1988 (2) TMI 86 - AT - Income Tax

Bank Deposits, Fraud Or Gross Or Wilful Neglect, Furnishing Inaccurate Particulars Of Income, Income From Undisclosed Sources, Individual Income, Penalty For Concealment, Sale Proceeds

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the explanation provided by the appellant regarding the source of investment.
3. Applicability and implications of the Explanation to Section 271(1)(c).
4. Requirement of a clear finding by the Income Tax Officer (ITO) regarding concealment or furnishing inaccurate particulars of income.
5. Evaluation of evidence and conduct of the appellant in the context of penalty proceedings.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961:
The appeal concerns the penalty of Rs. 2,72,000 levied by the ITO under Section 271(1)(c) of the IT Act, which was upheld by the Commissioner of Income-tax (Appeals) II/V-A, Ahmedabad. The penalty was based on the ITO's conclusion that the deceased-assessee had concealed income amounting to Rs. 2,70,000, which was invested in three bank deposits.

2. Validity of the explanation provided by the appellant regarding the source of investment:
The appellant contended that the deceased-assessee had invested the proceeds from the sale of gold ornaments belonging to family members. These ornaments were allegedly acquired by the ladies of the family during their stay in Uganda. The ITO rejected this explanation, citing discrepancies in the statements of the ladies and lack of evidence for the acquisition and sale of the gold ornaments. The Tribunal also found that the appellant failed to prove the source of the deposits.

3. Applicability and implications of the Explanation to Section 271(1)(c):
The Tribunal noted that the difference between the returned income and the assessed income exceeded 20%, thereby attracting the provisions of the Explanation to Section 271(1)(c). This shifted the burden of proof to the appellant to demonstrate that the concealment of income was not due to fraud, gross, or willful neglect.

4. Requirement of a clear finding by the Income Tax Officer (ITO) regarding concealment or furnishing inaccurate particulars of income:
The Tribunal emphasized that Section 271(1)(c) requires a clear finding by the ITO on whether the penalty is for concealment of income or for furnishing inaccurate particulars of income. The ITO's use of the conjunction 'and/or' indicated a failure to arrive at a definite conclusion. This ambiguity rendered the penalty order unsustainable, as per the Gujarat High Court decision in CIT v. Manu Engg. Works [1980] 122 ITR 306.

5. Evaluation of evidence and conduct of the appellant in the context of penalty proceedings:
The Tribunal considered the appellant's conduct and the material placed on record. The appellant had disclosed all relevant facts and documents at the first hearing, indicating a bona fide effort to comply with tax obligations. The Tribunal noted that the deceased's will, although not effective as a will, contained his genuine signatures and supported the appellant's claim regarding the distribution of the bank deposits. The Tribunal concluded that the appellant had successfully rebutted the presumption of fraud or gross neglect, thereby discharging the burden of proof.

Conclusion:
The Tribunal set aside the penalty order, concluding that the appellant had adequately demonstrated the absence of fraud or gross neglect in not disclosing the correct income. The appeal was allowed, and the penalty levied under Section 271(1)(c) was canceled.

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