ITA No.7536 of 2010 Ravindra Toshniwal Mumbai IN THE INCOME TAX APPELLATE TRIBUNAL "D" Bench, Mumbai Before Shri B. Ramakotaiah, Accountant Member & Shri Sanjay Garg, Judicial Member ITA No.7536/Mum/2010 (Assessment year: 2005-06) Ravindra kumar Toshniwal, Vs. ACIT, 14(3) Earnest House, Gopal Bhavan, 5th Floor, 199 6th Floor, Nariman Point, Princess Street, Mumbai 400021 Mumbai 400002 PAN: AAAPT 1909 P (Appellant) (Respondent) Assessee by: Shri V.K. Tulsian Department by: Shri A.K. Kardam, DR Date of Hearing: 27/02/2013 Date of Pronouncement: 13/03/2013 ORDER
Per B. Ramakotaiah, A.M.
This is an appeal by assessee against the order of the CIT (A)- 25, Mumbai dated 09.09.2010 with reference to confirming the levy of penalty under section 271(1)(c) amounting to `.16,62,651 by AO.
2. Briefly stated assessee filed return of income for assessment year 2005-06 declaring total income at `.32,87,897. As a result of scrutiny assessment under section 143(3), the total of the income was assessed at `.1,22,53,390. AO treated the entire sales consideration on sale of shares as income from other sources as he has considered that the purchase and sale of share transactions are bogus in nature. In appeal the learned CIT (A) directed AO to treat the income under the head "capital gain". However, in respect of long term capital gain of `.49,39,547 which has been claimed as exempt under section 10(38), the learned CIT (A) directed AO to tax Page 1 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai the long term capital gain at the prevailing rates on the reason that assessee was not entitled for exemption under section 10(38) as no STT was paid. This order was confirmed by the ITAT. The learned AO initiated penalty proceedings originally in the assessment order for treating sale price received as income from other sources. However, consequent to the orders of the CIT (A), he levied penalty under section 271(1)(c) on the reason of not allowing long term capital gain benefit in respect of long term capital gain of `.49,39,547 which was claimed as exempt.
3. It was the submission before the CIT (A) that the STT was not paid by the broker even though the same was mentioned in the sale bills and accordingly assessee claimed the benefit of section 10(38). Since the fact that the broker has not paid the STT has come to the knowledge later, assessee withdrew the claim and accordingly accepted the long term capital gain as taxable at the prevailing rate. It was the submission that non payment of STT by the broker is not within the knowledge of assessee and since the claim was made on the bonafide reason that the STT was deducted and payable by the broker as mentioned in the same bill, the claim was made on the bonafide reason. Further it was also contended that the proceedings under section 271(1)(c) were initiated altogether on a different issue and the issue of section 10(38) was not part of the assessment order which arose only before the CIT (A) in his appellate proceedings. Consequently, AO does not have any jurisdiction to levy penalty. The learned CIT (A) however, upheld the levy of penalty by stating as under:
"4.1 Assessee had claimed LTCG of `.49,39,547 claimed to be derived from sale transaction of two companies i.e. to say M/s Buniyad Chemicals Ltd and M/s Tallent Infoways Ltd. It would not be irrelevant to mention that assessee is a Chairman and Managing Director of the Page 2 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai listed company viz., Banswara Syntex Ltd. It cannot be ignored that a chairman and managing director of a listed company whose shares are listed on Stock Exchange had preferred to engage in purchase and sales of two unknown companies. In the statement during the course of assessment proceedings (Page No.5 to 7 of assessment order) assessee expressed complete ignorance about these companies and not aware of person who advised him to purchase shares of these companies. At present, these companies are not found traceable on trading list of the Exchange. For the sake of curiosity, I tried to locate the present status of these companies on different websites providing information in respect of company history, quotations/prices etc. of shares listed on Stock Exchange. Inspite of best efforts, these companies could not be located or traced.
