This is assessee s appeal against order of CIT(A) dt. 14th Sept., 2005. Sole ground raised in appeal is as under: "1. On facts and in circumstances of case as well as law on subject, learned CIT(A) has erred in confirming action of AO in levying penalty of Rs. 11,40,780 under s. 158BFA(2) of IT Act, 1961 without providing reasonable opportunity to assessee." Brief facts are - assessee is partnership firm and running petrol pump at Kadodara. In one of partner s, Shri Ashikali Narsinh ("AN" for short) residence, search and seizure operation under s. 132 were carried out on 29th June, 1999. Search was not carried out in assessee s premises, however, rough cash book was found at residential premises of said AN, therefore, AO took proceedings under s. 158BD by issuing notice on 31st May, 2001. After search, said rough cash book recovered from premises of was compared with regular books of assessee-firm which tallied. However, DDI made post- search inquiry under s. 131(1A) where regular books of accounts maintained by assessee were produced. On page No. 3 of assessment order, AO has given finding that rough cash seized tallied with regular books of accounts. Books seized pertain to period 1st Oct., 1998 to 6th March, 1999 and it is claim of assessee that addition made on account of cash credit pertains to period after this date. Controversy about cash credit can be summarized as - said used to carry cash to his residence at Kadodara from petrol pump for purpose of depositing into bank leaving nominal balance of about Rs. 2,000. Cash was deposited into bank account maintained at Surat. This entry was debited in books through Silak account. Subsequently, it was found that partner has deposited more amounts in bank account than amount shown in said Silak account. When asked, partner contended that he had raised certain loans on various dates, which were deposited on behalf of firm, along with Silak account in bank, this fact was not known to accountant who used to keep books. These entries were corrected in books of accounts, AO raised objections on these overwriting, insertion etc., assessee furnished confirmation from all depositors and explained reasons for making corrections, overwriting, insertion in books of accounts. Claim of assessee is, at any stage of proceedings, AO did not ask assessee to produce depositors, seeing this assessee showed its willingness to produce lenders and AO gave only one day s time. AO made addition, which was carried to Tribunal, where assessee challenged merits of addition and raised legal plea that addition has been made not on basis of seized material; seized material was only rough cash book, which tallied with regular books maintained by assessee and AO has recorded finding to this effect. Addition has been made on basis of books subsequently produced by assessee which contained these corrections, therefore, same does not constitute material found during course of search or connected thereto. Reliance was placed on s. 158BB(1) provisions of which stood at that time as under: "158BB. (1) undisclosed income of block period shall be aggregate computed in accordance with provisions of Chapter IV, on basis of evidence found as result of search or requisition of books of account or documents and such other materials or information as are available with AO, as reduced by aggregate of total income, or as case may be, as increased by aggregate of losses of such previous years, determined " It was contended that since corrected regular books of accounts of assessee were neither part of seized material nor connected thereto, any addition under Chapter XIV-B cannot be made on this amount. Tribunal, however, by order dt. 20th Sept., 2004 in IT(SS)A No. 49/A/2004 confirmed addition. AO initiated penalty proceedings under s. 158BFA(2) and levied penalty mainly relying on facts that there were many overwriting, cash balances changed on all dates, assessee s confirmation letters were merely cyclostyled forms etc. Penalty was confirmed by CIT(A) relying on order of AO. Aggrieved assessee is before us. Learned counsel for assessee reiterated and contends as under: (i) It is abundantly clear that what was seized from premises of during course of search under s. 132 was rough cash book and not other documents, which were tallied with regular books maintained by assessee- firm. AO has accepted this fact, thereafter assessee produced corrected regular books of account before DDI while making inquiries where these corrections and insertions were noted. Material on basis of which, addition has been made in block assessment was not found at time of search, therefore, this addition should not have been made in block assessment at all. (ii) Assessment and penalty proceedings are separate and distinct and merely because addition has been made, same cannot automatically lead to concealment proceedings. (iii) Plea about corrected books of account being not seized material was raised before Tribunal at time of hearing, which is evident from order of Tribunal at page Nos. 3 and 4 by following observations. "In course of appellate proceedings, it is submitted that assessee explained discrepancy in best possible manner. Assessee also explained reasons for making erasing and overwriting in books of