1995 (2) TMI 92 - AT - Income Tax

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) for concealment of income.
2. Ownership and income attribution of Broad Acres Stud Farm.
3. Genuineness of the gifts claimed as sources of funds for the purchase.
4. Validity of the trust declaration and indenture of release.
5. Assessment of income in the hands of the minor son.
6. Applicability of the ITAT, Delhi Bench decision in Nuchem Ltd. v. Dy. CIT.

Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) for Concealment of Income:
The Department filed an appeal against the deletion of the penalty of Rs. 51,105 levied by the ITO under section 271(1)(c). The ITO concluded that the assessee concealed income by not including Rs. 66,370 from Broad Acres Stud Farm in his return for the assessment year 1976-77. The CIT(A) allowed the appeal filed by the assessee, cancelling the penalty on the grounds that the assessee had discharged the initial onus by providing necessary evidence and had acted on his belief that the stud farm belonged to his minor son.

2. Ownership and Income Attribution of Broad Acres Stud Farm:
The ITO assessed the income from Broad Acres Stud Farm in the hands of the assessee, denying his claim that the farm belonged to his minor son. The ITO found that the purchase deed of the farm did not mention the purchase being made in a fiduciary capacity. The Tribunal upheld this view, noting that the son acquired rights to the property only by virtue of a release deed executed on 25-3-1977.

3. Genuineness of the Gifts Claimed as Sources of Funds for the Purchase:
The assessee claimed that the funds for purchasing the farm came from gifts received by his minor son from his grandmother. However, the ITO found no direct evidence supporting the genuineness of these gifts apart from a letter from the Chartered Accountants. The Tribunal also raised suspicions about the ledger entries and the necessity for the assessee to make a payment of Rs. 40,000 from his own account.

4. Validity of the Trust Declaration and Indenture of Release:
The ITO and Tribunal doubted the genuineness of the trust declaration made on 1-7-1975, after the deletion of section 10(27) from the Income-tax Act. The Tribunal noted that the trust declaration seemed motivated by a desire to reduce tax liability. The indenture of release executed on 25-3-1977 was seen as a transfer of interest rather than a mere release, indicating that the assessee was the actual owner until that date.

5. Assessment of Income in the Hands of the Minor Son:
The CIT(A) noted that the income from the farm had been assessed in the hands of the minor son for the assessment year 1976-77. However, the ITO pointed out that this assessment order was later set aside by the CIT under section 263.

6. Applicability of the ITAT, Delhi Bench Decision in Nuchem Ltd. v. Dy. CIT:
The assessee relied on the decision of the ITAT, Delhi Bench, in Nuchem Ltd. v. Dy. CIT, arguing that penalty is not leviable in cases of differences in opinion. However, the Tribunal distinguished this case, noting that the assessee knowingly omitted the income from his return and made manipulations to evade tax, unlike in Nuchem Ltd. where all material facts were disclosed.

Conclusion:
The Tribunal concluded that the assessee was the actual owner of Broad Acres Stud Farm and had manipulated documents to show the farm belonged to his minor son, motivated by a desire to reduce tax liability. The Tribunal reversed the decision of the CIT(A) and restored the penalty imposed by the ITO, holding that the non-inclusion of the income constituted concealment under section 271(1)(c). The departmental appeal was allowed.

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