2015 (7) TMI 1083 - HC - Income Tax

Tribunal cancels penalty for inaccurate income particulars, citing strained relationships and lack of confirmation.

The court dismissed the Revenue's appeal against the Income-tax Appellate Tribunal's decision to set aside the penalty under section 271(1)(c) of the ... Penalty under section 271(1)(c) of the Income-tax Act, 1961 - furnishing inaccurate particulars of income - requirements under section 68 in respect of gifts and confirmations - gifts on account of natural love and affection - evidence of proper banking channel and voluntary offer of tax - discretionary power of the Tribunal to set aside penalty - absence of concealment where gift was disclosed in the returnPenalty under section 271(1)(c) of the Income-tax Act, 1961 - furnishing inaccurate particulars of income - absence of concealment where gift was disclosed in the return - Validity of levy of penalty under section 271(1)(c) where gifts were declared in the return but further substantiation was later requested by the Department. - HELD THAT: - The Tribunal found, and this Court concurs, that the gifts from the brother and sister had been disclosed in a note to the return of income. The assessee furnished bank details and demand draft particulars showing receipt through proper banking channels and voluntarily offered the amounts for taxation. Although the Assessing Officer sought further documentary confirmation and, on non-production of the donors, treated the amounts as unexplained income and imposed the minimum penalty, the factual findings of the Tribunal show absence of concealment and that no other source of income was discovered by the AO. Given disclosure in the return and supporting banking evidence, the Tribunal's exercise of discretion to set aside the penalty was based on valid factual grounds and cannot be said to be perverse or illegal.Penalty under section 271(1)(c) set aside as exercise of Tribunal's discretion was justified on facts showing disclosure and banking evidence; levy of penalty overturned.Requirements under section 68 in respect of gifts and confirmations - gifts on account of natural love and affection - evidence of proper banking channel and voluntary offer of tax - Whether failure to produce donors or irrevocable gift deeds disentitles the assessee to relief where gifts were declared and substantiated by banking evidence and voluntary tax payment. - HELD THAT: - The Tribunal accepted the assessee's explanation that confirmations could not be procured due to strained relations and change of residence of the donor. The Court notes that the assessee had declared the receipts in the return, provided particulars of bank accounts and demand drafts drawn on the Toronto Dominion Bank, and had offered the amounts to tax. In these circumstances the factual conclusion that the basic ingredient of concealment under the facts was missing justified relief despite absence of donor confirmations or gift deeds; the AO's reliance on non-production of donors did not render the Tribunal's conclusion perverse.Assessee entitled to relief despite non-production of donors or gift deeds where disclosure, banking evidence and voluntary taxation supported the claim of gifts.Discretionary power of the Tribunal to set aside penalty - Whether the Tribunal erred in exercising its discretion to cancel the penalty imposed by the Assessing Officer. - HELD THAT: - This Court reviewed the Tribunal's consideration of the factual matrix and the reasons given for granting discretionary relief. The Tribunal examined disclosure in the return, the supporting bank particulars, the voluntary offer of tax and absence of any alternative source discovered by the AO, and concluded that penalty proceedings were not warranted. The exercise of discretion was neither perverse nor illegal and does not raise a substantial question of law warranting interference by this Court.Tribunal's exercise of discretion to set aside the penalty upheld; no interference warranted.Final Conclusion: The Revenue's appeal is dismissed. The Tribunal's decision setting aside the penalty under section 271(1)(c) is upheld on the factual findings that the gifts were disclosed in the return, supported by banking evidence and voluntarily offered to tax, and that the Tribunal's exercise of discretion was not perverse or illegal. Issues:- Appeal against order of Income-tax Appellate Tribunal setting aside penalty under section 271(1)(c) of the Income-tax Act, 1961.- Substantial questions of law raised by the appellant.- Assessment of gifts received by the respondent.- Penalty proceedings initiated due to failure to substantiate claims.- Discrepancies in the confirmation of gifts received.- Decision of Commissioner of Income-tax (Appeals).- Tribunal's decision to reverse the penalty imposition.- Argument by Revenue regarding failure to furnish income particulars.- Tribunal's exercise of discretion in setting aside the penalty.Analysis:1. The appeal was filed by the Revenue against the Income-tax Appellate Tribunal's decision to set aside the penalty imposed under section 271(1)(c) of the Income-tax Act, 1961, for inaccurate income particulars for the assessment year 2009-10 amounting to Rs. 46,09,590.2. The appellant raised substantial questions of law regarding the Tribunal's direction to cancel the penalty, emphasizing the failure to fulfill basic requirements under section 68 of the Act for confirming gifts received.3. The respondent declared receiving gifts from family members in the return, but discrepancies arose when evidence of the source of deposits was requested by the Department, leading to penalty proceedings for incomplete income particulars.4. Despite explanations provided by the respondent regarding the gifts, the Assessing Officer made additions under 'Income from other sources' and initiated penalty proceedings due to failure in substantiating claims and providing documentary evidence.5. The Commissioner of Income-tax (Appeals) upheld the penalty, stating that the gifts were the respondent's undisclosed income, concealed and surrendered only upon detection, highlighting the lack of effort to confirm the gifts' legitimacy.6. The Tribunal overturned the penalty, considering the gifts' declaration in the income computation, accepting the strained relationship as a reason for lack of confirmation, and noting the payment of taxes and proper banking channels used for the gifts.7. The Tribunal's decision was based on the factual matrix, finding no concealment as the gifts were disclosed in the return, and the inability to confirm was due to strained relationships and lack of contact with the gift givers.8. The Revenue argued that the respondent failed to furnish income particulars and substantiate explanations, justifying the penalty imposition.9. The Tribunal's exercise of discretion in setting aside the penalty was deemed valid, as the factual aspects were thoroughly discussed, and the benefit granted to the respondent was based on valid grounds, not warranting interference by the court.10. Consequently, the court dismissed the appeal, upholding the Tribunal's decision to reverse the penalty imposition.