SMT. RACHNA ARORA,NEW DELHI vs. ITO, NEW DELHI

These three appeals by the related assessees are directed against the three separate orders of the learned Commissioner of Income-tax (Appeals) –XXIV, New Delhi all dated 23.04.2014 for the Assessment Year 2001-02 arising from the penalty order passed u/s 271(1)(c) of the Act.

1. That on facts and circumstances of the case the ld CIT(A) has erred in retaining penalty of Rs.1,45,080/- under provisions of section 271(1)(c) of the Income Tax Act.

2. That the ld CIT(A) has erred in ignoring the evidence furnished for proving the genuineness, creditworthiness and identity of the donor.”

3. AO received information from Investigating Wing of Income Tax, Delhi that the assessee has taken accommodation entry in the garb of gift of Rs.3 lac from Sh. Shyam Lal. On the basis of the information received the AO reopened the case of the assessee u/s 147 of the Act and issued notice u/s 148 on 25.03.2008. Since there was no response from the assessee and also no return was filed in response to notice u/s 148. The AO proceeded to frame assessment u/s 144 read with section 147 of the Act vide order dated 22.12.2008 at a total income of the assessee at Rs.5 lac. Apart from treating Rs.3 lac being gift as income of the assessee, the AO also estimated the total income of the assessee at Rs.5 lac. Subsequently, the assessee challenged the action of the AO before learned Commissioner of Income-tax (Appeals), and furnished various details in support of the claim of the gift received from the donor. The learned Commissioner of Income-tax (Appeals) asked the assessee to produce the donor along with bank statement. The assessee expressed her inability to produce the donor, accordingly learned Commissioner of Income- tax (Appeals) confirmed the addition made by the AO on account of gift as well the estimation of the income. In the mean time the AO initiated penalty proceeding u/s 271(1)(c) and levied penalty at Rs.145080/- being 100% of tax sought to be evaded vide order dated 08.03.2013. The assessee challenged the action of the of the AO of levying penalty u/s 271(1)(c) before the learned Commissioner of Income-tax (Appeals) but could not succeed.

4. Before the Tribunal the ld AR of the assessee has submitted that the penalty proceeding are independent of the substantiate proceedings and merely because addition has been made in the assessment proceedings. It will not good ground for imposition of penalty. In support of his contention he has relied on the judgment of the Hon’ble jurisdictional High Court in the case of CIT Vs. J. K. Systhetics Ltd. 219 ITR Page No. 3 267. He has further submitted that the assessee furnished all the documents necessary to prove the genuineness of the gift before learned Commissioner of Income-tax (Appeals) in quantum appeal. Though these documents could not be furnished before the ld AO because the assessment order was passed ex parte. Thus, the ld AR has submitted that when the gift deed executed by the donor, copy of ITR, statement of affairs of the donor, copy of bank account of donor as well as affidavit of the donor confirming the gift were produced before learned Commissioner of Income-tax (Appeals) to prove that the gift received by the assessee is a genuine transaction then even the explanation of the assessee is not accepted by the learned Commissioner of Income-tax (Appeals), the penalty u/s 271(1)(c) cannot be levied when the assessee has explained the claim which is not proved as mala fide. The ld AR has also relied upon the judgment of the Hon’ble Punjab and Haryana High Court in the case of CIT Vs. Balbir Singh, 304 ITR 125/[2007] 164 Taxman 65 (Punj. & Har.) and submitted that the Hon’ble High Court has confirmed the finding of the Tribunal on a matter where penalty was imposed u/s 271(1)(c) in respect of gift received by the assessee from NRI account. The Tribunal found that the requirement of section 271(1)(c) were not satisfied because impugned amount claimed as gift given through banking channel from an identifiable source and therefore it was held that once particulars of the income had been duly declared then it could not be concluded that the assessee has concealed the particulars or had furnished inaccurate particulars of income. Thus the ld AR asserted that in the case of the assessee when the assessee has furnished relevant documents which is an explanation regarding gift, then even though the said explanation of the assessee is not accepted, the penalty cannot be levied as none of the documents produced by the assessee are proved as bogus by the department. He has further contended that as regards the penalty in respect of the addition of Rs.2 lac on estimation basis there is no basis of the AO to treat the same as undisclosed source and therefore brining the same in the category that the assessee has concealed particulars of income or furnished inaccurate particulars of income. On the other hand the ld DR has submitted that when the assessee was asked to produce the donor to prove the genuineness of the transaction then failure of the assessee to produce the donor has proved that the transaction is not a genuine transaction. She has referred to the explanation 1 of section 271(1)(c) of Page No. 4 the Act and submitted that the department is not bound to prove that there is conscious deliberate intention to conceal the income as the onus is on the assessee to furnish explanation regarding deemed income as concealed income being the difference between assessed income and return income. She has also relied upon the decision of the Hon’ble Supreme Court in the case of Union of India & Others v. Dharmendra Textile Processors & Others, (2007) 295 ITR 244 as well in the case of Mak Data (P) Ltd. v. CIT, (2014) 1 SCC 674. Thus the ld DR has supported the order of the authorities below and submitted that when the assessee has failed to discharge its onus to prove the transaction of gift as genuine and the addition made by the AO has attained finality then as per explanation of section 271(1)(c) the penalty in the case of the assessee is justified.

