2016 (9) TMI 246 - AT - Income Tax

Tax Tribunal Cancels Penalties for Assessee in Landmark Decision

Aarti Jain Versus ITO Ward-1, Meerut

The Tribunal allowed the appeal of the assessee, setting aside the penalty imposed under section 271(1)(c) of the Income Tax Act for AY 2002-03 and AY ... Penalty u/s 271(1) (c) - assessee could not prove the genuineness of the gifts transactions - Held that:- Assessing Officer, in the penalty orders, has observed that the assesseee had concealed the income and has furnished inaccurate particulars. However, the penalty orders are woefully silent on the issue as to how this satisfaction of concealment/furnishing of inaccurate particulars was arrived at. The Ld. CIT (A) has relied on the principle of preponderance of probability while confirming the penalties. The Ld. CIT (A) has held that since the assessee had received a sum of ₹ 26.00 lacs as gifts from 5 parties in a span of two years with whom the assessee had only family relation and that since there was no occasion to warrant these gifts, the credibility and bona fide of assessee’s explanation was eroded and therefore, the penalty was sustainable. We are of the considered opinion that this kind of finding might be very relevant in quantum proceedings but will not suffice in penalty proceedings. With regard to the provisions of section 271(1)(c ) of the Act pertaining to penalty, the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT )has authoritatively laid down that making of a claim by the assessee which is not sustainable will not tantamount to furnishing inaccurate particulars - Decided in favour of assessee Issues:Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961 for AY 2002-03 and AY 2003-04.Detailed Analysis:1. Background and Assessment Proceedings:The appeals were filed against the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for AY 2002-03 and AY 2003-04. The assessee had received gifts in both years, which were added to her income by the Assessing Officer due to alleged lack of genuineness and isolated nature of transactions. The CIT (A) confirmed the additions, leading to penalty imposition, which was now challenged before the Tribunal.2. Contentions of the Assessee:The assessee contended that she had provided all necessary documents during assessment proceedings to establish the genuineness of the gifts. It was argued that there was no concealment or furnishing of inaccurate particulars, citing the decision in CIT vs. Reliance Petro Products Pvt. Ltd. The assessee maintained that the penalty levied was unjust and should be deleted.3. Arguments of the Revenue:The Revenue argued that the donors had meager sources of income, and the Assessing Officer had conducted independent inquiries under section 133(6) to conclude that the gifts were not genuine. It was highlighted that the donors' Income Tax and Wealth Tax Returns lacked necessary details, questioning their creditworthiness. The Revenue supported the penalties imposed by the lower authorities.4. Legal Precedents and Principles:The Tribunal referred to various legal precedents emphasizing that penalty proceedings require a fresh consideration separate from assessment proceedings. The burden of proof lies with the Department to establish concealment or furnishing of inaccurate particulars. The Tribunal highlighted the importance of distinguishing between assessment and penalty proceedings, citing relevant case laws to support its analysis.5. Decision and Rationale:The Tribunal analyzed the facts and observed that the penalty orders lacked clarity on how the satisfaction of concealment or inaccurate particulars was reached. While the lower authorities held the assessee guilty, the Tribunal found such a view untenable. Citing the Supreme Court's decision in CIT v. Reliance Petroproducts, the Tribunal concluded that the penalty provisions could not be invoked as the assessee had not furnished inaccurate particulars. Consequently, the Tribunal set aside the penalty for both years, directing the Assessing Officer to delete the entire penalty amount.6. Final Verdict:In the final outcome, the Tribunal allowed the appeal of the assessee, pronouncing the order in open court on 28.07.2016. The decision highlighted the necessity of establishing concealment or inaccurate particulars before imposing penalties under section 271(1)(c) of the Income Tax Act, 1961, emphasizing the legal principles governing penalty proceedings.