NAVNEETA R. MEHRA,MUMBAI vs. ITO WD 14(3)(1), MUMBAI

The present appeal is directed against the order of the CIT(A)-25, Mumbai, dated 10.05.2012 confirming the penalty imposed by the A.O. under Section 271(1)(c) of the Income-tax Act, 1961 (for short ‘Act’) in the hands of the assessee. The assessee assailing the order of the CIT(A) had carried the matter in appeal before us, therein raising the following grounds of appeal: - “On the facts and in circumstances of the case, the Commissioner of Income Tax (Appeals)-25 has 1. Erred in confirming the penalty levied U/s. 271(1)(c) of Income Tax Act, 1961 by the Assessing Officer of Rs.1,14,970/-.

Briefly stated, the facts of the case are that the assessee had filed her return of income for A.Y. 2006-07 on 30.10.2006 declaring total income of Rs.7,30,430/-, which was processed as such under Section 143(1) of the ‘Act’. The case of the assessee was thereafter taken up for scrutiny proceeding under Section 143(2). The A.O. during the course of the assessment proceedings observed that an amount of Rs.18,33,116/- was credited by the assessee in her ‘Capital account’ on account of profit on sale of shares, which was claimed as exempt under Section 10(38). The A.O. on the basis of information gathered by him in the course of the assessment proceedings, as well as that made available to him by the A.O. of a close relative of the assessee, viz. Shri Ravindra Kumar Toshniwal, therein came to a conclusion that the assessee by claiming the Long Term Capital Gain (LTCG) on sale of the scrips of M/s Talent Infoway Limited as exempt, had as a matter of fact raised a bogus claim, as the entire transaction of acquisition of the said shares and subsequent sale thereof was found to be sham. The A.O. thus on the basis of his aforesaid observations brought to tax the entire sale proceeds of the shares of M/s Talent Infoway Ltd. (supra) under the head ‘Income from other sources’.

The assessee being aggrieved with the assessment therein carried the matter in appeal before the CIT(A), who vide his order dated 25.02.2010 therein held that the assessee had carried out genuine purchase/sale transaction of shares of M/s Talent Infoway Limited, and as such the profit arising therefrom was in the nature of LTCG in the hands of the assessee. The CIT(A) however observed that since the aforesaid transactions were off- market transactions on which no ‘Security transaction tax’ (STT) was paid, therefore, the LTCG arising therefrom did not qualify for exemption under Section 10(38) and was liable to be charged to tax.

That the A.O. who in the meantime had proceeded with the penalty proceedings under Section 271(1)(c) in the hands of the assessee, referring to the observations recorded by the CIT(A) in the quantum appeal of the assessee, therein observed that the department had assailed the order of the said first appellate authority and had filed an appeal before the Tribunal which was pending as on date. The A.O. holding a conviction that the penalty proceedings may not get barred by limitation, thus did not keep them in abeyance, and in the backdrop of the fact that the claim of the assessee towards exemption u/s 10(38) of the LTCG on sale of shares of M/s Talent Infoway Limited (supra) had been disproved and dislodged, and the assessee continued to remain liable for levy of tax on the LTCG arising from the sale of the aforesaid shares, thus concluded that as the assessee had furnished inaccurate particulars and concealed her income, the same therefore warranted levy of penalty of Rs.1,14,970/- under Section 271(1)(c).

The assessee being aggrieved with the imposition of penalty u/s 271(1)(c), therein carried the matter in appeal before the CIT(A). The CIT(A) being of the view that as the assessee had raised a false claim of exemption of LTCG under Section 10(38), with an intention to conceal its real income exigible to tax, and had also furnished inaccurate particulars of its income, therefore upheld the order of the A.O. imposing penalty in the hands of the assessee under Section 271(1)(c) and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) therein upholding the levy of penalty under Section 271(1)(c) in the hands of the assessee, had thus carried the matter in appeal before us. That during the course of the hearing of the appeal it was at the very outset submitted by the ld. Authorized Representative (for short ‘A.R.’) for the assessee that the genuineness of the Purchase/Sale transaction of the shares of M/s Talent Infoway Limited was not in doubt and had been accepted by the CIT(A). It was further averred by the Ld. A.R that the assessee after disclosing the entire set of facts and figures pertaining to the aforesaid transactions of sale of shares, being not aware that the transactions being off-market one on which STT had not been paid and were thus not eligible for claim of exemption under Section 10(38), had however remaining under a bonafide misconception claimed the ‘LTCG’ arising from the sale of the aforesaid shares of M/s Talent Infoway Limited as exempt under Sec. 10(38). That in the backdrop of the aforesaid factual matrix, it was averred by the ld. A.R. that now when the complete set of facts in respect of the purchase and sale transaction of the shares of M/s Talent Infoways Limited had duly been disclosed by the assessee in her return of income, therefore merely for a mistake which had crept in on account of an inadvertent bonafide misconception on the part of the assessee, no penalty under Section 271(1)(c) was liable to be imposed. That on the other hand the ld. D.R. relied on the orders of the lower authorities and therein submitted that the A.O. had rightly imposed the penalty under Section 271(1)(c) in the hands of the assessee, which thereafter had been sustained by the CIT(A). The ld. D.R. in order to support his contention therein drew our attention to Page 2- Para 4.1 of the order of the CIT(A), and therein submitted that in the backdrop of the facts involved in the case of the brother of the assessee, viz. Shri Ravindra Kumar Toshniwal and the latters wife Smt. Radhika Devi Toshniwal, it was beyond comprehension that the assessee was oblivious of the fact as regards a non-payment of STT in respect of the shares of M/s Talent Infoway Limited. It was further submitted by the ld. D.R. that the assessee despite being aware that the aforesaid transactions being off-market transactions had not been subjected to STT by the broker and thus not eligible for claim of exemption under Section 10(38), had however intentionally raised a wrong claim for exemption while filing her return of income, and thus was clearly liable for levy of penalty u/s 271(1)(c). The Ld. D.R thus submitted that the appeal of the assessee was devoid of any merit and was thus liable to be dismissed.

