SRI SURYA PRAKASH BAGLA,KOLKATA vs. DCIT, CEN. CIR-VII, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH : KOLKATA [Before Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM] I.T.A No. 398/Kol/2014 Assessment Year : 2010-11 Shri Surya Prakash Bagla -vs- DCIT, Central Circle-VII, Kolkata [PAN: AEBPB 4558 F] (Appellant) (Respondent)

For the Appellant : Shri J.P. Khaitan, Sr. Advocate Shri Sujay Sen For the Respondent : Shri A.K. Tiwari, CIT

Date of Hearing : 09.11.2017 Date of Pronouncement : 13.12.2017

ORDER Per M.Balaganesh, AM

2 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 3.The brief facts of this issue is that the assessee filed his original return of income for the Asst Year 2010-11 u/s 139(1) of the Act on 15.9.2010 declaring total income of Rs 2,74,57,560/-. Later he filed a revised return of income on 27.12.2010 declaring revised total income of Rs 10,15,47,560/-. The main sources of income of the assessee was under the heads income from house property, capital gains and other sources like dividend and interest from bank etc. He was one of the working partners of a partnership firm M/s Saltee Estate which was subjected to tax audit u/s 44AB of the Act during the year. As such the due date of filing the return of income for the assessee (being a partner in a firm) u/s 139(1) of the Act was 30.9.2010. Hence the revised return filed u/s 139(5) of the Act on 27.12.2010 was a valid revised return. A search was conducted u/s 132 of the Act on 25.2.2009 and subsequent dates at the residence of the assessee and also at the business premises of his group companies. Pursuant to the search, search assessments for the Asst Years 2003-04 to 2008-09 were completed u/s 143(3) / 153A of the Act on 31.12.2010, whereas the regular assessment for the Asst Year 2009-10 was completed u/s 143(3) of the Act on 31.12.2010. Number of additions were made in those assessments which were agitated by the assessee before the ld CITA and the said appeals were disposed off by a consolidated order dated 6.8.2012 for the Asst Years 2003-04 to 2009-10 in Appeal Nos. 236 to 242/CC- VII/CIT(A), C-I/Kol/2010-11 by the ld CITA granting certain relief.

3.1. The assessment under dispute pertains to Asst Year 2010-11, wherein the revised return filed by the assessee within the due date prescribed u/s 139(5) of the Act, was duly considered by the ld AO and assessment for the Asst Year 2010-11 was completed u/s 143(3) of the Act on 31.3.2013 determining total income at Rs 10,15,62,560/- as against the revised returned income of Rs 10,15,47,560/-. The difference represents only denial of deduction u/s 80D of the Act to the tune of Rs 15,000/-. The primary facts involved in this issue are as under:-

3 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 3.2. M/s Saltee Infotech Pvt Ltd was holding 100% shares in M/s Graphitech India Ltd, a company incorporated under the Companies Act, 1956. One Mr. Surya Prakash Bagla (assessee herein) is its director. M/s Graphitech India Ltd has long term lease on a piece of land measuring about 60 cottahs and there was no legal impediment to construct commercial building on the said land. There was a Memorandum Of Understanding (MOU) on 4.8.2005 between Saltee Infotech Pvt Ltd represented by its Director Mr. Surya Prakash Bagla and one Mr. Vivek Kathotia, with a recital that the shareholders of M/s Graphitech India Ltd went to transfer their 100% holding in M/s Graphitech India Ltd to Mr. Vivek Kathotia for a consideration of Rs. 16,51,00,000/-. In the said MOU there was a recital to the effect that all the original share certificates and transfer deed shall be deposited with Mr. B. K. Jain Advocate in trust and the same shall be handed over to the transferee on making their full and final payment of the consideration amount. Further, vide clause 4 in liabilities and responsibilities of the transferor, it was stipulated that the transferor at his cost and efforts, shall be responsible to get building plans which shall be prepared by the transferee, sanctioned from the concerned authorities and also obtain all other permissions which shall include clearances from the departments of Fire, Airport Authority, Pollution Control Board, Water & Sewerage etc. as may be essential and necessary to enable the transferee to construct and complete the building on the said land without any problem. Further vide clauses 13 and 14 thereof it was stipulated that the Transferor has assured the Transferee that it shall get the plan sanctioned, prepared as per prevailing rules and regulation of the competent authority of different Govt. department of Govt of West Bengal & Central Govt. Bidhannagar Municipality have sanctioned the plan up to a height of 75 metres and/or more subject to NOC from Airport Authority of India. Transferor has assured to get the plan sanctioned upto maximum height of 75 metres mentioned hereinbefore. If the Transferor fails to get plan sanctioned, then the transferor shall refund the entire amount received from Transferee within one month. The Transferor shall, at his cost and responsibility get the lease deed modified from Urban development (UD) 3

4 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 department, to the extent that the land can be used for construction of building for use of information Technology Industry. Vide clause 4 of consideration part, it is stated that the consideration amount shall be paid to the share holders of Graphitech and this will be valid discharge of payment.

