2014 (1) TMI 1178 - AT - Income Tax

Penalty u/s 271(1)(c) - Held that - Further verification has not been made by the AO from the Registrar of Companies as to whether the shares have been transferred or not - Merely because they are off market transactions it cannot be concluded that they are non-genuine transactions - Therefore the Tribunal concluded that the transactions are genuine - The assessees miserably failed to prove that they have been traded in Stock Exchange - Being a managing director of the company ignorance of fact cannot be assumed - The assessees were given sufficient opportunity before levying penalty - The AO has applied his mind to the issue of levying of penalty, for furnishing inaccurate particulars by the assessees herein, for making a claim of exemption under section 10(38) of the Act - The Tribunal had also not taken into consideration the fact that it is not one solitary transaction but the transactions of several individual family members and it is difficult to believe that none of them have ever thought of verifying as to whether STT was paid or not and in particular a Managing Director of a listed company can be assumed to know that transactions not carried out in Stock Exchange are liable to tax under the head capital gains since no STT is payable and the assessees cannot plead ignorance year after year - Following Zoom Communication P. Ltd 2010 (5) TMI 34 - DELHI HIGH COURT - The assessees herein have not proved the bonafides of making a wrong claim which amounts to furnishing of inaccurate particulars of income - Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of transactions and classification of income.
2. Applicability of Section 10(38) exemption.
3. Imposition of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income.

Detailed Analysis:

1. Legitimacy of Transactions and Classification of Income:
The primary issue revolves around whether the transactions involving the sale of shares by the assessees were genuine or merely accommodation entries meant to convert unaccounted money into long-term capital gains. The Assessing Officer (AO) concluded that the transactions were not genuine and treated the income as "income from other sources" instead of capital gains. However, upon appeal, the CIT(A) and the Tribunal upheld the genuineness of the transactions but reclassified the income as capital gains rather than exempt income under Section 10(38) due to non-payment of Securities Transaction Tax (STT).

2. Applicability of Section 10(38) Exemption:
The assessees claimed exemption under Section 10(38) of the Income Tax Act, asserting that STT was paid on the transactions. However, it was later revealed that the transactions were off-market and no STT was paid. The AO and CIT(A) concluded that the assessees knowingly claimed the exemption despite being aware that STT was not paid, thus furnishing inaccurate particulars of income. The Tribunal noted that the assessees, given their positions and knowledge, could not claim ignorance about the non-payment of STT and thus were not entitled to the exemption.

3. Imposition of Penalty under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) on the grounds that the assessees willfully furnished inaccurate particulars of income by falsely claiming exemption under Section 10(38). The CIT(A) upheld the penalty, emphasizing that the assessees, being well-informed individuals, could not plausibly claim ignorance about the non-payment of STT. The CIT(A) also referenced the decision in the case of Zoom Communications P. Ltd., which held that making an incorrect claim without a bona fide basis attracts penalty under Section 271(1)(c).

The Tribunal, upon reviewing the facts and previous orders, concluded that the assessees had not demonstrated bona fide belief in their claim for exemption under Section 10(38). The Tribunal highlighted that the assessees' repeated claims over multiple years and similar claims by family members indicated a deliberate attempt to evade tax. Consequently, the Tribunal confirmed the penalty imposed by the AO and CIT(A), aligning with the precedent set by the Delhi High Court in Zoom Communications P. Ltd.

Conclusion:
The appeals filed by the assessees were dismissed, and the penalties imposed under Section 271(1)(c) for furnishing inaccurate particulars of income by falsely claiming exemption under Section 10(38) were upheld. The Tribunal emphasized the importance of bona fide claims and the responsibility of taxpayers to ensure the accuracy of their tax filings.