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Facts
The assessee initially claimed exemption for Long Term Capital Gain (LTCG) on the sale of shares under Section 10(38). Reassessment proceedings were initiated under Section 147/148 based on information that the shares were 'penny stock'. In response to the notice, the assessee filed a revised return offering the LTCG to tax, leading to the assessment being completed without additions. Subsequently, a penalty of Rs. 90,922/- was levied under Section 271(1)(c) for concealment of income, which was confirmed by the CIT(A).
Held
The Tribunal upheld the penalty, concluding that the assessee's disclosure of the Long Term Capital Gain was not voluntary but a direct consequence of the notice issued under Section 148. Citing the Supreme Court's decision in *MAK Data (P.) Ltd. Vs. CIT*, the Tribunal affirmed that a voluntary disclosure after the initiation of penal proceedings does not absolve the assessee from penalty. Thus, the lower authorities' finding that the disclosure was not voluntary was upheld.
Key Issues
Whether a penalty under Section 271(1)(c) is justified for concealment of income when the assessee offers previously exempt Long Term Capital Gain to tax only after the initiation of reassessment proceedings under Section 148.
Sections Cited
Section 271(1)(c), Section 250, Section 143(3), Section 147, Section 148, Section 274, Section 10(38)
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 31/01/2024, passed u/s 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from penalty order passed u/s 271(1)(c) of the Act, for the assessment year 2015–16.
In this appeal, the assessee has raised the following grounds: -
“Levy of penalty under section 271(1)(c) of the Act is not justified Rs.90,922/-“ 1. National Faceless Appeal Centre (hereinafter referred to as “the NFAC”] erred in confirming the penalty of Rs.90,922/- without appreciating that the Assessee has neither concealed any income nor furnished any inaccurate particulars of income. Thus, the levy of penalty of Rs.90,922/- under section 271(1)(c) of the Act is not justified and the same may be deleted.
2. The NFAC failed to appreciate that the capital gains of Rs.5,87,740/received on sale of shares of M/s. Action Financial Services (India) Limited was duly offered for tax by the assessee in the returns filed in response to the notice u/s 148 of the Act and the same was duly accepted by the Ld. A.O. while finalizing the assessment proceedings. Thus, the levy of penalty on the same is not justified and the same may be deleted.
3. The NFAC further, failed to appreciate that the income of Rs.32,02,220/- declared by the assessee in the return of income filed in response to the notice u/s 148(1) of the Act has duly been accepted by the Ld.AO in the reassessment proceedings without making any addition or disallowance in the assessment order passed u/s 143(3) r.w.s 147 of the Act. Thus, the levy of penalty of Rs.90,922- /by alleging that the assessee has concealed the income is not justified and the same may be deleted.”
The only dispute raised by the assessee, in the present appeal, pertains to the levy of penalty of Rs.90,922/- u/s 271(1)(c) of the Act.
The brief facts of the case pertaining to this issue, as emanating from the records, are: The assessee is an individual and for the year under consideration filed its original return of income on 16/07/2013 declaring a total income of Rs.26,14,480/-. The return filed by the assessee was selected for scrutiny and vide order dated 25/02/2016 passed u/s 143(3) of the Act was assessed at returned income. Subsequently, on the basis of the information that the assessee has earned exempt Long Term Capital Gain from transactions in shares of M/s. Action Financial Services (India) Ltd, which is a penny stock, proceedings u/s 147 of the Act were initiated and notice u/s 148 of the Act was issued on 27/03/2019. In response to the aforesaid notice, the assessee e-filed his return of income on 09/10/2019 declaring a total income of Rs.32,02,220/- after offering the Long Term Capital Gain of Rs.5,87,740/- arising from transaction in shares of M/s. Action Financial Services (India) Ltd. Vide order dated 10/12/2019 passed u/s 143(3) read with section 147 of the Act the total income of the assessee was assessed at the returned income.
