2013 (4) TMI 806 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty u/s 271(1)(c) of the Income Tax Act.
2. Validity of the explanation and evidence provided by the assessee regarding the source of income.
3. Applicability of Section 68 of the Income Tax Act.

Summary:

Issue 1: Levy of penalty u/s 271(1)(c) of the Income Tax Act

The appeals challenged the levy of penalty u/s 271(1)(c) for A.Y. 2001-02 and A.Y. 2003-04. The Tribunal had earlier dismissed ITA No.195/Agra/2011 in default, but it was restored for hearing on merit. The Tribunal considered the identical issues in both appeals and primarily discussed the case of Sarv Prakash Kapoor.

Issue 2: Validity of the explanation and evidence provided by the assessee regarding the source of income

In ITA No. 107 of 2011, the assessee Sarv Prakash Kapoor had shown a loan of Rs. 9,80,000/- from his minor son, who received a gift of Rs. 10 lakhs from Shri Sanjeev Kumar Dagar. The A.O. held the gift to be bogus and levied a penalty of 300%. The CIT(A) confirmed the addition and penalty, stating that the assessee failed to prove the genuineness and creditworthiness of the donor. The Tribunal, however, found that the assessee provided all necessary documents and the donor confirmed the gift. The Tribunal cited various judgments, including National Textiles vs. Commissioner of Income Tax 249 ITR 125, to support that mere failure to prove the gift's genuineness does not justify penalty if the explanation is bona fide and supported by evidence.

In ITA No. 195/Agra/2011, the assessee Renu Agarwal showed gifts totaling Rs. 4 lakhs from two donors. One donor confirmed the gift at the appellate stage, but the other could not be produced due to injury. The Tribunal noted that the assessee provided all possible evidence, and the appeal on quantum was pending before the High Court. The Tribunal found that the penalty was not justified, especially since the quantum appeal was decided on a question of law regarding the applicability of Section 68 when no books of account were maintained.

Issue 3: Applicability of Section 68 of the Income Tax Act

The Tribunal emphasized that quantum and penalty proceedings are independent. In the case of Renu Agarwal, the Tribunal noted that the quantum appeal was decided based on the applicability of Section 68, as the assessee did not maintain books of account. This further supported the cancellation of the penalty.

Conclusion:

The Tribunal set aside the orders of the authorities below and canceled the penalties in both cases, emphasizing that the explanations provided by the assessees were bona fide and supported by evidence. The appeals of Sarv Prakash Kapoor and Renu Agarwal were allowed.