3.2.1. Out of the sale consideration Rs.16.51 cr., a sum of Rs.6,00,90,000/- was paid in AY 2006-07 and Rs.1,40,00,000/- was paid in AY 2007-08 towards Cash portion. Subsequently, transferor pleaded that the Municipality refused to sanction the plan prepared by the transferee for its I.T complex and ultimately the transferee decided to abandon the project, and accordingly, about the 1st week of February, 2007 the parties mutually agreed to rescind the contract and to release each other from the obligation there under. At that time large amounts remained outstanding to the transferor and others in relation to the sale and purchase of shares.

3.2.2. M/s Saltee InfoTech filed Title Suit No. 216 of 2007 in the court of the Civil Judge, Senior Division, IInd Court, at Barasat seeking a decree declaring the memorandum dated 04.08.2005 as terminated with mutual consent, letters dated 01.11.2007 and 19.11.2007 as void, delivery up and cancellation of such letters and a decree for perpetual injunction restraining the transferee from demanding delivery of possession of the shares and from giving effect to the MOU dated 04.08.2005. In the said suit it was pleaded that pursuant to the MOU the original share certificates were deposited with Advocate Shri B. K. Jain and subsequently all the steps were taken to see that the terms of MOU are implemented, but inspite of various corrections made from time to time to the building plan got prepared by the transferee, the same could not be accomplished and Bidhannagar Municipality refused to approve the plan as such, the transferee ultimately decided to abandon the project and with mutual consent, the contract was rescinded but to the surprise of the transferor, a letter was received from Mr. B. K. Jain, Advocate, wherein the rescinding of contract was disputed and delivery of shares was insisted. In those circumstances, the declaratory suit came to be filed. 4

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3.2.3. The transferee also filed another suit in T.S. No. 222 of 2007 before the Civil Judge (Sr. Division), 2nd Court at Barasat disputing the recession of contract and praying for specific performance thereof. According to the transferee, after receipt of substantial amounts, the transferor with oblique motive alleged that there is rescinding of contract with mutual consent. According to them, only a sum of Rs.2,59,10,000/- was due and a sum of Rs. 13,91,90,000/- was paid from time to time as such the transferee demanded the delivery of shares. According to the transferee, by incurring huge expenditure they got the building plan prepared and cooperated with the transferor to get them approved by the Municipality and according to them, such building plans were almost approved and at the final stage of receiving the amounts and issue formal sanction letter. However, it was effectively thwarted by the transferor only to concoct the story of non approval of plans by the Municipality. He further alleged that for the first time by way of letter dated 22.11.2007, Mr. B. K. Jain, Advocate informed the transferee that the transferor deposited only the share certificates but no share transfer deeds. In these circumstances, specific performance of contract was prayed for.

3.2.4. While the matter stood thus, there was a search and seizure operation at the premises of Saltee Group of companies on 25.2.2009 by the Income Tax Department u/s 132 of the Act including the residential and business premises of the assessee. Subsequently, the parties entered into a settlement pursuant to which T.S No. 216 of 2007 was dismissed and the other TS No. 222 of 2007 was decreed. Under the terms of settlement, the transferor agreed to transfer the 100% shares except 30 shares to the transferee, handover all the papers, books etc., the transferee has to pay Rs.2,59,10,000/- to the transferor, whereas the transferor had to pay Rs.2,50,00,000/- to the transferee towards cost of litigation, compensation etc. as such after adjustment of the amounts, the transferee paid a sum of Rs.9,10,000/- to the transferor etc. This was implemented by both the parties pursuant to the decree.

