2010 (3) TMI 1122 - AT - Income Tax

Tribunal cancels penalty for inaccurate income declaration; revised return deemed bona fide.

Shri Rishi R. Oswal (HUF), Shri R.J. Oswal, Ms. Bhikhiben J. Oswal, Ms. Madhulika Oswal Versus Addl. CIT

The Tribunal cancelled the penalty imposed under section 271(1)(c) by CIT(A) XIX, Mumbai on the appellant for declaring inaccurate particulars of income ... - 1. ISSUES PRESENTED AND CONSIDERED - Whether penalty under section 271(1)(c) is leviable where an assessee files a revised return offering previously declared long-term capital gains as income from other sources after departmental enquiries indicating non-recording of transactions in the Exchange. - Whether the filing of a revised return during assessment proceedings, after persistent enquiries by the Assessing Officer (limited to an enquiry under section 133(6)), constitutes deliberate concealment or furnishing of inaccurate particulars attracting penalty under section 271(1)(c). - Whether transactions executed off-market or through a broker later expelled/blacklisted can be treated as bogus for the purpose of imposing penalty where the assessee produces broker confirmation, bank receipts and other documentary evidence of purchase and sale, but the Assessing Officer does not conduct further inquiries to verify off-market character. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability to penalty under section 271(1)(c) where revised return is filed after departmental enquiries indicate non-recording of transactions in the Exchange Legal framework: Section 271(1)(c) penalises concealment of income or furnishing of inaccurate particulars. Assessment proceedings and enquiries under section 133(6) are investigative tools to verify genuineness of transactions. Precedent treatment: The Court applied the principle from higher-court precedent that a revised return filed after persistent queries by the tax authorities may be treated as bona fide and exclusionary of penalty where the assessee's explanation is credible and there is no clear establishment of deliberate concealment. Interpretation and reasoning: The Tribunal examined the sequence of events: (a) purchase dates predating sales by over two years; (b) multiple sales across several dates with consideration received by cheques into bank accounts; (c) broker confirmation of transactions; (d) no AO finding that purchase and sale themselves were fabricated; and (e) AO's sole investigative step being a query under section 133(6) to the Exchange which returned no record because the broker/sub-broker had been expelled. The AO did not pursue further enquiries to ascertain whether the transactions were off-market or otherwise genuine. On these facts the Tribunal found the revised return to be a bona fide measure to avoid litigation and hardship rather than proof of deliberate concealment. Ratio vs. Obiter: Ratio - Where departmental enquiries are limited and do not establish concealment or inaccurate particulars, a subsequent revised return surrendering income may be bona fide and will preclude imposition of penalty under section 271(1)(c). Obiter - Observations on the practical difficulties of proving off-market trades when a broker is expelled; these are factual considerations supporting the ratio but not standalone legal rules. Conclusion: Penalty under section 271(1)(c) cannot be sustained on these facts; the revised return was bona fide and penalty was cancelled. Issue 2 - Whether filing a revised return after being confronted by enquiries necessarily evidences deliberate intent to evade tax Legal framework: The burden for imposition of penalty under section 271(1)(c) requires establishing concealment or furnishing of inaccurate particulars with requisite culpability; bona fide disclosure or correction during assessment may negate penalty. Precedent treatment: The Tribunal followed controlling precedent that persistent queries by the AO leading to surrender of income do not ipso facto establish concealment; the assessee's explanation that the revision was to 'buy peace' and avoid vexatious litigation can be accepted as bona fide where not contradicted by clear evidence of fraud or deliberate inaccuracy. Interpretation and reasoning: The Tribunal contrasted the limited scope of the AO's enquiries (only a section 133(6) enquiry to the Exchange) with available evidence supporting genuineness (purchase documentation, broker's confirmation, bank receipts). Because the AO did not investigate whether transactions were legitimately off-market or otherwise verifiable, the Tribunal found the AO failed to establish deliberate misstatement. The assessee's conduct - surrendering the claimed capital gain when the genuineness could not be promptly established before the AO - was a reasonable step rather than conclusive evidence of intent to evade tax. Ratio vs. Obiter: Ratio - Mere filing of a revised return in response to departmental queries does not automatically amount to deliberate concealment; imposition of penalty requires independent proof of concealment or inaccuracy. Obiter - Remarks on the comparative tax rates for capital gains and income from other sources, while relevant to motive, are not sufficient without evidence of deliberate falsity. Conclusion: The act of filing a revised return after enquiries, in the absence of further inquiry or proof by the AO of non-genuineness, does not justify penalty under section 271(1)(c). Issue 3 - Treatment of off-market transactions and evidentiary sufficiency for penalty when broker/sub-broker is expelled or blacklisted Legal framework: Genuineness of share transactions may be established by documentary proof, broker confirmations and banking entries; absence of Exchange records due to broker expulsion raises a factual question but does not ipso facto render transactions bogus. Precedent treatment: The Tribunal relied on the principle that where the Revenue has not disproved the transactions and the assessee produces consistent documentary evidence, the mere non-recordal in the Exchange (especially if no further enquiries are made) is insufficient to brand transactions as bogus for penalty purposes. Interpretation and reasoning: The Tribunal observed that the AO did not attempt to verify whether sales were conducted off-market or effect further steps to test the broker's confirmations and banking evidence. In that factual matrix, treating the transactions as fabricated was unwarranted. The presence of a series of sales with corresponding bank credits and broker letters weighed in favor of genuineness; the Exchange's reply alone, without additional inquiry, could not establish concealment. Ratio vs. Obiter: Ratio - Where the AO limits investigation to an Exchange enquiry that yields no record because the broker was expelled and does not conduct further verification, the Revenue cannot conclusively treat such transactions as bogus for penalty purposes. Obiter - Guidance that expulsion/blacklisting of a broker complicates verification but does not automatically convert documented transactions into sham transactions. Conclusion: On the facts, the transactions could not be treated as bogus solely on the basis of the Exchange reply; penalty could not be sustained when the AO failed to undertake further enquiries and the assessee had documentary support. Cross-references and overall conclusion - Issues 1-3 are interrelated: the absence of further AO enquiries (Issue 1), the bona fide nature of revising the return under persistent queries (Issue 2), and the evidentiary posture of off-market transactions with broker confirmation (Issue 3) together determine that penalty under section 271(1)(c) was not sustainable. - Conclusion: Given the factual findings and the application of controlling principles regarding revised returns filed after persistent enquiries, the Tribunal held that penalty under section 271(1)(c) should be cancelled and allowed the appeals.