SHANTIBHAI NATHABHAI PATEL,BANASKANTHA vs. THE ITO, WARD-5, PALANPUR

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ITA 2617/AHD/2025Status: DisposedITAT Ahmedabad16 April 2026AY 2011-126 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee furnished inaccurate particulars of income by engaging in a bogus transaction, and the mention of Explanation (3) to Section 271(1)(c) was a mere irregularity. The penalty was upheld.

What were the facts?

The assessee claimed exempt Long Term Capital Gain (LTCG) on a penny stock transaction. The Assessing Officer treated the entire sale consideration as unexplained income and levied penalty under Section 271(1)(c). The CIT(A) confirmed the penalty.

What were the issues?

Whether penalty under Section 271(1)(c) is leviable when income is recharacterized from exempt to taxable due to bogus transactions, and if the invocation of Explanation (3) to Section 271(1)(c) invalidates the penalty.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SMT. ANNAPURNA GUPTA

For Appellant: Shri Sanjay R Shah, AR, Shri Girish Prihar, Sr. DR
For Respondent: Shri Girish Prihar, Sr. DR
Hearing: 05/03/2026Pronounced: 16/04/2026

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 2617/Ahd/2025 (िनधा�रण वष� / Assessment Year : 2011-12) बनाम/ Shantibhai Nathabhai Income Tax Officer Patel Ward-5, Palanpur Vs. Beverly Hills, Deesa Highway, Jodnapura, Palanpur, banaskantha, Chadotar B.O, Gujarat- 385001 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AANHS8542J (Appellant) .. (Respondent) अपीलाथ� ओर से /Appellant by : Shri Sanjay R Shah, AR ��यथ� क� ओर से/Respondent by : Shri Girish Prihar, Sr. DR Date of Hearing 05/03/2026 Date of Pronouncement 16/04/2026 O R D E R The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (hereinafter referred to as “NFAC”), Delhi (hereinafter referred to as “CIT(A)”) dated 08.10.2025, confirming the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2011-12.

2.

The grounds of appeals raised by the assessee are as under:

“1. The Commissioner of Income Tax (Appeals) erred in law and in facts by confirming penalty under section 271(1)(c), despite full disclosure of income in the return and during assessment proceedings. There was no concealment or

ITA No.2617/Ahd/2025 [Shantibhai Nathabhai Patel vs. ITO] A.Y. 2011-12 - 2 – furnishing of inaccurate particulars; hence, the penalty of Rs. 43,220/- under section 271(1)(c) is untenable and deserves to be deleted. 2. Without prejudice to the above, in any case, penalty u/s. 271(1)(c) cannot be levied when the full particulars of income are disclosed and merely when income is recharacterized from exempt to taxable by the Assessing Officer. It be so held now and the penalty levied be deleted. 3. Your Appellant reserve the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.” 3. The orders of the authorities below reveal that penalty was levied on account of addition made to the income of the assessee of bogus Long Term Capital Gain (‘LTCG’) claimed by the assessee. The assessee was found to have returned exempt LTCG on an alleged penny stock and the entire sale consideration, therefore, amounting to Rs.3,78,851/- was treated as unexplained income of the assessee. The penalty order reveals the Ld. CIT(A) to have confirmed this addition. Before us, it was stated that no further appeal was filed against the Ld. CIT(A).

4.

The challenge to the penalty levied in the present case u/s.271(1)(c) of the Act it was pleaded was on the ground that the AO had levied penalty by invoking Explanation (3) to Section 271(1)(c) of the Act, which was not applicable in the facts of the present case and further, the penalty was invoked for concealment of income whereas in the facts of the present case the facts pertaining to the income had been disclosed by the assessee. Reliance was placed on the decision of the Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd., [2010] 189 Taxman 322 (SC) for the proposition that merely because a claim is not accepted, it would not tantamount to concealment or furnishing of inaccurate particulars of income so as to attract the

ITA No.2617/Ahd/2025 [Shantibhai Nathabhai Patel vs. ITO] A.Y. 2011-12 - 3 – levy of penalty u/s.271(1)(c) of the Act. Reference was also made to the decision of the Hon’ble Rajasthan High court in the case of CIT vs. Harshvardhan Chemicals & Mineral Ltd., [2003] 133 TAXMAN 320 (Raj.).

5.

Ld. DR, however, relied on the order of the Ld. CIT(A).

6.

