2015 (4) TMI 757 - AT - Income Tax

Addition on account of unexplained credit u/s 68 - Concealment penalty u/s 271(1)(c) of the Income Tax Act, 1961 - Non substantiation explanation submitted during the assessment proceedings - School fees paid by close relatives i.e. Mother-In-Law - Held that - We have heard both the parties and their contentions have carefully been considered. It is a case where the assessee had submitted the explanation during the assessment proceeding itself and the source of payment of school fee was mentioned to be payments made by mother-in-law of the assessee. Thus, the persons who has paid the money is closely related to the family of the assessee. The AO has confirmed this addition for the reason that assessee failed to prove the genuineness of the source of payment. However, it is not the case of AO that the contention of the assessee that the source of payment was mother-in-law is not correct. The Tribunal also upheld the addition by relying upon assessment year 2005-06 and the addition has been confirmed for the reason that source and genuineness of the transaction was not accepted in A.Y 2005-06. It is also observed that assessee did not file corroborating evidence. Considering these facts and circumstances of the case, though the non-substantiation of explanation during the course of assessment proceedings may be a good ground for making the addition but while levying the penalty, there should be some material on record to suggest that the source which was explained by the assessee was not true or correct. It is not a case where any their person not related to the assessee has paid the school fee of the children, but a very close relation has paid the said amount. Therefore, we are of the opinion that it is not a very fit case for levy of concealment penalty. Moreover, as per decision of Hon ble Bombay High Court in the case of Nayan Builders & Developers 2011 (3) TMI 46 - ITAT MUMBAI when a question of law has been admitted on the impugned addition, then no case is made out for imposition of penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the concealment penalty under Section 271(1)(c) related to school fees paid.
2. Justification of the addition of school fees as unexplained cash credit under Section 68.
3. Impact of the Bombay High Court's admission of substantial questions of law on the penalty's validity.

Detailed Analysis:

1. Legitimacy of the Concealment Penalty under Section 271(1)(c):

The Commissioner of Income Tax (Appeals)-3 [CIT(A)] upheld the Income Tax Officer's (ITO) decision to levy a concealment penalty under Section 271(1)(c) for the school fees of Rs. 16,44,426/- paid. The CIT(A) concluded that the appellant failed to explain the identity and source of the payment. The appellant argued that all relevant material facts were disclosed, and the explanation provided was not accepted by the ITO, which should not lead to an addition as unexplained credit under Section 68. The Tribunal noted that the CIT(A) had provided substantial relief to the assessee, and no appeal was filed by the Revenue against the CIT(A)'s order.

2. Justification of the Addition of School Fees as Unexplained Cash Credit under Section 68:

The penalty was levied on two additions totaling Rs. 1,37,26,052/-, with Rs. 16,44,426/- related to school fees and Rs. 1,20,81,606/- as an advance from producers. The Tribunal confirmed the addition of the school fees in quantum proceedings, stating that the assessee claimed the fees were paid by his mother-in-law, but failed to provide satisfactory evidence of the source and genuineness of the payment. The Tribunal upheld the addition due to the lack of corroborative evidence, such as bank statements proving the remittance from the mother-in-law.

3. Impact of the Bombay High Court's Admission of Substantial Questions of Law on the Penalty's Validity:

The Tribunal acknowledged that the Bombay High Court admitted substantial questions of law regarding the rejection of the appellant's accounting method and whether the discharge of a moral obligation directed by the mother-in-law could be taxed under Section 68. The Tribunal referenced the decision in Nayan Builders and Developers Pvt. Ltd. vs. ITO, where the admission of a substantial question of law by the High Court rendered the issue debatable, thus negating the justification for a concealment penalty. The Tribunal emphasized that the penalty should not be imposed when the addition is debatable and supported by substantial questions of law.

Conclusion:

The Tribunal concluded that the assessee provided an explanation during the assessment proceedings, indicating the school fees were paid by his mother-in-law. Despite the lack of corroborative evidence, the Tribunal found no material suggesting the explanation was untrue. Given the close relationship between the payer and the assessee, the Tribunal deemed it inappropriate to levy a concealment penalty. Additionally, the Tribunal cited the Bombay High Court's decision in Nayan Builders & Developers, reinforcing that the admission of substantial questions of law by the High Court negated the justification for the penalty. Consequently, the Tribunal deleted the penalty and allowed the assessee's appeal.