ANITA SURENDRA AGARWAL,MUMBAI vs. ITO 13(1)(2), MUMBAI

In this appeal, the solitary issue is with regard to penalty of Rs.1,77,183/- imposed by the Assessing Officer u/s 271(1)(c) of the Act. In brief, the relevant facts are that the appellant is an individual who is partner in two partnership firms, M/s. Audler Fastner and M/s. Special Fastner & B.H. Steel Industries. It transpires that during the year under consideration, assessee had declared Capital Gains of Rs.4,46,743/- on sale of shares of one, M/s. Seagul Leaf Ltd. Initially, the return of income was accepted as such u/s 143(1) of the Act and subsequently, it was reopened on the ground that certain information was received that assessee had transacted for purchase and sale of the aforesaid shares from a concern which was indulging in providing bogus accommodation entries. In the ensuing assessment, the Assessing Officer treated the transaction of sale and purchase as bogus and added to the returned income not only the value of the sale consideration of Rs.5,20,501/-, but also the expected commission expenditure of Rs.780/- incurred for procuring such accommodation entries, thereby resulting in an addition of Rs.5,21,281/- as undisclosed income. This addition has been subjected to levy of penalty u/s 271(1)(c) of the Act of Rs.1,77,183/-, which is the subject matter of appeal before us.

Both the parties have been heard and the relevant material perused. Ostensibly, the relevant discussion in the assessment order passed u/s 143(3) r.w.s. 147 of the Act dated 30.12.2011 reveals that the shares were claimed to have been purchased in the earlier preceding Assessment Year of 2004-05 and the same have been sold during the year under consideration. The discussion also reveals that the entire basis for the addition is the statement of the person who controls the entities, one of which had transacted with the assessee for the shares in question. No doubt, the issue before us is not with regard to the validity of the addition made, but the moot point is, does the facts and circumstances of the case justify satisfaction of the ingredients contained in Sec. 271(1)(c) of the Act for imposition of penalty ? It is clear that apart from receiving information from the investigation wing of the broker having carried out activity of providing accommodation entries, there are no specific investigation/inquiries carried out by the Assessing Officer qua the instant assessee or the specific transaction in question. In fact, the assessment order and even the penalty order, do not show any specific inquiries which would clinchingly establish that the transactions shown by the assessee are bogus. Pertinently, the assessee had supported the transactions by furnishing the requisite details including the making and receiving of payment through banking channels, etc. Be that as it may, while the approach in the quantum proceedings adopted by the income-tax authorities is good enough to sustain the addition, so however, it is a trite law that more is required to be established in order to fasten penalty u/s 271(1)(c) of the Act on the assessee. We say so for the reason that the assessment proceedings and the penalty proceedings are independent proceedings and the findings in the assessment proceedings cannot ipso facto be conclusive for the levy of penalty, though they can be relevant criteria, as held by the Hon'ble Supreme Court in the case of Anantharam Veerasingaiah & Co vs CIT, 123 ITR 457 (SC). We have perused the order of the Assessing Officer levying penalty and find that such onus has not been discharged and the factum of addition having been made in the quantum proceedings is the sole reason for levy of penalty u/s 271(1)(c) of the Act which, in our view, is quite untenable.

As a consequence, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the penalty of Rs.1,77,183/- imposed u/s 271(1)(c) of the Act.

In the result, appeal of the assessee is allowed.