I have heard rival contentions. The issue in the present appeal relates to the levy of penalty on account of addition made to the income of the assessee on account of an alleged sham transaction in shares carried out by it. The assessee had traded in the scrip of M/s. Devika Proteins Ltd. which as per the information received from the DDIT (Inv.), Unit-1(2), Ahmedabad was a penny stock, the BSE having suspended the trading in the securities of the said company on 27.08.2015 as per the guidelines issued by the SEBI. The total transaction of the assessee in the above scrip was the tune of Rs.3,78,085/- and the entire amount, therefore, was treated as unexplained income of the assessee, which was confirmed by the Ld. CIT(A) and the order not further challenged.

7.

The contention of the Ld.Counsel for the assessee that the AO had wrongly invoked Explanation (3) to Section 271(1)(c) of the Act for invoking penalty, I find, is devoid of merits.

8.

Explanation (3) to Section 271(1)(c) of the Act is applicable only in those circumstances when the assessee has initially failed to file any return of income and was also not required to file any return of income during pendency of the period for passing assessment order and if income was disclosed subsequently in a

ITA No.2617/Ahd/2025 [Shantibhai Nathabhai Patel vs. ITO] A.Y. 2011-12 - 4 – return filed in response to notice u/s.148 of the Act, then, in such circumstances, the income so disclosed in the return filed in response to notice u/s.148 of the Act was to be treated as concealed income for the purpose of levy of penalty u/s. 271(1)(c) of the Act. The contention of the Ld. Counsel for the assessee was that in the facts of the present case, the assessee had filed return of income u/s.139(1) of the Act and, therefore, Explanation (3) was not invokable.

9.

I have gone through the order of the AO levying penalty, I find that after recording the facts of the case and noting the reply submitted by the assessee, the AO in the first place at page no.1 of the penalty order noted the assessee to have originally filed return of income. Thereafter, he held that it is evident from the records that the assessee has furnished inaccurate particulars of his income and deliberately and willfully omitted to show it by filing the return of income and concealing the same, and hence, is liable for penalty u/s.271(1)(c) of the Act. The AO noted that it was a fit case for levy of penalty u/s. 271(1)(c) of the Act, and therefore, by virtue of Explanation (3) to Section 271(1)(c) penalty was levied.

10.

As is evident from the above, the reason for levy of penalty was the assessee noted to have furnished inaccurate particulars of income relating to penny stock transaction. There is no denial of the fact that the assessee had indulged in penny stock transaction. The assesee admittedly has not challenged the order of the Ld.CIT(A) confirming the order of the AO holding so, nor before me the Ld. Counsel for the assessee has in any way

ITA No.2617/Ahd/2025 [Shantibhai Nathabhai Patel vs. ITO] A.Y. 2011-12 - 5 – challenged the treatment of the transaction as penny stock. Therefore, the findings of the AO that the assessee had furnished inaccurate particulars of income and concealed particulars of his income is correct and it is primarily for this reason that he has levied penalty u/s. 271(1)(c) of the Act which is recorded in the penalty order also as noted above by me. The mentioning of Explanation (3) to section 271(1)(c) is a mere irregularity, since the AO noted the assessee to have filed return of income originally and therefore could have never have proceeded/ intended to levy penalty for not disclosing the income in the original return of income filed. Therefore, the mentioning of Explanation (3) to section 271(1)(c) of the Act in the other part of the order of the AO is, I hold, a mere irregularity and does not invalidate the entire penalty order.

11.

As for the contention of the Ld. Counsel for the assessee that there was no concealment of income by the assessee since the assessee had disclosed all particulars relating to the trading in shares of M/s. Devika Proteins Ltd. which though was found to be bogus, but, it cannot be said that the assessee had furnished inaccurate particulars of income. I am not in agreement with this contention of the Ld. Counsel for the assessee also. The addition made and confirmed in the hands of the assessee and which has remained uncontested is that the assessee had indulged in bogus transaction of sale of shares and in this way had routed its unaccounted income in its books of accounts. The finding of the Revenue authorities is that the transaction of purchase and sale of shares was a bogus transaction. Therefore, the assessee cannot claim to have disclosed true and correct particulars of its income

ITA No.2617/Ahd/2025 [Shantibhai Nathabhai Patel vs. ITO] A.Y. 2011-12 - 6 – when it was found, undisputedly, to have disclosed only a bogus transaction. The true transaction was undoubtedly not disclosed by the assessee. There is no doubt about the fact that particulars of income disclosed by the assessee were inaccurate. The AO, I hold, was right in holding that the assessee had concealed particulars of income and had furnished inaccurate particulars of income. This contention of the Ld. Counsel for the assessee is also rejected.

12.

In the absence of any other challenge raised to the penalty levied in the present case, I dismiss all the grounds raised by the assessee.

13.

In the result, the appeal filed by the assessee is dismissed.

This Order pronounced on 16/04/2026

Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 16/04/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��यथ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

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