri Salauddin, proprietor of M/s K.R. Book Binding House for himself and on behalf of M/s S.U. Book Binding House, proprietary concern of his wife made appearance before AO on 2nd March, 1 99 3. AO has confronted said supplier/creditor with bills raised on assessee in specific. Shri Salauddin in his statement had confirmed that all bills have been issued by his firm and firm of his wife. He also confirmed that in almost all cases payments have been received by cheque. Signatures on these bills were also verified and accepted to be correct by said Shri Salauddin. Thereafter survey under s. 133A was carried at premises of aforesaid two firms of creditors and books of account were identified. Summons were issued for producing books of account and bills on 11th March, 1 99 3. On specified date, creditor produced only bills for binding work. assessment order does not say that books which were identified under s. 133A were produced by said supplier. AO in assessment order has narrated bills so produced and in certain cases even date of issuance of bill has not been mentioned by creditor. In fact, certain bills which were having similar number were issued in name of some other parties without mentioning any date against such bills. AO did not verify authenticity and correctness of such bills. These bills which creditor produced did not even bear addresses of parties on whom such bills are stated to have been drawn. AO did not make any enquiry from any of such party so as to satisfy himself about correctness of bills produced by creditor. In his statement on earlier occasion on 2nd March, 1 99 3 creditor had categorically admitted that payment almost in all cases on binding charges has been received by cheque. bank accounts of these two suppliers were also not verified to find out correctness of statement now being made wherein said two suppliers denied of issuance of bills to assessee for job work leading to credit appearing in appellant s books. appellant is getting regular service of job work done for book-binding from these two parties and his business is largely dependent on services from these parties. In order to avoid loss of reputation and loss of business, assessee merely agreed to surrender aforesaid amount of credits for assessment as his income but assessee never admitted of any concealment thereof. That is how assessee had also forgone to cross-examine said two parties when they were summoned by AO. Internal p. 13 of assessment order also reveals that original sale bill books were produced by said supplier before assessing authority. In case those bill books were genuine, there is no possibility of retention of original bills with supplier himself. Shri Salauddin on earlier occasion had admitted correctness of bills issued to appellant for doing job work for assessee and receipt of payment through banking channel for all such book binding charges. These crucial facts were not disproved by assessing authority which were also revealed from books of account supported by authentic bills, etc., produced by appellant and remained impounded with assessing authority himself. assessee required AO to give copies of all such bills and books of account during course of penalty proceedings but same were not allowed to him. facts claimed by assessee through books of account maintained in regular course of carrying out business activity were not disproved. AO also did not make any independent enquiry or verification of what was stated by Shri Salauddin subsequently after confirmation of facts made earlier on 2nd March, 1 99 3. AO also did not bring any independent material on record to show that what was stated by Shri Salauddin originally was not correct state of fact and that he did not belie on subsequent occasion. In any event Shri Salauddin has been found belying at one occasion. His deposition could not be taken trust-worthy to reject correctness of claim of appellant. Thebona fideof assessee reflected from facts on record and his subsequent conduct that within period of four days of assessment having been completed and before close of financial year itself assessee paid all taxes that became due on such assessment also shows that there was element of assurance that no penalty would be initiated against assessee and this is how he agreed to addition on thebona fidebelief that no penalty shall be imposed. It, therefore, cannot be held that assessee has concealed its income. admission cannot be attributed to intention. There was no element ofmens reaon concealment inheritently carries with it element ofmens rea. In present case in appeal, there was no such intention. Penalty, therefore, was not exigible. This view finds support from apex Court judgment inK.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC). Reference can also be made to Hon ble Madhya Pradesh High Court in case ofCIT vs. Beta Nepthol Ltd. (2005) 272 ITR 323 (MP), held that when assessee is surrendering disputed items and paying taxes thereon, there is no concealment of income and hence penalty under s. 271(1)(c) cannot be imposed. Reliability of third party account has not been proved beyond doubt before holding that assessee has falsified his accounts. assessee s explanation through letter dt. 15th Sept., 1 99 3 placed on paper book pp. 8-10 also indicates that facts were not disproved or found wrong. Likewise another supplier M/s G.K. Fine Art Press who have appeared before assessing authority had also admitted of issuance of bills for book binding work done for assessee. He has also admitted all payments having been received by account payee cheques. Its correctness and signature on copy of accounts is confirmed and bills issued also stood admitted by said supplier in his statement recorded by AO on 2nd March, 1 99 3. said supplier did not produce books of account before assessing authority on subsequent date when he was required to do so and it is only in response to repeated summons that his chartered accountant, Shri Sharad Kohli, filed letter dt. 23rd March, 1 99 3 showing nil balance outstanding. This was not supported by books of account. AO also did not verify correctness of such accounts from any independent source whereas assessee s claim was based on genuine bills received from said supplier which stood duly acknowledged and accepted by said person. assessee, however, admitted of addition of this amount also as his income but assessee did not accept and admit of any concealment. It appears that in month of March when enquiries were being conducted, peak season of sale of stock was on head and appellant was getting pressure from AO. These persons from whom regular services were being taken were also under pressure from IT Department. relevant time which AO was conducting enquiry could have adverse effect on entire business of assessee. assessee thus appears to have accepted some errors committed by accountant and in making surrender assessee has clearly stated that his intention was to co-operate with Department to extent required and to avoid any confrontation in proving facts. One such fact being that accountant has displayed arbitrariness in maintenance of books of account. assessee has also stated that keeping in view business interest with abovenamed parties express waiver was filed vide letter dt. 18th March, 1 99 3 by which cross-examination was withdrawn and surrender that came to be made was o n account of error committed by accountant. Under such peculiar facts, it can be said that assessee has actedbona fideand there was no conscious act or motive on part of assessee to falsify his accounts or conceal any income or particulars thereof for year under consideration. assessee also did not withhold or conceal any material from assessing authority at any stage and merely because assessee had agreed to surrender income did not give jurisdiction to AO to come to conclusion that there was concealment of income on his part. findings given in assessment proceedings would be relevant and admissible material in penalty proceedings, but those findings cannot operate asres judicatabecause consideration that arise in penalty proceedings are different from those in assessment proceedings. It is also admitted position that in all cases, standard of proof for imposition of penalty is different from that on which quantum addition of income can be sustained. This has been so held by Hon ble Allahabad High Court inCIT vs. Garg Engineering Co. (1 99 8) 148 CTR (All) 341 : (1 99 9) 235 ITR 451 (All). circumstances of case at hand do not give reasonable and positive conclusion that amount in question represents assessee s income and apex Court in case ofCIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369, 376 (SC)and also in case ofAnantharam Veerasinghiah & Co. vs. CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC)has ruled that penalty cannot be levied solely on basis of reason given in order of assessment. Having considered entire conceptus of case, I am satisfied that there was no conscious and deliberate concealment of any of particulars of its income by assessee and he merely agreed to surrender amount of credit outstanding as his income as accountant had committed error in preparing accounts. However, for mistake committed by accountant and even without proving correctness and truthfulness of statement of third party it cannot be held that it was case of concealment of income or particulars thereof. assessee s explanation beingbona fideand return not being false return of income, no penalty was thus exigible on this count also. Reference may also be had to judgment of Hon ble Madras High Court inCIT vs. S. Sankaran (2002) 175 CTR (Mad) 62 : (2000) 241 ITR 825 (Mad)andCement Marketing Co. of India vs. Asstt. CST (1980) 124 ITR 15 (SC). Cancellation of penalty by learned CIT(A) is, therefore, upheld. 