DEPUTY COMMISSIONER OF INCOME TAX-1, KANPUR vs. SMT. SHEHLA AHMED , KANPUR

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA No.181/LKW/2018 Assessment Year: 2013-14 Dy. CIT-1 v. Smt. Shehla Ahmad Kanpur 376-C, Allied Street Jajmau, Kanpur TAN/PAN:AEXPA4122N (Appellant) (Respondent) C.O. No.09/LKW/2018 [In ITA No.181/LKW/2018] Assessment Year: 2013-14 Smt. Shehla Ahmad v. Dy. CIT-1 376-C, Allied Street Kanpur Jajmau, Kanpur TAN/PAN:AEXPA4122N (Cross-Objector) (Respondent) Department by: Shri R. K. Vishvakarma, D.R. Assessee by: Shri Swarn Singh, FCA Date of hearing: 24 07 2019 Date of pronouncement: 22 08 2019 O R D E R PER A. D. JAIN, V.P.: This is Revenue’s appeal and assessee’s cross objection against the order of the ld. CIT(A)-II, Kanpur, dated 1/12/2017, for the assessment year 2013-14. 2. The Revenue has taken the following grounds of appeal: 1. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the penalty of Rs.22,00,000/- imposed by the Assessing Officer on account of undisclosed

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 2 of 13 income of Rs.67,98,770/- under the head LTCG without appreciating the fact the return of income filed by the assessee U/s 139(1) the fictitious claim of LTCG was made and the assessee deliberately concealed the income furnishing the inaccurate particulars of income 2. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the penalty without appreciating the facts that the assessee has not been able to substantiate as to why wrong claim of LTCG was made by her in the return of income which was found to be fictitious and arrange through accommodation entries during the course of penalty proceeding. 3. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the penalty without appreciating the fact that the assessee surrendered the said income arising out of the LTCG only when the show, cause notice was served upon her and not voluntarily u/s 139(1) and thus tried to conceal the income by furnishing inaccurate particulars. 4. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur being erroneous in law and facts, be vacated and the order dated 30.09.2016 passed under section 271(1)(c) of Income Tax Act, 1961 by the Assessing Officer be restored.

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 3 of 13 4. The A.O also initiated penalty proceedings under section 271(1)(c) of the Act on the amount surrendered during assessment proceedings, by issuing notice dated 31.03.2016 under section 274 r. w. s. 271(1)(c) of the Act. A notice dated 21.06.2016 was also issued for furnishing reply to the penalty proceedings initiated under section 271(1)(c) of the Act. The assessee filed her reply on 14.09.2016. The AO after considering the reply of the assessee, passed the penalty order under section 271(1)(c) of the Act on 30.09.2016 and imposed a penalty of Rs.22,00,000/- under section 271(1)(c) of the Act. 5. Aggrieved by the order of the A.O levying penalty under section 271(1)(c) of the Act, the assessee preferred an appeal before the ld. CIT(A). The submission of the assessee before the ld. CIT(A) was that the AO has not specified the limb of section 271(1)(c) of the Act, under which penalty proceedings have been initiated; and that since the A.O has not specified the limb of section 271(1)(c) of the Act, under which penalty proceedings have been initiated, the penalty order of the A.O is liable to be quashed. The ld. A.R. of the assessee has also placed reliance upon the following judgments/decisions: 1. CIT vs. SSA’s Emerald Meadows, 73 taxmann.com 241 (Karnataka). 2. Order of ITAT Lucknow Bench in Shri Jeevan Kumar Agarwal vs. DCIT in ITA No.390/LKW/2016. 3. Order of ITAT Lucknow Bench in the case of DCIT vs. BJD Paper Products, 20 taxmann.com 314 (Luck) 6. The ld. CIT(A) rejected the argument of the assessee that the penalty order of the A.O is liable to be quashed for the reason that in the notice issued by the A.O under section 274 read with 271(1)(c) of the Act, he has not specified the limb of section 271(1)(c) of the Act

