2010 (4) TMI 457 - HC - Income Tax

Unexplained investment - The Assessing Officer issued a notice under section 148. Assessee did not file return. Later the Assessing Officer issued a notice under section 142(1) calling for explanation regarding the source of fund for purchasing the house of property. The Assissing Officer made an addition of Rs. 4800 towards the income from house property and also Rs. 11, 31, 410 towards unexplained investment under the head Other Sources and also initiated penalty u/s 271(1)(c). The Commissioner (Appeals) sustained the addition to the extent of Rs. 2, 64, 068 out of Rs. 11, 36, 310. He also held that penalty leviable. The Tribunal upheld the order. Held that - though the issue of joint ownership was argued the authorities below had not consider the matter. The Tribunal was not right in law in sustaining the entire addition as unexplained investment in the hands of assessee.

Summary

Issues Involved:
1. Unexplained investment in residential flat.
2. Addition of appellant's son's earnings as appellant's income.
3. Joint ownership of the property.
4. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Unexplained Investment in Residential Flat:
The appellant/assessee purchased a house property on August 16, 1995, for Rs. 9,71,500. The Assessing Officer (AO) found the investment unexplained and added Rs. 11,31,510 (including stamp duty and registration charges) under "Other sources." The Commissioner of Income-tax (Appeals) accepted explanations for Rs. 7,07,432 and sustained Rs. 2,64,068 as unexplained. The Tribunal confirmed this. However, the High Court noted that the assessee provided a reasonable explanation, including savings from salary, contributions from his son, and sale of wife's jewelry. The Court emphasized that Section 69 confers discretion on the AO to treat unexplained investments as income and cited the Supreme Court's ruling in CIT v. Smt. P. K. Noorjahan, which clarified that the AO is not obliged to treat every unexplained investment as income. The Court found the assessee's explanation reasonable and set aside the Tribunal's order, answering in favor of the assessee.

2. Addition of Appellant's Son's Earnings as Appellant's Income:
The appellant contended that part of the investment came from his son's savings. The son earned Rs. 1,000 to Rs. 3,000 per month from 1988-89 to 1993-94 and saved Rs. 1,50,750, which he contributed towards the house purchase. The Tribunal did not independently verify this claim. The High Court found the explanation reasonable and criticized the Tribunal for not considering the details provided. The Court ruled in favor of the assessee, accepting the son's contribution as a valid source of investment.

3. Joint Ownership of the Property:
The appellant argued that the property was jointly owned with his wife, which was mentioned in the sale deed and Form 34A. The authorities did not consider this aspect. The High Court noted that the joint ownership claim was not disputed and should have been considered by the lower authorities. The Court set aside the Tribunal's order for not addressing the joint ownership issue, ruling in favor of the assessee.

4. Levy of Penalty under Section 271(1)(c):
The AO levied a penalty of Rs. 4,28,524 for concealment of income, which was upheld by the Commissioner (Appeals) and the Tribunal. The High Court noted that Section 69 is a deeming provision and cannot be extended to penalty proceedings without independent findings of concealment. The Court emphasized that mere rejection of the explanation is insufficient for penalty. Given that the inquiry started after the assessee applied for a tax clearance certificate and the facts were disclosed, the Court found no concealment. As the additions were deleted in the quantum appeal, the penalty was also deleted. The Court ruled in favor of the assessee, setting aside the penalty.

Conclusion:
The High Court answered all questions in favor of the assessee, setting aside the Tribunal's orders on unexplained investment, addition of the son's earnings, joint ownership, and penalty. The appeals were allowed, and no costs were imposed.