account. Assessee filed confirmations of all depositors with their names and addresses. At any stage of proceeding, Revenue has never asked assessee to produce lenders. It is assessee who showed his willingness to produce lenders. However, AO has not given reasonable time for producing lenders. He allowed time of only one day for producing lenders. As assessee and other partners were not searched, no evidence was collected in regard to borrowings. It is natural that accountant cannot have knowledge of each and every transaction of firm. lenders are person of means. amounts were borrowed free of interest owing to assessee s close relation with lenders. Moreover, only sum of Rs. 16,35,000 represents loans and balance sums represent, other things as indicated at para no. 9. amount deposited into bank out of sale proceeds cannot be disbelieved. credits of Rs. 2,50,000 represent rectification entries. In this connection, it is submitted that assessee s practice is to debit account of Kadodara Silak account when cash is transferred to partner s custody for purpose of depositing it in bank at Surat. When this cash is deposited, this Kadodara Silak account is credited and bank account is debited by way of adjustment entry. However, many times, assessee made double entries by debiting Kadodara account and also debiting bank account in cash book and thereby cash has been reduced doubly. To rectify these errors, assessee credited impugned sums of Rs. 80,000 and Rs. 70,000 without any narration. As indicated at paras 3 & 4, no evidence was found in course of search regarding alleged borrowings. bank account in which cash was deposited out of cash balance of assessee was not found. No search action was conducted either in case of assessee or partners except Shri Ashikali. inquiry was made by DDI under s. 131 of Act. materials collected during this inquiry have been used for purpose of making alleged addition. assessment of undisclosed income can be made on basis or evidence found as result of search and such other materials or information as are available with AO and relatable to such evidence. reliance is placed on following decisions: (i) CIT vs. Gom Industries Ltd. (2002) 176 CTR (MP) 527: (2002) 257 ITR 78 (MP) (ii) CIT vs. Shambhulal C. Bachkaniwala (2000) 162 CTR (Guj) 435: (2000) 245 ITR 488 (Guj) (iii) N.R. Paper & Board Ltd. vs. Dy. CIT (1998) 146 CTR (Guj) 612: (1998) 234 ITR 733 (Guj) (iv) Dy. CIT vs. Shaw Wallace & Co. Ltd. (2001) 165 CTR (Cal) 489: (2001) 248 ITR 81 (Cal) (v) Malayil Bankers vs. Asstt. CiT (1999) 152 CTR (Ker) 443: (1999) 236 ITR 869 (Ker) (vi) CIT vs. Ravi Kant Jain (2001) 167 CTR (Del) 566: (2001) 250 ITR 141 (Del)." Though this legal issue was specifically raised before Tribunal in quantum proceedings, Tribunal did not address to this issue and confirmed addition by observations in para 19 and 20. Since Tribunal has not considered this legal issue in quantum proceedings, assessee has right to raise this in penalty proceedings which are separate and distinct. Learned counsel for assessee, thereafter, relied on decision in case of Smt. Mala Dayanidhi vs. Dy. CIT (2005) 92 TTJ (Bang) 270, wherein it is held that penalty under s. 158BFA(2) is not mandatory by following observations: "Search and seizure Block assessment Penalty under s. 158BFA(2) Penalty under s. 158BFA(2) is not mandatory If assessee offers convincing reason or if any reasonable cause is demonstrated for non-inclusion of such income, penalty is not attracted Addition not based on material found during search or material in possession of AO, but based on difference in valuation of property as disclosed by assessee and as estimated by DVO There was no concealment attracting penalty under s. 158BFA(2)" It was contended that this judgment further laid down that additions which are not based on material found during course of search, but based on subsequent investigation, cannot be added by following observations: "6. In view of above principle, let us examine whether there was any reasonable cause or bona fide belief on part of assessee for not disclosing so-called income brought to tax under s. 158BC. In present case, it is seen that income assessed is difference between value as determined by DVO and as disclosed by assessee. There is no finding t h t any material was found during search which suggested additional investment by assessee in acquisition of property leading to computation of undisclosed income. It is merely estimate but not conclusively proved that such investment has been made by assessee. It is not even conclusively proved that same was spent out of undisclosed income of assessee found as result of search. In circumstances, assessee was justified in not disclosing such amount in return of income. Originally, AO determined undisclosed income at Rs. 12.36 lakhs. learned CIT(A) reduced same to Rs. 6.58 lakhs. Both are based on estimates. In such situation assessee is well deserved of making his own disclosure. Thus, no fault can be found with assessee. Even addition is not sustainable in view of decision of Hon ble Supreme Court in Smt. Amiya Bala Paul s case (supra) and decision of Bombay High Court in Vinod Danchand Ghodawat s case (supra) as undisclosed income under Chapter XIV-B. In such situation to levy