2018 (9) TMI 709 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - assessee has furnished inaccurate particulars of income and has introduced her own unexplained money in the guise of bogus long term capital gain on sale of penny stocks - Assessee had surrendered the claim of exemption u/s. 10(34) - Held that - In the computation of income the assessee has duly disclosed all the particulars of her income and under the head Income with full exemption the assessee has claimed dividend income as exempt and also long term capital gain on which STT is paid which is also exempt from tax. Further find that during the course of scrutiny assessment proceedings the AO has proceeded by the assumption that the shares purchased and sold by the assessee comes into the category of penny stock companies. AO has drawn support from outside information. The surrender of exemption by the assessee on repetitive queries would not amount to furnishing of inaccurate particulars of income. The assessee has claimed exemption as per the provisions of law, though surrendered during the course of assessment proceeding - No penalty to be levied - decided in favour of assessee

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act based on the claim of long term capital gains on the sale of shares as exempt under section 10(34) of the Act.

Analysis:
The Appellate Tribunal ITAT Delhi heard appeals by two appellants against separate orders of the Ld. CIT(A), Meerut for the assessment year 2014-15. The facts in both cases were deemed identical, leading to a common order for convenience. The grievance in both appeals related to the penalty imposed under section 271(1)(c) of the Act, even though the quantum differed. The penalty was initiated due to the appellant's claim of long term capital gains on the sale of shares as exempt under section 10(34) of the Act. The AO, unsatisfied with the submissions, deemed the transactions as involving penny stocks and considered the capital gains as bogus. The appellant eventually surrendered the claim of exemption, leading to the penalty under section 271(1)(c) of the Act. The Counsel for the Assessee argued against the penalty, stating that surrendering the claim did not amount to furnishing inaccurate particulars of income. The Appellate Tribunal considered the submissions and found that the surrender of exemption did not constitute inaccurate particulars of income. As per the provisions of law, the penalty under section 271(1)(c) of the Act was deemed not leviable, leading to the direction to delete the penalty.

The Tribunal carefully reviewed the orders of the lower authorities and noted that the appellant had disclosed all income particulars in the computation. The AO's assumption that the shares were penny stocks was based on external information. The surrender of exemption during assessment proceedings did not equate to furnishing inaccurate particulars of income. The appellant had initially claimed exemption as per the law, which was later surrendered. Consequently, the Tribunal set aside the CIT(A)'s findings and directed the AO to delete the penalty imposed under section 271(1)(c) of the Act.

In conclusion, the appeals of both Assessees were allowed, and the penalty under section 271(1)(c) of the Act was directed to be deleted. The order was pronounced on 10.09.2018.