Income Tax Appellate Tribunal - Raipur
Rajendra Kumar Manish Kumar Sharma ... vs Deputy Commissioner Of Income Tax, ... on 9 July, 2024
आयकर अपील य अ धकरण यायपीठ रायपरु म।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.146/RPR/2024
नधारण वष / Assessment Year : 2014-15
Rajendra Kumar Manish Kumar Sharma (HUF)
H. No.10/397, Budhapara,
Raipur (C.G.)-492 001
PAN : AACHR3558J
.......अपीलाथ / Appellant
बनाम / V/s.
The Deputy Commissioner of Income Tax,
Circle-1(1), Raipur (C.G.)
...... यथ / Respondent
Assessee by : Shri R.B Doshi, CA
Revenue by : Shri Satya Prakash Sharma, Sr. DR
सुनवाई क तार ख / Date of Hearing : 10.05.2024
घोषणा क तार ख / Date of Pronouncement : 09.07.2024
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Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur
ITA No. 146/RPR/2024
आदे श / ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 16.02.2024, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income- tax Act, 1961 (in short 'the Act') dated 13.09.2022 for the assessment year 2014-15. The assessee has assailed the impugned order on the following grounds of appeal:
"1. The A.O erred in imposing penalty u/s.271(1)(c) of Rs.93,88,640/- without appreciating facts of the case properly. The imposing of penalty is arbitrary, illegal and not justified.
2. The appellant reserves the right to amend, modify or add any of the ground/s of appeal."
2. Succinctly stated, the assessee had filed its original return of income for A.Y.2014-15 on 26.07.2014, wherein after raising a claim for exemption u/s 10(38) of the Act of the Long Term Capital Gain (LTCG) of Rs. 2,78,42,063/- on sale of shares of "CCL International Ltd." it had disclosed its net taxable income at Rs.9,05,930/-.
3. On 20/21.04.2020, the assessee vide its letter dated 23.03.2020 addressed to the Pr. CIT-2, Raipur/Jt. CIT-Range-4, Raipur/AO, Ward-4(3), Raipur, had intimated about the withdrawal of its claim for exemption u/s. 3
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 10(38) of LTCG of Rs. 2,78,42,063/- on sales of shares of CCL International Ltd. (supra) that was raised in its original return of income. It was further intimated by the assessee that it had paid the taxes a/w. surcharge and education cess on the aforesaid amount of income. The assessee had explained that as the claim of exemption on sale of shares of the aforesaid scrip, viz. M/s. CCL International Ltd. (supra) was rejected by the A.O. while framing assessment u/s. 143(3) in the case of its co-parcener, viz. Shri Manish Kumar Sharma for A.Y.2015-16, therefore, to buy peace of mind and to avoid protracted litigation it seeks to withdraw the claim for exemption on sale of shares of the said scrip as was raised in its return of income u/s.10(38) of the Act.
4. Subsequently, the A.O based on information that the assessee had in its return of income claimed exemption of Long Term Capital Gain (LTCG) of Rs.2,78,42,063/- on the sale of shares of " CCL International Ltd." a penny stock, viz. "CCL International Ltd." u/s. 10(38) of the Act, initiated proceedings in its case u/s. 147 of the Act.
5. Notice u/s.148 of the Act dated 04.05.2020 was issued to the assessee. In compliance, the assessee filed its return of income on 13.05.2020 declaring an income of Rs.2,85,25,350/-, wherein LTCG of Rs.2,78,42,063/- on the sale of shares of "CCL International Ltd." that was 4 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 earlier claimed by him as exempt u/s. 10(38) of the Act in its original return of income was offered as income under the head "Other sources".
6. The A.O after referring to the modus operandi that was adopted across the country for laundering of unaccounted money by the assessee's in the garb of bogus LTCG transactions, referred to the facts involved in the case of the assessee before him. The A.O. observed that the assessee had through an off-market transaction applied for 60000 shares of "AAR Infrastructure Ltd", which, thereafter, were allotted to him again through an off-market transaction. It was observed by him that the assessee had on 27.04.2011 transferred to its demat account the aforesaid shares of "AAR Infrastructure Ltd." (AIL). On 08.10.2011, through a scheme of amalgamation "AAR Infrastructure Ltd." (AIL) merged with "CCL International Ltd.", and on 24.03.2012 the assessee was issued 150000 shares of "CCL International Ltd.". The A.O observed that the aforesaid 150000 shares of "CCL International Ltd." of face value of Rs.10/- each were thereafter sold by the assessee during F.Y.2013-14, i.e. between 03.02.2014 to 12.03.2014 for a total consideration of Rs.2,81,80,383/- for a price ranging from Rs.174 to Rs.195/- per share. Accordingly, the A.O observed that from the investment of Rs. 6 lacs the assessee got a phenomenal amount of Rs.2,78,42,063/- in a short time, which was against all human probabilities, specifically when the company viz, "CCL International Ltd." was not showing any significant income. The A.O. further observed that "CCL International Ltd." had during 5 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 the course of the search/survey action conducted stated that they have been involved in providing accommodation entries through purchase/sale of shares. Accordingly, the A.O. based on the aforesaid facts concluded that the assessee HUF had routed its own unaccounted money in the guise of exempt capital gains on the sale of shares of "CCL International Ltd.".
7. The assessee on being queried about the aforesaid issue, submitted that it had for avoiding protracted litigation offered LTCG on the sale transaction of the aforesaid shares of "CCL International Ltd." as its income from "other sources" in its return of income filed u/s. 148 of the Act. However, the explanation of the assessee did not find favor with the A.O for the following reasons:
"i) The explanation of the assessee is general in nature stating the transaction are through Stock Exchange and payments are made through cheque, the transactions should be treated as genuine. The background of the scheme given in earlier paras shows that both the requirements are inbult in the bogus LTCG scheme and does not ipso facto prove genuineness of transaction. The SEBI after thorough investigation has stated that such transactions are rigged and carried out to convert Black Money into white money. Thereafter, sone of the scrips were also suspended. The evidence gathered has to be evaluated in the background of what the Hon'ble Supreme Court referred to as the test of preponderance of human probability judged on the basis of surrounding circumstances. That there was a scheme, is not in doubt and that the assessee is a beneficiary of such a scheme is a fact.
Keeping in view the background of the scheme and transactions carried out by the assessee and circumstantial facts (purchase is offline which is manipulated, it can be stated that the assessee has taken entry of bogus LTCG.
ii) the evidentiary value of payment of STT cannot make a non-genuine transaction a genuine one and genuine claim u/s. 10(38) of the I.T. Act, 1961.
iii) the assessee concealed the facts of share price rigging with a malafide planning by entry provider and assessee is beneficiary of such entries. 6
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
iv) It is seen when the prices were being rigged upside, the number of share transactions were nominal/negligible but when the desired price height were reached, the volume of transaction jumped up many folds for booking the bogus LTCG/STCL by the respective beneficiaries and thereafter immediately fallen down.
V) M/s. CCL International Ltd. is showing negligible income and it is very hard to believe that one would invest in such a company having nil/negligible profits.
vi) The Hon'ble Supreme Court in the case of CIT v/s. Durga Prasad More 82 ITR 540 observed the following relevant observation :-
"It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on such a deed has to establish the truth of these recitals otherwise or taken by a party and rely on such recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents".
vi) The genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining the genuineness stands since settled by the Apex court in Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) wherein the apex court, in declaring the transaction as non-genuine discarded a host of documentary evidences filed or relied upon by the assessee-appellant. The documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of surrounding facts and circumstance of the case is well settled and reliance is placed on the decision in the case of Durga Prasad More 82 ITR 540(SC)."
Accordingly, the A.O based on his aforesaid observations concluded that the transaction of purchase/sale of shares carried out by the assessee was not genuine and, thus, the exemption of LTCG of Rs.2,78,42,063/- claimed in the original return of income was not to be accepted. As such, the A.O. recharacterized the LTCG income offered by the assessee as its "income from 7 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 other sources" in its return of income filed u/s 148 of the Act as an unexplained cash credit u/s. 68 of the Act and brought the same to tax u/s. 115BBE of the Act.
8. Accordingly, the A.O. based on his aforesaid observations determined the income of the assessee at Rs.2,86,35,354/- (including addition u/s. 68 of the Act of Rs.2,76,19,429/-). Also, the A.O. vide his order passed u/s.147 r.w.s. 144B of the Act dated 30.03.2022 initiated penalty proceedings u/s. 271(1)(c) of the Act for concealment of particulars of income by the assessee.
9. The A.O. after the culmination of the assessment proceedings, vide his order passed u/s.271(1)(c) of the Act dated 13.09.2022 imposed a penalty of Rs.93,88,640/- on the assessee for deliberate concealment of income of Rs. 2,78,42,063/- (supra).
10. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, observations of the CIT(Appeals) on the multi-facet contentions that were raised by the assessee are culled out as under:
"5. I have perused the order passed by the A.O and the written submission filed by the appellant. The appellant raised the following contentions:
1. The amount was offered voluntarily by him and hence penalty cannot be levied. This was his main contention.
2. A.O did not initiate penalty in other cases.
3. Claim of exemption was genuine and details of transaction with evidences were filed.8
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
4. Nothing proved against the appellant.
5. There was no concealment of income. 6. Penalty dropped in other cases.
6. These submissions were already considered by the AO in the penalty order. The main findings given by the AO is as under:
a) In the original return of income filed on 26.07.2014, the assessee had claimed exemption u/s.10(38) of Rs. 2.78.42,063/- which was offered to tax in the return filed u/s. 148 on 13.05.2020. In the return filed in response to notice u/s.148 filed on 13.05.2020, the assessee has paid Self Assessment Tax of Rs.94,01,034/- which had not been earlier paid in response to return u/s.139(1).
b) The assessee's plea that its claim of exemption is bonafide cannot be accepted. A person making a bonafide claim will not pay taxes of Rs. 94 lakhs in the revised return of income filed u/s.148.
c) The investigation conducted by the Investigation Wing and the FAO clearly bring out that the transactions in the purchase/sale of shares in the penny scrip "M/s. CCL International Ltd." was nothing but a pre-arranged transactions to introduce unaccounted income into the books of the assessee and investigations in the said stock have proven that the Company had no financial standing for it to generate such huge share price.
d) The details submitted by the assessee reveal that the assessee has not been dealing in shares on a regular basis.
e) The basic trading pattern of the shares of Mis. CCL International Limited were analyzed and it was seen that there was a common pattern in the trading of such scrips and the pattern is that they represent a bell share in their trading. The Balance Sheet of the Company showed that it had no credentials to support the share movement pattern.
f) The assessee through an off market transaction purchased 60000 shares of AAP Infrastructure which on merger got converted into 1500000 shares which gained the assessee a price of Rs. 2,81,80,383/-. Such a huge rise is shares are not in line with the movement of the share market during this period and also looking at the credentials of the Company.
g) The documentary evidences are not by themselves conclusive but the truth of the matter could be determined on the basis of or on the anvil of surrounding facts and circumstance of the case is well settled and reliance is placed on the decision of Durga Prasad More 82 ITR 540.
h) The assessee's purchases were made offline and no demat account was produced during assessment proceedings to show the exact date of entry in its demat account. Further, the documents submitted by the assessee 9 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 were not proper. The Application for Equity Shares was undated and no application no. was mentioned on the application form. No acknowledgement of the same was seen on the application form. Further, the deposit slip of IDBI Bank dated 10/01/2011 does bear the date stamp to prove authenticity of the cheque presenting date and document.
i) Exemption is bonafide but due to apprehensions, the assessee has offered to pay tax argument of the assessee cannot be accepted because no one will pay Rs.94 lakhs based on apprehensions if its claim is correct. The fact that the assessee has paid Rs.94 lakhs proves that he knows his transactions are bogus and will be out by the Department and taxed accordingly. This is the reason why reassessment proceedings were initiated in this case despite having filed revised ROI u/s.148 with due tax of Rs.94 lakh accepting thereby the impugned exemption claimed as irregular.
j) In view of the stock, Mis. CCL International Limited being proved a penny stock in the investigations conducted by the Investigation Wing and the FAO, the addition made u/s. 68 has been rightly made.
k) It would be worth mentioning here that assessee has not filed any appeal against the assessment order passed which squarely proves that there was conscious concealment done on the part of the assessee.
l) Assessee has cited various case laws which stressed on the fact that no such materials were available on record which were found to be inaccurate in the case of respective assessee. Here, it would be worth mentioning here that CCL International Limited is penny stock company and Hon'ble Kolkata HO in IA No. GA/2/2022 in PCIT-5 Vs. Swati Bajaj & Others has categorically and vociferously dealt the modus operandi of such penny stock companies and pronounced its judgment in favour of revenue on 14/06/2022. Thus, it is apparent that sufficient materials were available on record on the basis of which FAO rightly initiated penalty proceedings u/s 271(1)(c) of the Act.
The AO dealt the issue in detail and proved that it was not a voluntary offer. The appellant could not controvert these findings recorded by the AO in the assessment order.
7. Whether it was a voluntary offer?
7.1. In this case, the transaction was pertaining to FY 2013-14 relevant to AY 2014-15. The appellant filed original return of income on 26.07.2014 by admitting total income of only Rs.9,05,930/-. In the return he claimed exemption of Rs.2,78,42,063/-. This was the return filed u/s 139(1) of the IT Act voluntarily by him within due date. If he was of the opinion that the LTCG and the claim of exemption was not correct, he could have filed a revised return voluntarily u/s 139(5) of the IT Act. These two provisions only ensure voluntary compliance.
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Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 7.2. In this case the appellant never admitted any income for Rs.2,78,42,063/- voluntarily for taxation, Rather he deliberately made incorrect claim in his return of income to the extent of Rs.2,78,42,063/- and silently enjoyed the benefit of wrong claim for a period of 7 years. 7.3. The department carried out extensive investigation all over the country and busted out the modus operandi of penny stock companies floated by several entry providers who indulged into such unfair and unlawful activities of abetting tax evasion techniques. Several thousand individuals routed their undisclosed income in the form of purchase and sale of shares of those shell companies that were operated by those entry providers. Those entry operators facilitated such individuals to claim bogus LTCG and subsequent exemption.
7.4. It was an elaborate fraudulent practice adopted by those entry providers mainly to evade several thousand crores of tax through such unlawful activities carried over for a long period. Through effective coordination with several investigating agencies and SEBI, the Income Tax Department detected such modus operandi by identifying all those penny stock companies.
7.5. One of such penny stock companies was M/s CCL International Ltd. The appellant claimed that he bought those shares and sold the same in AY 2014-15. The LTCG out of that sale for a sum of Rs.2,78,42,063/- was claimed as exempt income in the return filed by him voluntarily on 26.07.2014.
7.6, After 6 years of filing such return, the AO issued notice u/s 148 of the IT Act on 04.05.2020 to assess the income escaped in all those 6 years. After receipt of this notice only, the appellant filed the return of income on 13.05.2020 by admitting a sum of Rs.2,78,42,063/- as additional income over and above the returned income of Rs.9,05,930/- disclosed in the original return filed by him on 26.07.2014. Only after 6 years. this amount of Rs.2,78,42,063/- was brought to taxation by the revenue wherein the appellant paid Self-Assessment Tax of Rs.94,01,034/- at the time of filing a return in response to the notice issued by the revenue u/s 148 of the IT Act. 7.7. The very purpose of section 147 that the IT Act was to assess the income escaped the assessment. To assess that escaped income only, notice u/s 148 of the IT Act was issued. Hence, it cannot be for any stretch of imagination can be called as voluntary offer.
7.8. If the department did not carry out such extensive investigation and detected the modus of operandi, the revenue could not have identified the penny stock company namely M/s CCL International Ltd. If the department did not identify that penny stock company, the appellant would not have offered this bogus LTCG after receipt of notice u/s 148 of the IT Act. 11
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 Resultant tax of Rs. 94,01,034/- also could not have been brought under taxation.
7.9. In view of the above, the submission of the appellant that he voluntarily offered Rs.2,78,42,063/- for taxation and paid income tax of Rs.94,01,034/- was devoid of any merit. This is what the AO also dealt in the assessment order and recorded a fact that it was not at all a voluntary offer.
8. AO did not initiate penalty in other cases.
The appellant made another strange claim that AO did not initiate penalty in similar facts in other cases. Hence, the penalty levied in his case is not correct. Such contention is also devoid of any merit. Several individuals may jump the traffic signal and few are caught and fine has been levied. They cannot claim that in so many other cases, the traffic police did not levy such fine and he cannot levy fine only in his hands. The appellant's claim is similar to this situation. Penalty proceedings placed in IT Act are to be initiated by the AO as per the facts and circumstances of each case and being levied as per those provisions. If the AO did not initiate penalty in some cases, that cannot stop initiation of penalty by the AO in the case of appellant. For this reason, penalty levied in his case cannot be allowed.
9. Claim of exemption was genuine and details of transaction with evidences were filed.
As per the appellant, the claim of exemption was genuine as the details of transactions with evidences were filed before the AO. If his claim was correct and genuine, he need not have disclosed a sum of Rs.2,78,42,063/- as income escaped from assessment. He was aware of the fact that M/s CCL International Ltd. was shell company / penny stock company and that was detected by the investigation unit. Hence, he surrendered his bogus claim of LTCG when he received the notice u/s 148 of the IT Act. As the income escaped was brought to taxation, penalty was levied in his case as the AO rightly initiated the penalty proceedings in the assessment order. Hence, his contention that claim of exemption was genuine is not acceptable.
10. Nothing proved against appellant.
The appellant made another ground that nothing was proved against his claim. This plea is also devoid of any merit. The AO need not prove anything else in his case. The appellant himself accepted that he claimed bogus LTCG and enjoyed the benefit over the period of 6 years. When the AO received information above a penny stock company and issued notice u/s 148 of the IT Act to assess the income escaped by recording detailed reasons, the appellant surrendered his incorrect claim and paid tax after 6 years of the transaction. Nothing more to be proved in his case.
11. There was no concealment of income.
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Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 This submission is also devoid of any merit on account of detailed discussions made above. It is only after investigation carried out on bogus penny stock companies, the details of all the beneficiaries could be identified. The list of those beneficiaries who claimed bogus LTCG was disseminated to respective AOS and that led to reopening of the assessments. It is because of such action, the income concealed as bogus LTCG was brought to taxation. Hence, the appellants claimed that there was no concealment is not acceptable.
12. Penalty dropped in other cases.
This is yet another claim similar to the discussion made in para-8 above. Several individuals may jump the traffic signal and few are caught and fine has been levied. Few individuals may escape from the traffic police from penalty and fine may be imposed in other cases. Those defaulters cannot claim that fine was not levied in some other cases. The appellant's claim is similar to this situation. This cannot be a valid ground for dropping of penalty for such large-scale evasion of income of Rs.2,78,42,063/-. It is an organized modus operandi of evasion through sophisticated techniques. Such large-scale tax extensive and exhaustive investigation. That led to detection of bogus claim of LTCG. detected through an Hence, the AO rightly initiated penalty proceedings and levied penalty. Dropping of penalty in some other cases cannot prevent the AO from levying penalty in his case.
