2018 (10) TMI 357 - AT - Income Tax

Income from other sources - sum of money or any property received in contemplation of death of payer or donor - as per assessee since the assessee has received the amount in question as a nominee of Shri Tek Chand Bhardwaj after his death being a childhood friend, the same is not liable to be taxed - Held that - Assessee has based his entire case on the undated nomination letter otherwise required to be executed in prescribed proforma in all probability and apparently appears to be a colouring device to extract the undue benefit in collusion with Milton Keynes Council. Assessee has also not produced any correspondence by way of text messages or letters between him and Shri Tek Chand Bhardwaj to prove his childhood friendship rather based his entire case on alleged nomination letter. CIT (A) has rightly observed that Milton Keynes Council has recorded in the letter issued to the assessee that they being next kin of Shri Tek Chand Bhardwaj have been nominated to receive his movable assets and to prove the fact that the assessee s next kin has not brought on record any evidence if he has close relative by way of blood or marriage of Shri Tek Chand Bhardwaj. Entire exercise as to transfer of the amount in question by Milton Keynes Council to the assessee is based upon bald document which has not been supported with any evidence either by the Milton Keynes Council or by the assessee to prove his close relations with Shri Tek Chand Bhardwaj. So, in the given circumstances, we are of the considered view that AO as well as ld. CIT (A) have rightly treated the amount in question as income of the assessee without consideration. Hence, question framed is determined against the assessee Penalty u/s 271(1)(c) - Held that - additions made against the assessee during quantum proceedings have already been confirmed. It is settled principle of law that the penalty cannot be imposed merely on the ground that additions made in the income of the assessee has been confirmed rather to proceed with imposition of penalty u/s 271(1)(c), the AO has to prove that there was concealment of particulars of income or assessee has furnished inaccurate particulars of such income. Bare perusal of the notice issued to the assessee u/s 271(1)(c) goes to prove that assessee has not been called upon to explain if he has concealed the particulars of income or furnished inaccurate particulars of such income rather a tick has been marked against both the charges mentioned in the printed proforma. Operative part of the penalty order shows that even at the time of levying the penalty, the AO was not categoric enough if the assessee has furnished inaccurate particulars of income or has concealed particulars of income. Even ld. CIT (A) in the impugned order has not preferred to clarify while confirming the penalty order (if the assessee has furnished inaccurate particulars or has concealed particulars of such income) rather upheld the penalty order passed by the AO in mechanical manner. levying/confirming the penalty which is not sustainable in the eyes of law - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the amount of ?1,13,03,320/- received by the assessee was rightly treated as income from other sources.
2. Whether the penalty under section 271(1)(c) of the Income Tax Act, 1961, was correctly levied for furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Treatment of ?1,13,03,320/- as Income from Other Sources:

The assessee received ?1,13,03,320/- from late Shri Tek Chand Bhardwaj, claimed to be a childhood friend. The assessee argued that this amount, received as a nominee after Bhardwaj's death, should not be taxed. The AO treated this amount as income without consideration under section 56(2)(vii)(a) of the Income Tax Act, 1961, and added it to the total income of the assessee.

The Tribunal noted that the nomination letter was undated and ambiguous, raising suspicions about its authenticity. The letter initially mentioned other names and was later altered to include the assessee's name without proper identification details. The Tribunal observed that the assessee failed to provide evidence of any personal relationship or intimacy with Bhardwaj, such as photographs, correspondence, or visits. The Tribunal concluded that the nomination letter appeared to be a colorable device to avoid tax and upheld the AO's decision to treat the amount as income from other sources.

2. Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars:

Following the assessment, penalty proceedings were initiated under section 271(1)(c) for furnishing inaccurate particulars of income. The AO levied a penalty of ?36,60,000/-, which was confirmed by the CIT (A).

The Tribunal examined whether the assessee was correctly informed of the charges against him, whether for concealment of income or furnishing inaccurate particulars. The Tribunal found that the notice issued under section 274 was vague, marking both charges without specifying the exact nature of the offense. The Tribunal referred to the Karnataka High Court's decision in CIT vs. Manjunatha Cotton and Ginning Factory, which emphasized the need for clear and specific charges in penalty notices.

The Tribunal concluded that the penalty proceedings were conducted mechanically, without clearly establishing whether the assessee concealed income or furnished inaccurate particulars. Consequently, the penalty of ?36,60,000/- was deemed unsustainable and ordered to be deleted.

Conclusion:

The appeal regarding the treatment of ?1,13,03,320/- as income from other sources was dismissed, affirming the AO's and CIT (A)'s decisions. However, the appeal against the penalty under section 271(1)(c) was allowed, and the penalty was deleted due to procedural lapses and lack of specific charges in the notice.