2012 (3) TMI 554 - AT - Income Tax

Validity of penalty imposed under section 271(1)(c) - Held that - The assessee has a very close-relation with the donor as that of father and daughter and the natural love and affection could not be doubted by the Revenue in the case of the assessee. In this case, the assessee has filed an explanation which could not be said to be not bonafide. The material facts of the case were disclosed by the assessee at the time of assessment itself. Merely because the assessee could not prove the credit-worthiness of the donor by filing any documentary evidence, it could not be said that the assessee was guilty of concealment of income or filing of inaccurate particulars of income. The facts of the case may justify the addition made in the hands of the assessee, but are not sufficient to justify the imposition of penalty under Section 271(1)(c) of the Act. We are unable to sustain the reasoning of the CIT(A) that the levy of penalty was mandatory and no discretion, is left with the competent authority. In these facts of the case, we hold that it is not a fit case for levy of penalty under Section 271(1)(c) of the Act which is accordingly cancelled and the grounds of the appeal of the assessee are allowed.

Summary

Issues: Validity of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2000-2001 and 2003-2004.

Analysis:
1. Assessment Year 2000-2001:
- The issue in this appeal was the validity of the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 amounting to Rs. 12,000. The assessee claimed to have received a gift from her father out of natural love and affection. The AO rejected the explanation provided by the assessee for not proving the credit-worthiness of the donor. The Tribunal held that the relationship between the donor and the assessee was that of father and daughter, and the natural love and affection could not be doubted. The Tribunal concluded that the assessee's explanation was bona fide, and the penalty was not justified. The penalty under section 271(1)(c) was canceled, and the appeal of the assessee was allowed.

2. Assessment Year 2003-2004:
- The issue in this appeal was the validity of the penalty levied under Section 271(1)(c) amounting to Rs. 95,650. The assessee claimed to have received gifts from close relatives totaling Rs. 3,03,651. The Tribunal noted that the gifts were made by close relatives, indicating natural love and affection. The Tribunal held that the assessee had disclosed all material facts necessary for assessment and that the explanation provided was bona fide. The Tribunal concluded that the penalty was not justified merely because the credit-worthiness of the donors was not proven. Therefore, the penalty under section 271(1)(c) was canceled, and the appeal of the assessee was allowed.

In both cases, the Tribunal emphasized that the imposition of the penalty under section 271(1)(c) was not warranted as the facts did not justify it. The Tribunal highlighted the importance of proving credit-worthiness but also considered the genuine nature of relationships and gifts received. The appeals of the assessee were allowed in both instances, and the penalties were canceled.