13. Findings of AO in the case of appellant:
13.1 The AO referred some of the judicial decision in support of his action in the penalty order. It is as under:
i) Hon'ble M.P.High Court in its judgment in the case of Steel Infots Ltd. Vs. CIT [296 ITR 228] held that "In case of concealment of true income chargeable to tax by making bogus claim, levy of penalty u/s 271(1)(c) read with Explanation 1 is justified.
ii) Hon'ble Delhi High Court in its judgment in the case of CIT Vs Escorts Finance Ltd [183 Taxman 453 (Delhi)/[2010] 328 ITR 44 (Delhi)/[2009] 226 CTR 105] held that "If claim made in return of income appears to be ex facie bogus, it would be treated as a case of concealment or furnishing of inaccurate particulars and penalty proceeding would be justified."
iii) Hon'ble Delhi High Court in its judgment in the case of CIT Vs Zoom Communication Pvt. Ltd [191 Taxman 179 (Delhi)/[2010] 327 ITR 510 (Delhi)/[2010] 233 CTR 465] held that "If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation 1 to section 271(1)(c) would come into play and assessee will be liable to penalty."13
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
iv) Hon'ble Supreme Court in its judgment in the case of K.P.Madhusudhan Vs. CIT [2001] 118 Taxman 324 (SC)/[2001] 251 ITR 99 (SC)/[2001] 169 CTR 489 (SC) held that "where assessee was unable to furnish evidence for loans and it offered amount of transaction as additional income, Assessing Officer was justified in imposing penalty u/s271(1)(c) after finding the explanation to be unacceptable and applying Explanation 1(B) of the section."
v) Hon'ble Supreme Court in its judgment in the case of Mohan Steels Ltd. Vs. CIT [2017-TIOL-159-SC-IT] held that "SLP dismissed after concurring with the views expressed by High Court that penalty for concealment would become leviable if it was discovered that allowances claimed were not bonafide in nature."
vi) Hon'ble Delhi High Court in its judgment in the case of Mohan Raza Vs. CIT [2016-TIOL-2026-HC-DEL-IT] held that "It is open to the AO to levy penalty in a case, where only upon the assessment being picked up in scrutiny for further enquiry, the assessee has come out with the details and has surrendered the income for taxation."
vi) Hon'ble ITAT Delhi in its judgment in the case of Smt. Kiran Devi Vs. ACIT [[2009] 125 TTJ 631 (Delhi)] held that "Where certain income was disclosed in return filed in response to notice under section 153C following search, which income was not disclosed in original return, it was a clear case of concealment of income attracting penalty under section 271(1)(c); in such a case it was unnecessary to invoke Explanation 5 to section 271(1)(c)."
vii) Hon'ble ITAT Delhi in its judgment in the case of CIT Vs. Prasanna Duggar [[2015] 59 taxmann.com 99 (Calcutta)/[2015] 371 ITR 19 (Calcutta) (MAG.)/[2015] 279 CTR 86 (Calcutta)] held that "Even where subsequent to search, assessee voluntarily disclosed a sum and offered said sum to tax, since said amount was not disclosed in original return, penalty levied under section 271(1)(c) was justified."
13.2 These decisions are few illustrations considered by the AO for levy of penalty in the case of the appellant. The appellant in his detailed written submissions, stressed that he voluntarily admitted this sum of 2,78,42,063/- for taxation and hence, penalty is not leviable. However, this case cannot fit into the definition of voluntary compliance.
13.3 Hon'ble Supreme Court in the case of Prasanna Dugar Vs. CIT (2016) 373 ITR 681 held that even if the assessee voluntarily disclosed undisclosed income and paid tax, subsequent to search operations, penalty levied u/s 271(1)(c) of the IT Act was justified.
13.4 Further, Hon'ble Supreme Court in the case of MAK Data (P) Ltd. Vs. CIT-II (2013) 358 ITR 593 held that voluntary disclosure does not release 14 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 the assessee from the provisions of Sec.271(1)(c) of the IT Act. The facts in that case are as under:
"For relevant assessment year, assessee filed its return declaring certain income. During the course of the assessment proceedings, it was noticed by the Assessing Officer (AO) that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income-tax returns and assessment orders and blank share transfer deeds duly signed had been impounded in the course of survey proceedings conducted in the case of (a sister concern of the assessee).
By the show-cause notice, the Assessing Officer sought specific information regarding the documents pertaining to share applications found in the course of survey, particularly, bank transfer deeds signed by persons, who had applied for the shares.
In reply, the assessee made an offer to surrender a sum of Rs.40.74 lakhs with a view to avoid litigation and buy peace and to make an amicable settlement of the dispute.
The Assessing Officer completed the assessment wherein amount surrendered was brought to tax, as 'income from other sources'.
The Assessing Officer also passed a penalty order under section 271(1)(c).
The Tribunal set aside penalty order holding that the imposition of penalty solely on the basis of assessee's surrender could not be sustained.
of any explanation in respect of The High Court took a view that in the absence of any explanation in respect of the surrendered income, the first part of clause (A) of explanation 1 to 271(1)(c) was attracted. Holding so, the judgment of the the Tribunal was set aside and the appeal filed by the revenue was allowed."
Hon'ble Apex Court, while deciding the appeal, has held as under:
"The Assessing Officer, shall not be carried away by the plea of the assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation, amicable settlement etc. to explain away its conduct.
The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income.15
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 The burden is then on the assessee to show otherwise, by cogent and reliable evidence.
When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise. [Para 7] Assessee has only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department.
Statute does not recognize those types of defences under the Explanation 1 to section 271(1)(c). It is trite law that the voluntary disclosure does not release the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. [Para 7] The surrender of income on this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary.
The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings.
Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year.
The Assessing Officer, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under section 271, read with section 274. [Para 9] The Assessing Officer has to as to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing. [Para 10] In view of above, impugned penalty order passed by the High Court deserved to be confirmed."16
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 13.5 The above said decision is squarely applicable to the present case. The appellant did not admit any LTCG or other sums earned out of the share transaction entered between him and the penny stock company in his original return of income filed on 26.07.2014. After he received notice u/s. 148 of the IT Act dated 04.05.2020, he filed the return of income on 13.05.2020 by admitting additional income of Rs.2,78,42,063/- that was claimed as exempt in the original return of income. After the Department detected that M/s. CCL International Ltd. was a penny stock company, he did not have any other option other than surrendering that amount for Taxation. Hon'ble Supreme Court in the aforementioned decision held that in such facts and circumstances, penalty u/s. 271(1)(c) of the IT Act was mandatory. Hence, the penalty levied by the A.O is upheld and the grounds taken by the appellant was dismissed."
11. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
12. Shri R.B Doshi, Ld. Authorized Representative (for short 'AR') for the assessee at the threshold of hearing of the appeal submitted that both the lower authorities without appreciating the facts of the case in the right perspective had grossly erred in law and facts of the case in imposing/sustaining penalty u/s. 271(1)(c) of the Act. Elaborating further on his contention, the Ld. AR submitted that the bonafide of the assessee based on which its claim for exemption u/s. 10(38) of the Act (as raised in the original return of income) was withdrawn and the corresponding income was offered for tax could safely be gathered from the fact that its case was reopened only pursuant to the letter dated 23.02.2020 that was filed by the assessee with the Pr. CIT-2, Raipur/Jt. CIT, Range-4, Raipur and ITO-4(3), Raipur. The Ld. AR submitted that the assessee had after taking cognizance 17 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 of the assessment order passed in the case of its co-parcener, viz. Shri Manish Kumar Sharma, to avoid protracted litigation, had based on a bona fide reason withdrawn its legitimate claim of exemption of LTCG on the sale of shares of "CCL International Ltd.". Also, the Ld. AR submitted that the assessee before filing of the aforesaid letter dated 23.03.2020 had voluntarily paid the entire amount of tax/surcharge/education cess of Rs.93,87,844/- due on its aforesaid additional income. It was, thus, the claim of the Ld. AR that the case of the assessee was reopened solely based on the information that was provided by it. The Ld. AR submitted that except for the aforesaid letter of the assessee, there was no material with the A.O. which would even slightly suggest that its claim for exemption of LTCG on sale of shares of "CCL International Ltd." was not genuine. Apart from that, it was submitted by the Ld. AR that the assessee's claim for exemption was fully supported by documentary evidence which was foregone only as a matter of abundant caution, i.e. to buy peace of mind and avoid litigation. The Ld. AR also in support of his claim that now when the assessee had on its own come up with clean hands and had offered its additional income for tax, no penalty u/s. 271(1)(c) of the Act was warranted in its case, relied upon the judgment of the Hon'ble High Court of Chhattisgarh in the case of ACIT Vs. Agrawal Round Rolling Mills Ltd. (2013) 85 CCH 510 (C.G.). The Ld. AR submitted that the Special Leave Petition (SLP) filed by the revenue 18 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 in the aforementioned case had been dismissed by the Hon'ble Supreme Court.
13. Apart from that, the Ld. AR submitted that now when the impugned amount of LTCG on the sale of shares of "CCL International Ltd." had been offered for tax by the assessee in its return of income filed in response to the notice u/s.148 of the Act, there could be no case of concealment or furnishing of inaccurate particulars leading to levy of penalty u/s.271(1)(c) of the Act. The Ld. AR to buttress his aforesaid claim had relied on the order of ITAT, Mumbai in the case of DCIT Vs. Reliance General Insurance Co. Ltd. (2018) 52 CCH 375 (Mum). The Ld. AR in his attempt to impress upon us that the assessee had placed on record all documentary evidence before the A.O to substantiate the authenticity of its claim of exemption u/s.10(38) of the Act had taken us through supporting documents placed at Page 12-78 of APB.
