RAJESH GUPTA HUF,DELHI vs. ACIT CIRCLE 28(1), NEW DELHI

This appeal related to the penalty levied u/s 271(1)(c) of the Act.

Brief facts of the case are that the assessment was completed u/s 143(3) of the Act dated 14.12.2017 wherein AO has assessed the income of the assessee at INR 54,59,110/- as against the return income of INR 23,93,110/- by making addition of INR 23,10,000/- on account of sale proceeds from the sale of shares of M/s. Eins Edutech Ltd. held as unexplained credits. Besides this, AO has made the addition of INR 7,56,000/- under the head “income from house property”. The proceedings u/s 271(1)(c) of the Act were initiated with respect to the addition made u/s 68 of INR 23,10,000/-.

Aggrieved by the said order, the assessee preferred an appeal before the ld. CIT(A) who vide impugned order dated 05.03.2019, had partly allowed the appeal of the assessee wherein addition of INR 23,10,000/- made u/s 68 of the Act was reduced to INR 22,23,964/- being the amount of LTCG declared and further held that the same is to be taxed as Income from Other Sources in terms of the offer made by the assessee vide letter dated 20.11.2017 and deleted the addition made by the AO u/s 68 of the Act. However, during the pendency of the appeal before ld. CIT(A), the AO proceeded to conclude the penalty proceedings u/s 271(1)(c) of the Act and vide order dated 21.06.2018, alleged that assessee has concealed the income and furnish the inaccurate particulars of the income of INR 30,66,000/- [INR 23,10,000/- u/s 68 of the Act and INR 7,56,000/- as “income from house property”] and levied penalty of INR 19,80,000/- being 200% of tax was levied u/s 271(1)(c) of the Act .

Aggrieved by the penalty order, the assessee preferred an appeal before the ld. CIT(A) who has partly allowed the appeal of the assessee by reducing the same to the extent of addition made of Rs. 7,56,000/- as Income from House property however, has upheld the same on the addition made u/s 68 of the Act. Thus, the assessee is in appeal before the Tribunal in present appeal wherein various Grounds of appeal was taken as mentioned in the appeal memo.

In support of all the grounds of appeal, before us, the ld. AR submits that penalty was levied by alleging that the assessee has disclosed bogus LTCG from the sale of share of M/s. Eins Edutech Ltd. and accordingly, the entire sale consideration of INR 23,10,000/- was treated as unexplained credit u/s 68 of the Act. Ld. AR submits that without waiting for the order of ld. CIT(A) , the AO has levied the penalty u/s 271(1)(c) of the Act whereas the ld. CIT(A) as per the order passed in appellate proceedings has held that the addition could not be made u/s 68 of the Act on account of sale consideration received from the sale of shares of M/s. Eins Edutech Ltd. and further held that the AO has wrongly made the addition u/s 68 of the Act. Ld. CIT(A) therefore, treated the LTCG of INR 22,23,964/- as taxable under the head “Income from Other Sources” and while holding so, the ld. CIT(A) has made no allegation with respect to the concealment of income or furnishing of inaccurate particulars of income. Ld. AR further submits that while initiating the penalty proceedings, the AO had recorded the satisfaction that assessee has concealed the particulars of income however, since the ld. CIT(A) has held the said income as Income from other sources and rejected the theory of the AO of making addition u/s 68 of the Act, and no penalty proceedings were initiated while holding the addition of income from other sources therefore, the penalty could not be levied on such income. He prayed accordingly.

Per contra, ld. Sr. DR for the Revenue vehemently supported the orders of lower authorities and submits that the assessee has offered the LTCG from the sale of share of M/s. Eins Edutech Ltd as additional income and the same was held as bogus accommodation entry by the AO and therefore, the assessee has concealed the particulars of income and accordingly, penalty has rightly been levied. He prayed accordingly.

