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Issues Involved
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act. 2. Genuineness of gifts received by the assessee. 3. Applicability of Explanation 5 to Section 271(1)(c). Issue-wise Detailed Analysis Deletion of Penalty under Section 271(1)(c) The Revenue challenged the deletion of the penalty levied under Section 271(1)(c) by the CIT(A). The primary contention was that the assessee had created evidence to support non-genuine gifts to evade tax. The CIT(A) had deleted the penalty on the grounds that the gifts were disclosed in the returns filed before the search, and the revised returns were filed to buy peace and avoid litigation. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had co-operated with the Department and filed revised returns showing higher income after the search. The Tribunal observed that the penalty could not be levied merely because the source of the gifts was disbelieved, especially when there was no conscious concealment or furnishing of inaccurate particulars. Genuineness of Gifts Received by the Assessee The Revenue argued that the gifts received by the assessee were not genuine and were arranged to evade tax. During the search, it was established that the gifts were fictitious, and the assessee agreed to offer the same for tax. The AO initiated penalty proceedings based on the finding that the gifts were non-genuine and the assessee had attempted to evade tax. The Tribunal noted that the assessee had surrendered the gifts and paid taxes, and the gifts were disclosed in the returns filed before the search. The Tribunal held that the CIT(A) was correct in deleting the penalty, as the gifts were offered to tax to buy peace and avoid litigation. Applicability of Explanation 5 to Section 271(1)(c) The Tribunal examined the applicability of Explanation 5 to Section 271(1)(c) of the Income Tax Act, which provides immunity from penalty if the assessee, in a statement under Section 132(4), admits the undisclosed income and specifies the manner in which it was derived, and pays the tax along with interest. The Tribunal found that the assessee had made a statement under Section 132(4) admitting the non-genuine nature of the gifts and had paid the taxes. The Tribunal held that Explanation 5 was applicable, as the assessee had disclosed the gifts in the returns and had surrendered the income during the search. However, the Tribunal noted that the commission paid for arranging the gifts was not covered by Explanation 5 and confirmed the penalty on the amount surrendered as commission. Conclusion The Tribunal upheld the deletion of the penalty on the gifts received by the assessee, as the gifts were disclosed in the returns, and the revised returns were filed to buy peace and avoid litigation. The Tribunal confirmed the penalty on the amount surrendered as commission for arranging the gifts, as Explanation 5 to Section 271(1)(c) did not provide immunity for such expenditure. The appeals were partly allowed.
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