6 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 3.2.5. Now the questions are when the transfer of shares took place and what is the actual sale consideration for the purpose of reckoning Capital Gains? According to CBDT Circular No. 704 dated 28.04.1995 with reference to section 2(42A) of the Act, the Board, in case of transactions take place directly between the parties and not through stock exchanges, the date of contract for sale as declared by the parties shall be treated as the date of transfer, provided it is followed up by actual delivery of shares and the transfer deeds. In view of this circular, the date of contract for sale assumes importance. According to the revenue, the date of contract for sale is the date of MOU whereas, according to the assessee, the date of subsequent compromise by way of which the condition as to the approvals by different authorities was got rid of. Further according to the Revenue, the sale consideration is the entire Rs.16.51 Cr whereas the Assessee claims it to be only 14.01 Cr as reduced in the compromise decree by way of adjustment.

3.3. The assssee offered capital gains for sale of shares in Asst Year 2010-11 on the basis of transfer of shares that happened pursuant to decree and revised MOU dated 25.5.2009 in the original return filed on 15.9.2010. The assessee also offered the sums of Rs. 7,40,90,000/- in the revised return filed on 27.12.2010 for the Asst Year 2010- 11 under the head ‘income from other sources’ being the cash component received on sale of shares. But during the course of assessment proceedings, the assessee pleaded before the ld AO to treat the sums of Rs. 7,40,90,000/- as part of share sale consideration and assess capital gains accordingly. This request was rejected by the ld AO. The ld AO ultimately framed the search assessments for the Asst Years 2006-07 and 2007-08 by adding the sums of Rs. 6,00,90,000/- and Rs. 1,40,00,000/- respectively and capital gains in Asst Year 2010-11 as disclosed by the assessee by taking the consideration at Rs. 16.51 crores and assessed the sums of Rs. 7,40,90,000/- as income from other sources for the Asst Year 2010-11 as disclosed in the revised return by the assessee.

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3.4. The ld CITA in his order appreciated the contentions of the assessee and deleted the additions of Rs. 6,00,90,000/- and Rs. 1,40,00,000/- made by the ld AO in Asst Years 2006-07 and 2007-08 in the search assessments framed and also held that the same are to be treated only as advance received by the assessee against share sale consideration and further held that capital gains arose only in Asst Year 2010-11 as per the compromise decree entered into and revised MOU dated 25.5.2009.

3.5. Arguments of the Revenue in Search Assessments

In the search assessments for the Asst Years 2006-07 and 2007-08, it was the contention of the revenue that the parties intended the transfer of a particular number of shares of a particular company for a particular consideration and ultimately the same thing happened even after the Court recording the compromise decree, as such for all practical purposes, what was enforced is only the MOU dated 4.8.2005, as such the date of contract for sale is 4.8.2005 only. According to revenue, what is specifically enforced by way of compromise decree is the MOU dated 04.08.2005 and all the terms of compromise reached by the parties are nothing but reaffirmation of the terms of MOU dated 04.08.2005. In respect of consideration, the revenue’s argument is that all along the sale consideration remained same, because of the intervening litigation, the transferor was fastened with the liability to pay compensation to the transferee at Rs.2,50,00,000/- and it is only by way of adjustment, the amount payable had come down but as a matter of fact, there was no reduction in the sale consideration. The revenue contended in the search assessments that the parties never intended to reduce the sale price of the shares but there is an agreement to pay compensation of a sum of Rs.2.5 cr. which liability does not arise with reference to the price of shares as stated in the MOU, but arose due to the intervening litigation. Since the transfer could not have materialised in the absence of payment of such compensation it forms part of sale consideration. According to revenue in search assessments, sale consideration 7

8 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 remained the same although the transaction but the liability of the transferor for compensation only intervened. Hence it was contended by the revenue that the date of MOU is the date of contract for sale and the sale consideration is the entire amount of Rs.16,51,00,000/-. On this premise, the revenue in the search assessments argued that the sale consideration of shares of the assessee is Rs.16.51 cr. and following the CBDT circular 704 dated 28.04.1995, such date (i.e the date of MOU dt 4.8.2005) will be treated as the date of transfer, since, it is only pursuant to the terms of the MOU, the delivery took place.