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 4 of 13 under which penalty is being initiated. The reason for rejecting this argument by the ld. CIT(A) was that in his view the A.O is very specific that both the limbs were used for imposing the impugned penalty. However, he deleted the penalty levied under section 271(1)(c) of the Act, observing as under: “I have perused the facts of the case and case law relied upon by AO and appellant. A perusal of the assessment order u/s 143(3) of the Income Tax Act, 1961 dated 31.03.2016 shows that AO made following addition(s):- i. Disallowance of Rs.67,00,748/- claimed as Long Term Capital Gain exempt u/s 10(38) of the Income Tax Act, 1961. ii. Addition on account of Valuation of closing stock - Rs.15,42,274/- iii. Disallowance u/s 40a(ia)- Rs.9,63,357/- iv. Interest on bank account- Rs.20,413/- It is also true as contended by the appellant that the penalty proceedings u/s 271(1)(c) were initiated only on the amount of disallowance of Rs.67,00,748/- surrendered during assessment proceedings. A perusal of the notice u/s 274 r.w.s 271(1)(c) of the Income Tax Act, 1961 dated 31/03/2016 sows that under the same AO has not specified the specific charge specifying whether notice dated 31.03.2016 is being issued for furnishing of inaccurate particulars or for concealment of income. It is clear from the order of AO imposing penalty that AO, passed the penalty order u/s 271(1)(c) of the Income Tax Act 1961 on 30.09.2016 on both the limbs of the section. Though the AO had not specified on which limb of section 271(1)(c) of the Income Tax Act, 1961, penalty proceedings were being initiated. In the notice issued u/s 271(1)(c) of the income tax act, 1961 dated 31.03.2016, Ld. AO has noted as under:- ".......It appears to me that you have concealed the particulars of its income & or furnished inaccurate particulars of such income.............."

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 5 of 13 However as per para 10 of the penalty order it is seen that AO has imposed penalty for both limbs i.e. for concealing the particulars of its income & furnishing of inaccurate particulars of such income. Hence it is not correct on the part of the appellant to say that the AO did not specify the charge on which the penalty proceedings have been initiated or imposed. No doubt AO needs to specify the particular limb of section 271(1)(c) of the I.T Act, it is seen that AO has used both the limbs of the section 271(1)(c) of the IT Act for initiating and imposing the penalty. Each case about the satisfaction of AO will depend on facts of each case but one thing is certain, satisfaction of only AO is relevant, legally. Satisfaction of any other person cannot be imposed while deciding the issue. Here the order of AO is very specific at Para 10 that both the limbs were used for imposing the impugned penalty. On this issue alone the impugned penalty order cannot be deleted. This argument of appellant is therefore rejected, Now coming on the merits of the case. It is a trite law that penalty proceedings are different and separate than assessment proceedings. The disallowance made in the impugned assessment order was solely on account of different view taken on the same set of facts. The appellant surrendered the income in order to buy peace and to avoid litigation, which does not prove that it is a case of concealment of income or a case of filing of furnishing inaccurate particulars of income as contemplated in provisions relating to concealment penalty. It is the duty of the AO to make out clearly a case fit for imposing the penalty u/s 271(1)(c) of the Act. Such issues are now squarely covered by the Judgement of the Hon'ble Apex Court in the case of Commissioner of Income Tax Vs. Reliance Petroproducts (P) Ltd (SC) reported in 230 CTR Page 320, wherein their Lordships after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519 (SC) has held that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under s. 271(1)(c).

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 6 of 13 AO imposed penalty u/s 271(1)(c) of the Act for the reason that at the time of assessment proceedings, appellant agreed to the disallowance of Rs.67,00,748/- and surrendered the same during the assessment proceedings, on account of Long Term Capital Gain on sale of shares. It is seen that the penalty order is passed without making any further enquiry on the alleged bogus sale transactions. AO has not made any effort during penalty proceedings to rebut the questions raised and discrepancies pointed out by appellant on the evidence collected during assessment proceedings. AO has simply reiterated the findings given in the assessment order and relied heavily and solely upon the surrender of the appellant while imposing penalty. The penalty u/s 271(1)(c) of the Act can be levied only when there is any concealment of income or the assessee has furnished inaccurate particulars of Income. A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Appellant has shown this income as a part of income. It is evident from the records that all the purchases and sales of share have been clearly shown in the income and expenditure account and also there is no inaccurate particulars furnished by appellant and nor it is established by Assessing Officer during any proceedings. It is undisputed fact that in the course of the assessment proceedings, complete details were duly submitted by the appellant and several case laws were also cited in support of the claim made by the appellant. The said addition was however made by the AO on the basis of certain investigation done by Investigation Wing. Appellant has raised some very pertinent questions challenging the investigation done that is relied upon by the AO. It is a matter of fact that the assessee submitted copies of bill for purchase of shares, physical share certificates of M/s Makeover Vintrade Pvt. Ltd. order of Hon'ble Kolkata High Court dated 25.08.2011, contract note of brokers, copy of DMAT Statement, etc. before the Ld. AO during the course of assessment proceedings. It is also important to mention that in the Assessment Order dated 31.03.2016 and Penalty Order dated 30.09.2016, Ld. AO has never doubted the genuineness of the transactions of H. M.

