2018 (12) TMI 53 - AT - Income Tax

Levying of penalty u/s 271(1)(c) - bogus transaction - Held that - In the instant case the assessee has furnished the details for purchase and sale of shares and furnished the names and addresses of the buyers and sellers of the shares. AO on the basis of the evidences placed before him held that the transaction was sham transaction. AO did not make any enquiry and disproved the claim of the assessee to hold that the transaction was bogus. Having furnished all the particulars by the assessee and the AO having failed to disprove evidences placed before him we hold that there is no case for imposing penalty u/s 271(1)(c). Accordingly we set aside the orders of the lower authorities and cancel the penalty imposed by the AO. The assessee s appeal on this ground is allowed.

Summary

Issues Involved:

1. Treatment of Short-Term Capital Loss on Sale of Shares and Mutual Funds
2. Applicability of Section 43(5) - Speculation Loss
3. Genuineness of Share Transactions
4. Imposition of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income

Issue-Wise Detailed Analysis:

1. Treatment of Short-Term Capital Loss on Sale of Shares and Mutual Funds:

The assessee filed a return declaring a total income of ?2,35,440/- and claimed a short-term capital loss of ?66,92,169/- on the sale of shares and mutual funds. The AO observed the loss of ?70,61,600/- on the sale of equity shares and a profit of ?3,69,431/- on the sale of mutual funds, resulting in a net loss of ?66,92,169/-. The AO provided details of the sale of shares and resultant losses, including transactions with Golden Herbert (I) Ltd. and Usha Housing & Development Co. Ltd.

2. Applicability of Section 43(5) - Speculation Loss:

Initially, the AO questioned why the loss should not be treated as speculation loss under Section 43(5) of the Income Tax Act. The assessee objected, stating that the Explanation to Section 73 was not applicable since the transactions were direct and involved listed companies. The AO accepted the assessee's contention that the Explanation to Section 73 could not be invoked as the gross total income mainly consisted of capital gains.

3. Genuineness of Share Transactions:

The AO suspected the genuineness of the transactions since the shares were neither purchased nor sold through the market but directly from parties, without recognized share brokers. The AO doubted how the assessee knew the seller's intention and noted that the assessee had no prior history of dealing in shares. The AO deemed the transactions as sham and disallowed the loss, initiating penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income.

4. Imposition of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:

The assessee responded to the penalty notice, asserting that all particulars and evidence were provided during assessment proceedings, and there was no case of furnishing inaccurate particulars. The AO, however, held that the assessee failed to prove the genuineness of the transactions and levied a penalty of ?25,35,000/-.

On appeal, the CIT(A) confirmed the penalty, stating that the assessee failed to substantiate the transactions with sufficient materials. The assessee then appealed to the Tribunal, arguing that all details and evidence were provided to the AO, who did not conduct any inquiry with the buyers and sellers of the shares. The assessee relied on the ITAT Kolkata 'B' Bench decision in the case of Sri Deo Kumar Saraf Vs. ACIT.

The Tribunal noted that the assessee provided all relevant details and evidence, including account copies and income tax return acknowledgments of the purchasers. The AO did not conduct any independent inquiry during penalty proceedings and relied heavily on the assessment order. The Tribunal held that the assessment and penalty proceedings are distinct, and for penalty, the AO must establish concealment or furnishing of inaccurate particulars with detailed inquiry. The Tribunal found no case for imposing penalty under Section 271(1)(c) and allowed the assessee's appeal, canceling the penalty.

Conclusion:

The Tribunal concluded that the assessee had furnished all relevant details and evidence, and the AO failed to disprove the genuineness of the transactions. Therefore, there was no case for imposing a penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The appeal of the assessee was allowed.