2019 (7) TMI 1118 - HC - Income Tax

Penalty u/s 271(1)(c) - whether additions made to the income of the assessee can be set aside on the mere premise that with respect to the major addition the mother of the assessee had filed a return of income conceding a capital gain on a property, the sale of which resulted in the deposit of ₹ 60 lakhs in the bank account of the assessee? - HELD THAT - The assessment year is 2006-07. The sale of the property was in the previous year of the assessment year. The return of income filed by the mother was on 27.08.2013. Though the return was filed, there was nothing done by the Department on the same especially since six years had elapsed by the time the return was filed. If at all, the Department could take up proceedings, for the assessment year 2006-07, it could have been only prior to 31.03.2013. The return was filed by the mother, on 27.08.2013. In such circumstance, it cannot be said that the income that was added on to the assessee had already suffered capital gains tax at the hands of the mother. The fact remains that the amounts were credited to the account of the assessee and it remained as undisclosed income insofar as the assessee having returned only ₹ 1,17,830/- in the subject assessment year. Assessee would in fact point out an order issued under Section 271(1)(c) of the Income Tax Act, 1961 wherein the Income Tax Officer had found that since there was an explanation offered for the source of ₹ 60,00,000/-, the assessee could be absolved from penalty to that extent. It is, hence, the submission of the assessee that the explanation could be taken note of for the purpose of assessment also. It is to be noticed that the mother, who was the owner of the property who sold the property, did not return the income from the sale of the property. The amounts also were credited to the accounts of the assessee, who also did not disclose the income before the Assessing Officer. In such circumstances, there cannot be said to be a double taxation on the very same income. The mother obviously did not file any return within time for the assessment year 2006-07. The return filed on 27.08.2013 could not also be processed by the Department for reason of expiry of six years. In such circumstances, the assessee having admitted to the credit of the amounts, it has to be taken as income earned in the said year and assessed accordingly. We set aside the order of the Tribunal to that extent and restore that of the first appellate authority, answering the question of law in favour of the Revenue and against the assessee.

Summary

Issues:
1. Whether additions made to the income of the assessee can be set aside based on the mother of the assessee filing a return conceding capital gains?
2. Whether the income added to the assessee had already suffered capital gains tax at the hands of the mother?
3. Whether the explanation offered for the source of income by the assessee can absolve them from penalty and be considered for assessment purposes?

Analysis:
1. The Tribunal set aside the addition of ?60 lakhs to the assessee's income based on the mother filing a return conceding capital gains from the sale of a property. However, it was found that the property was sold for ?74,00,000 but only ?14,00,000 was shown in the conveyance document. The assessee's account received ?60,00,000 from the sale, which was not disclosed as income. The Tribunal's decision was solely based on the mother's return, which was filed after six years from the assessment year, making it unclear if the income was already taxed. The Tribunal's decision was set aside, and the first appellate authority's order was restored in favor of the Revenue. The assessee was found to have undisclosed income and the appeal was allowed.

2. The Income Tax Officer had previously issued an order under Section 271(1)(c) of the Income Tax Act, 1961, acknowledging the explanation provided by the assessee for the source of ?60,00,000. The assessee argued that this explanation should also be considered for assessment purposes. It was noted that the mother, who sold the property, did not disclose the income, and the amounts were credited to the assessee's account without disclosure. As the mother did not file a timely return and the return filed later could not be processed due to the six-year limit, the undisclosed income in the assessee's account was considered earned in the said year and assessed accordingly. The Tribunal's decision was overturned, and the order of the first appellate authority was restored, ruling in favor of the Revenue against the assessee.

3. The explanation provided by the assessee for the source of income was considered by the Income Tax Officer for penalty purposes under Section 271(1)(c). The assessee argued that this explanation should also be taken into account for assessment. It was highlighted that the mother did not disclose the income from the property sale, and the amounts were credited to the assessee's account without disclosure. As a result, the undisclosed income in the assessee's account was deemed earned in the relevant year and assessed accordingly. The Tribunal's decision was set aside, and the first appellate authority's order was restored in favor of the Revenue against the assessee.