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Income Tax Appellate Tribunal, DELHI BENCHES “SMC”: DELHI
Before: SHRI BHAVNESH SAINI
This appeal by assessee has been directed against the order of Ld. CIT(Appeals)-19, New Delhi dated 17.12.2018 for AY 2014-15, challenging the levy of penalty u/s 271(1)(c) of the Act.
In this case, the assessee filed return of income on 18th September, 2014 declaring a total income of Rs. 29,16,710/-.
2 ITA.No.1176/Del./2019 The case was selected for scrutiny. The AO made addition of Rs. 11,01,125/- to the returned income. Thus, the total income was assessed at Rs. 40,17,835/-, vide assessment order dated 16.12.2016. The additions mentioned above were made on the basis of the following:
• “Short-term capital loss claimed by the assessee to the tune of Rs. 20,15,865/- was disallowed since it was a bogus, arranged transaction with the intention of booking a short-term capital loss (STCL) in order to set off the long-term capital gains (LTCG) of Rs. 10,03,300/- on sale of an immovable property. Since the STCL was assessed as a bogus and sham transaction, the LTCG set off was disallowed, and the amount of Rs. 10,00,330/- was added back to the total income returned by the assessee. • Further, the expenditure incurred on paying commission to the various facilitators of this sham transaction was also assessed at 5% of the total STCL claimed, i.e. Rs. 1,00,795/-. Since this amount is in the nature of unexplained expenditure under the provisions of section 69C of the Act, it was also added to the total income declared in the return.”
The AO initiated the penalty proceedings on 16.12.2016 through notice u/s 274 r.w.s. 271(1)(c) of the Act (PB1) asking the assessee to show cause why penalty u/s 271(1)(c) should
3 ITA.No.1176/Del./2019 not be imposed on him. The assessee made submissions which are summarized in the penalty order. The assessee submitted before AO that sale and purchase of shares are duly vouched and supported by the documentary evidences held upon record. The assessee did not conceal any particular of his income. Mere disallowance of loss claimed in the return of income does not amount to concealment or furnishing inaccurate particulars of income. The assessee agreed to surrender the income only to satisfy the Income tax authorities and to buy peace of mind but it does not mean that transaction was not genuine. The AO further called for explanation of assessee and ultimately the AO was of the view that surrender was made by the assessee after assessee was confronted with the facts through statutory notices. The assessee had never intended to reveal the real income and real nature of his share transactions which led to the booking of a contrived short term capital losses. The AO was of the view that Explanation 1 to section 271(1)(c) of the Act apply to facts
4 ITA.No.1176/Del./2019 of the case. The AO, accordingly, levied the penalty u/s 271(1)(c) of the Act which is confirmed by the Ld. CIT(A).
Ld. Counsel for assessee reiterated the submissions made before AO and referred to show cause notice dated 16.12.2016 (PB 1) in which the AO has mentioned below:
“Whereas in the course of proceedings before me for the AY 2014-15 it appears to me that you are hereby requested to appear before me at 11.00 a.m. on 10.01.2017 and show cause why an order imposing a penalty on you should not be made u/s 271(1)(c) of the I.T. Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in personal through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made u/s 271(1)(c) of the I.T. Act, 1961.” He has submitted that all the transactions were carried out through banking channel and through stock exchange in which no discrepancies have been pointed out by the AO. He has submitted that it is not a case of claiming profit. He has submitted that the AO in the assessment order before levy of penalty has recorded “further, penalty proceedings u/s 271(1)(c) are being initiated separately for furnishing
5 ITA.No.1176/Del./2019 inaccurate particulars and concealment of income”. He has submitted that AO did not specify as to for which limb of section 271(1)(c) of the Act penalty proceedings have been initiated. Therefore, penalty is liable to be cancelled. In the assessment order AO has mentioned both the limbs, therefore, notice itself is invalid. In support of contention, he has relied upon order of ITAT ‘SMC Bench’ in the case of Ms. Vijay Laxmi Rajput vs. ITO, dated 06.06.2019 in which in para 5 it was held as under:
“5. After considering the rival submissions, I am of the view that penalty is not leviable in the matter. The Hon’ble Karnataka High Court in the case of CIT vs. M/s SSAs Emerald Meadows 73 taxmann.com 241 confirmed the order of the Tribunal in which the Tribunal has allowed the appeal filed by assessee holding that notice issued by the AO u/s 274 r.w.s. 271(1)(c) of the I.T. Act, 1961, to be bad in law and it did not specify in which limb of section 271(1)(c) of the I.T. Act, 1961, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. The decision of Hon’ble Karnataka High Court in the case of CIT vs. M/s SSAs Emerald Meadows (supra) have been confirmed by the Hon’ble Supreme Court reported in 73 taxmann.com 248 by dismissing the SLP of the Department. In the present case, the AO issued a show cause notice
