2011 (8) TMI 1167 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessee's claim for Long Term Capital Gain (LTCG) exemption u/s 54F.
3. Assessment of the genuineness of share transactions.
4. Consideration of revised return filed by the assessee.
5. Evaluation of the assessee's explanation and surrender of income.

Summary:

1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the order of the CIT(A) confirming the AO's imposition of penalty u/s 271(1)(c). The AO held that the assessee concealed particulars of income and imposed a penalty equal to 100% of the tax sought to be evaded, referring to the Supreme Court decision in K.P. Madhusudanan vs. CIT, 251 ITR 99 (SC).

2. Validity of the assessee's claim for Long Term Capital Gain (LTCG) exemption u/s 54F:
The assessee claimed LTCG exemption u/s 54F on the sale of shares of Poonam Pharmaceuticals Ltd. The AO, after investigation, concluded that the assessee availed an accommodation entry and treated the sale proceeds as unexplained investment u/s 69, disallowing the exemption claimed.

3. Assessment of the genuineness of share transactions:
The AO's investigation revealed discrepancies, including the broker's denial of transactions and the Calcutta Stock Exchange's confirmation of no transactions in the scrip Poonam. Despite these findings, the shares were transferred through the D-Mat account, and sale proceeds were received through banking channels. The Tribunal noted that the denial by the broker alone was not conclusive evidence of bogus transactions.

4. Consideration of revised return filed by the assessee:
The assessee filed a revised return on 19/12/2007, which the AO refused to consider as it was beyond the period permitted u/s 139(5). The Tribunal observed that the surrender of the claim was made to avoid litigation and purchase peace, not necessarily indicating a bogus claim.

5. Evaluation of the assessee's explanation and surrender of income:
The Tribunal found the assessee's explanation for surrendering the claim due to old age and inability to provide complete details credible. The Tribunal emphasized that the surrender was made to avoid litigation and was supported by documentary evidence. The Tribunal concluded that the explanation was bona fide and that general observations by the AO were insufficient to impose a penalty.

Conclusion:
The Tribunal directed the cancellation of the penalty imposed on the assessee, allowing the appeal. The decision was based on the bona fide nature of the assessee's explanation and the circumstances under which the surrender was made. The appeal was allowed, and the order was pronounced in the open court on 5th August 2011.