2004 (7) TMI 315 - AT - Income Tax

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the IT Act, 1961.
2. Inclusion of minor children's income in the assessee's total income under Section 64(1)(iii).
3. Reassessment proceedings under Section 147.
4. Bona fide mistake and its implications on penalty.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the IT Act, 1961:
The appeal arises from a penalty order under Section 271(1)(c) of the IT Act, 1961, where a penalty of Rs. 30,000 was imposed on the assessee for not including the income of his minor children in his return. The CIT(A) confirmed this penalty following the Supreme Court decision in CIT vs. Smt. P.K. Kochammu Amma Peroke, which held that the failure to include taxable income under Section 64 attracts the applicability of Section 271(1)(c).

2. Inclusion of Minor Children's Income under Section 64(1)(iii):
The assessee, a partner in M/s Kamal Marble Factory, did not include the share income of his minor children, who were admitted to the benefits of the partnership firm M/s Everest Tools, in his return filed on 13th Aug., 1990. According to Section 64(1)(iii), this income should have been included in the assessee's total income. The AO initiated reassessment proceedings under Section 147 and included the minors' share income of Rs. 39,940 in the assessee's hands. The assessee subsequently included this income in response to the notice under Section 148.

3. Reassessment Proceedings under Section 147:
The reassessment was initiated by issuing a notice under Section 147 on 6th Sept., 1994. The assessee included the minors' income in the return filed in response to this notice. This led to the initiation of penalty proceedings under Section 271(1)(c) for concealment of income. The CIT(A) upheld the penalty by relying on the Supreme Court decision in Smt. P.K. Kochammu Amma, which mandates the inclusion of such income in the total income of the assessee.

4. Bona Fide Mistake and Its Implications on Penalty:
The assessee argued that the omission to include the minors' income was a bona fide mistake attributed to the counsel who prepared the returns. The minors' returns were filed separately and accepted under Section 143(1) by the same AO. The assessee corrected the mistake immediately after receiving the notice under Section 147. The Tribunal considered the explanation and the facts that the minors' income was processed under Section 143(3) by the same ITO, and the notice under Section 147 was issued later. The Tribunal concluded that the mistake was bona fide and did not warrant a penalty under Section 271(1)(c).

Legal Provisions and Precedents:
- Chapter V of the IT Act, 1961: Sections 60-65 include various incomes in the assessee's total income to counteract tax avoidance.
- Section 64: Includes income of a spouse or minor child in the assessee's total income.
- Section 271(1)(c): Provides for penalty on concealment of income.
- Supreme Court Decision in CIT vs. Smt. P.K. Kochammu Amma: Failure to include income under Section 64 attracts Section 271(1)(c).

Relevant Case Laws:
- CIT vs. Lal Babu: Patna High Court held that failure to include income under Section 64 does not attract penalty under Section 271(1)(c) if the omission was bona fide.
- V.D.M. RM. M. RM. Mutthiah Chettiar vs. CIT: Supreme Court held that reassessment under Section 34 did not impose an obligation to disclose income under Section 16(3)(a)(ii).

Conclusion:
The Tribunal concluded that the penalty under Section 271(1)(c) is not leviable in cases where the mistake was bona fide, attributed to counsel, and corrected immediately. The appeal of the assessee was accepted, and the penalty was deleted.

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