By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi
Chartered Accountants
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Section 271(1)(c) — Penalty cannot be levied in respect of amount surrendered by the assessee unless the AO proves that bogus LTCG was being declared to claim benefit of either exemption or lower rate of tax.
Facts:
The assessee HUF in its return of income declared long-term capital gains on sale of shares. The assessee claimed that it had purchased a flat and therefore LTCG was exempt u/s.54F of the Act. The LTCG arose on sale of 6000 shares of a company known as Poonam Pharmaceuticals Ltd. (P). The shares had been purchased by the assessee on 8-4-2003 for a sum of Rs.14,320 through V. K. Singhania, a stock-broker in Calcutta. The purchase price was claimed to have been paid in cash. The shares were sold in 3 tranches in August, Sept and Nov 2004 for a total consideration of Rs.17,87,450. The shares were claimed to have been sold through Shyamlala Sultania, stock-broker in Calcutta. The delivery of shares was received and given via Demat account of the assessee. In the course of assessment proceedings, the AO with a view to verify the transactions of purchase and sale of shares wrote a letter to P which was returned unserved with a remark ‘Not Known’. The broker through whom the shares were claimed to have been sold stated that the assessee was not his client and during the previous year he had not done any transactions in shares of P. The Calcutta Stock Exchange confirmed that M/s. V. K. Singhania had not done any transaction in scrip P in the physical form in the online trading system of Calcutta Stock Exchange.
The AO, in the course of assessment proceedings, examined the assessee u/s.131 and recorded statement of the Karta of the assessee. In the statement it was stated that the shares were purchased and sold on the advice of one Mr. R who was resident of Mumbai. Upon being confronted with the materials collected by the AO, he stated that he had purchased and sold shares and had nothing more to say. He then sought adjournment and before the next date of hearing filed a letter surrendering the amount of exemption claimed on the ground that due to his age he cannot go to Calcutta to verify the details, he has not concealed any income nor filed wrong particulars, but with a view to buy peace and avoid litigation the surrender was being made by revising return of income (though time for filing revised return u/s.139(5) had expired) and taxes were paid. The AO made a reference to investigation conducted by Investigation Wing of the Department and pointed modus operandi followed by various persons claiming LTCG. The AO held that the assessee had brought into his accounts unaccounted money and paid less tax by claiming the sum brought in the books as LTCG.
Subsequently, the AO levied penalty on the ground that the assessee had concealed particulars of income and only when investigation was carried out the assessee surrendered the amount and offered the sale proceeds of shares as Income from Other Sources.
Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the order of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted the sequence of events and observed that the assessee had shown the shares in its balance sheet as on 31-3-2004 and the same was accepted by the Revenue. It also noted that the shares were transferred to the Demat account of the assessee. Sale consideration was received by banking channels. The Tribunal observed that the enquiry by the AO from the Calcutta Stock Exchange that the transaction was not done through the Exchange cannot be taken as basis to conclude that the transactions of sale of shares was not genuine. It observed that denial of Shyamlal Sultania, through whom shares were sold is a circumstance going against the assessee. The Tribunal held that from the sequence of events it cannot be said with certainity that the claim made by the assessee was bogus. It noted that the surrender was made to buy peace and avoid litigation. It was because of his inability to go to Calcutta, due to old age, to collect necessary evidence that the surrender was made. The AO had not brought on record any independent material to show that the assessee was part of any investigation referred to in the assessment order. The Tribunal held that imposition of penalty would depend on facts and circumstances of the case. On the present facts, the Tribunal held that the explanation offered by the assessee was bona fide. The Tribunal directed that the penalty imposed be deleted.
The appeal filed by the assessee was allowed.
