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October 28, 2023

Fine under Section 271(1)(c) not credible as an explanation supported by documentary evidence that is proven to be accurate

Fine under Section 271(1)(c) not credible as an explanation supported by documentary evidence that is proven to be accurate

Fact and issue of the case

The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 12th December, 2022 passed for A.Y. 2012-13.

The assessee has taken four grounds of appeal, but its solitary grievance is that ld. CIT(Appeals) has erred in upholding the levy of penalty amounting to 1,94,760/- by the ld. Assessing Officer under section 271(1)(c) of the Income Tax Act.

Brief facts of the case are that the assessee-company has filed its return of income electronically on 08.2012 declaring total income of Rs. 1,06,120/-. The ld. Assessing Officer thereafter received information from DDIT (Investigation), Unit-7(3), Mumbai exhibiting the fact that certain entry providers and hawala operators involved in providing entries of bogus LTCG, STCL and bogus business loss. The ld. Assessing Officer thereafter issued notice under section 148 of the Income Tax Act. In response to this show-cause notice, the assessee filed its return of income and a notice under section 143(2) was issued and served upon the assessee.

Observation of the court

We have duly gone through the facts of the present A perusal of the assessment order would reveal that ld. Assessing Officer has nowhere demonstrated as to how the loss claimed by the assessee is bogus. He only issued a show-cause notice and the Assessee withdrew its claim just in order to avoid litigation with Department. But when the Department intended to impose a penalty upon the assessee under section 271(1)(c), the assessee has contested the issue in the penalty proceeding. The ld. Assessing Officer instead of entertaining the arguments on merit summarily rejected it on the ground that all these issues must have been raised during the assessment proceedings and must have been rejected. He observed that this penalty proceeding cannot take the character of assessment and cannot sit in judgment. It is pertinent to observe that the addition is only on the admission of the assessee that it withdrew its claim. Nowhere, it has been demonstrated that the claim of the assessee was false or bogus. Explanation 1 to section 271(1)(c) provides that, if the assessee fails to offer an explanation or offers an explanation which is found by the ld. Assessing Officer to be false, but now in the present case, the assessee has an explanation and it has buttressed this explanation with the following documentary evidence, i.e.

(a) Trading of shares was done through broker in a recognized stock exchange.

(b) Payment and receipt is through banking channel.

(c) Documentary evidence for transactions like contract note, demat statement, and bank statement are enclosed.

(d) We offered the loss voluntarily to avoid litigation and requested the Assessing Officer to not initiate penalty proceedings u/s 271(1) (c)

(e) We paid the tax due and challan copy is enclosed.

(f) No appeal is filed. In addition, the assessee referred to various case laws.

These documents have not been held as false either by the ld. Assessing Officer during the assessment proceeding or during penalty proceeding. Therefore, the assessee does not deserve to be visited with penalty.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on October 10, 2023.

Read the full order from here


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