2013 (3) TMI 198 - AT - Income Tax

Penalty u/s 271(1)(c) - commodity futures trading and broking - client code modifications - unauthorised modification in the code - held that - there is a modification of the Clients code in the transactions and considering the nature of the trade involved, in our opinion, the explanation of the assessee appears to be bona fide. - A.O. has not taken any pains to negativate the explanation of the assessee as to why the same should be treated as not bona fide or genuine. - The Director of the company, in his statement given to the A.O. has kept the consistent stand in the explanation that how the code modification is done even in the large number of the transactions without knowledge of the client by the dishonest dealers for getting a short benefit. The assessee has taken legal actions the dishonest dealers and it s employees. That support the contention of the assesse that the dealers were involved in the malpractices by doing unauthorised client code modifications. - This is not a case where conscious and dishonest conduct of the assesse has been proved. The word conceal contemplates conscious act and same has to be proved even after different explanations added to Sec. 271(1)(c) as stand today. - No penalty - Decided in favor of assessee.

Summary

Issues:
Challenge to penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2006-07 based on client code modifications.

Detailed Analysis:

1. Issue 1 - Penalty under Section 271(1)(c):
The appellant challenged the penalty imposed by the Ld. CIT (A) for confirming the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act. The appellant raised grounds questioning the confirmation of the penalty amounting to Rs. 13,00,000.

2. Factual Background:
The assessee, a company engaged in commodity futures trading and broking, faced scrutiny for the assessment year 2006-07. The Assessing Officer made additions to the income and determined the final loss. The AO initiated penalty proceedings under section 271(1)(c) due to client code modifications discovered during a survey action. The appellant explained reasons for the modifications, attributing them to operational difficulties and punching errors.

3. Explanation and Defense by the Assessee:
The appellant provided detailed explanations for the client code modifications, emphasizing inadvertent errors, operational challenges in the commodity market, and lack of control over dealers. The appellant argued that the modifications were genuine, without any intention to shift profits, supported by the negligible impact on individual transactions compared to total brokerage earned.

4. Judgment and Analysis:
The Appellate Tribunal analyzed the explanations and evidence presented by the appellant. The Tribunal noted the lack of efforts by the Assessing Officer to disprove the genuineness of the appellant's explanations. The Tribunal found the appellant's conduct to be bona fide, especially considering legal actions taken against dishonest dealers involved in unauthorized code modifications. The Tribunal concluded that the penalty was unjustified, as there was no evidence of conscious and dishonest conduct by the appellant.

5. Decision and Outcome:
After a thorough review of the facts and arguments, the Appellate Tribunal allowed the appellant's appeal, canceling the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2006-07. The Tribunal found the appellant's explanations credible and genuine, leading to the decision to overturn the penalty.

This detailed analysis of the legal judgment highlights the issues, factual background, explanations provided by the appellant, judicial analysis, and the final decision of the Appellate Tribunal regarding the penalty imposed under section 271(1)(c) of the Income Tax Act.