14. On merits, the Ld. AR submitted that there was no iota of doubt as regards the genuineness of the LTCG derived by the assessee from the sale of shares of "CCL International Ltd." It was submitted by him that the assessee had purchased 60,000 shares of "AAR Infrastructure Ltd." and paid the purchase consideration through the banking channel on 06.01.2011, Page 16 of APB. The Ld. AR submitted that shares were allotted to the assessee vide letter dated 17.02.2011, Page 17 of APB. It was further 19 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 submitted that the aforesaid shares were transferred to the Demat account of the assessee on 27.04.2011, Page 18 of APB. Elaborating further on the facts, it was submitted by the Ld. AR that "AAR Infrastructure Ltd." had thereafter merged with "CCL International Ltd." pursuant to the order of amalgamation passed by the Hon'ble High Court of Delhi dated 08.10.2011, Page 19-34 of APB. It was submitted by him that the assessee was thereafter under the aforesaid merger allotted 150000 shares of "CCL International Ltd.", Page 35 of APB, and the aforesaid shares of CCL International Ltd. were, thereafter, received by the assessee in its Demat account with Stock Holding Corporation of India Ltd., (SHICL), Page 36 of APB. The Ld. AR further submitted that the aforesaid shares of "CCL International Ltd" were held by the assessee in its Demat account for more than 2 years and thereafter, were sold through a registered broker through an online transaction after paying Security Transaction Tax (STT). Our attention was drawn by the Ld. AR to the sale contract note, Pages 37 to 66 of APB. Carrying his contention further, the Ld. AR submitted that the sale proceeds of the shares of "CCL International Ltd." were received by the assessee through the banking channel. Our attention was drawn by the Ld. AR to the copy of the bank account of the assessee with State Bank of India, Branch:
Raipur, wherein sale proceeds of the aforesaid shares were deposited, Pages 67 to 71 of APB. Also, the Ld. AR had taken us through the Demat account of the assessee with Stock Holding Corporation of India Ltd (SHICL) which 20 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 revealed the delivery of shares. The Ld. AR based on the aforesaid facts submitted that now when the assessee had duly substantiated the authenticity of the transaction of sale of shares of CCL International Ltd.
which had not been dislodged by the department, therefore, on the said count itself no penalty u/s. 271(1)(c) of the Act was called for in its case.
15. The Ld. AR further submitted that now when the assessee had offered the LTCG of Rs.2.78 crore (supra) as its additional income under the head "income from other sources" in its return of income filed u/s. 148 of the Act, therefore, the same could not have been brought within the meaning of concealment of income, based on which penalty was imposed by the A.O u/s.271(1)(c) of the Act. The Ld. AR in support of his aforesaid contention relied on the judgment of the Hon'ble High Court of Andhra Pradesh in the case of CIT Vs. Sania Mirza (2013) 87 DTR 371 (AP). The Ld. AR took us through the facts involved in the aforementioned case and submitted that as the assessee before the Hon'ble High Court had disclosed prize money that was received by her in the statement of affairs that was filed with the return of income, which though was not shown as taxable income but was offered to tax during assessment proceedings, it was held that the same could not be brought within the meaning of "concealment of income" by the A.O. The Ld. AR in support of his contention that for imposing penalty for furnishing of inaccurate particulars, the claim of the assessee was required to be proved to be false, had relied on the judgment of the Hon'ble Supreme 21 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC).
16. Per contra, the Ld. Departmental Representative (for short 'DR') relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the assessee had in its original return of income raised a false claim of exemption u/s. 10(38) of the Act which, on being cornered, was withdrawn in its return of income filed in response to notice u/s. 148 of the Act, therefore, the A.O. had rightly imposed the penalty u/s. 271(1)(c) of the Act. The Ld. DR in support of his aforesaid contention relied on the following judicial pronouncements:
(i) Mak Data (P) Ltd. Vs. CIT, (2013) 38 taxmann.com 448 (SC)
(ii) CIT Vs. Prasanna Dugar, (2015) 371 ITR 19 (Cal.)
(iii) Pr. CIT Vs. Dr. Vandana Gupta, (2018) 92 taxmann.com 229 (Del)
(iv) K.K Motwani HUF Vs. ACIT (2016)-TIOL-2910-HC-Mum-IT
17. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
18. Admittedly, it is a matter of fact borne from the record that the assessee had in its original return of income for the subject year that was filed on 26.07.2014, raised a claim for exemption of LTCG of Rs.2.78 crore 22 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 (approx.) on the sale of shares of "CCL International Ltd." u/s.10(38) of the Act. The return of income was processed as such u/s. 143(1) of the Act. Also, it is a matter of fact borne from the record that the case of the assessee was not selected for scrutiny assessment u/s. 143(2) of the Act. Subsequently, the assessee vide its letter filed with the Pr. CIT-2, Raipur dated 23.03.2020 (filed on 20/21.04.2020) had voluntarily withdrawn its claim for exemption u/s.10(38) of the Act of LTCG of Rs.2.78 crore (approx.) that was earlier claimed in its return of income filed on 26.07.2014 and had offered the said amount as its additional income. On a perusal of the letter filed by the assessee with the Pr. CIT-2, Raipur dated 23.03.2020 (supra), we find that the withdrawal of exemption by the assessee was prompted by the fact that the sale of shares of "CCL International Ltd." (supra) which was claimed as exempt by its co-parcener, viz. Shri Manish Kumar Sharma for A.Y.2015-16 was declined by the A.O, i.e. ACIT, Central Circle-1 vide order u/s.143(3) dated 31.01.2017 and was held as an unexplained cash credit u/s.68 of the Act.
19. Be that as it may, we shall first look into the assessee's claim that now when it had in its return of income filed in response to the notice issued u/s.148 of the Act, dated 04.05.2020 offered the LTCG of Rs.2.78 crore (supra) which was earlier claimed in its original return of income as exempt u/s. 10(38) of the Act, as its "income from other sources" and paid taxes 23 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 thereon, then, there was no justification for the A.O. to have levied a penalty on the said amount.
20. To answer the aforesaid question, we have closely scrutinized the provisions of Section 271(1)(c) of the Act. As per "Explanation 1" of Section 271(1)(c) of the Act, in a case where the assessee fails to offer an explanation or offers an explanation that is found by the A.O to be false; or offers an explanation that he is not able to substantiate and fails to prove that such explanation is bona fide and all the facts relating to the same and material to the computation of his total income under the Act, have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been concealed. For the sake of clarity, "Explanation 1" to Section 271(1)(c) of the Act is culled out as under:
"Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
(emphasis supplied by us) 24 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
21. As can be gathered from a careful perusal of the aforesaid "Explanation 1", the same would get triggered only where the assessee had in respect of any facts material to the computation of the total income, viz.
(i). failed to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false; or (ii) offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for clause (c) of sub-section (1) of Sec. 271, be deemed to represent the income in respect of which particulars have been concealed. Accordingly, it is not a simpliciter addition/disallowance but the falsity of the explanation of the assessee as regards the same which would justify the imposition of penalty as per "Explanation 1" to 271(1)(c) of the Act.
22. Be that as it may, it would be relevant to point out that the assessee had in its return of income filed in compliance to the notice u/s. 148 of the Act come forth with an explanation for offering the gain/surplus on the sale of shares of "CCL International Ltd." as its income from other sources. The assessee in its letter dated 23.03.2020 that was filed with the Pr. CIT-2, 25 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 Raipur; Jt. CIT-4, Raipur; and ITO-4(3), Raipur on 20/21.04.2020 had stated that the LTCG of Rs.2.78 crore (approx.) which was earlier claimed as exempt u/s. 10(38) of the Act in its original return of income was being withdrawn, and the corresponding income was offered for tax to buy peace of mind and to avoid protracted litigation. Elaborating further, the assessee had stated in its letter dated 23.03.2020 (supra), that subject income was being offered for tax after taking cognizance of the fact that in the case of its co-parcener, viz. Shri Manish Kumar Sharma (supra), the A.O. had rejected the legitimate claim of exemption u/s. 10(38) of the Act and held it as an unexplained cash credit u/s. 68 of the Act.
23. Ostensibly, the assessee in its letter dated 23.03.2020 had reiterated its claim for exemption of LTCG of Rs.2.78 crore (supra) u/s. 10(38) of the Act on the sale of shares of "CCL International Ltd." We find that the assessee had at length demonstrated in its letter that as to how it had acquired 150000 shares of "CCL International Ltd." Elaborating on the facts, the assessee had stated as under:
• that it had purchased 60000 shares of "AAR Infrastructure Ltd" and had paid the purchase consideration through the banking channel on 06.01.2011, Page 16 of APB.
• that the shares of "AAR Infrastructure Ltd." were allotted vide allotment letter dated 17.02.2011, Page 17 of APB.
26
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 • that shares of "AAR Infrastructure Ltd" were received by the assessee in its demat account on 27.04.2011, Page 18 of APB.
• that "AAR Infrastructure Ltd." had thereafter, merged with "CCL International Ltd." pursuant to the order of the Hon'ble High Court of Delhi vide its order passed in Company Application (M) No.135 of 2011 dated 08.10.2011, Page 19 to 34 of APB.
• that the assessee was thereafter pursuant to the aforesaid merger allotted 150000 shares of "CCL International Ltd.", Page 35 of APB. • that the shares of "CCL International Ltd." were received in its demat account with Stock Holding Corporation of India Ltd. Page 36 of APB. • that shares of "CCL International Ltd." which were held in a demat account for more than 2 years were sold through a registered broker vide an online transaction after paying Security Transaction Tax(STT) and the assessee in support thereof furnished contract note cum tax invoice of SHCIL, Page 37- 66 of APB.
• that the sale proceeds of the shares of "CCL International Ltd." were deposited in the assessee's bank account No.00000010822719448 with State Bank of India, Branch: Raipur, Page 66-71 of APB.
24. We find substance in the claim of the Ld. AR that the A.O while drawing adverse inferences as regards the genuineness of the assessee's 27 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 claim of exemption of LTCG of Rs.2.78 crore (supra) on sale of shares of "CCL International Ltd." u/s. 10(38) of the Act had failed to dislodge the authenticity of the documentary evidence that was filed by the assessee. The A.O. had merely acted upon certain information that was received by him, i.e "CCL International Ltd.", Scrip Code No.531900 was a penny stock, and had after referring to the modus-operandi that was adopted for laundering of tainted money through transactions in penny stocks drawn adverse inferences in the hands of the assessee.
25. Further, we find substance in the Ld. AR's claim that there has been no attempt on the part of the lower authorities to dislodge the genuineness of the assessee's claim of having earned LTCG of Rs.2.78 crore (supra) on the sale of shares of "CCL International Ltd." i.e by placing on record anything which would prove to the contrary.