However, assessee's company Banswara Syntex Ltd is regularly appearing on these websites and its stocks are regularly traded on Exchanges. The dubious nature of this transaction as brought on record by AO in the assessment order cannot be ignored. Assessee had submitted that the fact of non payment of STT was not known to assessee and he was made aware of this fact only during the course of hearing, which is not plausible. On perusal of sales bills and purchase bills on which assessee had relied during the course of assessment proceedings as well as appellate proceedings, it transpires that there is no mention of STT payment which implies that no STT was paid by the broker because the transactions were off market transactions. The STT is payable only on transaction made on stock exchange and particulars of payment of STT are always mentioned in bills/contract notes provided by the brokers. During the course of appellate proceedings, I have observed in several other cases wherein exemption of LTCG is claimed, the particulars of payment of STT are always mentioned in the bill itself if STT is payable at all. Hence there is no force in the argument of assessee that he was not aware of the fact that STT was not paid by the broker. Actually, there is no requirement for payment of STT if the transaction is off market transaction. As per section 98 of Finance (No.2) Act 2004, the STT is chargeable in respect of the 'taxable securities Page 3 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai "A transaction of purchase or sale of an equity share in a company or a derivate or a unit of an equity oriented fund, entered into a recognized stock exchange..." Thus the statute itself provides that STT is payable only on transactions entered into a recognized stock exchange. In this case, after long drawn enquiry by AO, it was admitted that transactions are off market transactions. It may be mentioned that at initial stage there was an attempt to mislead that transactions were carried out at Ahmedabad Stock Exchange (Para 4.2 of assessment order). In Ahmedabad Stock Exchange, the director of broker company is shown as contact person of these two companies (refer Para 4.7 of AO). If we analyze facts stated by AO in the assessment order to ascertain the intention of assessee, it immensely transpires that assessee had intention to claim false exemption of tax on LTCG, particularly when the nature of transactions were found to be dubious by AO and STT is not payable on off market transaction as per law. Although the appellate authorities have held on the basis of documentation provided by assessee that assessee is eligible for LTCG, it cannot be considered that whole exercise made by assessee is bonafide. The purpose of assessee was to get rid of tax on amount involved in impugned transactions. If the scrutiny assessment had not taken place, AO and thereby the CIT (A) could not have reached to the conclusion that assessee is liable to pay tax on LTCG. Assessee cannot claim that he was ignorant of provision. The reason is that earlier LTCG was not exempted but by virtue of section 10(38) as inserted by Finance Act, 2004 read with Security Transaction Tax (Section 98 r.w.s 97(13) of the said Finance Act, 2004), it had became tax free and exemption under section 10(38) is embedded with conditions therein. Inspite of the fact that transactions were not taken place on recognized stock exchange, i.e. off market transaction, he preferred to claim exemption under section 10(38). It is known fact that the department selects less than 2% of returns for scrutiny. Hence there are 98% chances of escaping from taxation of real income chargeable to tax, if a person decides to make false claim. If the penalty is not leviable in such case, there would be nothing to loose for tax evader except for tax, which otherwise was payable had it been paid honestly. It is worth to note that in subsequent Page 4 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai assessment year 2006-07 also, assessee had claimed exemption under section 10(38) on LTCG on transaction of these two companies. Hence, the plea of bonafideness is not tenable. On the contrary it divulges willful intention to evade tax. Assessee had relied on the decision of the Hon'ble Supreme Court in the case of Dilip Shroff. However, the said decision had been dissented by the Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors Ltd (295 ITR
244). The Hon'ble Supreme Court had pointed out in this case that the object behind the enactment of section 271(1)(c) read with Explanation indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the provision is a civil liability. It was further held that willful concealment is not an essential ingredient for attracting civil liability as is in the case in the matter of prosecution under section 276C of the Income Tax Act. Recently, the Hon'ble High Court of Delhi, assessee makes claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide. Explanation 1 to section 271(1)(c) would come into play and assessee will be liable to penalty under section 271(1)(c). It may be mentioned that this decision has been rendered by the Hon'ble High Court of Delhi after considering the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd and distinguished the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. Having regard to the facts and circumstances of the case as exists in this case and as discussed by AO in the assessment order it is held that assessee had claimed exemption of LTCG tax under section 10(38) of the Act with an intention to conceal real income exigible to be taxed and also furnished inaccurate particulars of income liable to be taxed. In view of these facts, the order of AO levying penalty under section 271(1) (c) amounting to `.16,62,651 is upheld and appeal filed by assessee is dismissed".