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 7 of 13 Fathepuria, the other share broker who had sold 7500 shares of M/s Oasis Cine Communication for the appellant. The Ld. AO without making any enquiries into the genuineness of the transactions of H. M. Fathepuria, disallowed the claim of Long Term Capital Gain on aggregate sale. Moreover, the penalty order dated 30.09.2016 was also passed without making any enquiry on the sale transactions through broker H. M. Fathepuria. There is no material difference in the sale value of shares entered into by the two brokers. However, the AO doubted the genuineness of the transactions entered through the share broker Bikash Sureka but without making any enquiry on the sale transactions through broker H. M. Fathepuria, added the same amount as well. The assessee offered Long Term Capital Gain of Rs.66,00,748/- to tax to buy peace as she was not in a position to produce any more evidence than that was in her possession and which was submitted and not concealed from the AO. The assessee has surrendered the amount as income from other sources just to buy peace and to avoid undue litigation. During the course of assessment proceedings all material relating to transactions giving rise to capital gain was furnished. The assessee purchased these shares of M/s Makeover Vintrade Pvt. Ltd. a company that got amalgamated with M/s Oasis Cine Communication Ltd. through the Order of Hon'ble Kolkata High Court. These shares were sold through properly legally valid DMAT accounts. All these facts have not been doubted by the AO in the assessment order. These are the facts given by appellant and also verified by the investigation wing. The appellant disclosed all the material and details in respect of long term capital gain, while filing the return of her income, therefore, the Ld. AO was not justified in levying the penalty u/s 271(1)(c) of the Income Tax Act, 1961. In the proceedings u/s 271(1)(c) of the Income Tax Act, 1961, onus is on the AO to prove what are the facts or records submitted by assessee that is false or incorrect and that the assessee has furnished inaccurate particulars or concealed its income. It is also admitted fact that appellant had a bonafide belief and adequate reasons, in the shape of copies of bill for purchase of shares, physical share certificates of M/s Makeover Vintrade Pvt. Ltd, order of Hon'ble Kolkata High Court dated 25.08.2011,

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 8 of 13 contract note of brokers, copy of DMAT Statement, etc. for filing the return of income declaring the correct value of the transaction. Thus the penalty so levied is not based on any fresh finding of fact. AO has not brought on record anything to support that the appellant has filed certain evidence or details whose particulars were concealed or whose furnished particulars were inaccurate. Merely due to the fact that the AO has not agreed to the same, it does not disprove the bonafide of the appellant. There is no fact brought on record submitted by the investigation wing or by AO to prove that the return filed by the appellant is inaccurate or the assessee had introduced her own money by routing through various channels. In view of the aforesaid facts and circumstances of the case, it is clear that the Ld. AO failed to discharge onus cast upon him in terms of Section 271(1)(c) of the Income Tax Act, 1961. Therefore, penalty levied u/s 271(1)(c)of the Income Tax Act, 1961 is unsustainable in law. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of T. Ashok Pai Vs Commissioner of Income-tax, Bangalore [2007J 161 TAXMAN 340 (SC). It was held that: "................. The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle............." AO has imposed penalty by invoking the Explanation 1 of the section 271(1)(c) of the Act. AO took the view that in the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 is attracted. The scope of Expiation 1 to Section 271(1) (c) of the Act, which reads as follows? "Explanation 1 — Where in respect of any facts material to the computation of the total income of any person under this Act, -

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 9 of 13 (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) Such person offers an explanation, which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." Now, the question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise. Here appellant has discharged the onus by placing on record all the evidence available with her like copies of bill for purchase of shares, physical share certificates of M/s takeover Vintrade Pvt. Ltd., order of Hon'ble Koikata High Court dated 25.08.2011 in Company Petition No. 339 of 2011, 519 of 2011 under Companies Act, contract note of brokers, copy of DMAT Statement, etc. AO on the other hand has not collected any adverse material to prove that the evidence and documents submitted by the appellant are false. AP has not even given appellant any opportunity to rebut the evidence collected in Kolkata or cross-examine witnesses who collected the evidence at the back of the appellant. Inspector has not given a categorical finding that M/s Oasis Cine Communication is non-existent. Gujarat High Court in case of Mitsu Industries Ltd. vs. DCIT [2015-ITRV-HC-GUJ-015] has held that in absence of a clear cut finding by the AO as to whether it is case of concealment or furnishing inaccurate particulars then penalty could not be levied, Here AO has-mentioned in penalty order para 10, both the limbs