26. It transpires on a careful perusal of the orders of the lower authorities, that they had observed that the assessee had participated in a pre-arranged transaction to launder its unaccounted income in the garb of transaction of purchase/sales of shares of " CCL International Ltd.", i.e. a penny stock, based on their multi-facet observations, viz. (i) that had the assessee carried out genuine transactions then it would not have withdrawn its claim of exemption u/s. 10(38) of the Act as was raised in the original return of income and offered the same as its income and paid taxes of Rs.94 lacs on 28 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 the same; (ii) the assessee was not trading in shares on a regular basis; (iii) that the trading pattern of shares of "CCL International Ltd." revealed bell- shape movement; (iv) that the balance sheet of "CCL International Ltd." did not reveal any such credentials which would have supported the shares movement pattern in its case; (v) that a huge rise in the price of shares was not in line with the movement of the share market during the relevant period; (vi) that the authenticity of the transaction of sale of shares as projected by the assessee could not be conclusively established based on the documentary evidence but was to be determined on the basis of or anvil of surrounding facts and circumstances; (vii) that shares were purchased by the assessee off line and no demat account was produced during the assessment proceedings to show the exact date of entry in its demat account; (viii) that the application of equity shares was un-dated and no application number was mentioned on the application form and (ix) that the assessee had not filed any appeal against the assessment order which proved that there was conscious concealment of income on its part.
27. At this stage, it would be pertinent to observe that the lower authorities had failed to dislodge the authenticity of the documents, based on which, the assessee had claimed of having carried out genuine transactions of purchase/sales of shares of "M/s. CCL International Ltd.", viz. (i) purchase of 60000 shares of AAR Infrastructure Ltd. though banking channel on 06.07.2011; (ii) allotment of shares of AAR infrastructure Ltd. 29
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 vide allotment letter dated 17.02.2011 which, thereafter, were received in its demat account on 27.04.2011; (iii) merger of "M/s. AAR infrastructure Ltd." with "M/s. CCL Infrastructure Ltd." pursuant to the order of the Hon'ble High Court of Delhi in Company Application (M) 135 of 2011 dated 08.10.2011; (iv) allotment of 150000 shares of "CCL International Ltd." pursuant to the aforesaid merger; (v) receipt of shares of "CCL International Ltd." in the assessee's demat account with SHCIL; (vi) the contract-note- cum invoice of SHCIL which revealed that the assessee had held shares of "CCL International Ltd." in demat account for more than 2 years and thereafter, sold the same through a registered broker vide an online transaction after paying Security Transaction Tax (STT); and (vii) receipt of sale proceeds of shares of "CCL International Ltd." in the assessee's bank account No.00000010822719448 with State Bank of India, Branch: Raipur.
28. All that can be gathered from the orders of the lower authorities, wherein they had drawn adverse inferences as regards the genuineness of the transaction of purchase/sale of shares of "CCL International Ltd." by the assessee are certain general observations a/w. deliberations on the modus operandi that was adopted for laundering of unaccounted money through transaction in penny stocks. At this stage, we may observe that though the A.O/CIT(Appeals) had alleged that the assessee had participated in a pre- arranged transaction to launder its unaccounted income in the garb of transaction of purchase/sale of shares of "CCL International Ltd.", i.e. a 30 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 penny stock, but had failed to conclusively establish its said conviction. On a careful perusal of the orders of the lower authorities, we find that no evidence/material had been brought on record by them that would prove to the hilt that either the assessee or its broker was involved in rigging up the price of the scrip of "CCL International Ltd." On the contrary, the assessee had placed on record documentary evidence to support its claim of having carried out genuine transactions of purchase/sale of shares of "AAR Infrastructure Ltd"/"CCL International Ltd.", which as observed by us had not been dislodged based on any irrefutable material by the department.
29. We are of a firm conviction that as the lower authorities had failed to place on record any such material/evidence that would suggest that the assessee or its broker was involved in rigging up the price of scrips of "CCL International Ltd.", there was no justification in the drawing of adverse inferences as regards the LTCG on the purchase/sale of shares that was claimed as exempt u/s. 10(38) of the Act. Admittedly, the assessee had in its original return of income for the subject year that was filed on 26.07.2014 claimed LTCG of Rs.2.78 crore (supra) on the sale of shares of "M/s. CCL International Ltd." as exempt u/s. 10(38) of the Act, which, thereafter, was withdrawn by him in its return of income filed in response to the notice u/s. 148 of the Act. However, we cannot remain oblivion of the circumstances, under which, the assessee had withdrawn its claim for exemption u/s. 10(38) of the Act. As observed by us hereinabove, the assessee in its letter 31 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 dated 23.03.2020 filed with the department had clarified that it had raised a legitimate claim for exemption of LTCG on the sale of shares of "CCL International Ltd." u/s. 10(38) of the Act but that was being withdrawn to buy peace of mind and avoid protracted litigation because the department while framing assessment u/s. 143(3) of the Act in the case of one of its co- parceners, viz. Shri Manish Kumar Sharma, for the immediately succeeding year, i.e. A.Y.2015-16 had declined his claim of exemption on sale of the said scrip and had held the same as his unexplained cash credit u/s. 68 of the Act.
30. We shall now deal with the observations of the authorities below based on which they have drawn adverse inferences as regards the claim of exemption of LTCG on the sale of shares of "CCL International Ltd." u/s. 10(38) of the Act as was raised by the assessee in its original return of income, as well certain other facts having a bearing on the sustainability of the penalty imposed by the A.O u/s 271(1)(c) of the Act.
31. We may herein observe that not only there was a plausible reason for the assessee to withdraw its aforesaid claim of exemption u/s.10(38) of the Act but also, the documentary evidence which it had placed on record to substantiate the authenticity of the transaction of purchase/sale of shares of "CCL International Ltd." had not been dislodged by the department. On the contrary, we find that the A.O while framing the assessment vide his 32 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 order u/s 147 r.w.s 144B of the Act, dated 30.03.2022 had not drawn any adverse inferences as regards the purchase price of of 60000 shares of "AAR Infrastructure Ltd." which had thereafter merged with "CCL International Ltd. Our aforesaid view that in case, viz. (i). the A.O had though held the share transaction as bogus but had not made any addition as regards the purchase price of the scrip, i.e 60000 shares of "AAR Infrastructure Ltd"
(supra) in lieu whereof the assessee on merger was allotted 150000 shares of "CCL International Ltd"; and (ii). that in the absence of any evidence available on record suggesting the involvement of the assessee or its broker in rigging up the price of the scrips of "CCL International Ltd.", the onus cast upon the A.O to disprove the authenticity of the transaction of purchase/sale of shares was not discharged, and thus, there would be no justification in saddling the asseseee with penalty u/s 271(1)(c) of the Act for raising a false claim of exemption of LTCG can safely be gathered from the judgment of the Hon'ble High Court of Gujrat in the case of Pr. CIT Vs. Mamta Rajibkumar Agrawal, (2023) 155 taxmann.com 549 (Gujrat). For the sake of clarity, the observations of the Hon'ble High Court are culled out as under:
"3.3 The Tribunal confirmed the findings of the CIT(A) insofar as, it held in favour of the assessee. Findings of the Tribunal indicate that the assumption of the AO that the transaction carried out by the assessee are similar to the modus operandi of penny stock was misplaced. The Tribunal on facts observed thus:33
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 "11.1.......On analyzing the facts of the present case, we note that the AO on one hand has alleged that the entire transaction was bogus but on the other hand the AO himself has allowed the cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales go hand in hand. In simple words, sales is not possible without having the purchases. Thus, once purchases has been admitted as genuine, then corresponding sales cannot be doubted until and unless some adverse materials are brought on record. As such, we note that the AO in the present case has taken contradictory stand. On one hand, the AO is treating the entire transaction as sham transaction and on the other hand he's allowing the benefit of the cost of acquisition for the shares while determining the bogus long term capital gain.... 11.2 It was alleged by the AO that the price of the share of M/s Shree Nath Commercial & Finance Ltd., increased in a short period of time which is not in commensurate to the financial performance of the company. The rise in the price of the scripts of a company, having no financial base / business activity / profatibility certainly gives rise to the doubt about such increase in the price. But in our considered view, this cannot be a sole criteria for reaching to the conclusion that the bogus long-term capital gain was generated which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides reasons to investigate the matter in detail and the same cannot take the place of the evidence. But in the case on hand, there was no finding that the enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of share price of M/s Shree Nath Commercial & Finance Ltd. Similarly, there was no finding with subsequent market price of the impugned scipt. We also note that there was no dispute raised by the Revenue with respect to the following facts:
1. Shares were purchased through broker on recognized stock exchange.
2. Purchase consideration of share was made through cheque.
3. Share was duly dematerialized in D-mat account.
4. Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers.
5. The payments were received through ECS in the D-mat account.
6. Inflow of shares are reflected in D-mat account. Shares are transferred through D-mat account and buyer are not known to the assessee.
7. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer."34
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 4 Hence, the Tribunal held, and in our opinion rightly so that there was no evidence available on record suggesting that the assessee or his broker was involved in rigging up of the price of the script of M/s Shree Nath Commercial & Finance Ltd. The assessee had acted in good faith. The Tribunal, therefore, correctly held that the Assessing Officer had acted only on assumption which was misconceived. The CIT(A) order dismissing the revenue's appeal was confirmed."
32. As regards the adverse inferences drawn by the A.O regarding the authenticity of the transaction of purchase of shares of "AAR Infrastructure Ltd" (supra) by the assessee, inter alia, for the reason that the same were bought/acquired from off-market sources, we are of the view that the said aspect on a standalone basis cannot justifiably dislodge the authenticity of the share transaction, and thus, justify imposition of penalty on the assessee u/s 271(1)(c) of the Act. Our aforesaid view is supported by the judgment of the Hon'ble High Court of Bombay in the case of Pr. CIT-3, Mumbai Vs. Ziauddin A Siddique, ITA No.2012 of 2017 dated 04.03.2022. The question of law, for which, the indulgence of the Hon'ble High Court was sought is culled out as under:
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"
The Hon'ble High Court after deliberating at length on the aforesaid issue had held as under:
35
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 "2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares.
