By TIOL News Service

MUMBAI, SEPT 27, 2017: THE ISSUE BEFORE THE COURT IS - Whether income from sale of TDR assets transacted by deceased husband, when received by wife only after court settlement, and she offers the same during assessment, that does not mean that her act can be brought within penalty provision. YES is the verdict.

Facts of the case:

The Assessee is an individual and she filed her return declaring total income of Rs.3,36,690/-. She declared income from house property, salary as well as income under the head, "Income from other sources". The scrutiny assessment was undertaken and various additions came to be made in relation to low household withdrawals, interest income, TDR receipts and short term capital gain. Out of the total additions made to the return of income, three additions were considered by the AO to be concealed income within the meaning of the penalty provision. That is how the penalty was imposed and the Appellate Authority sustained it. When the matter went before the Tribunal, the ITAT deleted the penalty levied u/s 271(1)(c) with respect to additions on account of interest on FDRs with Dena Bank and TDR sale receipts, even when the Department opined that said incomes were detected by AO on examination of books and not declared voluntarily by Assessee in her return.

High Court held that,

++ the argument of the Department was that, because the assessee came forward to disclose the income only during the assessment proceedings, the penalty has been correctly levied. The Tribunal found, in relation to each of the income on the touchstone of which the penalty was imposed, that the amounts were deposited in the Bank account. They reflected transferable development right sales executed by the deceased husband prior to 2002. The assessee explained that neither she was the owner of the TDR assets nor was she party to the sale transaction. The transaction was executed by her deceased husband. The amounts were received by the assessee as a result of the dispute being settled in Court. Such receipt was treated as capital receipt not chargeable to tax and, therefore, it was not offered to tax in the return of income. However, during the course of the assessment, the assessee agreed to pay tax on the same and that is how the sum of Rs.1,11,67,378/- was added to the total income. It is that amount which has been subjected to levy of penalty primarily on the ground that the assessee agreed to the addition and did not challenge it in appeal;

++ the Tribunal considered the principles which have to be invoked and applied for levy of penalty, the plain language of the statutory provision and the peculiar facts. Once the assessee is a beneficiary of the amount received as a consequence of the transfer executed by her husband, of which she had no knowledge, she offered that during the course of the assessment proceedings, that does not mean that her act can be brought within the penalty provision. The explanation rendered by the assessee is bona fide. There was no factual dispute. Therefore, in the facts and circumstances of the case, the Tribunal held that the assessee has discharged the primary burden. There was no material brought by the Revenue to show that the explanation of the assessee is either false or lacking in bona fides. It is in these circumstances, the Commissioner was justified in deleting the penalty.

(See 2017-TIOL-2020-HC-MUM-IT)