4. In result, appeal stands dismissed. REFERENCE UNDER S. 255(4) OF IT ACT, 1961 17th June, 2005 Since there is difference of opinion between Members while adjudicating above captioned appeal, following question is referred to Hon ble President of Tribunal for hearing by Third Member as contemplated in s. 255(4) of Act : "Whether, under peculiar facts and circumstances of case and in law, there is any legal justification in sustenance of penalty under s. 271(1)(c) of IT Act on agreed amount of addition of Rs. 4,50,6 79 for year under consideration ?" 28th Dec., 2005 On account of difference between Member, of Tribunal, Delhi Benches, following question has been referred to me for disposal under s. 255(4) of IT Act : "Whether, under peculiar facts and circumstances of case and in law, there is any legal justification in sustenance of penalty under s. 271(1)(c) of IT Act on agreed amount of addition of Rs. 4,50,6 79 for year under consideration ?" 2. facts of case briefly stated are that Shri J.L. Kumar, proprietor M/s Anmol Publications filed return for asst. yr. 1 99 -91 declaring income of Rs. 52,110. assessee-appellant, in relevant period had carried business of publication and sale of books. In course of assessment proceedings, assessee was asked to furnish quantitative tally of books purchased (direct), published, sold, sales returns and closing stock. aforesaid detail asked for, could not be furnished as proper books of account were not maintained due to fact that accountant of assessee was new and inexperienced in line of maintaining of accounts. appellant, accordingly offered to surrender Rs. 3 lakhs for failure to furnish complete quantitative tally of books purchased, sold, returned or in stock. AO further found that assessee had shown Rs. 4,50,6 79 towards amount paid/payable on account of binding and printing as per following details : Name Amount payable 1. M/s S.U. Book Binding House 1,75,750 2. M/s K.R. Book Binding House 1,87,318 3. M/s G.K. Fine Art Press 87,611 amount was shown to have been paid to first two parties on 31st March, 1 99 , but same was not reflected in cash book. When confronted with this discrepancy, assessee submitted that first two amounts were wrongly shown as paid, in fact these were payable to two parties against bills for binding received from them. 3 . AO, in order to verify claim, examined Shri Salauddin, proprietor, of S.U. Book Binding House and husband of proprietor of M/s K.R. Book Binding House. In his statement given on 2nd March, 1 99 3, Shri Salauddin confirmed that amounts were due to him and his wife. However, premises of Shri Salauddin and that of his wife were subjected to survey and it was found that aforesaid amounts were not reflected in accounts of M/s K.R. Book Binding House and M/s S.U. Book Binding House. Accordingly, Shri Salauddin was re-summoned and his fresh deposition was recorded on 11th March, 1 99 3 by AO. He also produced his books of account and then stated on oath that copies of five bills allegedly claimed to have been issued to M/s Anmol Publications (assessee s concern) were in fact issued to some other parties. He also furnished details of bills issued to assessee by M/s K.R. Book Binding House and M/s S.U. Book Binding House. balance shown by assessee as due from two concerns, was stated to be wrong. wife of Shri Salauddin, Begum Hamid-ul-Nisha (claimed to be Parda Nashin lady) had also confirmed latest statement of her husband. 4 . assessee was given opportunity to cross-examine Shri Salauddin. Earlier assessee agreed to cross-examine Shri Salauddin but later on, vide his letter dt. 24th March, 1 99 3 surrendered amount for addition in hands of assessee and waived his right to cross-examine persons deposing against him. 5 . In order to verify third amount of Rs. 87,611 in name of M/s G.K. Fine Art Press, AO summoned proprietor of that concern Mr. G.K. Wason, who confirmed that balance was due from assessee, in his statement on oath before AO. However, when reference was made to his income-tax file, it was found that amount in dispute was not shown as due from assessee. Accordingly, AO tried to re-summon Shri G.K. Wason with books of account. After two, three attempts, service of summons was effected on Mr. Wason but he neither appeared before AO nor produced his books of account, though confirmation, through chartered accountant was sent by him that no amount was due to him as shown by assessee. 6 . assessee, while surrendering amount in question, had stated as under : "17. That, for reasons stated in preceding paras and in interest of avoidance of any litigation on matters where assessee was himself at default, for mistake of his own, it was thought expedient to avoid any confrontation by way of prolonged litigation and following two amounts are being voluntarily surrendered for being added to taxable income of said year, with humble submission that assessee, whose innocence is unquestionable beyond n y doubt, shall be kept immuned from all kinds of penalty/prosecution proceedings as far as possible, assessee after lot of hardships, and keeping in vogue provisions of Act shall be prepared to bear brunt of heavy interest on tax due on these amounts. (i) amount of Rs. 4,50,6 79 (Rupees four lakhs fifty thousand six hundred and seventy nine) on account of following credits standing/recorded in books of account where assessee could not substantiate on differences in his own books and books of account of said parties namely : Amount of difference observed (i) M/s K.R. Book Binding 1,87,318 House (ii) M/s S.U. Book Binding 1,75,750 House (iii) M/s G.K. Fine Art Press 87,611 Total amount of difference 4,50,6 79 intention of assessee has been to co-operate with Department to extent required and to avoid any confrontation in providing facts where he was at wrong, though it was within his legal rights to have done so, this fact is evident from our letter dt. 15th March, 1 99 3 wherein request was made for cross-examination of witnesses summoned under s. 131(3) of IT Act, 1961, but after knowledge of certain facts about arbitrariness displayed in maintenance of books and also keeping in view his business interests with above named parties express waiver was filed vide letter dt. 18th March, 1 99 5 by which request for cross-examination was withdrawn. We express our whole-hearted appreciation for assessee who despite severe hardship in paying heavy tax/interest due has made remarkable gesture, we express our full solidarity in him, and would request Department to respond to his gesture by taking most considerate view in levying any kind of penalty on him particularly under s. 271(1)(c) of IT Act, 1961, which talks about concealment of particulars to evade tax, it is pertinent to note that immediately on knowledge of error committed in regard to above parties assessee has surrendered said amounts as taxable income, in such case it would be against laws of natural justice and equity to call it deliberate concealment to evade tax, and hence, complete immunity from above penalty is requested." AO added Rs. 4,50,6 79 to income of assessee on account of "non-genuineness of credits detected by Department and proved beyond doubt on evidence collected from witnesses" as discussed in assessment order. AO also initiated penalty proceedings under s. 271(1)(c) of IT Act. 7 . In reply to show-cause notice issued under s. 271(1)(c), assessee claimed that penalty proceedings be kept in abeyance till decision of CIT under s. 273A was available. assessee also furnished oral submissions on different dates which are recorded by AO in impugned order of penalty. It is also recorded that assessee was allowed inspection of entire record, seized with AO, to make submissions. 8. It was submitted on behalf of assessee that surrender of amount in question was voluntarily made with understanding that he shall be immuned from penalty proceedings and that levy of penalty shall be gross betrayal of trust and understanding. assessee also challenged claim of AO that concealed part of income was detected by Department. assessee reiterated that amount was surrendered and full co-operation of highest order was shown in offering amount for addition and Departmental act of initiating penalty proceedings was act of distrust shown to assessee, who had innocently offered amount on condition that he would be kept immuned from penalty. assessee further claimed that Revenue had not been able to prove anymala fideintention on part of assessee to conceal income. 9. In its reply dt. 15th Sept., 1 99 3, assessee sought to highlight that expenses were met by him through cheque only. Therefore, onus was on assessee to show that payment was not genuine or same was disproportionate to labour/job work undertaken by book binder. 