The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3. Therefore we find nothing perverse in the order of the Tribunal.
4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. 1 but that does not help the revenue in as much as the facts in that case were entirely different.
5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
6. The appeal is devoid of merits and it is dismissed with no order as to costs."
33. We shall now deal with the adverse inferences drawn by the A.O as regards the authenticity of the assessee's claim of having carried out a genuine transaction of purchase/sale of shares of "CCL International Ltd." for the reason that, viz. (i) price of a share of "M/s. CCL International Ltd." had increased manifold within a short span; (ii) the trade pattern of the company did not move a/w. sensex; and (iii) the financials of the company did not show any reason for the extraordinary performance of its stock. We find that the Hon'ble High Court of Delhi in the case of Pr. CIT Vs. Smt. Krishna Devi (2021) 431 ITR 361 (Delhi) had in the case before them 36 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 wherein identical facts/issues were involved vacated the adverse inferences which were drawn by the A.O, observing as under:
"11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were 37 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained."
Also, the aforesaid order of the Hon'ble High Court of Delhi in the case of Pr. CIT Vs. Smt. Krishna Devi (supra) had thereafter been followed by the Hon'ble High Court in the case of Pr. CIT-12 Vs. Karuna Garg, ITA No.477/2022 dated 23.11.2022.
34. Apart from that, as the Demat account/contract note of the assessee shows the details of share transactions and the A.O had not disproved the said transactions, therefore, having failed to discharge the onus that was cast upon it to disprove the authenticity of the share transactions, he could not have saddled the assessee with penalty u/s 271(1)(c) of the Act. Our aforesaid view is supported by the judgment of the Hon'ble High Court of Bombay in the case of CIT-13 Vs. Shyam R. Pawar, (2015) 229 Taxman 256 (Bom.). Also, we find that the Hon'ble High Court of Gujarat in the case of Pr. CIT Vs. Shri Ambalal Chimanlal Patel (2024) 162 taxmann.com 892 (Guj.) had held that though the assessee before them had purchased shares of a company when trading of the said company was suspended and had sold the same and claimed exemption u/s. 10(38) of the 38 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 Act, but in the absence of any material brought on record to suggest that the purchase and sale of said shares were bogus, the A.O. was not justified in drawing adverse inferences as regards the said share transactions.
35. Also, we are of a firm conviction that now when the A.O had failed to dislodge the documentary evidence that was placed on record by the assessee to establish the genuineness of the share transactions of "CCL International Ltd.", which had been claimed as exempt u/s. 10(38) of the Act, the A.O in the absence of any material proving to the country to rebut the said claim could not have drawn adverse inferences much the less saddled the assessee with penalty u/s 271(1)(c) of the Act for raising a false claim of exemption. Our aforesaid view is supported by the judgment of the Hon'ble High Court of Rajasthan in the case of Pr. CIT-I Vs. Ritu Agarwal Shreeram Bhawan, (2023) 453 ITR 250 (Rajasthan). Also, the SLP filed by the department against the order of the Hon'ble High Court of Gujarat in the case of Pr. CIT Vs. Parasben Kasturchand Kochar (2021) 130 taxmann.com 176 (Guj) had been dismissed by the Hon'ble Supreme Court in (2021) 130 taxmann.com 177 (SC).
36. We, thus, based on our aforesaid observations are of a firm conviction that as the assessee had placed on record documentary evidence to substantiate its claim of having earned LTCG on sale of shares of "CCL International Ltd.", which was claimed an exempt u/s. 10(38) of the Act, the 39 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 A.O could not have based on his general observations and referring to the modus-operandi that was adopted for laundering of unaccounted money through transactions in penny stocks, therein, without placing on record any material which would irrefutably disprove the authenticity of the assessee's claim and prove that it had raised a false claim of exemption u/s. 10(38) of the Act to channelize its unaccounted money saddled it with penalty u/s. 271(1)(c) of the Act. We further find substance in the Ld. AR's claim that merely because the assessee had in its return of income filed in response to notice u/s. 148 of the Act to buy peace of mind and to avoid protracted litigation withdrawn its claim for exemption u/s. 10(38) of the Act of LTCG of Rs.2.78 crore (supra) on the sale of shares of "CCL International Ltd." as was claimed in its original return of income, therefore, it could not be said that it had concealed part of its income specifically when the same was supported by documentary evidence, which had not been dislodged by the department. Our aforesaid view is fortified by the order of ITAT, Raipur in the case of ACIT-1(2), Raipur Vs. Agrawal Round Rolling Mills Ltd., ITA No.133 (BLPR) of 2009 dated 14.07.2010, wherein the Tribunal had observed that as there was neither any detection nor any information in the possession of the revenue except for the amount surrendered by the assessee, therefore, the lower authorities had rightly concluded that the assessee could not have been saddled with penalty for concealment of income on its part. The aforesaid order of the Tribunal had thereafter been 40 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 approved by the Hon'ble High Court of Chhattisgarh in the case of CIT Vs. Agrawal Round Rolling Mills Ltd. (2013) 85 CCH 510 (Chhattisgarh). Also, the SLP filed by the revenue against the order of the Hon'ble High Court of Chhattisgarh had been dismissed by the Hon'ble Supreme Court in the case of CIT Vs. Agrawal Round Rolling Mills Ltd. (2014) 88 CCH 36 (SC).
37. We, thus, in terms of our aforesaid observations are unable to persuade ourselves to subscribe to the view taken by the lower authorities who had imposed/sustained penalty levied u/s. 271(1)(c) of the Act on the assessee for the following reasons:
(I) that the A.O/CIT(A) had failed to dislodge the authenticity of the documents that were filed by the assessee in support of its claim of exemption of LTCG on the sale of shares of "CCL International Ltd." raised u/s.10(38) of the Act "
(II) that as the assessee vide its letter dated 23.03.2020 filed with the Pr.
CIT-2, Raipur; Jt. CIT-4, Raipur; and ITO-4(3), Raipur on 20/21.04.2020 had intimated them that to buy peace of mind and avoid protracted litigation it had withdrawn its claim of exemption of LTCG on the sale of shares of "CCL International Ltd." as was raised in the original return of income u/s. 10(38) of the Act, which information in turn had formed the very basis for initiating proceedings in its case u/s. 147 of the Act, therefore, 41 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 there was no justification for the A.O. to have saddled the assessee with penalty u/s. 271(1)(c) of the Act;
(III) that the assessee had duly offered the LTCG on the sale of shares of "CCL International Ltd." as its "income from other sources" in its return of income filed in compliance to notice u/s. 148 of the Act; (IV) that the A.O had not drawn any adverse inferences as regards the purchase consideration of Rs.6 lacs that was paid by the assessee for the purchase of shares of "M/s. AAR Infrastructure Ltd. which thereafter had been merged with "CCL International Ltd.;
(V) that in the absence of any evidence available on record that suggests that either the assessee or its broker was involved in rigging up the price of scrip of "CCL International Ltd." there was no justification for the A.O. to have drawn adverse inferences as regards the authenticity of the assessee's claim of exemption of LTCG on the transaction of sale of said shares u/s. 10(38) of the Act;
(VI) that the information received from Investigation Wing, Kolkata did neither make any reference of the involvement of the assessee in rigging up the price of scrips of "CCL International Ltd." nor any material relating to the assessee was found in the report filed by the Investigation Wing. 42
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 (VII) that the A.O had not carried out the basic verification from the broker nor placed on record any such material which would disprove the authenticity of the shares transactions carried out by the assessee.
38. Further, our aforesaid view that where the department had failed to establish that the assessee had concealed her income, penalty u/s. 271(1)(c) of the Act could not have been saddled upon her is supported by the order of the ITAT, Raipur in the case of DCIT-1(1), Raipur (C.G.) Vs. Smt. Renu Behl, ITA No.289/RPR/2023 dated 11.12.2023, wherein on identical facts, the Tribunal had held as under:
"8. We have thoughtfully considered the issue, i.e., the sustainability of the view taken by the CIT(Appeals), who had vacated the penalty imposed by the A.O u/s. 271(1)(c) of the Act. As observed by the CIT(Appeals), and rightly so, as the assessee had offered LTCG on sale of 2500 shares of M/s. Blueprint Securities Ltd. as a part of her total income in the return of income filed in response to the notice u/s. 148 of the Act, therefore, the A.O., without establishing that the assessee had concealed her income, could not have saddled her with penalty u/s. 271(1)(c) of the Act. We, thus, in terms of our aforesaid observation, concur with the view taken by the CIT(Appeals), who had rightly vacated the penalty of Rs.2,26,861/- imposed by the A.O u/s. 271(1)(c) of the Act and uphold the same."
39. We may herein observe that as the assessee based on its explanation that was filed before the Pr. CIT/Jt. CIT/A.O vide its letter dated 23.03.2023 (supra), had withdrawn its claim for exemption u/s 10(38) of LTCG of Rs.2,76,19,429/- on sale of shares of "CCL International Ltd." as was raised in its original return of income, and had in its return of income filed in response to notice u/s 148 offered the said amount as its income from "other 43 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 sources" for the subject year, therefore, the A.O without establishing based on irrefutable material that the explanation of the assessee was not bonafide could not have imposed penalty u/s. 271(1)(c) of the Act.
40. We find that the Hon'ble High Court of Punjab and Haryana involving identical facts in the case of CIT Vs. Rajiv Garg & Ors. (2009) 313 ITR 256 (P&H) had quashed the penalty that was imposed by the A.O u/s. 271(1)(c) of the Act.
