Commissioner of Income Tax vs Tikka Ram through L/h Smt. Munni Devi

Rakesh Kumar Garg, J.—The revenue has filed the present appeal u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as the ''Act'') against the order dated 11-7-2007 passed by the Tribunal, Chandigarh Bench "B" in ITA No. 231/Chd/2007 for the assessment year 1998-99 raising the following substantial question of law:

Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in deleting the penalty u/s 271(1)(c) by treating the voluntary disclosure made in response to notice u/s 148 as having been done in good faith and to avoid litigation.

In this case the assessee filed his return of income for the assessment year 1998-99 on 13-11-1998 declaring an income of Rs. 77,520 inter alia declaring income from house property and salary earned in the capacity of a partner in a partnership firm. Subsequently on an information received from the Investigation Wing that the assessee had acquired a property, i.e. Booth No. 107, Sector 28, Chandigarh on 8-1-1998 for a consideration of Rs. 5,06,250 which was undeclared, the assessing officer issued a notice u/s 148 on 29-9-2005 for making an assessment. In the meanwhile the assessee had expired and accordingly his legal heir Smt. . Munni Devi (wife) filed return of income on 6-10-2005 in response to the notice issued u/s 148 of the Act. The legal heirs i.e. wife and his son expressed their unawareness about the source of investment made in the said property. Accordingly the income declared in the return filed in response to (notice under) Section 148 on 6-10-2005 was Rs. 5,87,520 which, inter alia contained the amount declared on account of investment in the aforesaid property i.e. Rs. 5,10,000. Accordingly the source of investment in the said property remained unexplained. The assessment u/s 143(3) read with Section 147/148 was thereafter completed by the assessing officer on 27-12-2005 at the returned income of Rs. 5,87,520.

As the investment of Rs. 5,10,000 in the property had not been declared in original return of income dated 13-11-1998, penalty proceedings u/s 271(1)(c) of the Act were initiated against the assessee at the time of passing of the assessment order. During penalty proceedings, the assessee was provided an opportunity to offer an explanation in respect of the abovestated concealed income. The legal heirs of the assessee submitted that they have preferred to surrender the amount of investment made by the assessee as the sources were not known to her as the deceased husband was managing his financial affairs and had made the investment in property. The legal heir having no knowledge of sources of investment which were made by her husband and being an illiterate housewife chose to surrender the amount but to no penal action. The assessing officer vide his order dated 30-3-2006 imposed a penalty u/s 271(1)(c) of the Act amounting to Rs. 1,44,752. The Commissioner (Appeals) upheld the imposition of penalty against which the assessee filed an appeal before the Tribunal. The Tribunal vide its order dated 11-7-2007 directed the assessing officer to delete the penalty imposed u/s 271(1)(c) of the Act amounting to Rs. 1,44,752 while holding that the act of voluntary disclosure made by the legal heir in the return of income filed in response to notice u/s 148 of the Act was done in good faith and to avoid litigation. The Tribunal also found that it was a case of bona fide disclosure done not merely to avoid the consequences of law, but with a view to avoid litigation. The relevant portion of the order of the Tribunal is reproduced hereunder:

We have considered the rival submissions carefully. In this case the whole issue revolves around as to whether disclosure of Rs. 5,10,000 made by the assessee in the return filed by his legal heir in pursuance of notice u/s 148 constitute a bona fide disclosure. The factual position is that the assessee was found to have invested sums in purchase of an immovable property on 8-1-1998, i.e. for the assessment year under consideration. When the assessee was called upon to explain the sources of investment in the purchase of said property, he had already expired and the return of income was thereafter furnished by his legal heir, namely, Smt. Munni Devi (wife). The legal heir, being unaware of the sources of investments, filed return of income on 6-10-1995 wherein an income of Rs. 5,10,000 was declared on this count. The assessing officer has held that the said income of Rs. 5,10,000 is liable for imposition of penalty in terms of Section 271(1)(c) of the Act being an income concealed by the assessee. Quite fairly it has to be granted that consequent to the death of the assessee himself, the legal heir would not be in a position to explain and elaborate the sources for making the impugned investment. Faced with such a situation, the action on behalf of the part of the legal heir by making return of income inter alia including the impugned amount only demonstrates her bona fides and willingness not to prolong any litigation with the revenue. Such a situation cannot be compared with a situation whereby an assessee discovers an earlier omission or wrong statement to justify the filing of subsequent return of income. Even when enquiries are carried out by the revenue and an assessee accepts the result of enquiries, and on that basis discovers a mistake of a wrong statement in the return of income earlier filed, such an assessee still has an option in law to demonstrate and explain the reasons for such omission or wrong statement so as to avoid imposition of penalty u/s 271(1)(c) of the Act. In this case, ostensibly the assessee had died and his legal heir namely his wife was not in a position to explain the circumstances leading upto the impugned investment. It was under these circumstances that the assessee''s legal heir accepted the charge made out by the assessing officer in the notice issued u/s 148 of the Act. Therefore, in the instant case, having regard to the peculiar circumstances, it can be deduced that it is a case of bona fide disclosure done not merely to avoid the consequences of law but with a view to avoid litigation. Ostensibly in the absence of the assessee himself, there could not be any person having first hand knowledge as to the sources of investment in the said property. Therefore, to say that the assessee had made any deliberateness in not declaring the correct income in the original return and on that basis to hold it guilty u/s 271(1)(c) would be unjustified. Fairly the assessee had no chance of carrying through his explanation and in any case the assessing officer in the present case has also not recorded any finding as to the reasons weighing with the assessee for doing so in the original return. The revenue in the present case has simply rested its conclusion on the act of voluntary disclosure made by the legal heir in the return of income filed in response to notice u/s 148, which we have already inferred, was done in good faith and to avoid litigation.

Ms. Urvashi Dugga, learned Counsel for the revenue, has vehemently argued that in this case an offer to surrender was not voluntary and bona fide and, therefore, the Tribunal has erred at law while deleting the penalty imposed upon the assessee u/s 271(1)(c) of the Act.

We have heard Ms. Urvashi Dugga, learned Counsel for the revenue and have perused the record.

We find that the Tribunal has found as a matter of fact that in response to notice issued u/s 148 of the Act, the legal heir of the assessee (i.e., wife) herself filed the revised return of income at Rs. 5,87,520 which includes the unexplained income of the assessee. As the assessee had died, the legal heir being unaware of the sources of investment filed return of income including the impugned amount only to demonstrate her bona fides and willingness not to prolong any litigation with the revenue. We find that in this case ostensibly the assessee had died and his legal heir, namely, his wife, was not in a position to explain the circumstances leading to the impugned investment and it was under these circumstances that she accepted the charge made out by the assessing officer in the notice u/s 148 of the Act. Therefore, in the instant case, the disclosure made by the legal heir of the assessee was bona fide and voluntary with a view to avoid litigation and therefore, deletion of penalty u/s 271(1)(c) of the Act in the present case is justified.

We find no error in the order of the Tribunal and the same is upheld. No substantial question of law arises for our determination in this appeal.