10. learned AO after examining facts and circumstances of case held that surrender of amount of Rs. 4,50,6 79 was not voluntarily made. There was nothing on record to show that surrender was made under any understanding with AO. He further held that AO is not vested with any such extra statutory authority to enter into any such understanding. Two amounts of Rs. 1,87,318 and Rs. 1,75,750 were added as income from undisclosed sources because these amounts were shown as payable in accounts. However, in computerized ledger, these were shown as paid when no cash was available with assessee. It was claimed by assessee that this was on account of mistake committed by assessee s accountant. However, assessment record of Shri Salauddin showed only balance of Rs. 27,246, against Rs. 1,87,318 as due from M/s Anmol Publications, and no balance was shown as due from M/s K.R. Book Binding House. This was solemnly confirmed by Shri Salauddin on oath. It was further confirmed that earlier statement was made by Shri Salauddin without referring to his books of account and that subsequent statement was correct as same was based after examining entries in books of account. AO highlighted this aspect of statement. AO also collected details of bills produced by assessee, which according to Shri Salauddin, was issued by them in names of parties other than M/s Anmol Publications. AO also brought on record that photocopies of all bills were given to assessee as books of account, etc. stood impounded and were in custody of Department. He also observed that no evidence was produced by assessee in support of claim of Rs. 1,87,318 and Rs. 1,75,750 except putting blame on accountant. AO also relied upon statement of Shri Salauddin and Smt. Hamid-ul-Nisha who had confirmed that balance shown by assessee was incorrect. assessee at one stage wanted to cross-examine witness but waived that claim subsequently. AO further observed that assessee made false claim relating to payment to binders through cheques. 11. In respect of balance shown as due to M/s G.K. Fine Art Press, who had confirmed balance videtheir letter dt. 20th Jan., 1 99 3 without complete statement of account. Subsequently, their proprietor was summoned but books were not produced nor appearance was made in spite of service of summons. were not produced nor appearance was made in spite of service of summons. Shri Sharad Kohli, chartered accountant had appeared on 23rd March, 1 99 3 and produced copy of account of assessee in books of M/s G.K. Fine Art Press which showed balance as on 31st March, 1 99was nil against Rs. 87,611 claimed by assessee. assessee was confronted with above evidence and on 24th March, 1 99 3 assessee waived his right of examination of witness and surrendered Rs. 4,50,6 79 for taxation as his income for asst. yr. 1 99 -91. assessee was now taking summersault to contend that surrender was voluntarily made to buy peace of mind and in spirit of co-operation. AO further, in his own style, held that non-surrender of amount would not have made any difference as relevant facts were even other detected. Accordingly, AO held that so-called claim of voluntary surrender in spirit of co-operation was only intended to camouflage concealment detected by AO. AO held that assessee was liable to be penalized under s. 271(1)(c) of IT Act and Revenue in this case had discharged burden of bringing independent unimpeachable evidence. AO accordingly imposed penalty of Rs. 4,01,600 representing 100 per cent of tax sought to be evaded. 1 2 . assessee impugned levy of penalty in appeal before learned CIT(A) and contended that AO had failed to show that concealment of Rs. 3 lakhs (offered by assessee) and of Rs. 4,50,6 79 was detected by AO on basis of investigations carried by him. AO had relied upon statement of person Mr. Salauddin who contradicted his earlier statement. AO had put undue pressure and carried harassment and had called assessee daily to his office in peak business season. sum of Rs. 4,50,6 79 was surrendered after reaching understanding with AO that amount would be allowed immunity from levy of penalty under s. 271(1)(c), but AO changed his stand to earn personal appreciation and credit for tax collection in his name and betrayed trust assessee had placed on AO. assessee further contended that letter dt. 24th March, 1 99 3 surrendering amount in dispute was drafted in consultation with AO and offer to waive right of cross-examination was also given up on account of understanding with AO that no penalty under s. 271(1)(c) would be levied. assessee further contended that assessee had made voluntary, honest and spontaneous declaration before AO. AO challenged finding that action of surrender was not voluntary. In this connection, reliance was placed on decision in case ofAddl. CIT vs. Kishan Singh Chand 1975 CTR (All) 194 : (1977) 106 ITR 534 (All)where, according to assessee, Hon ble Allahabad High Court in similar circumstances and cancelled penalty on ground that there was understanding between assessee and AO, otherwise assessee would not have agreed to enhance assessment without cogent reasons. Department further failed to prove that amount added by AO was in fact assessee s concealed income. Their Lordship of Allahabad High Court in cited case had relied upon decision of apex Court in case ofCIT vs. Anwar Ali (1970) 76 ITR 696 (SC). In respect of addition of Rs. 3 lakhs, assessee pointed out that assessee in his various letters had explained to AO nature of business of assessee and pointed out that books sold on approval basis are liable to be returned even after one year s time and, therefore, maximum sale returns were shown towards close of year, when traders try to square up their accounts. assessee has clearly explained to AO that surrender of Rs. 3 lakhs was made on suggestion of AO with understanding that no penal provision would be invoked against assessee. assessee once again placed reliance on decision of apex Court in case ofAnwar Ali(supra). It was further contended that like in case ofAnwar Ali(supra), onus by Revenue was not discharged and it was not established that added amount was concealed income or income in respect of which assessee had deliberately furnished inaccurate particulars of income. 13. assessee further challenged observations of AO in para 5.2 of impugned order wherein it was observed that assessee did not adduce any evidence in support of his contention that non-recording of all transactions was handy work of his accountant. assessee contended that AO had himself suggested that blame be shifted to accountant at time when understanding of surrender was reached and as such evidence could not be produced of event which never took place. assessee further submitted that question of closing stock was discussed during course of assessment proceedings and stock was found to be valued on basis of cost or market price, whichever is low. Some books in closing stock at no value were just price, whichever is low. Some books in closing stock at no value were just Raddi . 14. assessee also challenged observation of AO that no attempt was made by assessee to challenge disputed bill and 4 bills were confronted to assessee. According to assessee this showed that AO had accepted that assessee offered amount to buy peace and avoid prolonged litigation. assessee referred to change in stand/statement of Shri Salauddin from time-to-time. It was argued that Shri Salauddin had failed to explain as to how handwriting on disputed bills was that of same person as on other bills. assessee wanted to cross-examine Shri Salauddin but was induced by AO to make voluntary surrender of disputed amount to save himself from penal consequences and accordingly conditional surrender was made. assessee in this connection placed reliance on decision of Allahabad High Court in case ofCIT vs. Mansa Ram & Sons 1975 CTR (All) 163 : (1977) 106 ITR 307 (All)where facts were quite identical to facts of present case. assessee therein had also surrendered disputed cash credit and agreed to assess amount as its income. Tribunal on appeal, i n above circumstances, held that charge of concealment was not proved and levy of penalty was cancelled. assessee further argued that there was self-contradiction in order passed by AO. In para 21 of order, AO had stated that assessee claimed to have surrendered 3 credit balances but said surrender could not be taken as voluntary as non-genuineness of these amounts had already been detected by Department and proved beyond doubt through evidence collected. However, learned AO had himself used word "surrender" against both sums added and not "addition" in computation part of assessment order where amounts have been added. Reference was invited to computation portion of order. There was thus contradiction in approach of AO as on one hand he wanted to prove that he had detected added amount of income while on other hand he has clearly accepted that amounts were surrendered. assessee contended that principle of natural justice and equity were clearly violated in this case. It was emphasized that offer of surrender was conditional offer and could not be accepted without condition, otherwise AO was duty- bound to establish that amount added was income of assessee. Above assertions were made with greater force in respect of addition of Rs. 3 lakhs added to income of assessee. In respect of other addition of Rs. 4,50,6 79 comprising of three amounts, i.e., Rs. 1,75,750, Rs. 1,87,318 and Rs. 87,611, assessee submitted that surrender was made as induced by AO otherwise nobody on earth would be prepared to accept punishment without defending oneself. One would not waive legal and fundamental rights, unless there is element of benefit visible i n such acceptance. assessee then claimed that as peace loving character, he did not want to confront with his own people by cross-examining them and was keen to buy peace and tranquillity instead of prolonged litigation. It was explained that relevant time was peak season time for carrying on brisk business and, therefore, it was thought proper to make surrender in circumstances narrated above. assessee placed reliance on decision of Hon ble Punjab & Haryana High Court in case ofGumani Ram Siri Ram vs. CIT (1972) 85 ITR 67 (P&H), wherein Hon ble High Court pointed out, there may be hundred reasons for assessee to surrender amount. Relying upon decision of Supreme Court in case ofAnwar Ali(supra), Hon ble High Court held that requirement of s. 271(1)(c) was not satisfied and cancelled penalty levied on surrendered amount. assessee accordingly, submitted that surrendered amount has not been proved to be income of assessee. 