41. Ostensibly, in the case before the Hon'ble High Court of Punjab & Haryana in the case of CIT Vs. Rajiv Garg & Ors. (supra), the assessee who was engaged in the business of manufacturing cotton yarn and cotton waste, had filed his return of income on 30.10.1998, which, inter alia, included LTCG on sale of shares amounting to Rs.29,74,951/-. The return of income filed by the assessee was processed as such u/s.143(1) of the Act. Subsequently, based on information received from Dy. DIT (Inv.), Gurgaon that the sale of shares amounting to Rs.32,40,385/- on which capital gain had been declared at Rs.29,74,951/- by the assessee in the original return, was indeed bogus, a notice under section 148 of the Act was issued on March 31, 2003, on the ground that certain income chargeable to tax had escaped assessment. In response to the said notice, the assessee filed the return of income, wherein income was declared at Rs.63,39,640/-, which, inter alia, included the entire amount of receipts on account of sale proceeds 44 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 of the shares of Rs.33,10,380/- against the long-term capital gain of Rs.29,74,951/- declared in the original return of income. This return of income was accompanied by a "note" in which the assessee submitted that the return of income is being voluntarily revised to include the entire amount of receipt along with other amounts to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Thereafter, the assessment order was framed on December 23, 2003, and the return submitted by the assessee was regularized as it is under section 148 of the Act. Meanwhile, the Assessing Officer initiated the penalty proceedings against the assessee under section 271(1)(c) of the Act. The Assessing Officer, after considering the submissions of the assessee, imposed a penalty of Rs.3,95,930/- while holding that the assessee had filed the return on April 30, 2003, i.e. after the issuance of notice under section 148 of the Act. It was alleged that as the return was filed after the detection of the concealment of income by the Department and since the assessee had intentionally played fraud to avoid a higher rate tax of 30 percent as against 20 percent, applicable on the declaration of capital gains, therefore, the assessee was guilty in terms of section 271(1)(c) of the Act.
42. On appeal, the CIT(Appeals), Karnal, vide his order dated December 29, 2004, deleted the penalty of Rs.3,95,930/- by accepting the plea of the assessee that the additional income equivalent to the entire amount of sale proceeds of shares was declared only to buy peace of mind and to avoid 45 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 litigation with the Revenue and no material was found by the Assessing Officer during the assessment to show that the stand of the assessee, reflected by the transaction resulting in long-term capital gain was either non-genuine or bogus.
43. On further appeal, the Tribunal observed that finally assessed income remained the same as was declared by the assessee in his return of income filed in response to the notice issued u/s. 148 of the Act. Also, it was observed by the Tribunal that the assessee had offered additional income to buy peace of mind and avoid litigation. At the same time, the Tribunal observed that even if it was assumed that at the time of filing of the return, the assessee was aware of the investigations carried out by the DDIT (Inv.), Gurgaon regarding the transaction of sale and purchase of shares, yet there was no evidence on record to suggest that it was the transaction of the assessee which have been found to be bogus. The Tribunal observed that in pursuance of Section 148 of the Act and subsequent penalty proceedings, the revenue had only placed reliance on the inquiries conducted by the DDIT (Inv.), Gurgaon, which in turn, was based on the statements of certain share brokers who were alleged to have conceded that certain transactions of sale and purchase of shares carried out through them were mere accommodation entries and were not genuine. Nevertheless, there was no material or evidence either brought on record by the revenue or was referred to by Income Tax Authorities at any stage to show that the statement of the 46 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 brokers pertained to the share dealings done by the assessee. Based on the aforesaid facts, the Tribunal observed that merely because the income had been offered by the assessee in response to the notice u/s. 148 of the Act, it cannot be ipso facto inferred that the penal provisions of Section 271(1)(c) of the Act are attracted. It was further observed that to apply the penal provisions of Section 271(1)(c) of the Act, it is to be necessarily inferred that there is a positive act of concealment of income or furnishing of inaccurate particulars of such income by the assessee. Observing, that in the case before them, it was brought out by the CIT(Appeals) that no chance had been given to the assessee to examine the broker regarding his denials, therefore, it could not be said that the department had discharged its burden of proving concealment. The department had simply rested its conclusion on the act of the assessee of having offered additional income filed in response to the notice u/s.148 of the Act. The Tribunal observed that as additional income so offered by the assessee was done in good faith, therefore, penalty u/s. 271(1)(c) of the Act could not have been levied. The Tribunal had concluded as hereinabove after relying on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Suresh Chandra Mittal (2001) 251 ITR 9(SC).
44. On further appeal, the Hon'ble High Court approved the view taken by the Tribunal. The department had assailed the order of the Tribunal on three counts, viz. (i) that as the assessee had included the entire amount of sale 47 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 proceeds in its return of income filed in response to the notice u/s. 148 of the Act, thus, it was an admission on his part of having concealed the said income by deliberately furnishing inaccurate particulars in his original return; (ii) that the assessee had accepted the order of assessment passed u/s. 143(3) of the Act and not carried the same any further in appeal; and
(iii) that the explanation of the assessee that he had surrendered the amount of sale proceeds of shares to buy peace of mind and avoid hazards of litigation and also to save himself from any penal action, cannot be said to be bonafide. The Hon'ble High Court after drawing support from the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Suresh Chandra Mittal (supra), wherein the Apex Court had upheld the decision of the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Suresh Chandra Mittal (2000) 241 ITR 124 (MP) observed, that as held in the aforesaid judicial pronouncement the initial burden was cast upon the revenue to establish that the assessee had concealed his income or furnished inaccurate particulars of such income. The burden shifted to the assessee only if he failed to offer any explanation for the undisclosed income or offered an explanation that is found to be false by the assessing authority. The Hon'ble High Court observed that the assessee in the case before them, in pursuance to the notice u/s. 148 of the Act had revised his return of income wherein he had surrendered the entire income with an explanation. It was further observed that the revenue had not placed on record any 48 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 material or evidence to discharge the burden of proving concealment and had simply rested its conclusion on the act of the assessee of having offered additional income in the return filed in response to notice u/s. 148 of the Act. The Hon'ble High Court observed that as the additional income was offered by the assessee in good faith and to buy peace of mind, and the revenue had failed to establish that the explanation of the assessee was not bonafide, thus, approved the view taken by the Tribunal in upholding the order of the CIT(Appeals) whereby the penalty imposed u/s. 271(1)(c) of the Act by the A.O. was deleted. For the sake of clarity, the observations of the Hon'ble High Court are culled out as under:
"5. The Department has filed the instant appeal against the aforesaid order of the Tribunal raising the following substantial question of law for consideration of this court :
"Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals), deleting the penalty levied under section 271(1)(c)?"
6. We have heard the learned counsel for the appellant and gone through the impugned order. Learned counsel for the appellant submitted that in the present case the assessee filed its revised return, including the entire amount of share proceeds, after issuance of the notice under section 148 of the Act. By filing the revised return, the assessee owned the amount in question as his income and he had earlier filed the original return, concealing the said income by deliberately furnishing inaccurate particulars of that income in the original return. This amounts to admission of the assessee itself that it has earlier furnished inaccurate particulars of income and on its detection by the Department, the assessee offered the concealed income for tax after issuance of the notice under section 148 of the Act. Learned counsel submitted that this fact itself proves that the assessee had deliberately furnished inaccurate particulars of his income with the intention to avoid higher rate of tax. Learned counsel further submitted that the assessee had accepted the 49 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 order of assessment passed by the Assessing Officer under section 143(3) of the Act and no further appeal has been filed by it against the said order. Learned counsel submitted that the explanation submitted by the assessee that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action, cannot be said to be bona fide. The assessee has not discharged its onus in this regard. Therefore, the Commissioner of Income-tax (Appeals) as well as the Tribunal were not justified in deleting the penalty in the present case.
7. After hearing the learned counsel for the appellant, we do not find any merit in this appeal. Undisputedly, the assessee filed the return of income declaring its total income at Rs.47,05,230, which, inter alia, included long-term capital gain on sale of shares amounting to Rs.29,74,951. The return was processed in terms of section 143(1)(a) of the Act on March 15, 1999. Subsequently, on the basis of some information with regard to sale proceeds of the shares amounting to Rs.32,40,385 on which the capital gain was declared at Rs.29,74,951 by the assessee in the original return, a notice under section 148 of the Act was issued. Pursuant to the said notice, the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the assessee submitted that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as it is. During the course of assessment, the aforesaid explanation given by the assessee was neither rejected nor was it held to be mala fide. The Tribunal has recorded a pure finding of fact to the effect that the Revenue has not placed on record any material or evidence to dis-charge its burden of proving concealment. In the assessment order no such finding was recorded. The Department has simply rested its conclusion on the act of the assessee of having offered additional income in the return filed in response to the notice issued under section 148 of the Act. The Tribunal has further held that the additional income so offered by the assessee was done in good faith and to buy peace. The Tribunal has relied upon the decision of the apex court in case of CIT v. Suresh Chandra Mittal [2001] 251 ITR 9, wherein the Supreme Court has upheld the decision of the Madhya Pradesh High Court CIT v. Suresh Chandra Mittal [2000] 241 ITR 124 (MP), where in similar circumstances it was held that the initial burden lies on the Revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. In the present case, in pursuance of the notice under section 148 of the Act, 50 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 the revised return of income was filed in which the entire income was surrendered with an explanation. The revised assessment was regularized by the Revenue. The assessing authority had failed to take any objection that the declaration of income made by the assessee in his revised return and in his explanation were not bona fide. Therefore, in view of the aforesaid finding, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals), whereby the penalty imposed under section 271(1)(c) of the Act by the Assessing Officer was ordered to be deleted.
8. In view of the aforesaid discussion, we are of the opinion that no substantial question of law is arising in this appeal. Hence, finding no merits in the appeals, the same are hereby dismissed."
