2014 (7) TMI 258 - AT - Income Tax

Penalty u/s 271(1)(c) of the Act to be levied with prior approval Held that - The order passed u/s 271(1)(c) itself shows contradictory facts and no material was brought on record by Revenue to prove otherwise - the AO has not followed the mandatory procedure, prescribed u/s 274(2) of the Act the penalty levied u/s 271(1)(c) of the Act is to be set aside - the case of the assessee is that after being diagnosed with cancer her father gave the money to the assessee, which has to be amicably distributed amongst the family members but upon the death of her father it became difficult for her to gather the material to prove the source of his money; to buy peace of mind and to avoid litigation the amount was offered to tax - the assessee always cooperated with the Department - thus, it cannot be treated as a deliberate act or omission on the part of the assessee so as to levy penalty revenue could not controvert the contents brought out in the affidavit by the legal heirs - Taking an overall picture and particularly on the fact that neither Shri Francis Philip Gonsalves nor Smt. Violet Julius Pereira are alive today, a lenient view of the matter deserves to be taken - she has voluntarily offered to tax to buy peace of mind thus, the explanation of the assessee is bonafide Decided in favour of Assessee.

Summary

Issues:
Penalty under section 271(1)(c) for assessment years 2005-06 and 2006-07.

Analysis:

Issue 1: Legal Representative's Authority
- The deceased assessee's legal representative sought to be brought on record.
- AO and Tribunal allowed the legal heir's representation.
- Appeals were heard with the legal representative on record.

Issue 2: Penalty for A.Y. 2005-06
- Penalty imposed due to unexplained cash deposits in the assessee's account.
- Assessee challenged penalty on technical grounds:
- Jurisdictional issue of assessment location.
- Limitation period for penalty proceedings.
- Lack of prior approval for penalty exceeding prescribed limits.
- Tribunal found the penalty order lacked prior approval as required by law.
- Penalty for A.Y. 2005-06 was quashed based on procedural non-compliance.

Issue 3: Merits of Penalty for A.Y. 2005-06
- Assessee's legal heirs explained cash deposits as inheritance from father.
- Tribunal did not delve into the merit issues due to quashing of penalty.
- Tribunal questioned the validity of technical grounds raised by the assessee.

Issue 4: Penalty for A.Y. 2006-07
- Penalty imposed for unexplained cash deposits not offered for taxation.
- Assessee claimed the cash belonged to deceased father and was for family distribution.
- Tribunal found no evidence of the assessee's capability to earn such income.
- Tribunal considered the voluntary disclosure and offered tax as a genuine act.
- Penalty for A.Y. 2006-07 was canceled based on bonafide explanation.

Conclusion:
- The penalty for A.Y. 2005-06 was quashed due to procedural lapses.
- The penalty for A.Y. 2006-07 was canceled based on the bonafide explanation.
- The appeals filed by the assessee were allowed in both cases.

This detailed analysis covers the legal judgment comprehensively, addressing the procedural and substantive issues involved in the penalty imposition for the respective assessment years.