cross-appeals filed by assessee and Department arise out of order of learned CIT(A)-II, Lucknow dt. 5th Jan., 2001 for asst. yr. 1995- 96. effective ground of assessee s appeal is that learned CIT(A) has erred in law and on facts in sustaining levy of penalty under s. 271(1)(c) of Act in relation to following additions: (a) Rs. 1,500 on account of deposit in bank account on ground that neither at assessment stage nor before CIT(A) any explanation whatsoever was furnished about source. (b) Rs. 2,00,000 on account of deposit in bank account (as had been added to income of appellant on ground that source of deposit remained unexplained. assessee filed his return of income declaring total income of Rs. 1,71,530 which was revised and net loss of Rs. 2,22,960 was claimed. assessment was completed under s. 143(3) on total income of Rs. 2,75,120. assessee had preferred appeal before learned CIT(A) which was partly allowed against which assessee had preferred second appeal before Tribunal which was also rejected inter alia, apropos addition of Rs. 2 lakhs. AO initiated penalty proceedings and inter alia, levied penalty on account of following additions: (a) Rs. 2,57,160 on account of disallowance of interest on borrowings invested in firm wherein assessee has been partner. (b) Rs. 30,000 on account of alleged low withdrawals for household expenses. (c) Rs. 1,500 on account of deposit in bank account source of which has been held to have remained unexplained. (d) Rs. 2,00,000 on account of deposit in bank account source of which has been held to have remained unexplained. In regard to addition of Rs. 1,500, AO observed that assessee did n o t file any explanation regarding source of deposit and therefore, addition had been confirmed. He, accordingly, levied penalty with respect of deposit of Rs. 1,500. In regard to deposit of Rs. 2 lakhs on 24th May, 1994 in t h e bank account of assessee, AO observed in penalty order that assessee had not given any details regarding source of this deposit. AO levied penalty with respect of sum of Rs. 2 lakhs also observing that assessee did not explain source of this deposit either during assessment proceedings or before learned CIT(A). AO had levied penalty apropos other two additions also viz. Rs. 2,57,160 and Rs. 30,000 also. learned CIT(A) confirmed penalty in respect of deposits in bank account of Rs. 1,500 and Rs. 2 lakhs respectively and deleted penalty with respect to disallowance of Rs. 2,57,160 on account of disallowance of interest on borrowings invested in firm and Rs. 30,000 on account of alleged low withdrawals for household expenses. Being aggrieved with order of learned CIT(A), both assessee and Department are in appeal before us. First, we will take up appeal of assessee. In regard to addition of Rs. 1,500 learned CIT(A) observed that no explanation was furnished about source and therefore, penalty was justified. In regard to deposit of Rs. 2 lakhs in bank account on 24th May, 1994, he observed that no explanation whatever was offered about this credit and therefore, addition was made. He noted that learned CIT(A) in para 15 of order had observed that during hearing of appeal, Authorized Representative was not in position to give any details in support of credit of Rs. 2 lakhs. Before learned CIT(A), in penalty proceedings, assessee had requested for admission of following additional evidences: (1) Letter dt. 27th Jan., 1994 from M/s Advance Pipes (P) Ltd. to assessee appointing it as agent for obtaining orders from State Government for which he was to get commission of 2 per cent. (2) Letter dt. 18th Dec., 1998 from assessee to M/s Advance Pipes (P) Ltd. (3) Letter dt. 15th Jan., 1999 from Advance Pipes (P) Ltd. to assessee. learned CIT(A), while considering these additional evidences required t h e assessee to produce details of orders procured from State Government which assessee was unable to produce. He further noted contents of letter dt. 18th Dec., 1998 and observed that it was evident from same that assessee was in constant touch with Advance Pipes (P) Ltd. from time to time about commission which meant that he was also in position to explain nature of entry dt. 7th Oct., 1998 when quantum appeal was heard. learned CIT(A), accordingly, observed that if these evidences were bona fide, nothing prevented assessee to produce them before learned CIT(A). learned CIT(A) further noticed that assessee was in habit of not disclosing similar amounts in other years. He noted that in asst. yr. 1996-97 when AO asked him to explain source of similar credit of Rs. 1,42,250 it was stated that amount represented commission from M/s Anand Motors, but had not been disclosed as income pending dispute. This amount was added because no evidence was furnished in respect of claim. Considering all these aspects, learned CIT(A) did not admit additional evidence. On merits, learned CIT(A) observed that when assessee do not have any explanation at all how could one accept his plea that he had rebutted presumption within meaning of Expln. 