Meanwhile, penalty proceedings u/s 271(1)(c) of the Act were initiated, and notice u/s 274 read with section 271(1)(c) of the Act was issued to the assessee. In response thereto, the assessee submitted that he has not obtained accommodation entry and the transaction in shares of M/s. Action Financial Services (India) Ltd. was a genuine transaction. The assessee further submitted that he has filed the return of income, pursuant to the notice issued u/s 148 of the Act, offering the capital gain of Rs.5,87,740/- received on the sale of shares of M/s. Action Financial Services (India) Ltd, to tax, which has been accepted by the AO in the assessment order passed u/s 143(3) read with section 147 of the Act, thus there is no concealment of income nor any inaccurate particular of income in the return. Vide order dated 01/02/2022 passed u/s 271(1)(c) of the Act, the Assessing Officer (“AO”) did not agree with the submissions of the assessee on the basis that the assessee offered to tax the capital gains received on sale of shares of M/s. Action Financial Services (India) Ltd only after the issuance of notice u/s 148 of the Act, and if the assessee’s case had not been taken up scrutiny, there would have been an obvious revenue loss. The AO concluded that the difference between the income offered to tax pursuant to the notice issued u/s 148 of the Act, and the original return of income filed by the assessee represents the concealed income within the meaning of section 271(1)(c) of the Act. Accordingly, the AO levied a penalty of Rs.90,922/- u/s 271(1)(c) of the Act.
The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that the additional income offered to tax by the assessee is not voluntary but the same is only in response to the notice issued u/s 148 of the Act. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that in the original return of income, the assessee declared a total income of Rs.26,14,480/, after claiming exemption of Long Term Capital Gain u/s 10(38) of the Act on sale of shares of M/s. Action Financial Services (India) Ltd. However, upon receipt of notice u/s 148 of the Act on the basis that M/s. Action Financial Services (India) Ltd is a penny stock listed on the Bombay Stock Exchange and has been used to facilitate the introduction of unaccounted income of the assessee in the form of exempt Long Term Capital Page | 3 Gain, the assessee filed return of income declaring a total income of Rs.32,02,220/- offering the Long Term Capital Gain of Rs.5,87,740/-, arising from the sale of shares of M/s. Action Financial Services (India) Ltd, to tax. During the hearing, the learned AR submitted that though the purchase and sale transaction with respect to the shares of M/s. Action Financial Services (India) Ltd was genuine and the assessee has not obtained any accommodation entry, however, since M/s. Action Financial Services (India) Ltd was alleged to be a penny stock, therefore, in order to buy peace, the assessee offered to tax the Long Term Capital Gain, which was initially claimed as exempt. It is the further plea of the assessee that since the returned income and assessed income are identical, therefore, no penalty can be levied u/s 271(1)(c) of the Act.
We find that the Hon’ble Supreme Court in MAK Data (P.) Ltd. Vs. CIT, [2013] 358 ITR 593 (SC) held that voluntary disclosure does not release the assessee from the mischief of penal proceedings. Further, it is evident from the record that though the assessee claimed the transaction of shares of M/s. Action Financial Services (India) Ltd to be genuine, however, did not bring any material of record to support its contention and straight away upon receipt of notice u/s 148 of the Act offered to tax the Long Term Capital Gain on the sale of shares of M/s. Action Financial Services (India) Ltd. Further, there is also no material on record to show that the assessee subsequently again claimed the Long Term Capital Gain to be exempt. Since the additional income on account of the aforesaid Long Term Capital Gain was offered to tax only in response to the notice issued u/s 148 of the Act, we agree with the findings of the lower authorities that the same is not voluntary but is consequential to the issuance of notice u/s 148 of the Act. In view of the above, we also do not find any merits in the submissions of the assessee that no penalty can be levied in the present case since the returned income and assessed income are same, as the only basis of issuance of notice u/s 148 of the Act was the alleged bogus Long Term Capital Gain claimed as exempt by the assessee in the original return of income and which was subsequently offered to tax by the assessee in response to notice issued u/s 148 of the Act. Accordingly, we find no infirmity in the impugned order in upholding the levy of penalty u/s 271(1)(c) of the Act, and therefore, the same is upheld. As a result, the grounds raised by the assessee are dismissed.
In the result, the appeal by the assessee is dismissed. Order pronounced in the open Court on 28/05/2024