2023 (12) TMI 1365 - HC - Income Tax

HC confirms penalty for unsubstantiated gift receipts under Section 271(1)(c) but deletes penalties for capital account differences and disallowed deductions

The HC upheld penalty under Section 271(1)(c) for unsubstantiated gift receipts from assessee's brother, as no evidence was provided to prove the gift ... Penalty u/s 271(1)(c) - addition towards advance for sale of the land from the prospective purchasers - HELD THAT:- As noticed that the AO had specifically stated that the sale deeds as proffered by the assessee for the purpose of substantiating the advance received from prospective buyers was only to the extent of Rs. 5,74,000/-. The sale deeds proffered also did not show any advances having been received by the assessee prior to the execution of the sale deed. The assessee also had a claim that the balances of the advances received were refunded. There was absolutely no evidence proffered to show such refunds. AO made the addition, which though modified by the First Appellate Authority was restored by the Tribunal and which restoration was upheld by this Court. In the penalty proceedings the Tribunal relied on the First Appellate Authority’s order and confirmed the penalty only with respect to the addition which was disallowed to be treated as advance for sale of land received from prospective buyers. We find no appeal having been filed by the Revenue against the order of the Tribunal. Hence, the penalty can be only to the extent of that confirmed by the Tribunal, though the entire addition is confirmed in the quantum appeal. Addition on account of difference of opening balance of capital as per the revised capital account - This court in the quantum appeal has found that this was reflected in the original returns filed before the block assessment and since there was no reopening of the assessment there can be no addition made in the block assessment. The penalty imposed hence has to be deleted. Disallowance of claim u/s 54B and u/s 54 - The additions were sustained in the assessment order which was interfered with by the First Appellate Authority on the ground that they were declared in the regular return. Tribunal reversed the order of the First Appellate Authority in the quantum appeal and restored the additions made, since they were never claimed in the original return filed. The quantum appeal before this Court also has not dealt with the issue and Tribunal’s order stands confirmed. Tribunal in the above circumstances found that the penalty is justified on this count also. However, we are of the opinion that if no deduction was claimed in the original return then definitely the capital gains would have been assessed to tax. If such assessment has already been made and deduction is now claimed under Section 54B and 54F in the block return and rejected there is no ground of imposition of penalty. We hence delete the penalty imposed on the ground of a wrong claim of Section 54B and 54F of the Act. Receipt of gift from the assessee’s brother - AO, FAA , Tribunal and this Court in the appeal from the assessment order found that there is no evidence produced by the assessee to prove the amounts received as gift from his brother. Hence, the penalty imposed is justified and is upheld. Appeal partly allowed. Issues:1. Imposition of penalty on various additions made to the income of the assessee during the block period 1996-97 to 2002-03 assessment years.2. Disallowance of certain deductions claimed by the assessee and the subsequent imposition of penalties.3. Lack of evidence to support gifts received by the assessee from his brother leading to penalties.Analysis:The judgment involves an appeal by an assessee against the Income Tax Appellate Tribunal's order regarding additions to the income during the block period assessment years. The main grievances raised by the assessee were regarding the imposition of penalties on specific grounds. The first issue pertained to the addition of income, including differences in opening capital, gifts received, and unexplained advances received for the sale of land. The Tribunal had upheld certain additions, leading to penalties being imposed.The second issue revolved around the disallowance of deductions claimed by the assessee under Sections 54B and 54 of the Income Tax Act. The Tribunal reversed the First Appellate Authority's decision and sustained the additions, leading to penalties. However, the High Court found that if no deductions were claimed in the original return, then the penalties were not justified, resulting in the penalties being deleted for these claims.The third issue concerned gifts received by the assessee from his brother, for which there was a lack of evidence. The lower authorities, including the Tribunal and the High Court, found no proof of these gifts, leading to the imposition and subsequent upholding of penalties. The High Court upheld the penalties in this regard.The judgment also addressed specific legal questions raised by the parties, including the interpretation of penalty provisions and the treatment of income and deductions in block assessments. The High Court refused to answer hypothetical questions but provided detailed reasoning for upholding or deleting penalties based on the evidence and legal provisions. Ultimately, the High Court partly allowed the appeals, ruling in favor of the assessee on certain grounds while upholding penalties on others.