4. The learned Counsel submitted that the issue of claim of section 10(38) was never there before AO, as AO treated the entire sales consideration as income from other sources. It was submitted Page 5 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai that assessee claimed exemption under section 10(38) being LTCG on the basis of the brokers bill, but in the absence of certificate from the broker as it was not paid by the broker, assessee was held to be not entitled for exemption under the LTCG. It was submitted that AO initiated penalty proceedings on the issue of bogus LTCG where as the penalty was levied on non allowance of claim under section 10(38) which arose consequent to the orders of the CIT (A) and not from AO's orders. It was submitted that there is no case of furnishing of inaccurate particulars as all the particulars were furnished. It was further submitted that there is no malafide intention on the part of assessee as the transactions with the brokers were not disputed and assessee's claim was based on the broker's note. Assessee relied on the principles laid down by the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd, 322 ITR 158 for the proposition that making of a claim which is not sustainable will not amount to furnishing inaccurate particulars.
5. The learned DR however, supported the orders of AO and the learned CIT (A).
6. We have considered the issue. As far as the facts of the case are concerned, assessee claimed LTCG as exempt but the entire share transactions were held to be bogus and AO treated the sale price received as income from other sources. The learned CIT (A) in quantum proceedings on examination of the facts and the sale bills held that transactions are genuine. However, he after examining the provisions of section 10(38) came to a conclusion that assessee had not satisfied the provisions of section 10(38) and accordingly directed AO to tax the LTCG amount at the prevailing rate for the relevant assessment year. The order of the CIT (A) on this issue is as under:Page 6 of 8
ITA No.7536 of 2010 Ravindra Toshniwal Mumbai "7. As regards to the capital gain shown by the appellant, at `.49,39,547 on account of capital gain earned on and after 1.10.2004, which has been claimed exempt under section 10(38), I find that no STT has been paid by the broker on this transaction. Therefore, it goes without saying that the condition of section 10(38) are not being satisfied. Hence, I hold that the appellant is not entitled for exemption under section 10(38) in respect of LTCG at `.49,39,547. As a result of this finding, AO is directed to tax LTCG at the prevailing rate for the relevant assessment year.
7. Since the issue of claim of exemption was not examined by AO and has been crystallized by the order of the CIT (A), we are of the opinion that the penalty proceedings under section 271(1)(c) cannot be decided by AO as no such finding or satisfaction or even examination was done by AO. The learned CIT (A)'s order in penalty proceedings is on irrelevant considerations and even doubting the findings of predecessor CIT (A). We also notice that Ld.CIT(A) confirmed the order of the penalty on extraneous considerations and on his personal knowledge about the generality of claims by various persons, ignoring the facts of the case on which his predecessor CIT (A) did not upheld AO's order, which was also confirmed by the ITAT. Since the issue of non allowability of claim under section 10(38) was not examined by AO and the penalty proceedings were initiated altogether on a different issue, we are of the opinion that penalty under section 271(1)(c) cannot be levied consequent to the direction of the CIT (A) in the appellate order on a different issue. Moreover, since the claim was made bonafide as explained by assessee, the disallowance of which also does not attract penalty proceedings under section 271(1)(c) following the principles laid down by the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd (supra). Further there is no variation to the incomes or the amounts involved. Only rate of tax Page 7 of 8 ITA No.7536 of 2010 Ravindra Toshniwal Mumbai was considered in the appellate proceedings. In view of this we have no hesitation in cancelling the penalty.
8. It is also noticed from the consequential order passed and placed on record that the tax on LTCG of `.59,11,668 was calculated at `.11,82,334. We are unable to understand how AO could arrive at the penalty of `.16,62,651 at 100% of the tax sought to be evaded. Be that as it may, we however cancel the penalty. Assessee's grounds are allowed.
9. In the result appeal filed by assessee is allowed.
Order pronounced in the open court on 13th March, 2013 Sd/- Sd/-
(Sanjay Garg) (B. Ramakotaiah) Judicial Member Accountant Member Mumbai, dated 13th March, 2013. Vnodan/sps Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, " " Bench, ITAT, Mumbai By Order Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI Page 8 of 8