In Late Smt. Leelabai Phadke v. ACIT, a division bench of the Mumbai ITAT quashed the penalty proceedings against the legal heir of the assessee he revised the return and voluntarily offered the additional income to tax. The bench clarified that in such cases, penalty under section 271(1)(c) of the Income Tax Act, 1961 is not leviable since the disclosure made by the legal heir of the assessee was bonafide and voluntary with a view to close litigation.
The department, on a survey conducted on the premises of one Mr. Arun G. Vartak, found that the assessee (deceased) failed to show the correct amount received by her on the sale of property. During the course of assessment proceedings, the legal heir filed a revised return showing additional capital gains and paid the taxes due on the above capital gains. The legal heir in order to buy peace of mind also paid voluntarily the taxes and part of the interest to keep the respect of their deceased mother. However, the AO also levied penalty u/s 271(1)(c) with regard to the income offered in the revise return.
First appellate authority confirmed the penalty order.
On second appeal filed by the assessee, the bench noted that legal heir of the assessee has bonafidely offered the income which was alleged to be received by the deceased assessee and paid tax on the additional income so offered.
Quashing the proceedings under s. 271(1)(c) of the Income Tax Act, the bench said that “The legal heir was not aware of what has been happened in the past while his mother was alive and subsequently it was found during course of search after the death of mother that she had received some cash money on sale of property. Such on money offered by legal heir and due taxes thereon also paid by legal heir. Under these facts and circumstances, levy of penalty u/s.271(1)(c) is not warranted on the legal heir.”
Read the full text of the Order below.
