URMILA BHABERA,MUMBAI vs. ASST CIT 20(3), MUMBAI

PER SANDEEP GOSAIN, JM:

“1. The Commissioner of Income – Tax (Appeals -31 (hereinafter referred to as the CIT (A)) erred in confirming penalty of Rs.6,93,053 levied by the Assistant Commissioner of Income-Tax- 20(3), Mumbai (hereinafter referred to as the Assessing Officer) under section 271 (1) (c) of the Act.

The appellant contends that on the facts and in the circumstances of the case and in law, the Assessing Officer ought not to have levied the impugned penalty under section 271 (1) (c) of the Act.

The appellant contends that surcharge on income-tax and education cess cannot be considered in levying the penalty as the same is not part of “tax”.

WITHOUT PREJUDICE TO THE ABOVE

4. The CIT (A) erred in confirming penalty even on the addition of alleged commission which was deleted in quantum appeal by the Honourable Tribunal.

The appellant contends that on the facts and in the circumstances of the case and in law, the CIT (A) ought to have directed to reduce the penalty amount proportionately.

The appellant craves leave to add to, alter or amend the aforestated grounds of appeal.”

3. The brief facts of the case are that the assessee individual earning income from salary, business income and capital gains filed his return of income for the assessment year 2006-07 on 05-10-2006 declaring total income at Rs.75,93,546/-.The return was subsequently processed and case was selected for scrutiny. The assessment was completed u/s 143 (3) of the Act vide Order dated 28-11-2008 wherein apart from capital gains on sale of shares income shown by the assessee as income from “business” The AO held that the long term capital gains of Rs.23,58,900/- in respect of Inter-link Finance Ltd. (ILFL) shares as bogus income and also made addition of Rs.1,17,945/- on account of commission paid for arranging the said bogus income. On Appeal the learned CIT (A) held that the amount of Rs.23,58,900/- on account of LTCG as bogus as well as the addition on account of commission paid for Rs.1,17,945/-.

Subsequently, the AO took up penalty proceedings and asked the assessee to show cause why penalty u/s 271 (1) (c) of the Act should not be levied with reference to the additions sustained by the learned CIT (A).

Finding the explanations of the assessee unsatisfactory, the AO proceeded to levy penalty of Rs.6,93,053/- vide order dated 30th March, 2012. Aggrieved by the order of penalty, the assessee preferred appeal before the learned CIT (A). After hearing both the parties the learned CIT (A) has dismissed the appeal of the assessee vide order dated 17-07- 2014 thereby upholding the penalty of Rs.6,93,053/- levied by the AO.

Aggrieved from the order of the learned CIT (A) the assessee has preferred the present appeal before us on the grounds mentioned hereinabove.

“7.2 Referring to the above order of the CIT (A) it was the submission that there is no basis for treating the amount of purchase at Rs.22,48,000/- and confirm the addition as the assessee got the shares transferred into demat account by 31.03.2005, which fact was also accepted by the Ld. CIT (A). If the shares are purchased as alleged by the CIT (A) then, the addition of the amount cannot be made in this assessment year as the said purchases are made in assessment year 2005-06. It was submitted that assessee purchased the shares on 02.04.2004 and sold them on 18.04.2005 and correctly offered the long term capital gain. The Ld. DR however relied on the orders above.

7.3 We have considered the issue. It is a fact that t he assessee got the shares transferred to demat account as on 31.03.2005 and sold as on 18.04.2005. Therefore, assessing the purchases cost either at Rs.1,36,000/- or at Rs.22,48,000/- as directed by the Ld. CIT (A) does not arise in this year, as the transaction occurred before 31.03.2005 i.e. in assessment year 2005-06. Therefore, order of CIT (A) on this issue sustaining addition of so called purchase cost, cannot be upheld. Since there is no verifiable evidence to establish whether the assessee purchased shares on 02.04.2004 as claimed, it can at best be stated that assessee purchased the shares and transferred them into demat account as on 31.03.2005. Partially modifying the order of AO and CIT (A), we are of the opinion that the gain earned by the assessee can be brought to tax as capital gain but as short term capital gain, as there is evidence of purchase as on 31.03.2005 and sale on 18.04.2005. Since assessee claimed only amount of Rs.1,36,000/- as cost, there is o need for estimating the cost at Rs.22,48,000/- on presumptions as was done by the CIT (A). The transaction can be much before that date also as it will take time to get them into demat account. In the circumstances of the case, considering the evidence on record, we direct the AO to treat the gain offered by the assessee as short term capital gain and determine the tax liability accordingly. Ground No.4 is allowed partially.”