5. I have considered the rival submission as well as relevant material on record while framing assessment order exparte u/s 144 the AO make an addition of Rs.3 lac on account of gift received by the assessee form one Shri Shyam Lal. The AO has further estimated the income of the assessee over an above Rs.3 lac amounting to Rs.2 lac and therefore the total income of the assessee was assessed at total Rs.5 lac. As far as the penalty u/s 271(1)(c) levied in respect of the estimated income of Rs.2 lack the AO has not brought on record any material, any fact or any other circumstances which remotely indicate any undisclosed income to the tune of Rs.2 lac. Even the AO has not whispered anything in the assessment but the only averment made “is estimation income of the assessee at Rs.5 lac”. Though the addition made by the AO has been confirmed by the learned Commissioner of Income-tax (Appeals) and the assessee did not prefer any further appeal however, penalty proceeding u/s 271(1)(c) are independent and separate and an not automatic once the addition is made. Therefore, when the AO itself has not disclosed any material or relevant fact to indicate any income of the assessee then the addition made by the AO on estimation basis cannot lead to any conclusion that the assessee has concealed any income or furnished inaccurate particulars of income. Therefore the penalty u/s 271(1)(c) in respect of the income of Rs.2 lack estimated by the AO, is totally baseless and unwarranted.

6. As regards the penalty levied in respect of the income assessed by the AO on account of gift of Rs.3 lac it is undisputed fact that the assessee produced gift deed executed by the donor, copy of ITR, statement of affairs of donor, copy of bank Page No. 5 account of donor and affidavit of donor confirmed the gift to the assessee. Though the gift deed and affidavit may be doubted by the assessing authority and may further require verification by personal examination of the donor, however, as regards the copy of ITR along with statement of affairs which are already with the department as well the copy of the bank account of the donor are concerned these documents cannot be manipulated or manufactured being after thought. Therefore, once the assessee has produced the primary evidence in support of the claim then even though these documents are not accepted by the authorities below in quantum appeal It will not ifso factor lead to the conclusion that the explanation furnished by the assessee in support of the claim is not bona fide. In the absence of any finding that the evidence produced by the assessee is bogus or forges the explanation of the assessee to identify the persons by giving the PAN, ITR and bank account of the donor is relevant and sufficient enough to at least support the claim of the assessee as bona fide if not proved fully. Thus the case of the assessee falls under Clause B of the explanation 1 of section 271(1)(c) when the assessee has offered an explanation with supporting evidence then this explanation along with documents goes to prove that the necessary facts relating to the transaction of gift and material to compute of his total income have been disclosed by the assessee. The assessee has brought on record that the transaction is through banking channel and the donor has duly disclosed this transaction in his record as well as income tax return filed with the department then even the claim of the assessee remain unsubstantiated and unproved as the authorities below have not accepted the documents filed by the assessee. This explanation and disclosure of the fact cannot be held to be mala fide. In the case of the CIT Vs. Balbir (supra) the Hon’ble Punjab & Haryana High Court while dealing with an identical issue has in para 2 and 3 has held as under:- “2. It is admitted position that the assessee had claimed that a sum of Rs.1,00,000 was received from the NRE Account No. 67, maintained with the State Bank of Patiala, Kurali, by one Harcharan Singh. The: aforementioned claim of the assessee was declined and further proceedings for imposition of penalty under Section 271(1)(c) of the Act were initiated on the ground that the assessee has furnished inaccurate particulars of income or concealed the correct particulars of his income. However, the Tribunal has found as a fact that requirements of Section 271(1)(c) of the Act were not satisfied because the impugned amount claimed to be a gift had come through a banking channel and from an identifiable source, i.e., NRE Account No. 67, Page No. 6 maintained with State Bank of Patiala, Kurali. Therefore, the Tribunal relying upon the judgments of Hon'ble the Supreme Court in the cases of Hindustan Steel Ltd. v. State of Orissa and K.C. Builders and Anr. v. Asstt. CIT and a number of other judgments of various High Courts, came to the conclusion that once the particulars of income have been duly declared, then it cannot be concluded that the assessee has concealed the particulars or has furnished inaccurate particulars of his income. It has also been held that mere observation of the AO without recording any satisfaction concerning concealment of income was not sufficient for initiation of proceedings under Section 271(1)(c) of the Act. On that additional ground also, the Tribunal has found that no case for imposition of penalty under Section 271(l)(c) of the Act is made out.