SMT. SUSHILABEN D. SHAH,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(3)(5), AHMEDABAD

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-10, Ahmedabad (‘CIT(A)’ in short), dated 22.01.2018 arising in the penalty order dated 17.03.2016 passed by the Assessing Officer (AO) under s. 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning AY 2006-07.

The assessee has challenged the imposition of penalty of Rs.50,330/- imposed by the AO under s. 271(1)(c) of the Act. [Smt. Sushilaben D. Shah vs. ITO] A.Y. 2006-07 - 2 -

Briefly stated, the return filed by the assessee for AY 2006-07 was reopened under s.147 of the Act. In the course of the re-assessment proceedings, the AO observed that the assessee has claimed long term capital gain of Rs.2,13,350/- on sale of shares of Talent Infoways, the transaction of which was entered into through Mahasagar Group of companies. The AO relied upon certain statement of Shri Mukesh M. Chokshi (a key person of Mahasagar Group) that the transactions carried out by him were not genuine business transactions and he was engaged in the business of issuing bogus bill. The assessee was found to be one of the beneficiaries of such transactions and accordingly the benefit of tax exemption on capital gains arising from transaction carried out through Mahasagar Group was denied to the assessee and the long term capital gain so declared was treated as unexplained income of the assessee under s.68 of the Act as chargeable to income tax. The aforesaid action of AO was also endorsed by co-ordinate bench of ITAT in quantum proceedings. The AO also imposed the penalty on addition of the aforesaid amount of Rs.2,13,350/- to the taxable income. The penalty of Rs.50,330/- was determined @ 100% of tax sought to be evaded on such long term capital gains which were found to be untrue.

The CIT(A), in first appeal, confirmed the imposition of penalty.

Aggrieved, the assessee preferred appeal before the Tribunal.

We have considered the rival submissions on the issue as pointed out on behalf of the assessee. It is not in dispute that the assessee has furnished the supporting bills and details of payments in support of transactions reported to be long term capital gain. It was contended that entire addition is based on the statement of Mr. Mukesh Chokshi which was never provided to the assessee. It was also pointed out that it is quite possible that Mr. Mukesh Chokshi has not included the transactions with assessee in his statement at all. [Smt. Sushilaben D. Shah vs. ITO] A.Y. 2006-07 - 3 -

At this stage, we bear in mind that incidence of penalty under s. 271(1)(c) of the Act is not automatic and should not be imposed merely because it is lawful to do. Considering the smallness of the amount involved, we consider it expedient to give benefit of doubt to the assessee owing to mitigating circumstances viz; the absence of copy of statement of Mr. Mukesh Chokshi or any other substantive material. The assessee has supported the face value of transactions with bills and payments. In the backdrop of ambiguity in circumstances, it is difficult to hold that the explanation offered by the assessee is blatantly false. We are thus inclined to exonerate the assessee from the incidence of penalty. However, in peculiar circumstances, this view shall not operate as precedent in any manner.

In the result, the appeal of the assessee is allowed.