3.6. The assessee contended that the MOU dated 04.08.2005 came to an end with rescinding thereof by the parties with mutual consent and also when it was substituted by a de novo contract by way of compromise decree. It was further submitted that as per the agreement in compromise decree, Rs.2.5 cr. was adjustable against the balance sale consideration of Rs.2.591 cr. as such, to the extent of Rs.2.5 cr. the sale consideration was reduced and this amount alone has to be reckoned and in the year of compromise decree. Reliance was placed on the decision reported in COMMISSIONER OF WEALTH TAX vs. BABULAL JATIA (DECD.)137 ITR 540 (Cal), wherein it was held that :

When shares in the joint stock company were the subject-matter of transfer, the provisions of the Transfer of Property Act, were not conclusive and it should be seen whether there was transfer in accordance with the provisions of Companies Act and the transfer of the interest in the shares from the transferor to the transferee was independent of the requirement of its registration for the purposes of the Companies Act. Further reliance was placed on a decision in the case of CIT vs. Bhaskar Mitter reported in (1994) 73 Taxman 437 (Cal) at para 8 at p. 442 referred in MAYNAK PODDAR (HUF) vs. WEALTH TAX OFFICER (2003) 262 ITR 0633. In this decision, this Court observed :

9 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 "....... An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can he lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so, he cannot assess an assessee on an amount, which is not taxable in law, even if the same, is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. ........"

3.7. Arguments of the assessee in the search assessments

The assessee rebutted the Circular relied upon by the ld AO by pointing out that even as per the Board’s Circular, taxability of shares arise only in the year of transfer of share certificates. The assessee relied on the ‘consideration’ part of the MOU dated 4.8.2005 at Clause 5, wherein, it has been categorically mentioned that share transfer deed were to be deposited with Mr. B. K. Jain (Advocate) in trust and were to be transferred to transferee (i.e. Vivek Kathotia) only on full and final payment of consideration. The assessee further relied on the letter written by him to the Solicitor Mr. B. K. Jain which shows that the Solicitor was holding such share certificates only in trust in terms of the MOU dt. 4.8.2005 and the shares were never transferred to Mr. Vivek Kathotia and /or his assignees/ associates as mentioned in MOU. The assessee further relied on the ROC returns for Asst Years 2006-07 & 2007-08 as well as for Asst Year 2010-11 and contended that since the share certificates have been transferred by the assessee and recorded in the Financial Year 2009-10 relevant to Asst Year 2010-11, the fact so contended by the revenue is not correct and in terms of the Circular No. 204 itself, the transfer had happened only in Financial Year 2009-10 relevant to Asst Year 2010-11. The assessee further contended that the value of consideration at Rs. 14,01,00,000/- is in terms of direction of the Court only.

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31.3.2010 - 50,00,000/- in the form of advance tax 23.7.2010 - 1,00,00,000/- in the form of part of self assessment tax 14.9.2010 - 78,58,600/- in the form of self assessment tax

From the above , it could be seen that eventhough the assessee did not offer the cash component of Rs 7,40,90,000/- in the capital gains on sale of shares of Graphitech Ltd in the original return filed on 15.9.2010, the entire taxes due thereon on the capital gains were paid before the date of filing the original return of income.

4.1. The ld AO pursuant to the search conducted on the assessee and his group on 25.2.2009, proceeded to process the search assessments for the Asst Years 2003-04 to

11 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 2008-09 & 2009-10 (being the year of search) , issued notice u/s 142(1) of the Act dated 7.7.2010, wherein he proposed to add the cash component of sale consideration of sale of shares of Graphitech Ltd in the Asst Years 2006-07 & 2007-08 in the sums of Rs 6,00,90,000/- and Rs 1,40,00,000/- respectively. The assessee having arrived at the conscious conclusion that the capital gains on sale of shares of Graphitech Ltd got crystallized pursuant to final settlement reached between the parties on 25.5.2009 and that the share certificates and share transfer deeds were duly executed and transferred only on that date, the capital gains on the same would arise only in Asst Year 2010-11. Admittedly, the assessee had admitted only the cheque portion of share sale consideration in the original return of income filed on 15.9.2010. The cash component of share sale consideration of Rs 7,40,90,000/- was offered by the assessee in the revised return of income filed on 27.12.2010 , even though the entire taxes due thereon were paid prior to 15.9.2010 as detailed above. Admittedly the assessee had offered the cash component of share sale consideration in the revised return filed on 27.12.2010 under the head ‘income from other sources’ in the sum of Rs 7,40,90,000/-. During the course of assessment proceedings, it was pleaded by the assessee that the said cash component be treated as share sale consideration on sale of shares of Graphitech Ltd and hence the same should only go to increase the sale consideration of shares and consequential increase in capital gains liability. But this was rejected by the ld AO.