6 ITA.No.1176/Del./2019 dated 28.12.2016 which is also mentioned in the penalty order in which AO did not specify under which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing inaccurate particulars of income. Even in the assessment order AO did not mention as to which limb of section 271(1)(c) of the Act, the penalty have been initiated against the assessee as noted above. Therefore, the show cause notice for levy of the penalty itself is invalid and bad in law and as such the resultant proceedings have been initiated. Once the assessee challenged the assumption of jurisdiction of the AO it would include the validity of the show cause notice which is mandatory before levy of the penalty. Since the notice itself is not legal, therefore, no penalty could be levied against the assessee. I, accordingly, set aside the orders of the authorities below and cancel the penalty.” He has submitted that assessee disclosed all the particulars of the transaction in the return of income. Therefore, it could not be a case of concealment of income or furnishing inaccurate particulars of income. He has relied upon order of ITAT ‘Delhi SMC Bench’ in the case of Deepty Agarwal vs. ITO & Othrs. dated 10th September, 2018 in which in para 4 it was held as under: -
“4. I have given the thoughtful consideration to the orders of the authorities below. I find that in the computation of income the assessee has duly
7 ITA.No.1176/Del./2019 disclosed all the particulars of her income and under the head “Income with full exemption” the assessee has claimed dividend income as exempt and also long term capital gain on which STT is paid which is also exempt from tax. I further find that during the course of scrutiny assessment proceedings the AO has proceeded by the assumption that the shares purchased and sold by the assessee comes into the category of penny stock companies. The AO has drawn support from outside information. In my considered opinion the surrender of exemption by the assessee on repetitive queries would not amount to furnishing of inaccurate particulars of income. The assessee has claimed exemption as per the provisions of law, though surrendered during the course of assessment proceedings. In my considered opinion, on the facts of the case, no penalty is leviable u/s 271(1)(c) of the Act. I, accordingly, set aside the finding of the Ld.CIT(A) and direct the AO to delete the penalty so levied.” He has submitted that this order is followed by ITAT ‘SMC Bench’ in the case of Shashank Gupta vs. ITO, dated 12.04.2019 for cancelling the penalty.
On the other hand, Ld. DR relied upon the orders of the authorities below and submitted that assessee made voluntary surrender of the amount in question which invite penalty for concealment of income. Ld. DR relied upon the following decisions:
8 ITA.No.1176/Del./2019
PCIT vs. Dr. Vandana Gupta (2018) 92 taxmann.com 229 (Delhi High Court), 2. VSB Investment (P) Ltd. vs. CIT (2012) 21 taxmann.com 162 (Punjab & Haryana), 3. CIT vs. Gates Foam & Rubber Co. (1973) 91 ITR 467 (Kerala) He has submitted that ITAT, Chennai Bench in the case of ITO vs. Shri Rajan Kalimuthu ITA No. 2900/Chny./2018 vide order dated 22nd May, 2019 has restored the matter back to the file of CIT(A) in which AO had not struck off the relevant column of the show cause notice.
I have considered the rival submissions and perused the material available on record. In this case, assessee has declared the transaction in question in the computation of income and return of income. The AO examined the issue of long term capital gains and long term capital loss claimed by the assessee. The assessee conducted the entire transaction through banking channel through stock exchange. The AO on the basis of the evidences produced by the assessee on record presumed that the transactions are bogus. These facts clearly show that assessee disclosed the entire facts to the Revenue
9 ITA.No.1176/Del./2019 Department and did not conceal anything to the AO. The assessee never claimed profit in the matter but claimed short term capital loss. The issue is, therefore, covered by order of ITAT ‘Delhi Bench’ in the case of Deepti Agarwal vs. ITO (supra) in which in the similar circumstances penalty was cancelled. It may also be noted that the AO before levy of the penalty has issued show cause notice dated 16.12.2016 (PB-1) which is reproduced above in which AO has not mentioned as to for which the limb of section 271(1)(c) of the Act, whether for concealment of particulars of income or furnishing inaccurate particulars of income, show cause notice has been issued. The AO did not mention anything in the notice as to for which offence penalty is liable to be imposed against the assessee. The AO in the assessment order mentioned both the limbs of section 271(1)(c) of the Act for levy of penalty.