2019 (7) TMI 1881 - AT - Income Tax

Penalty u/s 271(1 )(c) - addition u/s 68 on bogus LTCG - HELD THAT - It is not in dispute that the assessee has furnished the supporting bills and details of payments in support of transactions reported to be long term capital gain. It was contended that entire addition is based on the statement of Mr. Mukesh Chokshi which was never provided to the assessee. It was also pointed out that it is quite possible that Mr. Mukesh Chokshi has not included the transactions with assessee in his statement at all. Incidence of penalty under s. 271(1 )(c) of the Act is not automatic and should not be imposed merely because it is lawful to do. Considering the smallness of the amount involved, we consider it expedient to give benefit of doubt to the assessee owing to mitigating circumstances viz the absence of copy of statement of Mr. Mukesh Chokshi or any other substantive material. The assessee has supported the face value of transactions with bills and payments. In the backdrop of ambiguity in circumstances, it is difficult to hold that the explanation offered by the assessee is blatantly false. We are thus inclined to exonerate the assessee from the incidence of penalty. - Decided in favour of assessee.

Summary

Issues: Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 concerning AY 2006-07.

Analysis:
The appeal was filed by the assessee against the penalty order passed by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961, concerning AY 2006-07. The AO imposed a penalty of ?50,330 on the assessee for claiming long-term capital gain on the sale of shares of Talent Infoways, which was transacted through Mahasagar Group of companies. The AO denied the tax exemption on the capital gains, treating the declared long-term capital gain as unexplained income chargeable to tax under section 68 of the Act. The CIT(A) confirmed the imposition of the penalty in the first appeal, leading the assessee to appeal before the Tribunal.

During the proceedings, it was noted that the assessee had provided supporting bills and payment details for the reported transactions of long-term capital gain. The AO's action was primarily based on a statement by Mr. Mukesh Chokshi, a key person of Mahasagar Group, alleging that the transactions were not genuine and involved issuing bogus bills. However, the statement was not provided to the assessee for verification. The Tribunal considered that the penalty under section 271(1)(c) should not be imposed automatically and must be based on substantial evidence. Given the lack of concrete evidence against the assessee and the presence of mitigating circumstances, such as the absence of Mr. Mukesh Chokshi's statement, the Tribunal decided to give the benefit of doubt to the assessee. The Tribunal found it difficult to conclude that the assessee's explanation was blatantly false, especially considering the ambiguity in the circumstances. Therefore, the Tribunal exonerated the assessee from the penalty, emphasizing that this decision should not set a precedent.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning the imposition of the penalty. The judgment was delivered on 26/07/2019 by Shri Pradip Kumar Kedia, Accountant Member, and Shri Mahavir Prasad, Judicial Member, of the Appellate Tribunal ITAT Ahmedabad.