1 to s. 271(1)(c) of Act. He, accordingly, confirmed order of AO imposing penalty. learned counsel for assessee submitted that quantum was confirmed since no explanation was filed before AO and learned CIT(A). In this regard, he referred to order of Tribunal dt. 12th Dec., 2005 in assessee s own case in ITA No. 506/Luck/2002, 1317/All/98, 71/Luck/2001 and 34/Luck/2002 for asst. yrs. 1994-95 to 1997-98 contained at pp. 46 to 62 of paper book and referred to para 33 of order to show that details could not be furnished due to misplacement of some records before first appellate authority. learned counsel further referred to p. 20 of paper book and pointed out that assessee had offered this amount in asst. yr. 1999-2000 in year in which dispute had been settled. In regard to sum of Rs. 15,000, it was submitted that since there was some dispute, amount was not offered for taxation and was offered in asst. yr. 1999-2000 when dispute got settled. copy of letter dt. 15th Jan., 1999 from Advance Pipes (P) Ltd. stating above fact was filed before Tribunal. It was also pleaded that matter could be restored back to AO for re-examination. Tribunal after examining all facts, observed as under: "35. We have carefully considered submissions of learned Representatives of parties and have perused orders of authorities below. We have also perused p. 6 of paper book, which copy of letter dt. 15th Jan., 1999, that there was settlement of commission payable by Advance Pipes (P) Ltd. to assessee. It is fact that assessee received said amount of Rs. 2 lakhs by way of demand draft dt. 20th April, 1994, and amount was also credited in assessee s account on 24th May, 1994. assessee has not furnished any details as to nature of dispute, if any, n d as to why said amount was not shown by assessee in its computation of income when assessee had received amount of Rs. 2 lakhs in financial year relevant to assessment year under consideration. We agree with learned Departmental Representative that merely that amount was offered for taxation in subsequent assessment year, as contended by learned Authorized Representative of assessee does not shift income from assessment year in which it has accrued to subsequent assessment year. Since income of Rs. 2 lakhs had accrued to assessee for asst. yr. 1995-96, we agree with order of CIT(A) in confirming addition of Rs. 2 lakhs as added by AO. Hence, ground No. 5 of appeal taken by assessee is rejected." Thus, addition has been confirmed in hands of assessee on account of non-furnishing of explanation before AO as well as before learned CIT(A) and rejection of these documents by Tribunal as noted above. In penalty proceedings before learned CIT(A), assessee had submitted that additional evidences noted above were not admitted. main point for consideration is whether these evidences are bona fide or not. first evidence is in form of letter dt. 27th Jan., 1994 from M/s Advance Pipes (P) Ltd. to assessee appointing him as agent for obtaining orders from State Government for which assessee was to get commission of 2 per cent Thereafter other evidence is in form of letter dt. 18th Dec., 1998 i.e. after gap of about 4 years, from assessee to M/s Advance Pipes (P) Ltd. which states as under: "As discussed with you from time to time, I again request you to kindly arrange payment of balance amount of commission of Rs. 78,200 due against orders procured by me during year 1994-95. Regarding payment of balance outstanding from these Department, I again clarify that payment is outstanding due to rejection of part of material supplied by you for which I cannot be held responsible." third evidence is in form of letter dt. 15th Jan., 1999 from M/s Advance Pipes (P) Ltd. to assessee stating that no further amount in excess of Rs. 2 lakhs already paid on 20th May, 1994 was admissible to assessee. Thus, in effect, even after alleged correspondences, assessee remained entitled for Rs. 2,00,000 only. assessee was not able to produce any details of orders procured from State Government before learned CIT(A). If these evidences were available with assessee then there was no reason not to produce them before AO and before learned CIT(A). If this was actual state of affair then at least before AO at first instance assessee should have pleaded about alleged ongoing dispute. All these factors considered