4.2. Action of the ld AO in Asst Year 2010-11 a) The ld AO accepted the revised return filed on 27.12.2010 wherein the capital gains for cheque portion was offered and other sources for cash portion was offered by the assessee on sale of shares of Graphitech Ltd.

b) The ld AO made an addition of only Rs 15,000/- towards denial of deduction u/s 80D of the Act in the regular assessment framed u/s 143(3) of the Act for the Asst Year 2010-11 determining total income at Rs 10,15,62,560/-. In other words, the revised 11

12 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 return filed by the assessee on 27.12.2010 was accepted by the ld AO subject to the disallowance of Rs 15,000/- u/s 80D of the Act.

c) The ld AO observed that since the assessee had come forward to offer the cash component of share sale consideration only in the revised return filed on 27.12.2010 and that the proceedings for the search assessments had been initiated by issuance of notice u/s 142(1) of the Act dated 7.7.2010 itself, the assessee in order to escape from the taxation at higher rate and for the purpose of savings on interest and immunity from penalty, had come forward to offer the cash component of share sale consideration of Rs 7,40,90,000/- in the revised return. Hence there was malafide on the part of the assessee by not offering the same in the original return filed for the Asst Year 2010-11 on 15.9.2010 and accordingly initiated penalty proceedings u/s 271(1)(c ) of the Act for the same.

d) The ld AO thereafter proceeded to levy penalty u/s 271(1)(c ) of the Act in the sum of Rs 2,28,93,810/- on the cash component of Rs 7,40,90,000/- on the following reasons:-

(i) That the cash component of the transaction came to the notice of the department in consequence of the search operation conducted on 25.2.2009.

(ii) The department was thus in possession of the material indicating cash component in the transaction of shares.

(iii) Since the department is already in possession of the incriminating material suggesting undisclosed receipts, the subsequent admission by the assessee could not be considered as voluntary disclosure. Moreover, the assessee had failed to disclose the cash component of the share sale consideration in the original return filed u/s 139(1) of the Act on 15.9.2010 for the Asst Year 2010-11. 12

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Both the orders of the AO and the Ld. CIT(A) imposing and confirming the penalty u/s 271(1)(c) being unreasonable, uncalled for and bad in law are liable to be quashed/ cancelled.

The orders of the AO and the Ld. CIT(A) holding the said sum of Rs. 7,40,90,000/- as undisclosed concealed income on which tax was sought to be evaded are wholly unreasonable, uncalled for and bad in law.

14 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 dated 25.05.2009 following which those shares were actually & effectively sold in May 2009 (A.Y. 2010-11) after finalization of the deal.

15 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 a) The share transfer deeds of Graphitech Ltd were executed by the transferor (assessee herein) in favour of the transferee (Mr Vivek Kathotia) pursuant to the final compromise settlement reached on 25.5.2009 as decreed by the Hon’ble Court. Hence the capital gains liability arose only in Asst Year 2010-11 and not in Asst Years 2006- 07 and 2007-08 as contended by the revenue.

b) The cash component of Rs 7,40,90,000/- cannot be taxed in Asst Years 2006-07 and 2007-08 as no transfer of shares had taken place during those years.

c) The cash component of Rs 7,40,90,000/- is part of the share sale consideration only and the same should not be assessed as income from other sources for the Asst Year 2010-11 even though the same was offered to tax by the assessee under that head in the revised return filed on 27.12.2010. In other words, it was held by this tribunal that the cash component of Rs 7,40,90,000/- should be treated as share sale consideration only and only capital gains is to be computed thereon (Incidentally it would be pertinent to mention that this fact has been accepted by the ld CITA also in his appellate order dated 17.2.2014 for the Asst Year 2010-11 while confirming the levy of penalty u/s 271(1)(c ) of the Act).

6.1. Now coming to the validity of levy of penalty on this cash component of Rs 740.90 lacs u/s 271(1)(c ) of the Act for the Asst Year 2010-11, we find that it is not in dispute that the assessee had received the cash component of the subject mentioned transaction amounting to Rs. 7,40,90,000/- as per the MOU dated 4.8.2005 in Asst Years 2006-07 and 2007-08, which was not disclosed by him in his regular books of accounts. On the face of it, it might look undisclosed receipt. But in the search proceedings, it surfaced that the assessee was in receipt of the cash component of Rs. 740.90 lacs only towards the share sale consideration , the said receipt cannot be taxed / treated separately under any other head other than ‘capital gains’. We hold that the character of the receipt does 15

