1989 (1) TMI 358 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act.
2. Validity of the addition of Rs. 2,64,781 u/s 68 of the Income Tax Act.

Summary:

1. Imposition of Penalty u/s 271(1)(c):
The assessee challenged the imposition of penalty u/s 271(1)(c) of the Act. The ITO imposed a penalty of Rs. 1,80,440 on the assessee, concluding that the assessee's case fell within the mischief of clauses (A) and (B) of Explanation 1 to s. 271(1)(c) of the Act. The CIT(A) upheld the ITO's decision, stating that the explanation given by the assessee was not bona fide. The Tribunal, however, found force in the submissions made on behalf of the assessee and concluded that the provisions of clause (B) of Explanation 1 to s. 271(1)(c) were not attracted in this case. The Tribunal noted that the penalty proceedings and assessment proceedings are separate and distinct, and the fact that some addition is made in the assessment does not automatically justify the imposition of penalty. The Tribunal canceled the penalty imposed under s. 271(1)(c) of the Act.

2. Validity of Addition u/s 68:
The assessee received a gift of $30,000 (Rs. 2,64,781) from his sister, which was disclosed in Part III of the return. The ITO was not satisfied with the explanation regarding the nature and source of Rs. 2,64,781 and made an addition u/s 68 of the Act. The CIT(A) deleted the addition, but the Tribunal restored it, holding that the assessee failed to establish the capacity of the donor and the genuineness of the alleged gifts. The High Court directed the Tribunal to refer the question of whether the sum of Rs. 2,64,781 was assessable as income u/s 68 of the Act. The Tribunal noted that the question of addition of Rs. 2,64,781 is still open and that the assessee had disclosed all material facts in his return. The Tribunal concluded that the explanation given by the assessee was bona fide and that the CIT(A) had accepted the explanation in the quantum proceedings. The Tribunal held that even if clause (B) of Explanation 1 to s. 271(1)(c) applied, the assessee's case would still be saved by the proviso to the said clause. The Tribunal allowed the appeal and canceled the penalty imposed under s. 271(1)(c) of the Act.