2012 (8) TMI 385 - AT - Income Tax

Penalty under section 271(l)(c) of the Act Held that - during pendency of penalty proceedings assessee died and, thereupon Assessing Officer without issuing a fresh notice to legal heir of deceased-assessee passed a penalty order, order so passed was not sustainable being violative of principles of natural justice - Action of the Assessing Officer on the ground that assessee has concealed income is contradictory in terms for the simple reason that the Investigation Wing appears to have passed on the information - assessee voluntarily declared return of income of Rs. 1 lakh it is intriguing to note that the revenue could not lay their hands on any evidence, for about two years, to prove that the gift received by the assessee was bogus and presumably because of non-availability of material no action was taken by the Assessing Officer - it is for the Assessing Officer to prove, either by obtaining the statement from the donor or otherwise, that the gift is not genuine. No such effort was made by the Assessing Officer. Assessee having declared a sum of Rs. 1 lakh as his income it is not a case of furnishing inaccurate particulars of income - penalty proceedings are bad in law

Summary

Issues Involved:
1. Validity of the revised return filed by the assessee.
2. Legality of the penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.
3. Requirement of notice to the Legal Heir after the death of the assessee.
4. Merits of the penalty imposed for concealment of income or furnishing inaccurate particulars of income.

Issue-Wise Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee:
The assessee initially filed a return on 23.10.2001, declaring an income of Rs. 1,85,810. A second return was filed on 30.10.2002, declaring an additional income of Rs. 1 lakh as unexplained income, which was initially claimed as a gift. The Revenue did not consider the second return as a valid revised return under section 139(5) of the Act because the original return was not filed within the prescribed time under section 139(1). The Tribunal noted that the revised return could not be treated as valid, but acknowledged that the assessee had voluntarily declared additional income and paid taxes thereon.

2. Legality of the Penalty Proceedings Under Section 271(1)(c):
The penalty proceedings were initiated on the grounds that the assessee had concealed income by not declaring the Rs. 1 lakh gift in the original return. The Tribunal examined whether the additional income declared voluntarily could be considered concealed income. It was noted that the Revenue's claim of a bogus gift racket in Kanpur was not substantiated with specific evidence against the assessee. The Tribunal found that the penalty could not be levied merely based on the voluntary declaration of additional income without any concrete evidence of concealment.

3. Requirement of Notice to the Legal Heir After the Death of the Assessee:
The assessee died on 16.4.2005, after submitting a reply to the penalty notice on 7.4.2005. A fresh penalty notice was issued on 13.9.2005, and the Assessing Officer was informed of the death on 19.9.2005. The penalty was imposed on 30.9.2005 without issuing a notice to the Legal Heir. The Tribunal emphasized that penalty proceedings are quasi-criminal and require proper opportunity for the Legal Heir to be heard. The failure to issue a notice to the Legal Heir was deemed a procedural irregularity, rendering the penalty order invalid.

4. Merits of the Penalty Imposed for Concealment of Income:
The Tribunal scrutinized the merits of the penalty for concealment of income. It was noted that the original return was processed under section 143(1), and the assessment was reopened based on additional income declared by the assessee. The Tribunal found no evidence that the additional income was detected by the Revenue before the assessee's voluntary declaration. The Tribunal concluded that the additional income declared could not be treated as concealed income, and hence, the penalty under section 271(1)(c) was not justified.

Separate Judgments by the Judges:
The Judicial Member and the Accountant Member delivered separate judgments. The Judicial Member held that the penalty was not sustainable due to the lack of evidence and procedural lapses. The Accountant Member, however, upheld the penalty, emphasizing the failure to disclose the gift in the original return and the non-bona fide nature of the explanation provided by the assessee.

Third Member's Decision:
The Third Member concurred with the Judicial Member, emphasizing the procedural irregularities and the lack of evidence for concealment. The Third Member highlighted the need for proper notice to the Legal Heir and the absence of concrete evidence from the Revenue.

Final Order:
Pursuant to the majority view, the penalty under section 271(1)(c) of the Income-tax Act, 1961 was deemed not leviable. The order of the CIT(A) confirming the penalty was set aside, and the penalty was deleted. The appeal of the assessee was allowed.