2012 (6) TMI 571 - AT - Income Tax

Penalty levied u/s 271(1)(c)on account of unexplained investment - assessee contested that transactions which were shown by the assessee as purchase and shares on behalf of the clients - Held that - The transactions recorded by the assessee were in fact the investment of the assessee and not the purchases on behalf of the clients and the addition has been made by the AO on the basis of the evidence found that the client s ID did not match, hence established that the true nature of transaction has not been recorded by the assessee in the books of account- presenting the incorrect facts and that too regarding the nature of transactions recorded in the books of account calls for levy of penalty - the contention of the assessee that the assessee s claim is denied due to non production of confirmation of the parties cannot invite penal provisions, is not acceptable - once the addition has been sustained and the assessee s explanation was not found correct, then the provisions of Explanation 1 to sec. 271(1)(c) is applicable and penalty levied against the assessee is justified - against assessee.

Issues Involved:
1. Legality of the penalty imposed under section 271(1)(c) of the Income Tax Act.
2. Limitation period for passing the penalty order.
3. Requirement of recording satisfaction by the Assessing Officer.
4. Merits of the penalty imposed for unexplained investments.

Detailed Analysis:

1. Legality of the Penalty Imposed under Section 271(1)(c):
The assessee challenged the penalty of Rs. 13,61,588 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, which was upheld by the Commissioner of Income-tax (Appeals) [CIT(A)]. The penalty was related to additions made to the assessee's income for unexplained investments, undisclosed profits, unexplained cash credits, deemed dividends, and depreciation on membership rights of the BSE. The Tribunal had earlier allowed some relief to the assessee, but the remaining issues were sent back to the Assessing Officer for fresh decision.

2. Limitation Period for Passing the Penalty Order:
The assessee argued that the penalty order was barred by limitation, asserting that it should have been passed within one year from the end of the financial year in which the CIT(A)'s order was received. However, the Tribunal clarified that since both the assessee and the revenue had filed appeals before the Tribunal, the limitation period should be counted from the date of receipt of the Tribunal's order, not the CIT(A)'s order. The Tribunal cited section 275(1)(a) of the Act, which specifies that the limitation period for imposing a penalty is six months from the end of the month in which the Tribunal's order is received by the Commissioner or Chief Commissioner. The Tribunal rejected the assessee's plea, stating that the penalty order dated 19.12.2007 was passed within the prescribed period after the Tribunal's order dated 19.7.2007.

3. Requirement of Recording Satisfaction by the Assessing Officer:
The assessee contended that the penalty order was invalid because the Assessing Officer did not record satisfaction in the consequential order. The Tribunal noted that the satisfaction was recorded in the original assessment order under section 143(3) and that the consequential order was not a separate assessment order but a continuation of the original order. The Tribunal held that once satisfaction is recorded in the original assessment order, it is not necessary to record it again in the consequential order. The Tribunal distinguished this case from the case of Triumph International Finance India Ltd, where the penalty was levied before the Tribunal's order in the quantum appeal.

4. Merits of the Penalty Imposed for Unexplained Investments:
On the merits, the assessee argued that the penalty should not be imposed because the addition was sustained due to the non-production of confirmations from three clients out of 37. The assessee claimed that during the relevant period, there was no requirement for recording client IDs in share transactions, which was only mandated by a SEBI circular dated 18.7.2001. The assessee also argued that it had disclosed all primary facts and that there was no concealment or furnishing of inaccurate particulars of income. The Tribunal, however, found that the transactions recorded by the assessee were actually investments by the assessee and not purchases on behalf of clients. The Tribunal held that the assessee had not correctly and truly presented the nature of the transactions, which justified the penalty under section 271(1)(c). The Tribunal concluded that the penalty was rightly imposed as the assessee's explanation was not bona fide.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the penalty imposed under section 271(1)(c) of the Income Tax Act. The Tribunal found that the penalty order was not barred by limitation, that the Assessing Officer had duly recorded satisfaction in the original assessment order, and that the penalty was justified on the merits due to the incorrect presentation of facts by the assessee.

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