16 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 not change pursuant to the search. Infact the search proceedings had rather sanctified the nature and character of such receipt to be part of share sale consideration. It is also not in dispute that the said cash component has been received by the assessee in two parts as under:-

In Asst Year 2006-07 - 6,00,90,000/- In Asst Year 2007-08 - 1,40,00,000/-

6.2. It is not in dispute that no proceedings were initiated by the revenue for the Asst Year 2010-11 (i.e the year under appeal) to prove that there was concealment in the return of income for the Asst Year 2010-11. The most crucial fact which could not be brushed aside or swept under the carpet is that the assessee was conscious of the fact that he has to offer the capital gains on sale of shares of Graphitech Ltd in Asst Year 2010-11. Accordingly he offered the same in the original return of income filed on 15.9.2010. The taxes paid on the cash component of Rs 740.90 lacs are as under:- 31.3.2010 - 50,00,000/- in the form of advance tax 23.7.2010 - 1,00,00,000/- in the form of part of self assessment tax 29.9.2010 - 78,93,811/- in the form of self assessment tax ------------------- 2,28,93,811/- ( 7,40,90,000 * 30.9% = 2,28,93,811) -------------------

Hence the very fact of payment of taxes for the cash component also in the capital gains goes to prove that the assessee had no intention to conceal the same. Infact we find that the assessee had paid taxes at the rate of 30.90% as against 20.60% (which is the rate applicable for long term capital gains) . This clearly proves the fact that the assessee had some confusion in his mind with regard to the cash component of share sale consideration with regard to the head of income to be offered but never had any intention to conceal the same for the Asst Year 2010-11. These facts prove the bonafide conduct of the assessee beyond any doubt. We are not inclined to accept the arguments of the revenue that the assessee came forward to offer this cash portion of Rs 740.90 16

17 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 lacs only after the issuance of notices u/s 142(1) of the Act for the search assessments. Admittedly, the said notices u/s 142(1) dated 7.7.2010 and 14.12.2010 were issued for the Asst Years 2003-04 to 2009-10 and not for the Asst Year 2010-11. Moreover, even in the said notice, the revenue was of the view that the cash component and the cheque portion of share sale consideration should be taxed only in Asst Years 2006-07 and 2007-08. Hence it could be seen that the revenue had actually changed its stand while framing the regular assessment for the Asst Year 2010-11 u/s 143(3) of the Act by making double addition for capital gains i.e once in Asst Years 2006-07 / 2007- 08 and again in Asst Year 2010-11. We have already held in the quantum appeals in respect of the subject mentioned share sale transaction that capital gains on the same arises only in Asst Year 2010-11 , which has been duly offered by the assessee in the original as well as in the revised return of income and paid the entire taxes thereon as stated hereinabove. We also find that the ld AO had duly acted on the revised return filed by the assessee on 27.12.2010 and completed the assessment for the Asst Year 2010-11 u/s 143(3) of the Act by only making a meager addition to the income by Rs 15,000/-. Hence there cannot be any concealment of income or filing of inaccurate particulars of income that could be attributed on the part of the assessee in respect of cash component of share sale consideration of Rs 740.90 lacs.

6.3. The yet another excruciating fact which proves the doubt in the mind of the assessee stands strengthened is when the original return of income was filed by the assessee on 15.9.2010 for the Asst Year 2010-11, he offered the capital gains on the subject mentioned share transaction by including the cheque portion alone , but claimed credit for TDS to the tune of only Rs 2,00,040/- and self assessment tax of Rs 78,58,600/- paid on 14.9.2010. He did not take credit of tax paid in the sum of Rs 1,00,00,000/- on 23.7.2010 in the said original return filed on 15.9.2010. Since the ld AO had raised the very same issue of taxing the cash component in Asst Years 2006-07 and 2007-08 in the search assessments, for which notices were already issued by the ld 17

18 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 AO, the assessee entertained a doubt and belief that in case if he loses in those two asst years and parallely offers the cash component in Asst Year 2010-11, then it would result in double taxation of the very same receipt of Rs 740.90 lacs. These facts clearly prove the bonafide belief entertained by the assessee with regard to the offer of the said sum of Rs 740.90 lacs and the same cannot be doubted with. Even the revenue had the same doubt of taxing the cash component in two different years. While it is so, there is nothing unusual for an assessee (who is not conversant with income tax provisions) to entertain a doubt / belief with regard to the year of taxation of the subject mentioned transaction. Hence there could be no penalty on the same u/s 271(1)(c ) of the Act. In this regard, the reliance placed by the ld AR on the decision of the Hon’ble Jurisdictional High Court in the case of Durga Kamal Rice Mills vs CIT reported in (2004) 265 ITR 25 (Cal) is very well founded. It was held in that case as under:-

