JAGADISH LAL GUGNANI,BHUBANESWAR vs. ITO, BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.02/CTK/2013 Assessment Year : 2006-07

Jagdish Lal Gugnani, N-3, Vs. ITO, Ward-2(1), 397, IRC village, Nayapali, Bhubaneswar. Bhubaneswar. PAN/GIR No. ABHPG 1121 A (Appellant) .. ( Respondent)

Assessee by : Shri C.Parida, AR Revenue by : Shri D.K.Pradhan, DR

Date of Hearing : 17/05/ 2017 Date of Pronouncement : 17 /05/ 2017

O R D E R Per Pavan Kumar Gadale, JM This is an appeal filed by the assessee against the order of CIT(A)-II,

Bhubaneswar, dated 19.10.2012, for the assessment year 2006-07.

that the CIT(A) erred in confirming the action of the Assessing Officer in

levying penalty of Rs.1,23,796/- u/s. 271(1)(c) of the Income tax Act,

1961.

income from trading of shares & stocks and filed the return of income for

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the assessment year 2006-07 on 30.10.2006 disclosing total income of

Rs.97,447/-. The assessment was completed under section 143(3) on

30.12.2009 determining the total income at Rs.7,36,260/-. The Assessing

Officer while completing the assessment found that the assessee has

income from trading of shares as the proprietor of M/s. Indu Investment

and also reflected the purchase and sale of shares in the profit and loss

account and whereas in respect of clients, the assessee has disclosed the

commission in the profit and loss account . Both the incomes were reflected

by the assessee in a financial statement and the books of account are

audited u/s.44AB and Form 3CD have been obtained. As per the financial

statement, the assessee has transferred the profit to the capital account.

At the time of filing the income tax return, the income has been shown as

long term capital gain and short term capital gain whereas the assessee

has claimed exemption of long term capital gain u/s.10(38) and offered the

short term capital gain at a concessional rate of 10%. Whereas, as per

the opinion of the Assessing Officer, the assessee could not substantiate in

the assessment proceedings and in the penalty proceedings that the

assessee is maintaining separate books of account. The assessee filed a

detailed reply dated 2.12.2008 which are mentioned at pages 1 to 4 of

penalty order and relied on judicial decision. The Assessing Officer was not

satisfied with the explanation and distinguished the judicial decision and

held that there is clear cut concealment of income and furnishing of

inaccurate particulars by claiming exemption as long term capital gains and

short term capital gains from the share trading profit. He, therefore, levied

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penalty of Rs.1,23,800/- and passed order under section 271(1)(c) of the

Act.

appeal before the CIT(A) whereas the CIT(A) has passed a consolidated

order alongwith other assessment yeas, wherein he has considered the

findings of the Assessing Officer in assessment proceedings and penalty

proceedings and submissions of the assessee and observed that the

assessee has maintained one set of books of account for the investment in

buying and selling in shares, and profit commission disclosed in the profit

and loss account and further the assessee’s intention of claiming long term

capital gains and short term capital gains was afterthought and was claimed

at the time of filing the return of income. With these observations, the

CIT(A) confirmed the action of the Assessing Officer.

before the Tribunal.

appellate proceedings and explained that the assessee has been

maintaining system of accounting and books of accounts are audited

u/s.44AB of the Act and the Assessing Officer has levied penalty and the

same was confirmed, which is not in accordance with law and prayed for

allowing the appeal.

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authorities and materials available on record. The sole crux of the issue is

that the assessee deals in purchase and sale of shares on his behalf and

others. The fact that the assessee cannot have two set of books of account

for individual trading and for clients and the fact that in the assessment

order, it is clearly explained that the assessee has disclosed purchase and

sale of securities and income has been offered to tax and whereas the

commission income is shown in the profit and loss account and the

expenditure has been claimed in respect of business activity. The Assessing

Officer makes allegations that the assessee is not entitled for claiming of

exemption u/s.10(38) in respect of long term capital gain at a concessional

rate and wants to treat the entire income as business income. Prima facie,

the department could not prove on the facts that the assessee is indulging

in any activity of concealment of income or furnishing of inaccurate

particulars. We are satisfied that the assessee has given an exhaustive

explanation in the penalty proceedings, which has been reflected in the

penalty order and there is reasonable cause of disclosure which the CIT(A)

has overlooked. We are of the opinion that the assessee has not contested

the quantum appeal and accepted the addition to avoid litigation with the

income tax department and to buy peace. Further, as a principle every

addition cannot be a gateway for the Assessing Officer to levy the penalty.

The Assessing Officer has wide discretionary powers and has to consider

the reasonable cause before initiating the penalty proceedings. We also

support our view on the principles laid down by Hon’ble Karnataka High

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Court in the case of CIT vs Manjunatha Cotton and Ginning Factory,

reported in [2013] 359 ITR 565 (Kar), wherein, Their Lordships have held

that penalty cannot be levied on the addition in a general way and held as

under:

“Merely because the assessee agreed for addition and the assessment order was passed on the basis of this addition, when the assessee had paid the tax and the interest thereon in the absence of any material on record to show the concealment of income, it could not be inferred that the addition was on account of concealment. Moreover, the assessee had offered an explanation. The explanation was not found to be false. On the contrary, it was held to be bonafide. The cancellation of penalty by the Tribunal was justified.” 9. Considering the apparent facts and materials on record and judicial

decision, we are satisfied that there is a reasonable cause explained by the

assessee and there is no concealment of income or furnishing of inaccurate

particulars and accordingly set aside the order of the CIT(A) and direct the

Assessing Officer to delete the penalty of Rs.1,23,800/- levied under

section 271(1)(c) of the Act.

Sd/- sd/- (N.S Saini) (Pavan Kumar Gadale) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 17 /05/2017 B.K.Parida, SPS

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Copy of the Order forwarded to : 1. The Appellant : . Jagdish Lal Gugnani, N-3, 397, IRC village, Nayapali, Bhubaneswar. 2. The Respondent. ITO, Ward-2(1), Bhubaneswar. 3. The CIT(A)-II, Bhubaneswar 4. Pr.CIT, Bhubanswar. 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack