2016 (1) TMI 630 - AT - Income Tax

Penalty under section 271(1)(c) - unaccounted transaction of shares - dilution of quantum penalty seeked by assessee - Held that - We find the sequence of transactions as very disconcerting and integruing. The purchase transactions is not routed through stock exchange. It is off market transaction where shares have been acquired against payment of cash . The impugned transaction is the only transaction with the Mumbai Brokers. Again, the shares were received in the Demat Account of the assessee on 05.09.2002 after a gap of nearly 1 years from its purchase on 13.04.2001. The shares were sold on 17.08.2002 whereas the shares were received in Demat Account on 05.09.2002 towards purchases, these were transferred against sale on 17.09.2002. The probe by the Investigation Wing of Income Tax Department, revealed by the purchased transactions regarding the shares of Database Finance Ltd., was not genuine. Couple with this, the fundamentals of the company were found to be negative and the company had not income of more than couple of lakhs. However, there is a huge price rise. From the above facts, it is crystal clear that the purchase transactions have been concocted and manipulated to declare wrongful long term capital gains. The transactions have been executed through Demat Account and transfer has taken place against the sale. The sale part of the transactions has not been disputed per-se. In view of the above mitigating circumstance, we feel that the assessee deserves benefit of doubt. Accordingly, we concur with the alternative plea taken by the assessee that the quantum of penalty should be reduced to 100% of the tax evaded. In our view, dilution of quantum penalty is justified. - Decided partly in favour of assessee Undisclosed LTCG - Held that - assessee has made cheque payments against purchase for which delivery has been received. Likewise, delivery has been duly given against sale and the payment thereof has been received by cheque. The CIT(A) has accepted the purchase and sale transaction albeit holding the same as short term capital gain instead of long term capital gain. In the circumstances, it is difficult to say that the transactions do not exist per se. In the totality of circumstances, we feel that while the quantum addition has been sustained on a different footing than what was proposed by the Assessing Officer, imposition of penalty would not be justified on the basis of unproved facts. We, accordingly, set-aside the order of the CIT(A) and cancel the penalty imposed.- Decided in favour of assessee

Summary

Issues Involved:
1. Levy of concealment penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of the quantum of penalty (100% vs. 150% of the tax evaded).
3. Validity and genuineness of long-term capital gains claimed by the assessee.

Issue-wise Detailed Analysis:

1. Levy of Concealment Penalty under Section 271(1)(c):
The primary issue is whether the concealment penalty under section 271(1)(c) of the Income-tax Act, 1961, is justified. The appeals involve the assessee's claim of long-term capital gains from the sale of shares, which the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] found to be non-genuine. The AO observed that the transactions were manipulated, and the assessee failed to produce the brokers involved in the transactions. The AO treated the capital gains as 'undisclosed income' and imposed a penalty. The CIT(A) upheld the levy of penalty but reduced it to 150% of the tax evaded.

2. Determination of the Quantum of Penalty:
The assessee contended that the penalty should be reduced to the minimum permissible limit of 100% of the tax evaded. The Tribunal found the transactions suspicious but acknowledged that the shares were transferred through the Demat account and the sale was not disputed. Considering these mitigating circumstances, the Tribunal agreed to reduce the penalty to 100% of the tax evaded.

3. Validity and Genuineness of Long-term Capital Gains:
The Tribunal examined the details of the share transactions, noting several discrepancies such as off-market transactions, cash payments for purchases, and delayed credit of shares in the Demat account. The AO's detailed enquiries and the findings of the Investigation Wing of the Income Tax Department indicated that the transactions were not genuine. The Tribunal concurred with the lower authorities that the transactions were manipulated to declare wrongful long-term capital gains.

Case-specific Judgments:

Heeranand Ghanshyam Sukhwani (ITA No.1513/PN/2013):
The Tribunal upheld the penalty but reduced it to 100% of the tax evaded, considering the transactions were executed through the Demat account. The appeal was dismissed.

Heeranand Ghanshyam Sukhwani (ITA No.1514/PN/2013):
For the assessment year 2004-05, the Tribunal noted that the shares were transferred in the Demat account before the sale, and the purchase considerations were paid by cheque. The CIT(A) treated the gains as short-term capital gains instead of long-term. The Tribunal found that the imposition of penalty was not justified based on unproved facts and set aside the penalty. The appeal was allowed.

Mohini Ghanshyam Sukhwani (ITA No.1515/PN/2013):
The facts were similar to Heeranand Ghanshyam Sukhwani's case for the assessment year 2004-05. The Tribunal followed the same reasoning and set aside the penalty. The appeal was allowed.

Conclusion:
The Tribunal provided a nuanced judgment, reducing the penalty to 100% of the tax evaded in cases where the transactions were executed through the Demat account but setting aside the penalty where the facts suggested partial genuineness of transactions. The appeals were disposed of accordingly.