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February 2026

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

By Keshav Bhujle | Ritu Punjabi, Advocates
Reading Time 4 mins

58. Shiv Kumar Jaiswal vs. The State of UP

2026 (1) TMI 371 (All.)

Date of order 05/01/2026

S. 276C(1) and 277 of ITA 1961

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

The assessee and his wife jointly owned a hotel and gifted the said hotel, out of love and affection, to one Mr. Raj Kumar, who was one of their family friend, vide a registered gift deed. Subsequently, the said Mr. Raj Kumar gifted ₹75 lakhs to the minor son of the assessee through a registered gift deed. In the assessment, the assessee voluntarily surrendered the capital gains and paid tax thereon so as to avoid further litigation and buy peace on the condition that no penalty proceedings be initiated u/s. 271(1)(c) of the Income-tax Act, 1961, in respect of the aforesaid surrender of income.

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Non-resident — Income deemed to accrue or arise in India — Amounts paid by Indian affiliates on account of marketing, distribution marketing and frequency marketing programme treated by AO as royalty — American company receiving payments from Indian affiliate for marketing and reservation services in hotel — AO held receipts taxable as royalty under I T Act and under DTAA and alternatively as fees for included services u/s. 9(1)(vii) and article 12(4)(a) and (b) of DTAA between India and US — DRP rejecting assessee’s objections holding that mere changing of business model did not change nature of receipts chargeable to tax — High Court held that the receipts neither taxable as royalty nor fees for technical services — Not taxable under DTAA as fees for included services

Re-opening of assessment — Findings given in Suspicious Transaction Report (STR) — No material or evidence to suggest escapement of income — No infirmity in documentary evidence furnished by the assessee — Re-opening of assessment merely on the basis of STR report is bad-in-law.