2014 (12) TMI 1181 - AT - Income Tax

Penalty u/s. 271(1)(c) - unaccounted gifts - Held that - The assessee has claimed to have received gifts. The payments were received through cheques. The Hon ble Supreme Court in the case of CIT Vs P. Mohanakala 2007 (5) TMI 192 - SUPREME Court has held that transfer of monies through banking channels is not sufficient to hold gifts as genuine. It is also an admitted fact that the donors are not at all related to the donees. In all the proceedings, the main plea of the assessee was that the amount was offered as income to avoid litigation and to purchase peace of mind. The assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The Assessing Officer had recorded a categorical finding that he was satisfied that the assessee had concealed the true particulars of income and was liable for penalty proceedings under section 271 read with section 274 of the Act. There was no illegality in the Department initiating penalty proceedings. - Decided against assessee.

Summary

Issues Involved:

1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Treatment of gifts received as income from other sources.
3. Reopening of assessment under Section 148 of the Income Tax Act.
4. Validity of survey under Section 133A of the Income Tax Act.
5. Genuine nature of gifts received.

Issue-wise Detailed Analysis:

1. Levy of penalty under Section 271(1)(c) of the Income Tax Act:

The assessee was aggrieved by the confirmation of the levy of penalty under Section 271(1)(c) by the CIT(A). The AO had levied a penalty of Rs. 15.30 lakhs on the grounds that the gifts amounting to Rs. 50 lakhs were treated as income from other sources, stating that the assessee had furnished inaccurate particulars of income and concealed income. The CIT(A) upheld this penalty, drawing support from the Hon'ble Delhi High Court's decision in CIT Vs MAK Data Ltd., which held that voluntary surrender of income to avoid litigation does not preclude the initiation of penalty proceedings. The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed the assessee's appeal.

2. Treatment of gifts received as income from other sources:

The AO treated the gifts amounting to Rs. 50 lakhs received by the assessee as income from other sources, citing that these were accommodation entries and not genuine gifts. The assessee contended that the gifts were genuine but offered them to tax to avoid litigation. The Tribunal upheld the AO's decision, referencing the Hon'ble Supreme Court's ruling in CIT Vs P. Mohanakala, which stated that mere transfer of money through banking channels does not establish the genuineness of gifts, especially when there is no relationship or natural love and affection between the donor and donee.

3. Reopening of assessment under Section 148 of the Income Tax Act:

The assessee's return was reopened under Section 148 following a survey under Section 133A, which revealed that the assessee had received accommodation entries. The assessee requested that the revised income filed in response to the notice under Section 148 be treated as the return filed. The AO's reopening of the assessment was based on the findings from the survey, which indicated that the assessee had not disclosed the true nature of the income. The Tribunal found the reopening justified and upheld the AO's actions.

4. Validity of survey under Section 133A of the Income Tax Act:

A survey under Section 133A was conducted at the office premises of M/s. Mahasagar Securities Pvt. Ltd., revealing that the Director, Shri Mukesh M. Choksi, was providing accommodation entries. Further surveys at the business premises of the company where the assessee was a Director confirmed that the assessee had received such entries. The Tribunal noted that the survey findings were crucial in uncovering the true nature of the transactions, validating the survey's role in the assessment proceedings.

5. Genuine nature of gifts received:

The assessee claimed to have received gifts from various parties, which were later offered as income from other sources to avoid litigation. The AO and CIT(A) found these gifts to be accommodation entries without any genuine relationship or natural love and affection between the donors and the assessee. The Tribunal upheld this view, referencing the Hon'ble Supreme Court's decision in CIT Vs MAK Data Ltd., which emphasized that voluntary disclosure to avoid litigation does not negate the concealment of income. The Tribunal dismissed the appeals filed by the assessee and the Revenue, confirming the penalties and additions made by the lower authorities.

Conclusion:

The Tribunal, after considering all the facts and evidence, upheld the findings of the lower authorities, confirming the levy of penalties under Section 271(1)(c) and the treatment of gifts as income from other sources. The appeals filed by the assessee and the Revenue were dismissed, affirming the decisions of the AO and CIT(A).