1988 (2) TMI 89 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the source of investment in fixed deposits.
2. Validity of the Will executed by the deceased.
3. Imposition of penalty under Section 271(1)(c) of the IT Act, 1961.
4. Applicability of Explanation to Section 271(1)(c) and the burden of proof.

Detailed Analysis:

1. Legitimacy of the Source of Investment in Fixed Deposits:
The appellant, representing the deceased assessee, claimed that the investment of Rs. 2,70,000 in three bank deposits was sourced from the sale of gold ornaments owned by the female family members. The ITO did not believe this explanation, citing discrepancies in the statements of the family members and lack of evidence proving the acquisition and sale of gold ornaments. The ITO concluded that the amount represented the deceased's income from undisclosed sources.

2. Validity of the Will Executed by the Deceased:
The Will dated 2nd July 1975, allegedly executed by the deceased, was initially doubted by the ITO but later found to have the deceased's genuine signature. However, the Tribunal did not accept it as a valid Will due to non-compliance with attestation requirements and suspicious circumstances surrounding its execution. Nonetheless, the document was considered as containing the deceased's statement regarding the ownership of the fixed deposits.

3. Imposition of Penalty under Section 271(1)(c) of the IT Act, 1961:
The ITO initiated penalty proceedings under Section 271(1)(c) for concealing income or furnishing inaccurate particulars of income. The penalty of Rs. 2,72,000 was upheld by the CIT(A), who dismissed the appellant's contention that the case involved an unexplained cash credit discovered posthumously. The CIT(A) emphasized that the concealment was committed by the deceased during his lifetime.

4. Applicability of Explanation to Section 271(1)(c) and the Burden of Proof:
The Tribunal noted that the ITO failed to specify whether the penalty was for concealment of income or for furnishing inaccurate particulars, citing the Gujarat High Court decision in CIT vs. Manu Engg. Works. The Tribunal emphasized that the provisions of Section 271(1)(c) are penal in nature and require a clear finding. The Tribunal also discussed the burden of proof under the Explanation to Section 271(1)(c), which shifts to the assessee to prove the absence of fraud, gross, or willful neglect.

Conclusion:
The Tribunal concluded that the appellant had successfully demonstrated that there was no fraud or gross or willful neglect in not disclosing the correct income. The appellant's conduct, including the submission of relevant documents and explanations, negated any fraudulent intent. The Tribunal set aside the penalty order, allowing the appeal and canceling the penalty levied under Section 271(1)(c). The appeal was accordingly allowed.