45. Also, we find that similar view that where the assessee had in his return of income filed in response to notice u/s. 148 of the Act offered additional income to buy peace of mind and to avoid hazards of litigation, then the A.O without discharging the burden of proving concealment, and simply resting his conclusion only on the act of voluntary surrender done by the assessee in good faith, cannot impose penalty u/s. 271(1)(c) of the Act, had been arrived at by the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Suresh Chandra Mittal (2000) 241 ITR 124 (MP). For the sake of clarity, the observations of the Hon'ble High Court are culled out as under:
"6. We find ourselves in agreement with the view taken by the Tribunal. It is well settled that under Section 271(1)(c), the initial burden lies on the Revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Explanation 1 51 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide.
7. In the present case, though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the Assessing Officer, but once the revised assessment was regularised by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) in the facts and circumstances of the case. This reference is accordingly answered in the affirmative holding that the Tribunal was justified in doing so."
We may herein observe that Special Leave Petition (SLP) filed by the revenue against the aforesaid order of the Hon'ble High Court of Madhya Pradesh in the case of CIT Vs. Suresh Chandra Mittal (2000) 241 ITR 124 (MP) had been dismissed by the Hon'ble Supreme Court in the case of CIT Vs. Suresh Chandra Mittal (2001) 251 ITR 9 (SC). Also, a similar view had been taken by the ITAT, Surat in the case of Ashvin Narayan Bajoria (HUF) Vs. ITO, ITA No.369/SRT/2022. The Tribunal had held that a simpliciter offer of additional income by the assessee in its return of income filed in response to notice u/s. 148 of the Act, i.e. without dislodging the bonafide of the assessee's explanation would not justify imposition of penalty u/s. 271(1)(c) of the Act.
52
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
46. We are of the view that in the present case before us, as the A.O had failed to dislodge the bonafide of the assessee's explanation based on which it had withdrawn its claim of exemption u/s 10(38) of LTCG of Rs.2.78 crore (supra) on sale of shares of "CCL International Ltd.", and had offered the corresponding amount as his income from "Other sources" in its return of income filed in response to notice u/s. 148 of the Act, therefore, drawing support from the aforesaid judicial pronouncements we are of the view that there was no justification on his part to have imposed penalty u/s. 271(1)(c) of the Act.
47. At this stage, we may herein observe that had it been a case where the assessee would have failed without a reasonable cause to furnish within the period specified in sub-section (1) of Section 153 of the Act the return of his income which he was required to furnish u/s. 139(1) of the Act for the subject year, i.e. A.Y. 2014-15, and until the expiry of the period aforesaid, no notice was issued to him under Clause (i) to sub-section (1) of Section 142 or 148, and the A.O or Commissioner (Appeals) was satisfied that in respect of such assessment year, such person had taxable income, then as per "Explanation 3" of Section 271(1)(c) of the Act such person was mandatorily to be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after expiry of the period aforesaid in pursuance of a notice u/s. 148 of the Act.
53
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
48. Although, "Explanation 3" to Section 271(1)(c) of the Act takes within its sweep the income disclosed by the assessee in its return of income filed u/s. 148 of the Act as "deemed concealed income" of the assessee, but the same is only concerning specific circumstances therein provided, i.e. where the assessee had failed to file his return of income within the period specified in sub-section (1) of Section 153 of the Act and until expiry of period aforesaid, no notice was issued to him under Clause (i) to sub-section (1) of Section 142 or 148, which, however, is not the case of the assessee before us.
49. We shall now deal with the judicial pronouncements that have been pressed into service by the Ld. DR, as under:
A.) MAK Data (P) Ltd. Vs. CIT (2013) 38 taxmann.com 448
50. We may herein observe that the judgment of the Hon'ble Supreme Court in the case of MAK Data P. Ltd. Vs. CIT (2013) 358 ITR 593 (SC) is distinguishable on facts. We find that in the case before the Hon'ble Apex Court, certain documents comprising share application forms, bank statements, memorandum of association of companies, affidavits, copies of income-tax returns, and blank share transfer deeds duly signed were impounded during the course of the survey operation conducted on 16.12.2003 in the case of its "sister concern‟. The assessee only during the course of the assessment proceedings in its case, on being confronted with 54 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 the aforesaid documents pertaining to the share applications found in the course of survey proceedings, particularly, blank transfer deeds duly signed, had as per its reply filed on 22.11.2006 came up with a disclosure of Rs. 40.74 lakhs with a view to avoid litigation, buy peace and to make an amicable settlement of the dispute. It was in the backdrop of the aforesaid facts that the Hon'ble Supreme Court deliberating on the facts involved in the said case observed, viz. (i). the Explanation to section 271(1) raises a presumption of concealment when a difference is noted by the Assessing Officer between reported and assessed income; (ii). that as the surrender of income was made by the assessee in view of the detection made by the A.O. in the search conducted on the sister concern, therefore, the same could not be held as voluntary; (iii). that the assessee had come forth with disclosure only after being confronted and called upon to put forth its explanation in respect of documents, viz. share application forms, bank statements, memorandum of association of companies, affidavits, copies of income-tax returns, assessment orders, and blank share transfer deeds duly signed, as were impounded in the course of survey proceedings conducted under Sec. 133A on 16.12.2003 in the case of its "sister concern‟; and (iv). that as the survey was conducted more than 10 months before the assessee filed its return of income‟, therefore, had the assessee intended to make a full and true disclosure of its income, it would have filed the return of income 55 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings.
51. As the facts involved in the present case before us are distinguishable, therefore, reliance placed by the Ld. DR on the aforesaid judicial pronouncement will not carry the case of the revenue any further. B.) CIT Vs. Prasanna Dugar (2015) 371 ITR 19 (Cal)
52. As in the aforesaid case the assessee was subjected to search u/s. 132 of the Act, therefore, the Hon'ble High Court after referring to "Explanation 5A(b)" of Section 271(1)(c) of the Act, observed that as the assessee had before the initiation of search u/s. 132 of the Act not included the sum of Rs.70 lacs that was disclosed in the course of the search proceedings, therefore, it was liable for imposition of penalty u/s. 271(1)(c) of the Act.
53. As the facts involved in the present case before us are distinguishable, therefore, reliance placed by the Ld. DR on the aforesaid judicial pronouncement will not carry the case of the revenue any further. C.) Pr. CIT Vs. Vandana Gupta (2018) 101 CCH 53 (Del.)
54. In the aforesaid case, the assessee who was a medical practitioner was subjected to survey u/s. 133A of the Act. The assessee in the course of survey proceedings surrendered certain amount. The A.O. imposed penalty 56 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024 u/s. 271(1)(c) of the Act on the ground that the assessee had concealed income and furnished inaccurate particulars. On appeal, the Tribunal vacated the penalty. On further appeal by the revenue, the Hon'ble High Court observed that as the assessee had merely made a voluntary surrender and not offered any explanation as to the nature of income or its source, therefore, as per "Explanation 1" to Section 271(1)(c) of the Act in absence of any explanation forthcoming penalty u/s. 271(1)(c) of the Act was justifiably imposed on her.
55. As the facts involved in the present case before us are distinguishable, therefore, reliance placed by the Ld. DR on the aforesaid judicial pronouncement will not carry the case of the revenue any further. D.) K.K Motwani HUF Vs. ACIT, 2016- TIOL-2910-HC-IT
56. The assessee HUF who was a property developer had though debited an additional price for the re-purchase of five flats of Rs.34 lacs but had not included the same in its "closing stock". The A.O observed that as the assessee had debited a payment of Rs.34 lacs (supra) but had not included the same as part of the value of "closing stock", therefore, saddled him with a penalty for furnishing inaccurate particulars of income u/s. 271(1)(c) of the Act. On appeal, the Hon'ble High Court upheld the view taken by the lower authorities on the ground that no infirmity did emerge therefrom. 57
Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
57. As in the case before us, there are no such facts that reveal the furnishing of inaccurate particulars of income or concealment of income by the assessee, but this is a case, where a claim for exemption of LTCG u/s.10(38) of the Act in the original return of income was withdrawn initially vide letter dated 23.03.2023 (supra) filed with the department to buy peace of mind and to avoid protracted litigation, which, thereafter, was followed by offering of the said amount as income in the return of income filed in response to notice u/s. 148 of the Act, therefore, the facts being distinguishable as against those involved in the aforementioned case will not assist the case of the revenue before us.
58. We, thus, in terms of our aforesaid observations are of the view that as the penalty proceedings u/s.271(1)(c) of the Act as held by the Hon'ble Supreme Court in the case of M/s Hindustan Steel Ltd. Vs. State of Orissa reported in (1976) 83 ITR 26 (SC) are quasi-criminal proceedings, therefore, the assessee in absence of any material which would conclusively prove that it had raised a false claim of LTCG on purchase/sale of shares of "CCL International Ltd." a penny stock, which was claimed as exempt u/s. 10(38) of the Act, thus, could not have been saddled with penalty u/s. 271(1)(c) of the Act. Accordingly, we, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities, set aside the order of the CIT(Appeals) and quash the penalty of Rs.93,88,640/- imposed by the A.O. 58 Rajendra Kumar Manish Kumar Sharma (HUF) Vs. DCIT, Circle-1(1), Raipur ITA No. 146/RPR/2024
59. In the result, the appeal of the assessee is allowed in terms of our aforesaid observations.
Order pronounced in open court on 09th day of July, 2024.
Sd/- Sd/-
ARUN KHODPIA RAVISH SOOD
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
रायपुर/ RAIPUR ; दनांक / Dated : 09th July, 2024.
***SB
आदे श क त ल प अ े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.)
4. The Pr. CIT, Raipur-1 (C.G)
5. वभागीय त न ध, आयकर अपील य अ धकरण, रायपुर बच,
रायपुर / DR, ITAT, Raipur Bench, Raipur.
6. गाड फ़ाइल / Guard File.
आदे शानुसार / BY ORDER,
// True Copy //
Senior Private Secretary
आयकर अपील य अ धकरण, रायपुर / ITAT, Raipur.