2017 (7) TMI 612 - HC - Income Tax

Penalty u/s 271 (1)(C) - purchasing the shares at higher price - Held that - As observed by the Tribunal and the Commissioner (Appeals) that the reason has been given by the Assessee for purchasing the shares at higher price than the one reflected in the stock exchange price. The said shares were not much traded in the market and the Assessee had to purchase the bulk quantity of shares which was possible only from few targeted holders and not from the open market and such transaction of bulk purchases generally carry premium and the price of ₹ 10/per share was arrived at after negotiation with the sellers. The explanation is also accepted by the Tribunal that any attempt to purchase the shares in such bulk quantity directly from the open market could have resulted in increase in the price of shares on the stock exchange resulting into loss to the Assessee. Even the valuation report of the approved valuer was considered by the Assessee before purchase of the said shares. All other explanations has been accepted by the Commissioner (Appeals) and the Tribunal. The same are the findings of fact. - Decided against revenue

Summary

Issues:
Appeal against Tribunal's order upholding penalty under Section 271(1)(C) of the Income Tax Act.

Analysis:
The appellant contested the Tribunal's decision, arguing that the Tribunal erred in relying on a previous judgment as the facts in the present case were distinguishable. The counsel contended that the addition of income leading to the penalty was upheld by the Tribunal, and the appellant's quantum appeal was dismissed. It was asserted that the appellant's actions constituted filing inaccurate particulars, invoking explanation 1 of Section 271(1)(C). The appellant emphasized that no prudent businessman would pay more for shares than the prevailing market price.

The respondent's counsel supported the Tribunal's order, stating that the price paid per share was justified by a valuation based on the net asset value per equity share. The rationale for paying a higher price for bulk shares, as opposed to stock exchange prices, was explained. It was clarified that the shares were not widely traded, and purchasing in bulk was only feasible from specific holders, not the open market.

The Court examined the submissions and emphasized that the mere addition of income does not automatically trigger penalty proceedings. The requirements outlined in Section 271(1)(C) and its explanation must be met for penalties to be imposed. It was noted that the Assessing Officer based the penalty order on the assessment proceedings without providing independent reasoning.

Both the Tribunal and the Commissioner (Appeals) acknowledged the reasons behind the higher share purchase price compared to stock exchange rates. The appellant's explanation regarding the necessity of bulk purchases from limited holders, the negotiation process leading to the price of ?10 per share, and the potential losses from open market transactions were accepted. The valuation report from an approved valuer was also considered before the purchase. The authorities accepted all explanations as factual findings.

Consequently, the Court found no substantial question arising from the case and dismissed the appeal without costs.