2012 (12) TMI 669 - HC - Income Tax

Penalty u/s 271(1)(c) or 271(1)(c) - unaccounted NRE account - Held that - Shiv Prasad Jagat Ram Kala is the holder of the subject NRE account, wherefrom the money came to the assessee, and the same is evidenced by the Deed of Gift and the affidavit, both executed by the said Shiv Prasad Jagat Ram Kala. Shiv Prasad Jagat Ram Kala, or his family, could not be located at the address, which was furnished to the bank while the bank account was opened & in course of inquiry one family of Shiv Prasad Jagat Ram Kala located in a village who represented that Shiv Prasad Jagat Ram Kala, who is a member of their family, has no relationship with the assessee and held out that finance of Shiv Prasad Jagat Ram Kala could not permit him to make such a gift. Thus in the event, Shiv Prasad Jagat Ram Kala, whose address was given to the bank, and whose family was located at a village are different people, then, there is total failure on the part of the assessee to prove that Shiv Prasad Jagat Ram Kala, whose address was given to the bank, made the gift as the Deed of Gift and the affidavit alleged to have been signed by Shiv Prasad Jagat Ram Kala was not substantiated. The matter, therefore, squarely comes within the Explanation 1(B) to the Section and, accordingly, there is deemed concealment of the income by the assessee - set aside the order of the Commissioner and the Tribunal and restore the order of the AO - against assessee.

Summary

Issues:
1. Validity of gift received by the assessee
2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961

Issue 1: Validity of gift received by the assessee
The respondent assessee disclosed receiving a gift of Rs. 3,51,000 from Shiv Prasad Jagat Ram Kala, evidenced by a Deed of Gift and an affidavit. However, the Assessing Officer found discrepancies as Shiv Prasad Jagat Ram Kala's family, located in a village, denied his financial capability to make such a gift. The Assessing Officer added the amount to the assessee's income due to lack of substantiation. The Tribunal later deleted the penalty citing no bona fide failure on the assessee's part. The court analyzed that if the two instances of Shiv Prasad Jagat Ram Kala are the same person, the assessee failed to substantiate the gift's explanation, leading to deemed concealment of income. The court set aside the Tribunal's decision and reinstated the Assessing Officer's order.

Issue 2: Penalty under Section 271(1)(c) of the Income Tax Act, 1961
The penalty under Section 271(1)(c) was levied on the assessee for alleged concealment of income or furnishing inaccurate particulars. The Commissioner of Appeals initially deleted the penalty, which was upheld by the Tribunal. The court referred to Explanation 1(B) of the Act, stating that if an explanation is offered but not substantiated, and relevant facts are not disclosed, it leads to deemed concealment of income. Since the assessee failed to prove the authenticity of the gift giver, the court concluded that there was no bona fide on the assessee's part. Consequently, the court restored the Assessing Officer's order and disposed of the appeal.

This judgment highlights the importance of substantiating explanations and disclosing all material facts in income tax matters to avoid penalties and deemed concealment of income. It emphasizes the need for genuine documentation and verification to support claims of gifts or transactions to maintain transparency and compliance with tax laws.