15. assessee also challenged observation in para 8.2 of impugned penalty order. observations made were stated to be personal inhibition of AO. It was stated that AO failed to appreciate that surrender was made in good faith and was conditional. assessee did not accept that surrendered amount was income much less concealed income under s. 271(1)(c) of IT Act. act of surrender could not be compared with criminal acts. It was argued that AO tried to draw absurd conclusions. AO was also wrong in holding that cases cited on behalf of assessee were irrelevant. In penalty proceedings, assessee made attempt to prove genuineness of credits and on his request, assessee was provided with copies of some of accounts from impounded documents. assessee, therefore, as per letter dt. 15th Sept., 1 99 3 and 21st Sept., 1 99 3 made request for copy of books of account and other documents to make complete analysis but such request was bluntly turned down. assessee wanted to highlight discrepancies in statement of creditor but this was not possible in absence of books of account. Thus, AO had failed to give adequate opportunity to prove its case. Reliance in this connection was placed on decisionof Krishan Lal Shiv Chand Rai vs. CIT (1973) 88 ITR 293 (P&H), wherein it has been stated that party is entitled to prove that admission made previously by him was not correct and true. So assessee was denied opportunity to show that surrender was wrong and was made solely to avoid botheration. 16. assessee also emphasized that penalty proceedings were distinct from assessment proceedings. onus, in penalty proceedings, was on Department to positively prove and show, with reference to material on record, that besides fact of surrender, amount added was undisclosed income of assessee. Imposition of penalty, merely on surrender was unjustified. assessee placed further reliance on decision in case ofCIT vs. Amalendu Paul (1983) 34 CTR (Cal) 174 : (1984) 145 ITR 439 (Cal)wherein penalty was levied on account of some income admitted in revised return but Tribunal and High Court on further proceedings held that admission made by assessee was conditional and could not be relied upon for imposing penalty. penalty imposed was cancelled. 17. After considering facts and circumstances of case and submission of assessee listed above, learned CIT(A) cancelled penalty under s. 271(1)(c) of IT Act in respect of Rs. 3 lakhs added in trading account. Both learned Members have accepted above finding and same is not subject- matter before me. penalty on other addition of Rs. 4,50,6 79 was deleted by learned CIT(A) with following remarks : "Now coming to amount of Rs. 4,50,6 79 , it is found that these amounts consists of three credits as under : (i) M/s K.R. Book Binding House 1,75,750 (ii) M/s S.U. Book Binding House 1,87,318 (iii) M/s G.K. Fine Art Press 87,611 Total 4,50,6 79 In this case also it is seen that AO in course of assessment proceedings has examined books maintained where three credit balances were noticed. In case of first concern, i.e., M/s K.R. Book Binding House, proprietor is Salauddin and in case of second concern M/s S.U. Book Binding House, proprietor is wife of Salauddin, Mrs. Hamid-ul-Nisha. AO had examined Shri Salauddin as proprietor of M/s K.R. Book Binding House and also representative of his wife being proprietor of M/s S.U. Book Binding House. At first stage of examination, Shri Salauddin had accepted credit balance as claimed by appellant. It is only when books of account of Shri Salauddin did not support his statement, he backed from his earlier statement and submitted that his earlier statement was made without concerning his books of account. So he denied having Rs. 1,87,318 due from M/s Anmol Publication. H e also denied having credit due to his wife Rs. 1,75,750. Under such circumstances appellant had expressed his desire to cross-examine Shri Salauddin but immediately appellant withdrew its claim of cross-examination, and offered amount to be included in computation of his total income. AO has reproduced relevant portion of letter dt. 24th March, 1 99 3. If this letter was not acceptable to AO, she could have rejected same that conditional surrender is not acceptable. But AO did not do so. Further, assessment was completed on 26th March, 1 99 3 as it is seen from assessment order. appellant has paid part of tax liability of Rs. 2,00,000 on 31st March, 1 99 3. This also shows that appellant was sure about non-initiation of penalty proceeding. 6. AO while imposing penalty has observed that there is nothing on record to show any understanding accorded to appellant that he shall be kept immuned from penalty proceedings under s. 271(1)(c). To that extent AO is correct but in such situation there cannot be any written understanding and have to go by circumstantial evidences and facts of case leading to surrender of amount to be included in total income. 7. Various decisions of various High Courts on which appellant has placed reliance do support case of appellant. After considering all these decisions and facts of case it appears that surrender of assessee by its letter dt. 24th March, 1 99 3 was conditional and there must have been some sort of understanding between AO and assessee for non-initiation of penalty proceedings under s. 271(1)(c) between period when assessee wrote letter for cross-examination of witnesses and letter written by which this claim was withdrawn. Further simply because assessee has agreed for inclusion of certain amount in computation of income due to one or other reason, does not mean that assessee had concealed income or amount offered to be included in his income, is concealed income of assessee. Accordingly, keeping in view facts of case and various submissions made and ratio of decisions of various High Courts on which assessee has placed reliance, I hold that AO was not justified in initiating penalty proceedings and imposing penalty under s. 271(1)(c). Therefore, penalty imposed under s. 271(1)(c) is deleted." 18. Revenue being aggrieved challenged order of CIT(A) in appeal before Tribunal. Having regard to question referred to me, I will only confine myself to order proposed by learned Members in respect of penalty imposed or deleted for addition of Rs. 4,50,6 79 . 19. learned JM upheld levy of penalty. He referred to books of account of assessee in paras 4.3 onward of his order and found that two amounts, viz., Rs. 1,75,750 and Rs. 1,87,318 were shown to be paid to parties on 31st March, 1 99 . AO further found that there was credit balance of Rs. 87,611.75 in name of M/s G.K. Fine Art Press under head "Printing account". AO had accordingly asked assessee to show ledger, cash book and bills in support of above referred to entries. On scrutiny of account, AO had found that no payment as on 31st March, 1 99was shown to parties in cash book. When questioned assessee had submitted that on account of mistake of accountant, entries were shown as "amount paid" but in fact entries related to amount credited to account of two parties towards their bills for binding. parties had given bills on different dates, but same were credited only on 31st March, 1 99in binding account. On going through further details, AO became suspicious and summoned Shri Salauddin, proprietor of M/s K.R. Book Binding House. learned JM then noted statement of Shri Salauddin, made as per proprietor of M/s K.R. Book Binding House and on behalf of his wife, Mrs. Hamid-ul-Nisha, proprietor of M/s S.U. Book Binding House. AO also referred to subsequent statement made by Shri Salauddin wherein he had stated that balance in account of M/s Anmol Publications as on 31st March, 1 99was only Rs. 27,246 out of which Rs. 26,000 were paid by cheque on 5th April, 1 99 . No balance was confirmed in account of assessee in books of M/s S.U. Book Binding House. Statement of Shri Salauddin has been analysed by learned JM at p. 3, paras 4.6 and 4.7 of his order. He also reproduced letter dt. 24th March, 1 99 3 of assessee after assessee had waived his right to cross-examine Shri Salauddin, etc. and had surrendered Rs. 4,50,6 79 representing three amounts in question. relevant observation of AO have also been reproduced and analysed. learned JM also referred to penalty order of AO imposing penalty of Rs. 4,10,600 under s. 271(1)(c) of IT Act. 20. Thereafter learned JM analysed impugned order of CIT(A) and arguments of parties. 21. operative portion of proposed order starts with para 7 where he confirmed order of CIT(A) relating to cancellation of penalty of Rs. 3 lakhs. 