2012 (9) TMI 733 - AT - Income Tax

Penalty u/s. 271(1)(c)- unaccounted money - A.Y. 2002-03 - Held that - As initially addition of Rs.4,61,500/- was made u/s. 68 which has been finally made of Rs.1,27,500/ - as the addition on which the penalty u/s. 271(1)(c) has been levied has itself been reduced from Rs.4,61,500/- to Rs.1,27,500/- the present penalty cannot survive. However, since the addition of Rs.1,27,500/- u/s. 68 has been sustained issue of penalty on the addition be restored back to the file of A.O. for deciding it afresh - in favour of assessee for statistical purposes. Penalty u/s. 271(1) (c ) - gift as unexplained cash credit u/s.68 - A.Y. 2003-04 - Held that - Merely because the assessee could not prove the credit-worthiness of the donors, it does not justify the imposition of the penalty under section 271(1) (c). The facts of the case may justify the additions of the gift amounts for taxation purpose in the assessment of the assessee, but are not sufficient to justify the imposition of the penalty under section 271(1) (c) - in favour of assessee.

Issues Involved:
1. Penalty for unexplained cash credits under Section 68 of the Income Tax Act.
2. Reassessment proceedings under Section 147 of the Income Tax Act.
3. Levy of penalty under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Penalty for Unexplained Cash Credits under Section 68:

The assessee received gifts aggregating to Rs. 4,61,500/- during the assessment year 2002-03. The Assessing Officer (A.O.) reopened the assessment to verify the genuineness of these gifts. The assessee failed to produce the donors for verification, leading the A.O. to treat the gifts as unexplained cash credits under Section 68 of the Income Tax Act and added the amount to the taxable income. The penalty proceedings were initiated, and the A.O. concluded that the assessee furnished inaccurate particulars regarding the taxable income. The penalty of Rs. 1,41,219/- was levied under Section 271(1)(c) of the Act. The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the A.O.'s decision, confirming that the assessee concealed income and furnished inaccurate particulars.

2. Reassessment Proceedings under Section 147:

The Hon'ble ITAT restored the matter back to the A.O. with directions to furnish the reasons recorded before issuing notice under Section 148, dispose of any objections from the assessee, and re-adjudicate the addition of Rs. 4,61,500/- afresh. Pursuant to these directions, the A.O. reassessed the case and modified the addition to Rs. 1,27,500/- after verifying the details of the gifts. The gifts from Shri Ashvin L. Savani and Smt. Varsha D. Dhameliya, amounting to Rs. 1,27,500/-, were found to be non-genuine as they were not blood relatives but friends.

3. Levy of Penalty under Section 271(1)(c):

For the assessment year 2003-04, the assessee received a sum of Rs. 1,90,000/- as a gift, which was treated as unexplained cash credit under Section 68. The penalty of Rs. 59,913/- was levied under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT (A) confirmed the penalty. However, the ITAT, in similar cases involving the assessee's mother and father, deleted the penalty, holding that the disclosure of material facts necessary for assessment does not justify the imposition of penalty merely because the assessee could not prove the creditworthiness of the donors.

Judgment Summary:

For the assessment year 2002-03, the ITAT noted that the initial addition of Rs. 4,61,500/- was reduced to Rs. 1,27,500/-. Consequently, the penalty levied on the original addition does not survive. The ITAT remitted the matter back to the A.O. to decide the levy of penalty afresh as per law, considering the revised addition.

For the assessment year 2003-04, the ITAT found that the assessee disclosed all material facts necessary for assessment, and the failure to prove the creditworthiness of the donors does not justify the imposition of penalty. The ITAT canceled the penalty of Rs. 59,913/-, following the precedent set in similar cases.

Conclusion:

The appeal for the assessment year 2002-03 was allowed for statistical purposes, remitting the penalty issue back to the A.O. for fresh consideration. The appeal for the assessment year 2003-04 was allowed, and the penalty was canceled.

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