together clearly put question mark on reliability of these evidences. assessee had been provided with sufficient opportunities by both authorities in quantum proceedings to explain amount. Tribunal, as noted above, h s not accepted genuineness of these evidences in quantum proceedings. Merely because explanation has been furnished does not absolve assessee from rigors of penalty unless explanation is found to be bona fide and acceptable in law. In present case, evidences sought to be produced by assessee are not acceptable because it goes against preponderance of probabilities that such evidences were available with assessee since its inception, particularly when it was not produced before lower Revenue authorities and not iota of word regarding this agreement was mentioned before lower Revenue authorities. We, therefore, confirm order of learned CIT(A) in confirming penalty. order of learned CIT(A) in confirming penalty. In result, appeal filed by assessee is dismissed. In Department s appeal, first effective ground of appeal is that learned CIT(A) erred in law and on facts in holding that disallowance on borrowings amounting to Rs. 2,57,160 should not invite penalty under s. 271(1)(c) of Act. Brief facts apropos this issue are that in computation of income, assessee had shown share from partnership firm, viz., Sahu Agencies and Sahu Hotel and Restaurant which were claimed as exempt under s. 10(2A) of Act. Apart from this, no income was shown under head Income from business or profession . assessee had claimed deduction of Rs. 2,57,160 towards interest on loan taken from M/s Sahu Investment & Mutual Benefit Co. Ltd. AO rejected assessee s claim for deduction of this sum because assessee had no business income apart from share from these two firms which was exempt under provisions of s. 10(2A) of Act. This disallowance was confirmed by learned CIT(A) as well as by Tribunal taking note of fact that borrowed funds were utilized in partnership firm towards his share and share of profit from said partnership firm was exempt under s. 10(2A) of Act and therefore, no deduction towards interest on said borrowed funds could be allowed as per provisions of s. 14A of Act. AO levied penalty apropos this sum on ground that assessee had advanced wrong claim of Rs. 2,57,160. learned CIT(A) cancelled penalty, inter alia, observing that even if it was presumed that assessee s claim of interest was legally incorrect, charge of concealment could not be attributed to him as it can be said that assessee s view was based on ignorance of intricate provisions of law. learned CIT(A) relied on decision in case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors. (1979) 118 ITR 326 (SC) wherein it has, inter alia, been held that there is no presumption that every person knows law. learned Departmental Representative relied on order of AO n d submitted that assessee had no business income and therefore, deduction had wrongly been claimed against exempted income. We have considered rival submissions and have perused record of case. Admittedly, borrowings had been invested in capital of firm and share from firm was exempt under s. 10(2A) of Act. Therefore, in view of provisions of s. 14A, no deduction was allowable for earning income which was exempt under provisions of Act. Accordingly, disallowance could not be disputed. Now, in penalty proceedings, we have to examine whether assessee furnished inaccurate particulars of its income or claim of assessee was bona fide and under misconception of law. There is no dispute that if borrowings are made for business purposes, deduction is allowable under s. 36(1)(iii) of Act. In case of partnership firm, though share from firm is exempt under s. 10(2A) but salary, interest etc. earned by partner from firm is taxable as business income. These amounts are taxable as business income on account of his being partner in firm. In present case, there was no salary or interest income earned by partner and only amount which was received by assessee was in form of share from firm. assessment of firm has undergone substantial change and earlier position of law was that share of each partner in income of registered firm was to be included in his total income and assessed to tax accordingly under provisions of s. 182. Under circumstances, assessee s claim could not be said to be mala fide claim, but only because of change in position of law. claim was made under bona fide belief that since borrowings were for business purposes for being invested in firm claim was advanced. Under such circumstances, it cannot be held that assessee deliberately furnished inaccurate particulars of his income. As far as assessment part is