Penalty can not be imposed based on findings of assessment proceedings as they cannot automatically be adopted

Penalty can not be imposed on the basis of findings of assessment proceedings as they cannot automatically be adopted in penalty proceedings. Denial made in assessment proceedings on the basis of human probability can not be the basis for the purpose of levying penalty under Section 271(1)(c) – ITAT

ABCAUS Case Law Citation:
ABCAUS 2114 (2017) (11) ITAT

The Challenge/Grievance:
This appeal was preferred by the assessee against the order passed by the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer (AO) imposing penalty under section 271 (1)(c) of the Income Tax Act, 1961 (the Act).

Important Case Laws Cited/relied upon by the parties:
Khoday Eswarsa and Sons reported in 83 ITR 369 (SC)
Dilip N. Shroff reported in 291 ITR 519 (SC)
Reliance Petroproducts reported in 322 ITR 158(SC)

Brief Facts of the Case:
During the course of assessment proceedings, the AO noticed that the assessee had introduced capital of Rs. 12 Lacs in his partnership firm. The assessee explained that out of Rs. 12 Lacs, Rs. 10 Lacs represented gifts received from five friends and relatives and Rs. 2 Lacs from personal resources. However, the AO did not accept the assessee’s explanation and inter alia added back Rs. 12 Lacs to the income of the assessee.

The ITAT in the quantum appeal, upheld the addition of Rs. 10 Lacs said to have been received from friends and relatives. The AO imposed a penalty u/s 271(1)(c) on the amount of addition upheld  by ITAT and the same was confirmed by the CIT (Appeals).

Aggrieved, the assessee had approached the ITAT in the present appeal.

Contention of the Appellant Assessee:
The assessee submitted that the imposition of penalty was bad in law as the penalty was confirmed on the transactions which were rejected on the basis of human probability. It was submitted that the affidavits as well as gift deeds from all the donors were furnished before the lower authorities along with copies of income tax returns and bank accounts. It was further submitted that the copies of balance sheets were directly filed by all the donors in person before the AO and also that all the donors had appeared before the AO, confirmed the gifts as also disclosed the relationship with the assessee as well as the source of gifts. It was also submitted that all the gifts were paid through account payee cheques and stood verified from the bank accounts of donors/donee by the AO.

Contentions of the Respondent Department:
On the othet hand, the Revenue argued that the penalty had rightly been imposed as even the ITAT had upheld the disallowance/addition pertaining to the alleged gifts. It was submitted that the assessee had failed to discharge the onus cast upon him in this regard and, therefore, it was apparent that there was an active concealment of income/furnishing of inaccurate particulars .

Observations made by the Tribunal:
The ITAT observed that the Hon’ble Apex Court had held that the penalty cannot be levied solely on the basis of reasons given in the original assessment order. Also, the Apex Court in another case had held that the burden of proof in penalty proceedings varies from that in assessment proceedings. A finding in the assessment proceedings that a particular receipt is income cannot automatically be adopted in penalty proceedings.

The ITAT also noted the decision of the Apex Court wherein their Lordships had defined the meaning of the phrase “furnishing of inaccurate particulars of income”. Their Lordships had held that if the details supplied by the assessee in the return of income are found to be incorrect, erroneous or false, then only it can be said that the assessee has furnished inaccurate particulars of income so as to make him liable for penalty under Section 271(1)(c) of the Act.

The Tribunal observed that the Assessing Officer had not pointed out any of the details furnished by the assessee to be incorrect, erroneous or false. The Assessing Officer had only doubted the genuineness of the gifts on the ground of human probabilities.

The Tribunal opined that what is humanly probable is certainly a matter of opinion and, therefore, the denial of the acceptance of gifts in the assessment proceedings on the basis of human probability might be justified, but, the same could not be the basis for the purpose of levying penalty under Section 271(1)(c), specially when there are overwhelming documentary evidences in support of the genuineness of the gifts which is further fortified by the statements of the donors.

Decision/ Conclusion/Held:
It was held that the assessee could not be said to have furnished inaccurate particulars of income or have concealed the income so as to make him liable for penalty under Section 271(1)(c) of the Act. Accordingly, the order of the CIT (A) was set aside and the AO was directed to delete the penalty.