We have heard the Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that it stands established beyond any scope of doubt that the genuineness of the purchase and sale of the shares of M/s Talent Infoway Limited so carried out by the assessee is free from any doubt. We find that the assessee had during the year under consideration carried out sale of shares of various companies, against which the LTCG of Rs.18,33,116/- stood reflected. We find that the assessee had claimed the LTCG pertaining to shares/securities which have been subjected to STT as exempt under Section 10(38) in her return of income. That as stands gathered from the body of the assessment order, the assessee had filed along with her return of income the statement of LTCG/LTCL, which revealed the LTCG of Rs.11,09,784/- pertaining to the sale of shares of M/s Talent Infoway Limited (supra). We further find that the assessee who had during the year under consideration sold 12,500 shares of M/s Talent Infoway limited on 01.04.2005 for a consideration of Rs.11,27,149/-, therein resulting to a LTCG of Rs.11,09,784/- which was claimed exempt under Section 10(38), had as a matter of fact duly disclosed the entire set of facts and figures as regards the computation of LTCG in her aforementioned statement of LTCG/LTCL filed along with the return of income. We though are not oblivious of the fact that the exemption of the LTCG of Rs.11,09,784/-claimed by the assessee in respect of the aforesaid scrips, viz. M/s Talent Infoway Limited under Section 10(38) having not been found to be in order, for the reason that the same being off-market transactions had not been subjected to STT, as a fall out of which the LTCG emerging on the sale of the said shares did not satisfy the requisite conditions contemplated under Section 10(38). Be that as it may, we are of the considered view that though there can be no second thought as regard the exigibility to tax of the LTCG pertaining to the sale of the scrips of M/s Talent Infoway limited (supra), but then in the backdrop of the fact that the assessee had made a complete disclosure of the entire set of facts and figures relatable to the purchase and sale of the shares of M/s Talent Infoway limited (supra) and duly worked out the LTCG emerging there from in her return of income, therefore it can safely be held that the assessee loosing sight of the fact that the shares of M/s Talent Infoways Limited being in the nature of off-market transactions had not been subjected to STT, thus inadvertently claimed the same as exempt under Section 10(38). We have given a thoughtful consideration to the facts of the case and are of the considered view that now when the assessee had made a complete disclosure of the purchase and sale of shares of M/s Talent Infoway Limited in her return of income, the genuineness and veracity of which set of transactions had been accepted by the CIT(A) and all adverse inferences arrived in the said context by the A.O. had been set aside and put to rest, therefore merely for the reason that the LTCG emerging on the sale of the aforesaid shares had been claimed by the assessee as exempt u/s 10(38), the same in itself would not tantamount to concealment or furnishing of inaccurate particulars of income by the assessee. We thus in the backdrop of the facts involved in the present case hold a strong conviction that an incorrect claim in law by the assessee, wherein the latter after disclosing the complete details of transactions in respect of purchase/sale of shares of M/s Talent Infoway Limited (supra), had therein claimed the LTCG relatable to the said scrips as exempt under Section 10(38), cannot in itself lead to levy of penalty under Section 271(1)(c). That our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (Ltd.) (2010)322 ITR 158, wherein the Hon’ble Supreme Court has held as under :-

We thus in light of our aforesaid observations set aside the order of the CIT(A) and quash the penalty imposed by the A.O. in the hands of assessee.

The appeal of the assessee is allowed.