concerned, disallowance was fully justified but when it comes to imposition of penalty, it has to be examined whether this whole exercise was deliberate act on part of assessee or was on account of bona fide belief that particular deduction was allowable. Under such circumstances, assessee cannot be saddled with penalty. We, therefore, confirm order of learned CIT(A) on this issue. As far as penalty with respect to Rs. 30,000 is concerned, said addition had been made on account of low household withdrawals. assessee had disclosed household withdrawals at Rs. 3,500 whereas AO had estimated household expenses at Rs. 6,000. This addition was confirmed by learned CIT(A). In penalty proceedings, learned CIT(A) observed that assessee s explanation that he was living with his brother Shri Vijay Kumar Sahu has been rejected because assessee did not furnish details of withdrawals of Shri Vijay Kumar Sahu. He observed that neither assessment order nor penalty order throw any light as to how big is family, whether its children studying and what were factors on which AO inferred that assessee was having high status. He, accordingly, deleted penalty. learned Departmental Representative relied on order of AO and relied on various case laws including decision of Hon ble Allahabad High Court in case of Sushil Kumar Sharad Kumar vs. CIT (1998) 146 CTR (All) 288: (1998) 232 ITR 588 (All), to submit that even in case of estimated additions penalty can be levied. He also referred to decision of Punjab & Haryana High Court in case of Vidya Sagar Oswal vs. CIT (1977) 1977 CTR (P&H) 8: (1977) 108 ITR 861 (P&H), wherein it was held that where amount drawn for household expenses was too meagre and additional amount was added to total income, it was case of concealment of particulars of income and deliberately furnishing inaccurate particulars of income and therefore, penalty is leviable. We have considered rival submissions and have perused record of t h e case. In deciding whether penalty can be imposed in given case, entirety of circumstances must be taken into account. Hon ble Allahabad High Court in case of Sushil Kumar Sharad Kumar (supra) relied upon by learned Departmental Representative, observed that there may be cases where additions may be made purely on estimate without reference to any evidence/materials being on record. It was further held that in such case, it could be argued with some force that penalty cannot be levied on figures which are merely based on guess work or estimate. But in case where after detailed investigation assessee was confronted with evidence and materials and he failed to dislodge factual position on basis of which additions were made, case stands on different footing. Hon ble Court held that IT authorities must be satisfied on examination of cumulative effect or authorities must be satisfied on examination of cumulative effect or entirety of circumstances that only reasonable inference from such factors or material that could be drawn was that disputed amount added as result of estimate, represented income and that assessee had concealed particulars of income or had furnished inaccurate particulars thereof. In backdrop of these principles laid down, if we examine present case, we find that AO made this addition purely on basis of general statement made by him that addition was made on account of high status of assessee. He did not accept assessee s submission that he was living with his brother Shri Vijay Kumar Sahu and household expenditure was jointly met. assessee s explanation was not accepted because assessee did not tell as to how much expenditure was made by Shri Vijay Kumar Sahu and other family members. This addition was purely on basis of general impression about assessee s family without pointing out any specific item of expenditure which was not met out of household expenses declared by assessee. As far as assessment proceedings are concerned, these additions may be justified to some extent but when it comes to penalty proceedings, it has to be examined whether assessee had deliberately furnished inaccurate particulars of income or not or has concealed particulars of income. It is not case where assessee had ridiculously shown low household expenses as was case obtaining before Punjab & Haryana High Court in case of Vijay Sagar Oswal (supra). Therefore, merely because assessee s explanation was not accepted it cannot be held that explanation was false. Under such circumstances, penalty cannot be sustained. We accordingly confirm order of learned CIT(A) on this issue. In result, appeal filed by Department is dismissed. *** Neeraj Kumar Sahu v. Deputy Commissioner of Income-tax, Central Circle-III