Penalty proceedings being separate and independent, the assessee can show that finding recorded in the quantum proceedings is not reliable and sufficient to impose penalty.

During the scrutiny
assessment the Assessing Officer found that the assessee had paid a sum of
Rs.4,68,305 to some SJT as transport charges. The Assessing Officer held that
the payment was not a genuine one and disallowed the same. On appeal, the CIT(A)
confirmed the disallowance and so did the Tribunal. The Assessing Officer
initiated the penalty proceedings.

In reply to the show-cause
notice, the assessee contended that he had produced all the evidences, including
copies of account payee cheques, in respect of the impugned payment. He further
contended that the Assessing Officer was not able to appreciate the facts of the
case and merely levied penalty only on the basis that the bills produced were
unsigned. On appeal, the CIT(A) confirmed the levy of penalty.

On further appeal to the
Tribunal, the Members differed. The Accountant Member held that there was no
evidence that the payment was made through account payee cheque. He further
observed that the findings of the ITAT in quantum appeal that the assessee has
not discharged the onus has become final. Further, relying on the decision of
Dharmendra Textiles 306 ITR 227 (SC) and other decisions, he upheld the levy of
penalty.

The Judicial Member on the
other hand, observed that the assessee had furnished all the evidences and
details. The bank statement also confirmed the payment made to SJT. He concluded
that the explanations offered by the assessee was not false.

On matter being referred to
the third Member, the following was observed and held :

It is a settled law that
finding recorded in assessment proceedings is not conclusive, although it is
entitled to great weight. The penalty proceedings being separate and independent
proceedings, the assessee can always show that the finding recorded in the
quantum proceedings is not reliable and sufficient to impose penalty. The
assessee had produced all the evidences along with the bank statements. The
payment was made through account payee cheque. In this background there is no
justification to term the explanation of the assessee as false and levy penalty.