22. In respect of other amount of Rs. 4,50,6 79 , learned JM held that AO made very detailed and thorough investigation, provided full opportunity to assessee to produce books of account and substantiate debit and credit entries made by him. He had also summoned owners/proprietors of concerned firms to verify claim of assessee and recorded their statements in detail. These witnesses were further asked to produce ledger and other books and when it was found that entries made by them were bogus, AO allowed opportunity to assessee to cross-examine them. 23. JM further observed that amount of Rs. 1,75,750 and Rs. 1,27,318 was found at pp. 19 and 20 of computerized cash book to be paid but such payment was not reflected in cash book actually produced by assessee. When asked to explain above discrepancy, assessee vide letter dt. 13th Dec., 1 99 1 filed details. However, subsequently vide letter dt. 24th Feb., 1 99 3, assessee came up with excuse that due to mistakes on part of accountant, entries were shown as paid while in fact amounts were credited to accounts of two parties against bills issued by party. JM, further noted that on 24th March, 1 99 3, assessee made first surrender of Rs. 3 lakhs on account of false debit and credit entries in books of account. Thereafter in para 7.3, learned JM had elaborated how opportunities were provided to assessee to furnish complete copies of accounts of two parties but assessee failed to do so and thereafter AO was forced to invoke his power under s. 131 of IT Act. He then referred to statement of Shri Salauddin who when confronted with entries in books of account categorically stated that photocopies of bills produced by assessee were not issued by him and he had nothing to do with these bills. Similar statement was made in respect of business carried on by his wife. Shri Salauddin had further produced bill Nos. 671, 672, 673, 661 and 662 to show that these bills were issued to different parties and not in name of Shri J.L. Kumar, proprietor of M/s Anmol Publications. Statement of Shri Salauddin clearly established that assessee had produced forged and fake bills in name of two concerns. In paras 7.4 and 7.6, learned JM has highlighted as to how Shri Salauddin had explained his earlier statement dt. 2nd March, 1 99 3 in subsequent statement dt. 11th March, 1 99 3 with reference to entries in his books of account. In para 7.5, learned JM has highlighted how books of account of M/s S.U. Book Binding House, in respect of entries in books of assessee, were verified. He has also noted details of bills issued by Shri Salauddin in name of different parties, other than M/s Anmol Publications as proprietary concern and also by his wife as proprietor of M/s S.U. Book Binding House. Relevant portion of statement has been reproduced and analysed by learned JM. In paras 7.9 and 7.10, learned JM has observed as under : "7.9 In view of thorough interrogation and on closer and deeper scrutiny "7.9 In view of thorough interrogation and on closer and deeper scrutiny of books of account of assessee as well as of M/s K.R. Book Binding and M/s S.U. Book Binding House, it was proved to hilt that assessee had forged entries in his books of account and deliberately showed incorrect particulars in return of income filed by him. 7.10 AO took all precaution and recorded statement of Shri Salauddin after observing all formalities. He also contradicted assessee against version given by Shri Salauddin. AO also impounded that books so that assessee may inspect same, if so desired. assessee was, thus cornered fully from all sides and under such circumstances he gave up right to cross-examination and made surrender." 24. In para 7.11, learned JM noted about entries in account of third party, i.e., M/s G.K. Fine Art Press to hold that entries in above account were also fabricated. learned JM, thereafter referred to decision of Chandigarh Bench of Tribunal in case ofOm Prakash Gupta vs. ITO (2002) 75 TTJ (Chd) 984 : (2002) 81 ITD 55 (Chd)and held that observations made in that case were fully applicable to case in hand. It was further observed that assessee was provided full opportunity to explain discrepancies in his books of account but same was not explained. learned JM further observed that AO had taken extraordinary pain to bring to light fraudulent act committed by assessee. It was one of rarest case where facts relating to guilt of assessee were fully established. learned JM relied upon decision of Hon ble Kerala High Court in case ofCIT vs. D.K.B. & Co. (2000) 161 CTR (Ker) 187 : (2000) 243 ITR 618 (Ker)and decision of Supreme Court in case ofK.P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC). He highlighted portion where their Lordship of apex Court has explained import of Explanation to s. 271(1)(c) of IT Act. Thereafter learned JM confirmed action to levy penalty under s. 271(1)(c) in respect of addition of Rs. 4,50,6 79 with following observations : "7.16 facts concerning present matter are of more severe nature because in this case there was no written agreement or any understanding for not initiating penalty proceedings. AO has dealt with each aspect of matter including explanations offered by assessee and various pleas raised by him during penalty proceedings. It is surprising that learned CIT(A) who has recorded arguments of assessee in verbatim, has not bothered to go through penalty order and has not properly appreciated same. In our considered opinion, learned CIT(A) has not correctly appreciated gravity of matter and circumstances under which charge of concealment was proved by AO beyond any shadow of doubt. Hence, we are unable to accord our approval to findings of learned CIT(A). 7.17 On basis of above discussion, it is established beyond any scintilla of doubt that assessee deliberately furnished incorrect and inaccurate particulars and it was only on account of extra pains taken by AO in making thorough investigation that malicious design of assessee could be detected. assessee did not disclose truth till last and even made prayer for cross-examination of witnesses examined by AO and it was only in last that he had to give up his stand and did not press prayer for cross- examination and being fully cornered, he had no other way but to surrender amount of Rs. 4,50,6 79 . Thus, it could not be said that assessee voluntarily surrendered amount. In fact, it was on account of very effective measures taken by AO that in last assessee virtually felt guilt on his part. AO had detected concealment of exact amount by making thorough probe from all concerned parties and persons and by examining entire relevant material. In our considered opinion, therefore, penalty was correctly imposed in relation to entire amount of Rs. 4,50,6 79 . 7.18 In view of above, we restore order of AO in respect of imposition of penalty under s. 271(1)(c) in relation to surrendered amount of Rs. 4,50,6 79 and set aside order of learned CIT(A) in cancelling penalty in relation to that amount. So far as imposition of penalty in relation to other amount of Rs. 3,00,000 is concerned, we uphold order of learned CIT(A) in cancelling penalty. To that extent order of learned CIT(A) stands affirmed. AO is directed to work out minimum penalty imposable under s. 271(1)(c) on amount of Rs. 4,50,6 79 . 8. In result, Revenue s appeal is partly allowed." 25. In proposed order, learned AM did not agree with order proposed by learned JM. He observed that cash book did not show that payment was made to these parties. computerized ledger had only contained narration of payment and even ledger itself did not show that amounts were reflected as payable. AO did not doubt correctness of cash book but accounts were rejected merely on basis of some entries made by mistake by accountant. mistake cannot be said to be conscious or intentional. liabilities for expenses were incurred on book binding charges and claimed towards expenses. Expenses were further supported by bills payable to all three parties. parties have further filed confirmation of amount payable. AO has himself taken into account these expenses while estimating profit and while making addition of Rs. 3 lakhs as against claim of expenses of Rs. 4,50,6 79 . AO, thus, himself accepted method of book- keeping erroneous and estimated business profit. learned CIT(A) has deleted penalty on account of estimate made by AO and deletion of penalty of Rs. 3 lakhs has been confirmed. 2 6 . learned AM then referred to statement of Shri Salauddin, proprietor of M/s K.R. Book Binding House for himself and on behalf of M/s S.U. Book Binding House during his appearance before AO on 2nd March, 1 99 3. Shri Salauddin had confirmed bills issued by him and his wife and further confirmed that in almost all cases payments have been received by cheque. Signatures on bills were also verified and accepted as correct. Thereafter survey under s. 133A was carried at premises of concerns owned by Shri Salauddin and his wife and books of account of above concerns were identified and summons were issued for production of books of account and bills on 11th March, 1 99 3. On specified date, Shri Salauddin produced bills for binding work only. AO has not recorded that books were identified under s. 133A produced by supplier. Shri Salauddin did state that certain bills with similar number claimed to have been issued to assessee were in fact issued to other persons but dates of such bills are not given. AO further failed to verify authenticity and correctness of such bills. No addresses of parties mentioned in bills are available. AO failed to make any enquiry from parties mentioned in bill so as to satisfy himself about correctness of bills produced by creditor (Shri Salauddin). In earlier statement dt. 2nd March, 1 99 3, creditor had categorically admitted that payment almost in all cases on binding charges was received by cheques. bank account of these two suppliers were not verified to find out correctness of statements made subsequently. assessee-appellant was getting regular service of job work done for book binding from these two parties and was dependent on them. In order to avoid losses of reputation and loss of business, assessee merely agreed to surrender