19 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 department itself had treated the same amount once as income of the assessee and again as income at the hands of the partners. Unless the amount is owned by the assessee in view of section 69A, there cannot be any question of concealment. When the department itself had accepted the same in both ways, there cannot be any conclusive proof that this amount was owned by the assessee. Therefore, no penalty can be imposed in such a case. (Underlining provided by us)

6.4. Now let us come to the decision of the Hon’ble Delhi High Court relied upon by the ld DR in the case of CIT vs Usha International Ltd reported in (2012) 27 19

20 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 taxmann.com 227 (Del HC) , we find from the perusal of the said judgement, the facts and decision rendered thereon are as under:- Facts

• The assessee had made a claim for deduction in terms of section 35CCA in its original return which represented a donation purportedly made to a trust 'M'. • However, the claim was withdrawn in the revised return of income subsequent to a survey conducted by the Department at the assessee's premises. • The Assessing Officer observed that the assessee had filed the revised return of income withdrawing the claim for deduction as a result of survey action in the assessee's premises in the course of which the cash book maintained by the assessee was impounded as it contained the entry made for the donation, which was bogus as revealed by a series of searches conducted by the income-tax authorities under section 132 in the premises of certain persons stated to be connected with the racket of making false claim under section 35CCA in respect of certain donations. • The Assessing Officer accordingly disallowed the claim. • Thereafter, penalty was imposed of under section 271(1)(c). • The Commissioner (Appeals), deleted the penalty.

• The Tribunal upheld the findings of the Commissioner (Appeals) and based its conclusion on an order of the Tribunal in the case of Deepak Singh & Family (HUF) v.Asstt. CIT [1994] 48 ITD 465 (Delhi) which was also a case where a claim of deduction was made under section 35CCA in respect of donations made through 'V' and 'P'. In that case the Tribunal had cancelled the penalty on the ground that the filing of the revised return before any concrete evidence was gathered by the authorities would exonerate the assessee from any guilt.

The Hon’ble Court held as under:-

There was concerted design to enable reduction of taxable income • The Tribunal was not right in upholding the cancellation of the penalty. It cannot be denied that there were searches and investigations which resulted in the income-tax authorities unearthing a concerted design to enable the reduction of the taxable income of the assessee by making use of the provisions

21 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 of section 35(2A), section 35(1)(ii) and section 35CCA. • The assessee made a donation of Rs. 10 lakhs to Trust 'M' by cheque and subsequently got the cheque encashed through a bogus account opened in the bank for the said purpose. It has also been found that though the donation was made by a cheque which was crossed 'account payee only'; the special crossing was later changed to a simple crossing i.e., '& Co.'. • The bank account had been opened in a fictitious name, merely, for the purpose of misappropriating the amount of Rs. 10 lakhs allegedly donated by the assessee to the trust. Further evidence is supplied by the fact that the entire amount of Rs. 10 lakhs was withdrawn by issue of four 'self' or bearer cheques. Finally the account was closed. • The above fact show that the purpose for which the account was opened in the bank was only to take away the amount of Rs. 10 lakhs, purportedly given as a donation to the donee-trust in order to claim the relief under section 35CCA which would reduce the taxable income of the assessee. The amount never left the coffers of the assessee; it also did not reach the donee-trust. It was brought back to the assessee. However, a receipt had been filed by the assessee company purporting to be issued by the donee-trust. Obviously the genuineness of the receipt, in the background of the facts and circumstances, was open to serious doubts. [Para 13] • The contention that the assessee was also a victim of a fraud played by several persons acting in concert cannot be accepted. Revised return was not filed voluntarily • The further contention of the assessee that the revised return withdrawing the claim for deduction under section 35CCA was filed voluntarily and without any prompting or provocation from the income-tax department is not acceptable. • The survey of the assessee's premises under section 133A took place two months prior to the date of filing the revised return. The survey itself was a result or as a follow up action to the searches and other inquiries conducted earlier. The cash book of the assessee was impounded during the survey. The proceeds of the donation cheque had already been taken out of the bank account 21

