ITAT rules no penalty under Section 271(1)(c) Income Tax Act for assessee voluntary disclosure

The ITAT ruled in favor of the assessee, holding that no penalty was warranted under Section 271(1)(c) of the Income Tax Act. The ITAT found that the voluntary surrender of income, payment of taxes, and lack of concealment during assessment negated the need for a penalty. The decision was based on the absence of a show cause notice regarding the disputed long term capital gain, supported by legal precedents, leading to the deletion of the penalty imposed by lower authorities.

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Issues:
Assessment of penalty under Section 271(1)(c) of the Income Tax Act for surrendering long term capital gain on shares claimed as exempt.

Detailed Analysis:

Issue 1: Assessment of Penalty
The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act. The Assessing Officer initiated penalty proceedings after the assessee surrendered long term capital gain on shares claimed as exempt in the return of income. The penalty was levied at 100% of the tax sought to be evaded, amounting to Rs. 3,38,136.

Issue 2: Assessee's Submission
The assessee, in response to the penalty proceedings, argued that the surrender of income was voluntary, and she had paid the due tax along with interest. The revised computation of income was accepted by the Assessing Officer. The assessee explained that she intended to take advantage of the Income Declaration Scheme (IDS) but could not do so as her case was selected for scrutiny. The transaction was supported by documentary evidence and conducted through a registered broker via banking channels.

Issue 3: CIT(A) Decision
The Commissioner of Income Tax (Appeals) upheld the penalty, stating that the assessee had taken a bogus long term capital gain and surrendered it to avoid litigation. Citing the Supreme Court case of MAK Data (P) Ltd. Vs CIT, the CIT(A) held that voluntary disclosure does not absolve the assessee from penalty under Section 271(1)(c). It was concluded that the assessee intentionally concealed income to evade tax, justifying the penalty.

Issue 4: ITAT Decision
The Income Tax Appellate Tribunal (ITAT) considered the submissions of both parties and reviewed the lower authorities' orders. It noted that the assessee had voluntarily surrendered the long term capital gain and paid the tax due. The ITAT found that no show cause notice was issued by the Assessing Officer regarding the long term capital gain or penny stock. Referring to legal precedents, including the decision in CIT Vs Suraj Bhan, the ITAT held that no penalty was warranted in this case. Consequently, the ITAT allowed the appeal and directed the deletion of the penalty.

In conclusion, the ITAT ruled in favor of the assessee, finding that no penalty was justified in the circumstances of the case where the income was voluntarily surrendered, taxes were paid, and no concealment was detected during the assessment process.

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