Bhumika Navin Patel Vs ITO (ITAT Ahmedabad)
Conclusion: Penalty under section 271(1)(c) was not leviable as deceased alone could have explained the source of the deposits, and since he had died before the initiation of penalty proceedings, it was not reasonable to expect the legal heir to establish his innocence. Addition to the income of the deceased assessee made on the basis of preponderance of probabilities was not justified.
Held: Assessee, was the legal heir of the late Navinbhai Punjabhai Patel, a farmer. AO found cash and cheque/transfer credits in the deceased’s bank accounts for AY 2006-07 to 2010-11. AO reopened the assessments and asked for the source of these deposits. However, Navinbhai Patel died during the process, and the source remained unexplained. AO did not join the legal heir in the assessment and completed the assessments in the name of the deceased. AO made additions totaling Rs. 1.96 lakh (AY 2006-07), Rs. 32.85 lakh (AY 2007-08), Rs. 61.53 lakh (AY 2008-09), Rs. 37.66 lakh (AY 2009-10), and Rs. 1.21 crore (AY 2010-11). The legal heir appealed these additions to the Commissioner of Income Tax (Appeals) [CIT(A)]. CIT(A) gave partial relief but confirmed significant additions for all years. AO also imposed penalties under section 271(1)(c) based on the confirmed additions. The legal heir appealed the penalty orders to CIT(A), but the appeals were rejected. She then approached Tribunal against the penalty orders for all the assessment years. It was held that most of the deposits in the bank account of the late Navinbhai Patel were bank transfers, with some small cash deposits. Navinbhai Patel passed away during the assessment proceedings, leaving the source of these deposits unexplained. AO treated the deposits as income from unexplained sources, making additions based on the preponderance of probabilities. AO did not include the legal heir in the assessment proceedings and made no effort to verify the sources of the bank transfers by obtaining details from the bank or contacting the depositors. The additions were therefore presumptive and not supported by conclusive evidence. It was also observed that the legal heir had already approached the High Court challenging the validity of making additions in the name of a deceased person. On the issue of penalty under section 271(1)(c), Tribunal held that such penalty could be levied only when concealment of income or furnishing of inaccurate particulars was proven. In this case, the deceased alone could have explained the source of the deposits, and since he had died before the initiation of penalty proceedings, it was not reasonable to expect the legal heir to establish his innocence. Mere deposits in a bank account did not automatically amount to undisclosed income and that culpability had to be proved. As the additions were based on probabilities and not on concrete findings, the penalty was unjustified.