“5.8 In the instant case, the appellant declared an amount of Rs.23,58,900/- shown as derived from transactions in shares of Inter-link Finance Ltd. as long term capital gains exempt u/s 10(38). The AO examined the claim and found it untenable and so held the amount to be income from undisclosed sources. The Tribunal held that the amount in question is to be taxed as income from short- term capital gain in view of the fact that the appellant was unable to adduce any evidence to substantiate the date of purchase of shares as being 02.04.2004. Thus it is clear that in this case the appellant has neither furnished accurate particulars of income in her return nor has furnished any bona-fide explanation nor been able to substantiate the claims made in relation to the sum claimed to be “long-term capital gains”. It is also pertinent to note that the masking of the receipts as long term capital gains by claiming a period of holding that was not substantiated, directly impacted the tax liability of the appellant. In other words, the appellant sought undue advantage by seeking to declare as “long term capital gains” what was held by the ITAT to be “short-term capital gains”. There is therefore clear indication of concealment of income and of furnishing of inaccurate particulars. That being so, I view of the entire conspectus of facts of the case that judicial pronouncements discussed above, the penalty of Rs.6,93,053/- u/s 271 (1) (c) is upheld and the ground raised by the appellant is dismissed.”

7.1 However, from perusal of the order of the Tribunal passed in quantum appeal of the assessee it is clear that the conclusion of the AO that the amount of Rs.23,58,900/- as “income from undisclosed sources” is not upheld by the Tribunal. The Tribunal has held that the said shares can only be taken as having been purchased on 31-03-2005 and hence, the amount received from the transaction has to be taxed as “short term capital gains”. It is, therefore, in the backdrop of these facts that levy of penalty in the present case has to be considered.

7.2 We have also noted that according to specific wordings contained in Section 271 (1) (c) of the Act and considering the Law Lexicon, the word ‘conceal’ means to hide or to keep secret. The word ‘conceal’ is rooted in latine word ‘cocelare’ which implies to hide or withdraw some observations, to cover or to keep from sight to prevent discovery of whole knowledge or concealment of those facts or portion thereof from the knowledge of the Income Tax Authorities. Therefore, as per the dictum of the Hon’ble Apex Court rendered in the case of Dharmendra Textiles reported in 306 ITR 277 wherein the Hon’ble Apex Court has not only clarified that mens rea was not required to be proved for levy of penalty u/s 271 (1) (c) of the Act but also held that levy of penalty is not automatic if the assessee can furnish a bona-fide explanation. This was further clarified by the Hon’ble Apex Court in the decision rendered in the case of CIT Vs. Atul Mohan Bindal [317 ITR 1 (SC)] wherein the Hon’ble Apex Court discussed the judgment rendered in the case of Rajasthan Spinning and Weaving Mills [254 CTR 1] and held that for applicability of section 271 (1) (c) of the Act, the conditions stated therein must exist. These conditions are that the assessee should have concealed the particulars or income or furnished inaccurate particulars of such income before the penalty u/s 271 (1) (c) can be levied. From the facts before us, we have noted that the assessee has made a claim before the AO on disclosed facts which has not been accepted by the AO. Thus, when there is full disclosure of particulars of income by the assessee, it cannot amount to concealment of income and/or furnishing of inaccurate particulars of income and the addition made on account of income from “long term” and/or “short term” capital gains is legal in nature and as such penalty is not warranted. Even otherwise, as per Explanation (1) to Section 271 (1)

(c) of the Act cast a duty on the AO to first record reason that there has been concealment and then seek explanation from the assessee and once the AO finds the explanation of the assessee to be false, the AO can levy penalty on the amount which is found to be concealed. Thus, penalty on concealment can be imposed if both the conditions are fulfilled namely when the assessee has failed to substantiate its explanation and has also failed to prove its bona-fide and penalty can be levied when the conditions are purely of legal issue. As per the facts of the present case there cannot be any denial that along with the return of income, during the course of assessment proceedings, the assessee furnished all the relevant details before the AO and therefore, the assessee cannot be held to have furnished inaccurate particulars of such income within the meaning of Section 271 (1) (c) so as to call for any penalty. After appreciating the order passed by the Tribunal in quantum appeal in the assessee’s own case, the Tribunal held that income from capital gains of IFL to be assessed as income assessable as income from “short term capital gains” as against income from “long term capital gains” declared by the assessee and thereby negating the AO’s view. Apart from that, the addition made on account of commission payment of Rs.1,17,945/- has also been deleted by the Tribunal in the said order.

7.3 We have also analyzed the judgments cited by the learned AR in the cased of Shree Krishna Electricals (2009) 23 VST 249(SC) wherein it has been held that “penalty cannot be levied merely because exemption claimed by “A” was disallowed”. We have also gone through the judgment cited by the learned AR in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) wherein it was held that “‘particulars’ means details of the claim made where information given is not found or found to be incorrect, ‘A’ cannot be held guilty of furnishing inaccurate particulars of income for the purpose of levying penalty u/s 271 (1) (c)” and further held that “mere making a wrong claim does not amount to furnishing inaccurate particulars. In the absence of finding that any details supplied by ‘A’ is incorrect or false, penalty cannot be levied.”