further penalty is perpetuation of injustice to assessee. We therefore, hold that there is no case for levy of penalty in respect of undisclosed income being difference in valuation of house property. Similarly, addition of Rs. 1,52,655 is not found during course of search or in material in possession of AO. It is only during course of assessment when assessee filed statement of affairs. AO found that amount payable to contractors is not proved and, hence, addition was made. In our opinion, this addition also should not have been made under Chapter XIV-B as undisclosed income as nothing is found as result of search. Penalty under s. 158BFA(2) is accordingly, not attracted for this item of addition also. Non-filing of appeal by assessee before Tribunal cannot be viewed against assessee so as to attract penalty under s. 158BFA(2). No other income is treated as undisclosed. We accordingly, cancel levy of penalty." It was contended that provisions of s. 158BA are akin to penalty proceedings under s. 271(1)(c), and therefore, provisions are analogous to s. 271(1)(c) main clause to which Supreme Court judgment in case of CIT vs. Anwar Ali (1970) 76 ITR 696 (SC), which laid down that burden to prove concealment is on Department. In instant case, assessee has furnished all confirmations to AO with their names and addresses. AO did not make any effort to issue summons to them. Assessee expressed his willingness to produce lenders, AO did not ask for it initially and when asked, gave only one day s time to produce them, which was humanly impossible; assessee having furnished confirmations, names and addresses discharged its part of burden, therefore, penalty cannot be imposed on assessee who has discharged its burden. Regarding discharge of burden, reliance was placed on Supreme Court judgment in case of CIT vs. Orissa Corporation (1986) 52 CTR (SC) 138: (1986) 159 ITR 78 (SC). Assessee furnished explanation about ignorance of accountant, who wrote cash book without knowing that partner at Surat had borrowed some amounts and deposited in bank. If AO had any objections, accountant should have been called and enquired. AO, without examining all these vital aspects, levied penalty without establishing fact of concealment of undisclosed income, addition of which itself is questionable. Further reliance was placed on: (A) CIT vs. Jalaram Oil Mills (2001) 171 CTR (Guj) 426: (2002) 253 ITR 192 (Guj) for following proposition. "Penalty under s. 271(1)(c) Concealment Unexplained cash credits Merely because addition has been made by invoking provisions of s. 68 penalty under s. 271(1)(c) would not follow as natural corollary De hors said provision it cannot be stated with certainty that assessee has failed to return correct income due to any fraud or any gross or wilful neglect on its part Assessee has merely conceded that entries in question may be treated as its income by virtue of provisions of s. 68 Tribunal has recorded finding of fact that there is no instance to show that assessee had been earning business income outside books in past or in year under consideration Penalty could not be sustained" (B) National Textiles vs. CIT (2000) 164 CTR (Guj) 209: (2001) 249 ITR 125 (Guj) for following proposition: "Penalty under s. 271(1)(c) Concealment Unexplained cash credits Provisions of s. 68 are enabling provisions for making additions where assessee fails to give explanation regarding cash credit or where explanation is not to satisfaction of AO Such addition would not automatically justify imposition of penalty under s. 271(1)(c) r/w Expln. 1 thereto In order to justify levy of penalty there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income and circumstances must show that there was conscious concealment or act of furnishing of inaccurate particulars Expln. 1 does not make assessment order conclusive evidence that amount assessed was in fact income of assessee Assessee did not satisfactorily explain cash credits by producing evidence and documents Neither parties who are said to have advanced temporary loans nor accountant who had allegedly arranged loans was produced Though Department was justified in treating cash credits as income of assessee there was nothing to lead to reasonable and positive inference that assessee s explanation was false Circumstances do not justify imposition of penalty even by taking recourse to Expln. 1 to s. 271(1)(c)" (C) Nemichand vs. Asstt. CIT (Inv.) (2005) 93 TTJ (Bang) 564 for proposition that "Search and seizure Penalty under s. 158BFA(2) Scope and leviability Sec. 158BFA(2) does not prescribe nature of offence for levy of penalty Though enabling provision, s. 158BFA(2) is silent about circumstances attracting penalty Being penalty provisions, they have to be strictly construed and being totally ambiguous, have to be construed in favour of assessee Proviso to s. 158BFA(2) enumerates circumstances under which penalty shall not be levied and argument that absence of those circumstances will automatically attract penalty is not acceptable, more so, when main section uses word "may" which gives discretion to AO and such discretion should have been exercised in favour of assessee in view of fact that assessee had filed return only after delay of 15 days and declared most of