1990 (5) TMI 71 - AT - Income Tax

Summary

Issues Involved:
1. Genuineness of the declaration dated 31st March 1968.
2. Whether the income from the property at 87-B, Civil Lines, Bareilly should be assessed in the hands of the individual or the HUF.
3. Legitimacy of the penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Genuineness of the Declaration Dated 31st March 1968:

The primary issue revolves around whether the declaration dated 31st March 1968, purportedly throwing the property into the HUF's common hotchpot, was genuine. The ITO doubted the genuineness of the declaration based on discrepancies related to notarial stamps and telephone numbers on the notary's seal. The Senior Treasury Officer confirmed that 50 ps notarial stamps were not available in Bareilly until 11th August 1970, and telephone number 5108 was assigned to the notary only after 23rd November 1974. The Tribunal concluded that the document was not executed on 31st March 1968 but sometime after 23rd November 1974, thereby invalidating the declaration.

2. Assessment of Income from Property:

The assessee initially filed returns showing the income from the property as individual income but later revised the returns, claiming it belonged to the HUF. The Tribunal, in its order dated 29th January 1985, held that the document dated 31st March 1968 was not genuine and that the property income should be assessed in the hands of the individual. The lease deed dated 15th September 1973, showing the property let out by the HUF, was not sufficient to prove the property was genuinely thrown into the HUF's common hotchpot. The Tribunal emphasized that the income from the property for assessment years 1968-69 and 1969-70 was shown as individual income, indicating no blending of property into the HUF as of 31st March 1968.

3. Legitimacy of Penalty Proceedings under Section 271(1)(c):

The ITO initiated penalty proceedings under section 271(1)(c) for concealment of income, alleging that the assessee attempted to defraud the government by ante-dating the declaration. The CIT(A) upheld the penalties for the property income but excluded penalties related to the furniture business, reducing the penalty rate to 150% of the tax on concealed income. The Tribunal, however, found that the explanation provided by the assessee was bona fide and that the claim regarding the blending of property into the HUF was contestable. The Tribunal noted that the declaration was voluntary, and the lease deed executed in 1973 indicated an intention to treat the property as HUF property. The Tribunal concluded that penalties under section 271(1)(c) were not justified, as the claim could not be said to be false or lacking bona fides.

Conclusion:

The appeals filed by the assessee were allowed, and the penalties imposed under section 271(1)(c) were set aside. The Tribunal emphasized that the explanation provided by the assessee was bona fide and that the claim regarding the blending of property into the HUF was contestable, thus not warranting penalties for concealment of income. The Tribunal's decision highlighted the importance of considering the bona fides of the assessee's explanation and the material on record in penalty proceedings.