2015 (10) TMI 1269 - AT - Income Tax

Legal heir not liable for deceased's tax penalty on bogus gifts - ITAT decision

The ITAT upheld the CIT (A)'s decision to delete the penalty under section 271(1)(c) for the assessment year 2001-02. The ITAT found that the legal heir ... Penalty u/s 271(1)(c) - bogus gifts - CIT(A) deleted the penalty - Held that:- The co-ordinate Bench of the Tribunal had decided identical issue in case of late Smt. Kesar Devi Garg wife of assessee wherein the gift of ₹ 10,00,000/- was received from Shri Sanwar Mal Saraff. The quantum addition was also confirmed by the ITAT in case of late Smt. Kesar Devi Garg for A.Y. 2001-02. The penalty under section 271(1)(c) was imposed in that case which has been deleted by the co-ordinate Bench vide order dated 11th May, 2012. The assessee is no more and expired on 26.09.2006. The penalty proceedings were completed on legal heir i.e. Dr. K.C. Garg, who was in practice for more than 25 years out of India. The case law referred by the assessee are squarely applicable and the co- ordinate Bench decided the identical issue in favour of the assessee. Therefore, we uphold the order of ld. CIT (A). - Decided against revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be imposed on the legal heir under section 159 where additions for bogus/arranged gifts have been sustained in assessment/quanta. 2. Whether confirmation of additions (treating gifts as bogus/arranged and making additions) necessarily warrants levy of penalty under section 271(1)(c) for concealment of income or furnishing inaccurate particulars. 3. What standard of proof and factual features are relevant to sustain penalty under section 271(1)(c) in cases of challenged gifts (e.g., proof of identity/source, banking channel, donor statements, and whether routing of assessee's own funds is established). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability of legal heir under section 159 for penalty under section 271(1)(c) Legal framework: Section 159 treats the legal representative as the assessee for matters pertaining to the deceased, and section 271(1)(c) permits penalty where income is concealed or inaccurate particulars are furnished. Precedent Treatment: The Tribunal considered authorities holding that penalty, being quasi-criminal in nature, is not necessarily to be visited on a legal heir who lacks knowledge of the deceased's conduct; decisions cited support that legal heirs may not be penalized where absence of knowledge and practical attendance to proceedings exists. Interpretation and reasoning: The Tribunal accepted that the legal heir was absent, professionally engaged abroad for decades, and had no personal involvement or knowledge of the transactions; the deceased had died during pendency and the legal representative effectively did not participate in the transactions. Given these factual circumstances, the Tribunal treated imposition of penalty on the legal heir as inappropriate. Ratio vs. Obiter: Ratio - where the legal heir had no knowledge, presence or participation and the proceedings were largely unattended after the assessee's death, penalty under section 271(1)(c) should not be imposed on such legal heir under section 159. Obiter - broader propositions about criminal-law principles ('crime dies with a man') were referenced but not adopted as a general rule. Conclusion: Penalty cannot be imposed on the legal heir in the absence of knowledge or participation, particularly where procedural and factual circumstances show the legal representative did not control or conceal the income. Issue 2 - Whether confirmation of additions automatically attracts penalty under section 271(1)(c) Legal framework: Section 271(1)(c) requires commission of concealment or furnishing of inaccurate particulars; mere sustaining of an addition in assessment does not ipso facto establish the requisite culpability for penalty. Precedent Treatment: The Tribunal relied on a line of authorities (including High Court and Tribunal decisions) holding that penalty is not automatically leviable simply because an addition is sustained - penalty requires proof of deliberate concealment or furnishing of false particulars. Authorities distinguishing penalty liability from mere failure to substantiate claims were followed. Interpretation and reasoning: Although the assessing officer and in quantum proceedings additions treating gifts as bogus were sustained, the Tribunal emphasized that the assessee (through records placed on file) had produced gift deeds, donor's capital/account records, bank credits, and donor statements. The Tribunal reasoned that where documentary material was filed and identity/source were shown through banking channels, failure to conclusively prove genuineness does not necessarily establish mens rea for penalty. Ratio vs. Obiter: Ratio - confirmation of income addition is not conclusive proof of concealment or furnishing inaccurate particulars for purpose of s.271(1)(c); penalty requires demonstrable falsehood or deliberate evasion beyond mere inability to substantiate. Obiter - references to various supportive decisions were cited to reinforce the non-automatic nature of penalty. Conclusion: Confirmation of additions does not automatically warrant penalty; each case requires scrutiny of the factual matrix to determine whether deliberate concealment or false particulars existed. Issue 3 - Standard of proof and relevant facts in penalty cases involving gifts Legal framework: For s.271(1)(c), the Department must establish concealment or furnishing inaccurate particulars; evidentiary focus includes identity of donor, source/immediate source of funds, mode of transfer (banking channel), contemporaneous records (gift deed, donor accounts), and any indication of routing assessee's own funds through third parties. Precedent Treatment: Tribunal adhered to authorities holding that adequate documentary evidence showing identity and source may negate culpability even if the quantum authority treats the transaction as not sufficiently proved. Decisions were followed which held that where substantial documentary proof exists, penalty may not be sustainable despite addition under s.68 or analogous provisions. Interpretation and reasoning: The Tribunal evaluated that the assessee produced gift deed, donor's capital account, bank statements showing credits, and donor's statement/affidavit. The AO's narrative regarding 'arranged gifts' was weighed against the recorded documentary evidence and the factual situation (donor and donee deceased, procedural delays, legal heir absent). The Tribunal concluded that the material filed showed the major details and immediate source such that imposition of penalty for concealment/inaccurate particulars was not justified on these facts. Ratio vs. Obiter: Ratio - where material evidence on identity, source and banking channel is placed on record and there is no proof of routing of the assessee's own unaccounted funds through the purported donor, penalty should not ordinarily be imposed merely because the addition was made. Obiter - observations on ageing and deaths affecting the conduct of proceedings informed but did not create universal rules about documentary sufficiency. Conclusion: The standard for penalty requires affirmative proof of concealment or deliberate furnishing of false particulars; existence of credible documentary evidence concerning gifts and absence of proof of routing of assessee's own funds militates against penalty. Cross-reference and Overarching Conclusion The Tribunal applied the foregoing principles collectively: (a) confirmed additions in quantum do not automatically translate to penalty; (b) where documentary evidence (gift deeds, bank entries, donor accounts/statements) exists and no direct proof of routing of assessee's own funds is shown, penalty under section 271(1)(c) is not warranted; and (c) imposition of penalty on a legal heir under section 159 requires proof of participation/knowledge, which was absent. On these grounds the Tribunal upheld the appellate deletion of the penalty.