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 10 of 13 of s. 271(1)(c) of the IT Act but in the penalty order AO has failed to give a clear cut finding as to how the conduct of appellant amounts to concealment or furnishing inaccurate particulars. Hon'ble Supreme Court in case of Sir Shadilal Sugar Mills, 168 ITR 705 (SC) held that there may be a hundred and one reasons for not protesting and agreeing to an addition but that does not follow to the conclusion that the amount agreed to be added was concealed income. Indeed, there may be numerous reasons with the tax payer for not approaching the first appellate authority for justice, for example the following: a. To avoid the pains of further litigations, numerous hearings - and mental tensions borne in it; b. The risk of enhancement at the first appellate authority on various technical issues; c. Heavy litigation cost of Representatives Voluntary disclosure of concealed income does not absolve assessee of s. 271(1)(c) penalty if the assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed. Madras High Court explaining CIT vs. Mak Data Ltd, vs. CIT [2013-ITRV-SC-140] in CIT vs. Gem Granites [2013-ITRV-HC-MAD-157] has held that s. 271(1)(c) penalty cannot be levied if the assessee discharges the primary burden by a cogent explanation and the AO is unable to rebut it. CIT vs. Mansa Ram & Sons - [1975] CTR (AH) 163; [1977] 106 ITR 307 (AH.) TC 50R. 625: "A conditional surrender of cash credits or agreement to certain assessment does not attract penalty proceedings. On the facts and in the circumstances of the present case, it appears to be obvious that the income assessed by the ITO was agreed to by the appellant as a measure of co-operation and with a view to escaping penal consequences. It, therefore, appears that the agreement was conditional. In such circumstances, penalty cannot be imposed."

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 11 of 13 In the light of the fact that appellant has discharged the primary burden by a cogent explanation and placing evidence on record and the AO has not been able to rebut it by bringing anything contrary to the evidence placed by appellant and in light of categorical exposition of law laid down by the apex court, I do not find action of the AO as justified in imposing penalty u/s 271(1)(C) of the Act, Penalty imposed by the AO is hereby deleted.”

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 12 of 13 8. The ld. counsel for the assessee, on the other hand, has submitted that the ld. CIT(A) has correctly deleted the penalty after discussing the issue in detail, therefore, no interference is called for in the order of the ld. CIT(A). 9. Heard. The penalty under section 271(1)(c) of the Act can be levied only when there is any concealment of income or the assessee has furnished inaccurate particulars of income. A mere claim by the assessee will not amount to furnishing of inaccurate particulars. It is evident from the records that all the purchases and sales of share have been clearly shown in the income and expenditure account and also there is no inaccurate particulars furnished by assessee. The assessee, while filing the return of her income, had disclosed all the material and details in respect of long term capital gain, therefore, the AO was not justified in levying the penalty u/s 271(1)(c) of the Act. In the proceedings under section 271(1)(c) of the Act, the onus is on the AO to prove as to which facts and/or records submitted by assessee are false or incorrect and that the assessee has furnished inaccurate particulars or concealed its income. We find that the assessee, during assessment proceedings, had agreed to the disallowance of Rs.67,00,748/- and made a voluntary surrender on account of long term capital gain on sale of shares, to buy peace and to avoid litigation, which does not prove that it is a case of concealment of income or furnishing of inaccurate particulars of income as contemplated in the provisions of section 271(1)(c) of the Act. Therefore, the surrender made by the assessee is voluntary, for which only addition can be made and penalty under section 271(1)(c) of the Act cannot be initiated. 10. Coming to the reliance placed by the ld. D.R. on the decision of the Hon'ble Madras High Court in the case of ‘Sundaram Finance Ltd. vs. ACIT’ (supra), we find that in that case the Hon'ble High Court has

ITA No.181/LKW/2018 & C.O. No.09/LKW/2018 Page 13 of 13 dealt with the issue relating to the defect in the notice issued under section 274 read with section 271 of the Act, but in the present case the penalty levied under section 271(1)(c) of the Act has been deleted by the ld. CIT(A), dealing with the issue on merit and not on the basis of defect in the notice issued under section 274 read with section 271 of the Act. 11. We, therefore, do not find any infirmity in the order of the ld. CIT(A), deleting the penalty levied under section 271(1)(c) of the Act. We, accordingly, confirm the order of the ld. CIT(A) and reject the grounds of appeal taken by the Revenue. 12. Coming to the Cross Objection filed by the assessee, the ld. counsel for the assessee did not press the grounds raised in the cross objection, therefore, the same is rejected as not pressed. 13. In the result, the appeal of the Revenue and the cross objection of the assessee are dismissed. Order pronounced in the open Court on 22/08/2019.

Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT DATED:22/08/2019 JJ:2607 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar