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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA P. SINHA
(Assessment Year: 2015-16) Falguni S Mehta, Vs. The Income Tax Officer, 3, Devashish Flat, Ward 1 (2)(1), Opp. Dwarkesh Tower, Baroda. In The Groove Of Mother Dairy, NFAC, Delhi Judges Bunglow Cross Road, Bodakdev, Ahmedabad-380015. [PAN No.ANCPM3533D] (Appellant) .. (Respondent) Appellant by : Shri Amar K Shah, AR Respondent by: Shri S K Agal, Sr. DR Date of Hearing 23.01.2025 Date of Pronouncement 30.01.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, Delhi vide order dated 11.07.2024 for the Assessment Year 2015-16.
The assessee has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case and in law, order passed by the Hon’ble CIT(A) u/s.250 of the Act, without considering the materials on records and submissions made during the penalty proceedings u/s.271(1)(c) of the Act is bad in law.
2. On facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the penalty u/s 271(1)(c) of the Act imposed by the Income Tax Officer, National Faceless Assessment Centre, Delhi amounting to Rs. 64,857/- without considering the submission of the appellant.
Falguni S Mehta vs. ITO Asst.Year –2015-16. - 2– 3. Your appellant prays for leave to add, alter and/or amend / withdraw any and/or all the grounds of appeal adduced above.
3. The brief facts of the case are that during the course of assessment proceedings, the AO has observed that a “short term capital gain” of Rs.10,819/- was offered to tax by the assessee. On further verification of the details, the AO observed that assessee had derived “short term capital gain” of Rs.5,90,935/- on account of transaction in securities as against sum of Rs.10,819/- offered to tax as “short term capital gains” in the return of income. Accordingly, the AO held that the assessee had offered incorrect amount of “short term capital gains” on the transactions in securities in the return of income and added a sum of Rs.5,80,116/- (5,90,935 – 10,819) as “short term capital gains” which were not offered to tax by the assessee. The AO also initiated penalty proceedings u/s.271(1)(c) of the Act. The assessee did not file appeal before the Ld.CIT(A), against the quantum additions made by the Assessing Officer.
4. In the penalty appeal u/s.271(1)(c) of the Act, the AO levied the penalty u/s.271(1)(c) of the Act, @ 100% of the tax sought to be evaded.
5. In appeal, the Ld.CIT(A) confirmed the penalty with the following observations:
5.2.1 The above contentions of the appellant have been perused, however they are not acceptable owing to the following reasons:- (1) On the quantum addition made by the AO vide order u/s 143(3) of the Act, the Ld. CIT(Appeal)-5, Vadodra, has already given his finding whereby a relief of only Rs. 6,396/-has been provided to the appellant. This fact has already been taken into account by the AO before passing the order u/s 271(1)(c) of the Act. As Falguni S Mehta vs. ITO Asst.Year –2015-16. - 3– such, this contention of the appellant does not save her from the rigors of penalty u/s 271(1)(c) of the Act. (ii) As to the payment made by the appellant to buy peace of mind, reliance is placed on decision of Hon. Supreme Court of India in the case of MAKDATA Pvt. Ltd. Vs CIT-II, Vadodra [2013] reported in 38 taxmann.Com 448(SC), who vide its order in para 7 held as under:- 7. AO in our view, shall not be carried away by the plea of the assessee like 'voluntary disclosure', buy peace', 'avoid litigation', 'amicable settlement, etc to explain away its conduct. 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)(c) raises a presumption of concealment when a difference is noticed by the AO, between reported and assessed income. The burden then is on the assessee to show otherwise, by cogent and reliable evidence. Therefore, these contentions of the appellant that the payment was made to buy peace also does not come to her rescue. Consequently, this ground of appeal filed by the appellant is also dismissed.
6. The assessee is in appeal before us, against the aforesaid order passed u/s.271(1)(c) of the Act. The Ld. Counsel for the assessee submitted that the assessee did not appeal against the quantum order passed by the AO due to the smallness of quantum of tax involved. The assessee was not inclined to pursue the matter any further in appellate proceedings. Accordingly, in order to buy peace of mind, the assessee decided to pay taxes on this amount. However, so far as penalty is concerned, the Ld. Counsel for the assessee argued that this is a fit case were no penalty is called for. The Ld. Counsel for the assessee drew our attention to page 2 of the Assessment Order and submitted from the Assessment Order itself, it is evident that the assessee had made losses amounting to Rs.4,07,195/- in the NSE “futures and options”. The assessee had undertaken non delivery based transactions in NSE, “futures and options” segment. The Ld. Counsel for the assessee submitted that the losses in “futures and options” segment were eligible for set-off against “short term capital Falguni S Mehta vs. ITO Asst.Year –2015-16. - 4– gains” amounting to Rs.5,90,935/- However, the AO did not set-off the same despite the fact that such losses in “futures and options” were eligible for set-off against “short term capital gains”, However, this specific request of the assessee was ignored by the AO, while passing the Assessment Order. However, owing to the smallness of the quantum of tax involved, in order to buy a peace of mind, the assessee decided not to litigate the matter further. However, in so far as penalty is concerned, it was submitted that such set-off of losses in the “futures and options” segment is eligible for set-off against capital gains in terms of section 71(2) of the Act. Further without prejudice to the above argument, even from the notice dated 06.12.2017 issued by the AO initiating penalty proceedings u/s.271(1)(c) of the Act, there is no clarity whether penalty proceedings have been initiated for “concealment of income” or furnishing “inaccurate particulars of income” and for this reason as well as, the penalty order is liable to be set-aside.
7. In response, the Ld. DR placed reliance on the observations made by the AO and the Ld.CIT(A) in their respective orders confirming the levy of penalty u/s.271(1)(c) of the Act.
We have heard the rival contentions and perused the material available on record. It will be useful to reproduce the relevant extract of section 71(2) of the Act, which reads as under: “Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets).[(2-A) Notwithstanding anything contained in sub-section (1) or sub- Falguni S Mehta vs. ITO Asst.Year –2015-16. - 5– section (2), where in respect of any assessment year, the net result of the computation under the head "Profits and gains of business or profession" is a loss and the assessee has income assessable under the head "Salaries", the assessee shall not be entitled to have such loss set off against such income.]”
We observe that from a bare reading of section 71(2) of the Act, it is evident that losses from “future and options” trading were eligible for set-off against “short term capital gains” from sale of securities. Therefore, as per the provisions of section 71(2) of the Act, the assessee was not required to pay taxes on such “short term capital gains”. However, despite this, the AO did not consider the arguments taken during the course of penalty proceedings. In our considered view, on plain reading of section 271(1)(c) of the Act, the assessee is eligible to set-off losses incurred in the “futures and options” segment of Rs.4,07,195/- against “short term capital gains” on sale of shares and securities of Rs.5,90,935/-. Further, Ld. DR has also not brought anything on record to controvert the aforesaid facts during the course of arguments before us. Accordingly, in our considered view, so far as the levy of penalty u/s.271(1)(c) is concerned, no penalty is leviable u/s.271(1)(c) of the Act in the assessee’s set of facts.
Without prejudice to the above findings, we also observed that in the notice issued for the levy of penalty, the AO has initiated the penalty proceedings with the following observations.
“Whereas in the course of proceedings before me for the Assessment Year 2015- 16, it appears to me that you have concealed the particulars of income or furnished inaccurate particulars of such income”
Falguni S Mehta vs. ITO Asst.Year –2015-16. - 6– 11. Further, while passing the order imposing penalty u/s.271(1)(c) of the Act, the AO has levied the penalty with the following observation:
“ Keeping in view of the above, FAO is of the opinion that the assessee has concealed/furnished inaccurate particulars of his income for the A.Y. 2015-16 to the extent of Rs. 5.73,720/-(considering relief given by CIT(A) to the extent of Rs.6.396/-] and FAO is satisfied that it is a fit case for imposing penalty u/s 271(1)(c) of the Income Tax Act, 1961. Hence, assessee is liable to pay a penalty u/s 271(1)(c) of the Act on such income. The calculation of penalty u/s 271(1)(c) is as under”
Therefore, from the contents of the notice initiating penalty proceedings as well as order levying penalty u/s.271(1)(c) of the Act on assessee, we observe that the AO has not given clear cut classification as to whether the penalty has been levied for “concealment of income” or “furnishing inaccurate particulars of income”. It is a well settled principle that the AO has to give an absolute and categorical findings while levying the penalty u/s.271(1)(c) of the Act, whether the same is being levied for “concealment of income” or “furnishing inaccurate particulars of income”. Reference is made to various judicial precedents which are as follows:
12.1 In the case of Principal Commissioner of Income-tax vs. Shyam Sunder Jindal [2024] 164 taxmann.com 503 (SC)/[2024] 300 Taxman 90 (SC)[15-07-2024] Hon'ble Supreme Court dismissed SLP against order of High Court by holding that where penalty notice issued against assessee did not advert to any specific limb of section 271(1)(c) and, thus, Assessing Officer was not clear whether he intended to levy a penalty on assessee for concealment of Falguni S Mehta vs. ITO Asst.Year –2015-16. - 7– particulars of his income or furnishing inaccurate particulars, Tribunal was justified in quashing penalty proceedings under section 271(1)(c) initiated against assessee.
12.2 In the case of Principal Commissioner of Income-tax vs. Unitech Reliable Projects (P.) Ltd. [2024] 166 taxmann.com 135 (SC)/[2024] 300 Taxman 585 (SC)/[2024] 469 ITR 394 (SC)[14-08- 2024] the Assessing Officer made additions to assessee's income and triggered penalty proceedings under section 271(1)(c) and further levied penalty. The Tribunal having found that notice issued under section 274 did not specify as to limb under which penalty was sought to be imposed, i.e., notice did not indicate as to whether penalty was to be levied on account of concealment of income or for reason that assessee had furnished inaccurate particulars quashed penalty proceedings. The High Court by impugned order held that where Assessing Officer had triggered penalty proceedings under section 271(1)(c) against assessee, it was necessary for him to indicate broadly as to limb under which penalty proceedings were triggered. The Hon'ble Supreme Court held that special leave petition filed against said order of High Court was to be dismissed.
12.3 In the case of Principal Commissioner of Income-tax (Central) vs. Goa Coastal Resorts and Recreation (P.) Ltd. [2021] 130 taxmann.com 379 (SC)/[2021] 282 Taxman 463 (SC)[31-08- 2021] he Hon'ble Supreme Court dismissed SLP against High Court's ruling that where there was no record of satisfaction by Assessing Officer in relation to any concealment of income or furnishing of Falguni S Mehta vs. ITO Asst.Year –2015-16. - 8– inaccurate particulars by assessee in notice issued for initiation of penalty proceedings under section 271(1)(c), same being sine qua non for initiation of such proceedings, Tribunal had rightly ordered to drop penalty proceedings.
Accordingly, in view of the above decisions, we are of the considered view that in the absence of specific findings whether the penalty has been levied for “concealment of income” or “furnishing inaccurate particulars of income” the penalty order is liable to be set- aside.
In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 30.01.2025 Sd/- Sd/- (NARENDRA P. SINHA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER (True Copy) Ahmedabad; Dated 30.01.2025 Manihs, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,