2017 (8) TMI 234 - AT - Income Tax

Penalty under section 271(1)(c) - addition of gift - Held that - We have examined the details and noticed that the notice under section 143(2) of the Act became time barred on August 31, 2004 at the time when the search took place much later on August 3, 2006. Therefore, it follows that as on the date of search, there was an assessment completed or processing of return of income of the assessee under section 143(1) of the Act. Subsequently, the Assessing Officer initiated proceedings under section 153A and in the assessment completed under section 143(3) read with section 153A, the Assessing Officer has brought to tax a sum of ₹ 10,00,000 being the amount of gift received from Shri Gayanchand Jain without any incriminating material found during the course of search. Once this is the position the issue is clearly covered in favour of the assessee and against the Revenue by the decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT . Respectfully, following the same and in the given said of facts, we are of the view that this gift received from Shri Gayandhand Jain for an amount of ₹ 10,00,000 disclosed in the return of income as evidence by the capital account and which has not been abated, the amount of gift cannot be added. Accordingly, we reverse the orders of the Commissioner of Income-tax (Appeals) as well as that of the Assessing Officer and delete the addition in all these eleven appeals of the assessee. Penalty deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of treating gifts received as "Income from other sources" under section 68 of the Income-tax Act, 1961.
2. Jurisdiction of the Assessing Officer under section 153A read with section 143(3) for making additions based on gifts already disclosed in original returns.
3. Imposition of penalties under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Legitimacy of Treating Gifts as "Income from Other Sources":
The primary issue in all eleven quantum appeals was the confirmation by the Commissioner of Income-tax (Appeals) of the Assessing Officer's action in treating the gifts received as unexplained and assessing them as income from other sources. The assessees argued that no incriminating material or evidence was found during the search under section 132 of the Act, and the original assessment was not abated. The gifts, amounting to ?10 lakhs each, were disclosed in the original returns filed on August 11, 2003, and were included in the capital accounts. The Tribunal noted that the Assessing Officer assessed these gifts as income from undisclosed sources despite these gifts being disclosed in the original returns. The Tribunal found that the issue was covered in favor of the assessees by the decision of the Bombay High Court in CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd., which held that completed assessments cannot be disturbed unless material gathered during the search establishes that the finality attained in the assessment was contrary to the facts unearthed during the search.

2. Jurisdiction of the Assessing Officer under Section 153A:
The Tribunal examined whether the Assessing Officer had the jurisdiction to make additions under section 153A read with section 143(3) for gifts already disclosed in the original returns. The Tribunal referred to the Bombay High Court's decision in Continental Warehousing Corporation (Nhava Sheva) Ltd., which clarified that only pending assessments abate upon initiation of proceedings under section 153A. Completed assessments can only be disturbed if incriminating material is found during the search. The Tribunal found that no such incriminating material was found in the present cases, and thus, the Assessing Officer did not have the jurisdiction to make the additions. Consequently, the Tribunal reversed the orders of the Commissioner of Income-tax (Appeals) and the Assessing Officer, deleting the additions in all eleven appeals.

3. Imposition of Penalties under Section 271(1)(c):
The Tribunal also dealt with the penalties levied by the Assessing Officer under section 271(1)(c) in seven cases. The penalties were based on the addition of the gifts as income from undisclosed sources. The Tribunal noted that in one of the group cases, the penalty was deleted by a co-ordinate Bench of the Tribunal. Since the quantum additions were deleted in the present appeals, the basis for the penalties no longer existed. Therefore, the Tribunal deleted the penalties levied by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals).

Conclusion:
The Tribunal allowed all eighteen appeals of the assessees, deleting both the additions made by the Assessing Officer and the penalties levied under section 271(1)(c). The order was pronounced in the open court on May 24, 2017.