22 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 opened in the name of 'C'. The account itself had been closed. • In the light of these facts, the contention that the revised return was filed voluntarily is untenable. It was provoked by the evidence collected by the revenue and the survey conducted in the assessee's premises. In other words, the revised return was filed by the assessee only when it was cornered and the income tax authorities had collected material on the basis of which it could be said that the claim for deduction was false or bogus. The filing of the revised return is thus an act of despair and the assessee can gain nothing from it. [Para 16] • Subsequent conduct of the assessee after filing the original return is relevant and that should be taken into account while judging the guilt of the assessee. It would however depend on the facts and circumstances of the each case as to whether the filing of the revised return of income would purge the assessee of any guilt and would avail him in penalty proceedings. The condition is that the revised return should have been filed before the department discovered anything remiss therein or before any material was gathered by the Assessing Officer which would throw doubts on the bona fide of the assessee. [Para 17] • The question whether a revised return filed by the assessee withdrawing a claim or offering additional income was voluntary or not is essentially a question of fact to be decided in the light of the entire material brought on record and the facts and circumstances of each case and particularly having regard to the fact whether the revised return was filed by the assessee when cornered by the evidence or material collected by the revenue authorities or before that stage. [Para 19]

23 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 • Both the Commissioner (Appeals) and the Tribunal, have not examined the facts of the present case in the manner expected of them. The Tribunal has merely based its conclusion on certain previous orders without any discussion of the facts of the present case. • The question of concealment of income and whether the revised return was filed voluntarily or not is a question of fact to be examined and decided upon the facts and circumstances of the each case and, therefore, it was not permissible to the Tribunal to merely rely on earlier orders where this issue was considered and penalties were cancelled. It may be that in those cases also similar claims for deduction were involved; nevertheless, the question of concealment and the relevance of filing a revised return withdrawing the claim for deduction are all fact-dependent, and merely because in one case it was held that there was no concealment, it does not follow, as a matter of law, that in all such cases penalty cannot be imposed. At best, those earlier cases could only have a persuasive value. The Tribunal has committed an error in upholding the order of the Commissioner (Appeals) cancelling the penalties, without assigning any valid reason and without examining the facts. [Para 21] • For the above reasons the order of the Tribunal is to be reversed and it is to be held that penalty under section 271(1)(c) was rightly imposed. [Para 22]

Hence it could be seen that the revised return was filed pursuant to the survey and there was also a clear finding in that case to the effect that the donation made by the assessee had been encashed at a later point of time. Hence malafide intent was proved beyond doubt in that case. Hence assessee had no other option but to withdraw its claim of deduction towards donation paid which it did in the revised return filed. Such revised 23

24 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 return filed was considered by the Hon’ble Court as not filed voluntarily by the assessee.

But in the instant case, it could be seen from the aforesaid facts, the assessee had bonafide doubt and belief as to in which year the capital gains had to be offered ie. in Asst Years 2006-07 , 2007-08 or in 2010-11. This confusion gets further strengthened by the act of the ld AO by trying to levy capital gains in Asst Years 2006-07 and 2007- 08 in the search assessments for which show cause notices were issued by the ld AO. Even though the cash component got surfaced only pursuant to the search, the year of taxability of capital gains was in dispute between the assessee and the revenue. Moreover, the assessee had offered the entire cash component in the revised return and the assessment for the Asst Year 2010-11 was framed by the ld AO u/s 143(3) of the Act on 31.3.2013 accepting the same. There was absolutely no concealment of income or furnishing of inaccurate particulars of income by the assessee for the Asst Year 2010- 11 , for which penalty u/s 271(1)(c ) of the Act has been levied by the ld AO. Hence we hold that the facts before the Hon’ble Delhi High Court are squarely distinguishable from the facts of the instant case. Hence the decision relied upon by the ld DR does not advance the case of the revenue.

6.5. In view of the aforesaid facts and findings and by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Durga Kamal Rice Mills supra , we hold that the revenue had not made out any case for levying the penalty u/s 271(1)(c) of the Act for the Asst Year 2010-11. Accordingly, the grounds raised by the assessee are allowed.

25 ITA No.398/Kol/2014 Surya Prakash Bagla A.Yr.2010-11 7. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 13.12.2017

Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 13.12.2017 SB, Sr. PS

Copy of the order forwarded to: 1. Shri Surya Prakash Bagla, CD-315, Sector-1, Salt Lake City, Kolkata-700064 2. DCIT, CC-VII, Aayakar Bhawan, Purva, 110, Shanti Pally, Kolkata-700107. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.