amounts of credit for assessment of his income but never admitted concealment thereof. In above background, assessee had foregone cross-examination of parties summoned by AO. Assessment order further reveals that original bills were produced by supplier (Shri Salauddin) before AO. In case those bills were genuine, there was no possibility of retaining of original bills by supplier. It is to be remembered that in earlier statement, Shri Salauddin had admitted that bills issued to appellant for doing job work were genuine and payments were received through banking channels. These crucial facts were not disproved by assessing authority which were even otherwise revealed from books of account supported by authentic bills produced by appellant. learned AM also referred to fact that assessee was denied copies of bills and books during penalty proceedings. It is stated by learned AM that facts claimed by assessee through books of account maintained in regular course of carrying out of business activity were not disproved. AO did not make any independent enquiry or verification of what was stated by Shri Salauddin in later statement. No independent material was brought on record to show that what was stated by Shri Salauddin on subsequent occasion was correct. At any rate, according to learned AM, Shri Salauddin has been found to be lying at one occasion and, therefore, his subsequent deposition could not be taken trustworthy to reject correctness of claim of appellant. Thebona fideof assessee was reflected through his subsequent conduct when within four days of assessment and before close of financial year, assessee paid all taxes due on assessment. This also shows that there was element of assurance on part of AO that no penalty would be initiated and on that account assessee agreed to addition. Therefore, on facts it could not follow that assessee concealed its income. There was no element ofmens reain concealment and, therefore, no penalty was exigible. learned AM derived support from decision of apex Court in case ofK.C. Builders & Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC)as also from decision of Madhya Pradesh High Court in case ofCIT vs. Beta Nepthol Ltd. (2005) 272 ITR 323 (MP)wherein it is held that surrendered disputed item on which tax is paid cannot be taken as concealment of income and no penalty is exigible in such case. learned AM, further observed that assessee s explanation through letter dt. 15th Sept., 1 99 3 also indicates that facts stated by assessee were neither disproved nor found wrong. In respect of amount shown as due to M/s G.K. Fine Art Press, learned AM made similar observations and held that assessee s claim based on genuine bills from suppliers stood duly acknowledged and accepted by suppliers. Therefore, no case of concealment was proved. learned AM also found justification in assessee s making surrender of disputed amount without admitting concealment of income. It is stated that in month of March when enquiries were carried by AO there was peak season of sale of stock and AO had put pressure on assessee which could have affected adversely entire business of assessee. assessee, therefore, accepted some errors committed by accountant and made surrender which was done with intention to co-operate with Department and to "avoid any confrontation in proving facts." assessee also wanted to save business interest with parties involved in dispute. In these peculiar circumstances, assessee had actedbona fidelyandthere was no conscious act or motive on part of assessee to falsify his accounts or conceal income or particulars thereof. On facts AO did not have jurisdiction to come to conclusion that there was concealment of income. standard of proof for imposition of penalty was different (from) proof needed for assessment. learned AM relied on decision of Allahabad High Court in case ofCIT vs. Garg Engg. Co. (1 99 8) 148 CTR (All) 341 : (1 99 9) 235 ITR 451 (All)and that of apex Court in cases ofCIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 in cases ofCIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC)and on case ofAnantharam Veerasinghiah & Co. vs. CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC). In ultimate para, learned AM observed as under : "Having considered entire concepts of case, I am satisfied that there was no conscious and deliberate concealment of any of particulars of its income by assessee and he merely agreed to surrender amount of credit outstanding as his income as accountant had committed error in preparing accounts. However, for mistake committed by accountant and even without proving correctness and truthfulness of statement of third party it cannot be held that it was case of concealment of income or particulars thereof. assessee s explanation beingbona fideand return not being false return of income, no penalty was thus exigible on this count also. Reference may also be had to judgment of Hon ble Madras High Court inCIT vs. S. Sankaran (2002) 175 CTR (Mad) 62 : (2000) 241 ITR 825 (Mad)andCement Marketing Co. of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 (SC). Cancellation of penalty by learned CIT(A) is, therefore, upheld. 4. In result, appeal stands dismissed." 27. On account of above difference, matter has been referred to me. learned Departmental Representative supported proposed order of JM. He emphasized that assessee had first shown in computerized ledger disputed amounts as paid to third parties. When after examination of cash book, it was found that payments were not shown as made, assessee changed stand and threw blame on accountant for making wrong entries. revised stand was that bills were received and payments were outstanding. On deep investigation and on examination of proprietors of M/s K.R. Book Binding House and M/s S.U. Book Binding House, it was proved beyond doubt that balances shown as outstanding were not correct. This was confirmed as per statement on oath of Shri Salauddin as well as by his wife proprietor of M/s S.U. Book Binding House. assessee thereafter was given opportunity to cross-examine Shri Salauddin and other evidence on record but that right was waived and amount in question was surrendered as income. learned Departmental Representative read out from letter accompanying surrender of Rs. 4,50,6 79 reproduced by AO in assessment order. He accordingly argued that concealment/furnishing of inaccurate particulars of income was established beyond shadow of any doubt. He also relied upon details noted by learned JM in impugned order. learned Departmental Representative stated that observations of learned AM in proposed order were not correct as he placed burden of establishing concealment and furnishing of inaccurate particulars on Revenue. Even facts recorded by learned AM are incorrect. Having regard to admission of assessee and circumstances of case, furnishing of inaccurate particulars of income was fully established on record. learned Departmental Representative accordingly supported order of AO. He further submitted that without any material, learned CIT(A) held that there was understanding between assessee and AO not to levy penalty. aforesaid finding was contrary to material on record. 28. learned counsel for assessee supported proposed order of AM. He submitted that assessee had declared GP rate of 14.7 per cent and if addition proposed was further added, GP would go upto 33.67 per cent which is unheard of in this line of business. These circumstances clearly showed that addition made was absurd and assessee even after claiming expenditure in question had shown reasonable income. assessee had agreed to addition to buy peace and to maintain business relations with people to save his business interests. learned representative further argued that statement of Shri Salauddin was not reliable as earlier on 2nd March, 1 99 3, he had confirmed assessee s accounts as correct. In these circumstances, it cannot be said that Revenue had proved case of concealment/furnishing of inaccurate particulars of income beyond shadow of doubt. learned counsel further submitted that assessee was induced by AO to surrender amount in question and avoid litigation with Department. understanding was reached that no penal action would be taken against assessee, if amount in question would be surrendered. surrender made in above circumstances was conditional and, therefore, Revenue authorities were not justified in imposing penalty on assessee. following circumstances have further not been appreciated by AO while imposing penalty under s. 271(1)(c) of IT Act : (1) That credit entries were confirmed by parties. (2) That Shri Salauddin accepted that payment from assessee was received in cheque. He also confirmed correctness of bills. (3) That AO did not care to verify bank accounts of creditors to know that statement dt. 11th March, 1 99 3 was correct. (4) Shri Salauddin did not answer question whether bills relied upon by appellant have been issued by him and his wife and prepared by one Shri Mujibur Rehman. (5) That bills allegedly issued to other parties and claimed by assessee did not bear any date nor AO verified their authenticity. (6) That no attempt was made to reconcile balances due to M/s K.R. Book Binding House admitted by Shri Mujibur Rehman at Rs. 27,246 and claimed at Rs. 1,75,750 by assessee. (7) That bill of M/s G.K. Fine Art Press was not only confirmed by party as per copy of account but also in statement recorded on 16th Aug., 1 99 . (8) That circumstances under which amount was surrendered, right to cross-examination was waived and taxes were paid, clearly pointed out that there was understanding not to levy penalty under s. 271(1)(c) of IT Act. learned counsel for assessee accordingly, supported proposed order of learned AM. 29. I have given careful thought to rival submissions of parties and examined them in light of material available on record. first question required to be examined is whether there was any understanding between assessee and AO not to take penal action against assessee in case amounts in dispute are surrendered. learned CIT(A), as per impugned order, has held that there was such understanding and, therefore, cancelled penalty on this ground. learned AM in his proposed order has also agreed with this view, although even on merit his view is that there is no case for levy of penalty. 30. On careful consideration of all relevant circumstances and material on record, I am unable to subscribe to above view. I agree that it may not be possible to produce direct evidence of such understanding but then there should be sufficient circumstantial evidence to prove that assessee had surrendered and agreed to addition only to buy peace of mind and on account of assurance of AO not to exercise his discretionary power to levy penalty. Normally, test to be applied in such cases is to see what is material to establish case of concealment/furnishing of inaccurate particulars of income other than admission/surrender of assessee. If admission is disregarded is there evidence to support case ? Relative value of admission depends upon other material on record, or penalty is solely based on admission. In my considered opinion, in this case assessee had failed to establish that there was understanding not to levy penalty in case disputed amount was surrendered for assessment purposes. mere fact that assessee waived his right to cross-examine and paid taxes on assessed income, before end of relevant period, etc. are not sufficient to hold that AO had agreed not to levy penalty particularly when he had laboured hard and collected sufficient material to show that affairs of assessee were not above board. As far as entries in books were concerned, those were admitted to be wrong and incorrect and justification for this is lapse on part of accountant employed for writing books. burden to maintain proper books of account is on assessee and same can hardly be taken to be discharged on above plea. Having regard to all circumstances, I am of view that assessee has failed to establish its plea that surrender was made on account of understanding between assessee and AO not to invoke penal provision if disputed amount is surrendered for assessment. finding recorded by learned CIT(A) to above effect is liable to be set aside. 31. question of levy of penalty has to be examined with reference to statutory provision, applicable in asst. yr. 1 99 -91. main provision of s. 271(1)(c) r/w Expln. 1 were as under : 271(1)(c) r/w Expln. 1 were as under : "271. (1) If AO or Dy. CIT(A) or CIT(A) in course of any proceedings under this Act, is satisfied that any person (a) and (b) * (c) has concealed particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, (i) * (ii) in cases referred to in cl. (b), in addition to any tax payable by him, sum which shall not be less than one thousand rupees but which may extend to twenty five thousand rupees for each such failure; (iii) in cases referred to in cl. (c), in addition to any tax payable by him, sum which shall not be less than, but which shall not exceed (three times), amount of tax sought to be evaded by reason of concealment of particulars of his income or furnishing of inaccurate particulars of such income : Explanation 1 : Where in respect of any facts material to computation of total income of any person under this Act, (A) such person fails to offer explanation or offers explanation which is found by AO or Dy. CIT(A) or CIT(A) to be false, or (B) such person offers explanation which he is not able to substantiate and fails to prove that such explanation isbona fideand that all facts relating to same and material to computation of his total income have been disclosed by him, then, amount added or disallowed in computing total income of such person as result thereof shall, for purposes of cl. (c) of this sub- section, be deemed to represent income in respect of which particulars have been concealed." 3 2 . Their Lordship of Supreme Court in case ofK.P. Madhnsudhanan(supra) held that Explanation puts burden on assessee to show that provisions of s. 271(1)(c) are inapplicable in his case. In my opinion language of Explanation is more than clear and words employed are in case assessee "fails to offer explanation" or offers explanation which he "is not able to substantiate" or his explanation "is found to be false" or fails to prove that explanation isbona fideand fails to produce all facts and material relating to computation of his income, then he would be deemed to have concealed particulars of his income. clear language leaves no doubt that onus is on assessee to show that to added amount, above Explanation is not applicable. In his letter dt. 24th March, 1 99 3, assessee has stated as under : "(i) amount of Rs. 4,50,6 79 (Rupees four lakhs fifty thousand six hundred and seventy nine) on account of following credits standing/recorded in books of account where assessee could not substantiate on differences in his own books and books of account of said parties namely : Amount of difference observed (i) M/s K.R. Book Binding 1,87,318 House (ii) M/s S.U. Book Binding 1,75,750 House (iii) M/s G.K. Fine Art Press 87,611 Total amount of difference 4,50,6 79 So assessee has admitted that he has not been able to establish its claim and, therefore, conditions of Expln. 1 are satisfied. Having regard to settled position under law, I may say at very outset that learned AM was not justified in putting burden of proof on Revenue to disprove case set up by assessee. He went to extent of saying that Revenue authorities should have examined bank accounts of creditors, to see whether payment was made through cheque or not. Likewise according to learned AM, Shri Salauddin s statement that bills claimed to have been issued were in fact issued to third parties and not to assessee, should have been verified by making enquiry from such parties. In my considered opinion, there is no such burden on Revenue to disprove case set up by assessee and it was totally unnecessary for them to go and examine third parties referred to in statement or to examine bank statement t o verify whether payments were made by cheque particularly when bank statements were not produced by assessee. question of levy of penalty has to be examined in light to Expln. 1 to s. 271(1)(c) and burden as per aforesaid Explanation was clearly on assessee and not on Revenue. In this connection, reference may be made to letter dt. 24th March, 1 99 3 under which surrender was made by assessee." 33. Apart from Explanation referred to above, assessee in present case surrendered amount of Rs. 4,50,6 79 for purposes of assessment. Thus, assessee admitted that above amount was its income. surrender was accompanied by letter dt. 24th March, 1 99 3 which is reproduced by AO in assessment order. There is no suggestion, whatsoever, in letter that disputed amount is not assessee s income. emphasis was on fact that assessee is co-operating with Revenue and, therefore, lenient view of matter should be taken. Having regard to above documentary evidence, it is very difficult to accept that assessee never admitted that disputed amount was its income. It is settled law that admission of fact, shifts burden to person who admits facts. Thus, apart from Explanation, "the surrender/admission made by assessee" cast further burden on assessee to establish that amount surrendered was not assessee s income or that he had offered explanation relating to disputed amount which wasbona fideand all facts and material necessary for assessment were placed by assessee on record. I hold with utmost respect that aforesaid burden has not been discharged by assessee in respect of first two amounts, i.e., Rs. 1,75,750 and Rs. 1,87,318. It is one thing to marshal evidence and record finding but different thing to accept whatever is stated by assessee as correct. I would first like to discuss whether any penalty is liable to be imposed in respect of Rs. 87,611 shown as payable to M/s G.K. Fine Art Press. There is no mistake relating to aforesaid amount as far as entries in computerized ledger or cash book are concerned. party also confirmed balance as per copy of account placed on record. Shri G.K. Wason, proprietor of M/s G.K. Fine Art Press was summoned by AO and his statement was recorded on oath and even in above statement, account was confirmed subject to minor discrepancies. AO on examination of record of G.K. Fine Art Press found that amount in dispute was not shown as receivable. Thereafter summons were issued for re-examination of Mr. Wason. Shri Wason evaded these summons and even when on third or fourth attempt, summons were served on him, he failed to appear before AO and sent fresh copy of account of assessee through this chartered accountant, Shri Sharad Kohli on 23rd March, 1 99 3. There was no statement to support above account nor books of account were produced for examination or for cross-examination of assessee. There is no doubt that assessee had surrendered this amount also while surrendering total amount of Rs. 4,50,6 79 but then above surrender is to be seen along with other relevant facts and circumstances of case to see whether case of concealment or furnishing of inaccurate particulars of income can be said to be established in light of main provision or Expln. 1 to said section. 34. case set up by assessee has been fully confirmed through statement of account and oral statement given on oath. As against above, there is revised copy of account of assessee in books of M/s G.K. Fine Art Press showing nil balance. revised copy cannot be relied upon to reject case of assessee. There is no explanation why Shri Wason confirmed copy of assessee s account and also state on oath that amount was due from assessee for services rendered. There is again no explanation why he was trying to evade service of summons issued by AO and why his attendance was not enforced. Above circumstances are sufficient to cast doubt on stand of Mr. Wason adopted by AO to reject and condemn assessee. Penalty proceedings are quasi-criminal proceedings and assessee is entitled to benefit of doubt. It is difficult to hold that assessee has failed to prove hisbona fideor doubt. It is difficult to hold that assessee has failed to prove hisbona fideor claim of deduction. Thus, provisions of s. 271(1)(c) r/w Expln. 1 are not attracted i n this case as it is settled law that burden placed on assessee can be discharged with reference to material brought on record during course of assessment proceedings and it is not necessary that new and fresh material should be produced in penalty proceedings to discharge burden. Admissions are relevant but not conclusive and can be shown to be erroneous. In present case admission on material cannot be said to be correct. Thus, on facts on record and in circumstances of case, I am of opinion that no penalty is exigible as far as amount shown to be payable to M/s G.K. Fine Art Press is concerned. 35. case relating to credits in other two accounts namely, M/s S.U. Book Binding House and M/s K.R. Book Binding House stands on totally different grounds. sequence of evidence which took place during course of assessment proceedings, in brief are noted below : (i) That assessee was found to have shown these two amounts as paid on 31st March, 1 99as per computerized ledger. (ii) On verification, AO found that above claim was not correct as payment was not recorded in cash book. (iii) assessee then took somersault and claimed that amounts were not paid but were payable in respect of binding charges and amounts were paid in next financial year through cheques. assessee claimed that mistake was committed by his accountant who was new and inexperienced in preparation of accounts. (iv) AO, thereafter summoned Shri Salauddin, proprietor of M/s S.U. Book Binding House and husband of proprietor of M/s K.R. Book Binding House. Shri Salauddin initially confirmed account. (v) Revenue authorities then carried survey at premises of above two creditors and found that entries made in books of account of concerns d i d not show balances receivable from assessee. Accordingly, Shri Salauddin was re-summoned with relevant books of account. 36. In second statement taken on 11th March, 1 99 3, Shri Salauddin stated that amount as claimed by assessee to be payable to two concerns, was incorrect. He also stated on oath that bills claimed to have been issued by concerns to assessee in respect of binding charges, were in fact issued to some other parties. Copies of bills were produced and given to AO, Shri Salauddin also produced his books of account. Similar accounts were furnished by Shri Salauddin s wife, Begum Hamid-ul-Nisha, proprietor of M/s K.R. Book Binding House. AO, thereafter gave opportunity to assessee to cross-examine Shri Salauddin and produce other evidence in support of its claim. 3 7 . assessee specifically waived its right to cross-examine witnesses relied upon by AO and also surrendered for assessment (a) sum o f Rs. 4,50,6 79 including two amounts in question (Rs. 1,75,750 and Rs. 1,87,318) for assessment with covering letter dt. 24th March, 1 99 3. surrendered amount was added in income of assessee. AO also initiated penalty proceedings and ultimately levied penalty as he found that wrong and false claim was made by assessee in respect of above credits. 38. After considering all relevant circumstances, in my view, penalty under s. 271(1)(c) in respect of claim shown as payable by assessee to two concerns is clearly exigible. assessee failed to discharge burden that lay on assessee under Expln. 1 to s. 271(1)(c) of IT Act. In fact assessee admitted that he has not substantiated his claim. It is no doubt true that Shri Salauddin in his earlier statement recorded on 2nd March, 1 99 3 had supported claim of assessee and subsequently took different stand and stated that amount shown as payable to their concerns were not payable. He also furnished evidence to show that bills alleged to be issued to assessee in respect of binding charges, were in fact issued to some other parties. Complete details of these bills are available in proposed order of learned JM and, therefore, above details are not being produced here again. AO had relied upon above evidence to hold that charge against assessee under s. 271(1)(c) was proved. This has been accepted by learned JM in proposed order. learned A.M. on other hand accepted doubts and criticism raised b y assessee against statement of Shri Salauddin and other evidence produced by him and collected by AO. Accordingly, it has been held that case of assessee has not been disproved, as claim of payment through cheque was not verified nor verification from parties in whose name bills were issued, was carried by AO. In my considered opinion, before relying upon second statement of Shri Salauddin and evidence produced by him against assessee, AO had allowed chance to assessee to cross-examine witness. It is settled proposition that cross-examination as aweapon is allowed to party to shake veracity of statement and material being used against party. If above opportunity is not utilized, adverse inference is liable to be drawn. Courts have authoritatively held that party cross-examining witness must put its entire case to witness in cross-examination so that entire position is got clarified. In present case, assessee by waiving his right to cross-examination, accepted that he had no intention to challenge statement and evidence produced by Shri Salauddin. assessee further did not produce any material to show that outstanding payments were cleared through cheques. In next accounting year (after 31st March, 1 99 ), books of account for period starting 1st April, 1 99which showed payment through cheque were with assessee and were not impounded and, therefore, there was no difficulty in producing that evidence to show that outstanding payment was cleared through cheques and, therefore, statement of Shri Salauddin was not correct. No such attempt was made by assessee. In course of hearing of Third Member case, I had specifically asked learned representative of assessee, as to why above evidence was not produced. learned representative could not give me any satisfactory answer. situation, therefore, is that there is no reason to reject detailed and authentic evidence produced by Shri Salauddin, m o r e particularly when it has gone unrebutted and unchallenged by assessee. In contrary, through his act and conduct, assessee supported statement of Shri Salauddin and agreed to treat cash credits as its income through surrender. Even in letter accompanying surrender, assessee did not state that disputed amount was not assessee s income. Doubts and objections raised by assessee later were required to be put to witnesses through cross-examination of witness at appropriate time. This was not done and every thing went unchallenged and unrebutted. No attempt was made to discharge onus that lay on assessee in terms of s. 271(1)(c) r/w Expln. 1 to section. Therefore, AO, was fully justified in levying penalty on assessee under s. 271(1)(c) in respect of two items. I have already held that no understanding, not to invoke penal provisions against assessee, between AO and assessee, at time of surrender of amount, has been established on record. All conditions of s. 271(1)(c) are fully satisfied in this case. 39. However, there is small error which has to be taken care of in computation of penalty. concealed income or income in respect of which inaccurate particulars were furnished by assessee, in respect of credit in account of M/s S.U. Book Binding House has been taken at Rs. 1,75,750 without considering that even Shri Salauddin, in his statement had admitted that sum of Rs. 27,246 was due from assessee. There is no material nor there is any finding that above amount was not due. Therefore, amount in respect of which penalty is exigible is Rs. 1,48,504 as far as M/s S.U. Book Binding House is concerned (Rs. 1,75,750 - Rs. 27,246). Accordingly, penalty under s. 271(1)(c) is to be computed with reference to Rs. 1,48,504 and Rs. 1,87,318 and not on Rs. 4,50,6 79 . In light of above discussion, I agree with learned JM that penalty under s. 271(1)(c) is exigible but same is to be calculated with reference to sum of Rs. 3,35,822 (Rs. 1,48,504 + Rs. 1,87,318) and not Rs. 4,50,6 79 , as suggested by learned JM in proposed order. No penalty is imposable with reference to Rs. 87,611 shown as payable to M/s G.K. Fine Art Press. There is no justification to delete and cancel entire order. appeal of Revenue, to above extent, is required to be accepted. I answer question referred to me as above. 40. Registry is directed to place file before regular Bench for passing order, as per majority opinion. *** ASSISTANT COMMISSIONER OF INCOME TAX v. J.L. KUMAR