2010 (3) TMI 852 - AT - Income Tax

Levy of penalty under 271(1)(c) - Held - Penalty can be sustained only when the Assessing Officer brings some positive material on record to show that arrangement made by the assessee is not real but sham. So long as there is no material on record brought in by the AO contradicting or negativing the claim of the assessee it cannot be said that the assessee has failed to substantiate its explanation particularly when he has furnished documentary evidences. Against revenue.

Summary

Issues:
- Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for assessment years 1999-2000 and 2000-01.

Analysis:

Assessment Year 1999-2000:
1. The case involved additions to the income of the assessee related to short-term capital loss and a gift received, leading to the levy of penalties under section 271(1)(c).
2. The Assessing Officer proposed additions based on the forfeiture of advance for land purchase and the alleged gift not being genuine.
3. The Commissioner of Income-tax (Appeals) confirmed the penalty on the short-term capital loss but deleted the penalty on the gift.
4. The Tribunal found that the explanation provided by the assessee regarding the capital loss was bona fide and substantiated with documentary evidence.
5. The Tribunal emphasized the necessity for the tax authorities to present positive material proving the transactions were not genuine, which was lacking in this case.
6. As no material was provided to show the transactions were sham, the penalty was canceled for both additions.

Assessment Year 2000-01:
1. The Revenue appealed against the deletion of penalty on a gift received by the assessee, similar to the previous year.
2. The Tribunal noted that rejecting the assessee's explanation was not sufficient to justify the penalty; positive material proving the claim was not genuine was required.
3. The Tribunal upheld the cancellation of penalty by the Commissioner of Income-tax (Appeals) due to the lack of substantial evidence contradicting the genuineness of the gift.
4. The Tribunal dismissed the Revenue's appeal, emphasizing the need for concrete evidence to support the imposition of penalties.

In both assessment years, the Tribunal ruled in favor of the assessee, highlighting the importance of substantial evidence to levy penalties under section 271(1)(c) and emphasizing the need for tax authorities to prove transactions were not genuine rather than solely rejecting the assessee's explanations.