income, accepted additions and did not file appeal against assessment Under s. 158BFA(2), AO may demand 240 per cent of undisclosed income by way of tax plus penalty (60 per cent + 180 per cent) which is obnoxious Finance Bill, 1995 and CBDT Circular No. 717, dt. 14th Aug., 1995, also do not throw any light on nature of offence on which penalty is imposable under s. 158BFA(2) Provisions read down" (D) Morarjee Goculdas Spg. & Wvg. Co. Ltd. vs. Dy. CIT (2005) 98 TTJ (Mum)(TM) 201: (2005) 95 ITD 1 (Mum)(TM) for proposition that "Search and seizure Block assessment Computation of undisclosed income Documents in respect of certain lease agreements found during search AO taking transactions to be paper transactions and adding back 100 per cent depreciation allowance Not justified Entries regarding income from lease agreements were already found recorded in books of assessee and interest and depreciation was claimed No contrary evidence collected by Revenue during course of search Matter beyond ambit of Chapter XIV-B and assessment under s. 158BC invalid If any material is collected by Revenue after search, that may not give authority to Department to make computation of undisclosed income under s. 158BB or assessment under s. 158BC Further, lease rent received by assessee on disputed transactions has been duly offered and assessed in asst. yrs. 1995-96 to 2002- 0 3 and Revenue cannot be allowed to retain assessment of rental income and disallow depreciation on same leased assets" Learned Departmental Representative, on other hand, relied on CIT vs. Elegant Homes (P) Ltd. (2002) 177 CTR (Raj) 261: (2003) 259 ITR 232 (Raj) for purpose of block assessment under Chapter XIV-B and other provisions are applicable and material collected during course of inquiry of undisclosed income and additions made on basis of post-search inquiry can be subject to penalty also. We have heard rival submissions and perused material available on record. We shall take up merits of case first. It emerges from record that rough cash book found at residential premises of said was tallied with regular books of account maintained by assessee-firm at time of search. Subsequently, assessee produced its regular books of account before DDI in which some insertions, corrections were there, apropos which, explanation of partner is that petrol pump was at village and cash was carried to Surat which was deposited in bank by partners together with loans. Accountant was not aware of these loans and wrote books accordingly. When assessee came to know about these discrepancies, necessary entries were corrected in cash book in place of writing new sets of books. One of reasons may be, perhaps, that regular books of accounts were subject-matter of search proceedings. Assessee filed, confirmations of all depositors, which contained names and addresses, in consideration of all these material, assessee furnished explanation in respect to corrections, insertions and cash credits. Assessee volunteered to produce creditors but only one day s time was given. Be that as it may, additions are now confirmed and we are concerned with imposition of penalty under s. 158BFA(2). Assessee relied on Tribunal judgment in case of Nemichand vs. Asstt. CIT (Inv.) (supra) and Smt. Mala Dayanidhi vs. Dy. CIT (supra). Tribunal has taken view that s. 158BFA is not mandatory but (supra). Tribunal has taken view that s. 158BFA is not mandatory but discretionary and assessee s explanation has to be considered. We find merit in contentions of learned counsel that this penalty proceeding is akin to s. 271(1)(c) proceedings, main clause and in sum and substance Department has to prove factum of concealment. Quantum and penalty proceedings are distinct and separate and while deciding issue of penalty, facts can be reconsidered. In given facts and circumstances, assessee s explanation to confirmations, etc. have been rejected on assumptions drawing adverse inference based on probabilities, i.e., existence of insertions and corrections and probability of accountant knowing fact of cash credits. Since we hold that it was burden of Department, AO should have separately investigated matter in penalty proceedings by calling these parties and accountant to discharge burden. In given facts and circumstances, assessee has discharged its burden of giving explanations as well as supporting same by filing confirmations. Our views are supported by Hon ble Supreme Court judgment in case of Orissa Corporation (supra). Department would have discharged its burden by proving that assessee s explanation was false based on only finding of facts and not on assumptions. Our views are further fortified by decision of Hon ble Supreme Court in case of CIT vs. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509: (1999) 237 ITR 570 (SC) wherein it has been held that word "may" in s. 69 cannot be interpreted to be "shall". same word appears in same context in s. 68 dealing with cash credit, which is applicable to assessee s case. In view thereof, we delete penalty. Since we have deleted penalty on merits, we need not address to technical issue about applicability of provisions of s. 158BA(1). In result, appeal of assessee is allowed. *** GANDHI SERVICE STATION v. ASSISTANT COMMISSIONER OF INCOME TAX