Heard the contentions of both the parties at length and perused the material available on record. It is observed that the AO while initiating the penalty proceedings u/s271(1)(c) of the Act, in the assessment order has recorded the satisfaction that the assessee has concealed the particulars of income and furnished the inaccurate particulars of income to the extent of INR 23,10,000/- being the sale consideration received from the sale of shares of Eins Eductech Ltd. u/s 68 of the Act. However, the ld. CIT(A) vide its order dated 05.03.2019 has rejected the conclusion drawn the AO and deleted the addition made u/s 68 of the Act and treated the same as Income from other sources by making following observations in para 6.1.5 of its order:- “6.1.5 I have gone through the facts and circumstances of the case. The assessee had subscribed 1,50,000 equity shares of M/s Eins Eductech Ltd (previously known as Thyrocare Laboratories Ltd and now Aplaya Creations Ltd) in July, 2013 @ Rs.15/- per share through preferential allotment. He applied for the shares by making payment of Rs.22.50 lacs through two cheques duly reflected in his bank account. These shares were transferred to his demat account on 25/11/2013 and thereafter remained in the same account. These shares remained in lock-in by order of the SEBI till 15/10/2014. Out of these 1,50,000 equities shares the appellant had sold out only 5,000 shares in the relevant financial year cost of which was Rs. 75,000/-. The remaining 1,45,000 shares having cost of Rs.21,75,000/- are still unsold. The appellant sold out these 5,000 shares on BSE through his broker M/s SMP Securities Ltd for a sale value of about Rs.23,10,000/- and claimed the capital gain of Rs.22,23,964/-exempt u/s 10(38). It is noticed that the appellant is regular investor in shares and he is not new in this business. As on 31/03/2015 his total cost of investment in the shares is Rs.3,71,52,112/-. During the year, the appellant has declared exempt capital gain of Rs.3,24,06,320/- out of which Rs.22,23,964/- pertain to Eins Edutech Ltd. The AO has doubted the capital gain only in the case of Eins Edutech Ltd. He strongly relied on the report of the Kolkata Directorate and on the basis of which he held the LTCG as bogus and disallowed the entire claim made u/s 10(38) and added Rs.23.10 lacs to the income of the appellant u/s 68. The AO has not made any independent enquiry to prove that the transaction was sham in nature. He failed to bring any material on record to prove that the appellant was also involved in bogus share transactions or he was directly involved in any manner to get benefitted with the bogus entries of LTCG. Mere reliance on the investigation report without directly pin pointing the role of the appellant in the transactions it is not justifiable to hold his claim of exempt income u/s 10(38) as taxable u/s 68 and treating the entire sale proceed as his income without allowing the investment of Rs.75,000/- made in purchase of these shares in the year July, 2013. The AO has not brought into any material against the initial investment made by the assessee through cheques. These shares were credited to the demat account much before the sale. Majority of these shares are still unsold and lying in the demat account. In view of the submissions made by the appellant and his reliance on various case laws including decisions of jurisdictional ITAT under the identical facts e.g. Sanjeev Jain vs ITO ITA No. 3381/Del/2017 etc. and that no direct evidence against the appellant is available, the section 68 cannot be applied in this case when all the limbs of the section like source, identity and genuineness of the transaction are established. Therefore, I hereby direct the AO to treat the LTCG of Rs.22,23,964/- as his income taxable under the head income from other sources as per the offer made by the assessee vide his letter dated 20/11/2017. In the result, these grounds from 1 to 3 are allowed.”

It is observed that ld. CIT(A) has categorically observed that the assessee has not concealed any particulars of income and the AO without any independent inquiry or investigation has invoked the provisions of section 68 of the Act which are not applicable in the instant case therefore, he hold that the income from sale of shares as Income from Other Sources, as was offered by the assessee vide letter dated 20.11.2017. It is observed that ld. CIT(A) has not initiated the penalty proceedings u/s 271(1)(c) of the Act and therefore, in our opinion that there was no occasion to hold that the assessee has concealed the particulars of its income or concealed any income accordingly, the penalty so levied u/s 271(1)(c) of the Act is hereby deleted.

In the result, appeal of the assessee is allowed.