2025 (11) TMI 1412 - AT - Income Tax

Penalty u/s 271(1)(c) deleted where LTCG exemption u/s 10(38) withdrawn without proof of inaccurate particulars

The Deputy Commissioner of Income Tax-1 (1), Raipur (C.G.) Versus Ajay Golechaa Jewellers Shrichand, Raipur

ITAT Raipur dismissed Revenue's appeal against deletion of penalty u/s 271(1)(c). The AO had levied penalty alleging furnishing of inaccurate particulars ... Penalty imposed u/s 271(1)(c) - assessee had furnished inaccurate particulars of income by claiming bogus exemption under section 10(38) on account of long-term capital gains arising from transactions in penny stock - HELD THAT:- As basis of addition, on which penalty was levied was with regard to claim of exemption u/s. 10(38) of the Act. That facts brought on record as afore-stated clearly demonstrates that the assessee in his submission has stated that the assessee withdraws the claim of exemption u/s.10(38) of the Act. CIT(Appeals)/NFAC observed that since the assessee has surrendered his claim of long term capital gain which was made in the return of income and that since no enquiry to disprove the same has been made by the department and just because, addition has been made and that too when the assessee has withdrawn such claim, the facts do not per se become sufficient for imposition of penalty. AO has not made out any case for imposition of penalty as to how and in what manner the assessee had furnished inaccurate particulars of income. Appeal of the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 271(1)(c) can be sustained where the assessee surrendered claimed long-term capital gains (exemption under section 10(38)) during assessment proceedings after detection by the Department. 2. Whether surrender of income made after detection is voluntary for the purposes of escaping penalty under section 271(1)(c). 3. Whether imposition of penalty can properly rest solely on additions made in the assessment order without specific findings as to concealment or furnishing of inaccurate particulars and without inquiry to disprove documents filed by the assessee. 4. Whether the Assessing Officer's show-cause and penalty proceedings met the requirement of specifying the exact charge (i.e., concealment vs. furnishing inaccurate particulars) as contemplated by section 274 read with section 271(1)(c). 5. Whether findings and material relied upon by the Assessing Officer (transactions in penny stocks alleged to be non-genuine/colorable device) amounted to conclusive proof of mens rea and collusion justifying penalty. 6. Whether binding Supreme Court authority cited by the Revenue (regarding voluntary disclosure not absolving penalty) was applicable and determinative in the facts of the present case, and whether any applicable CBDT circular exception affected the outcome. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustenance of penalty where assessee surrendered claim of exemption during assessment Legal framework: Section 271(1)(c) penalises furnishing of inaccurate particulars of income or concealment thereof; penalty proceedings require satisfaction of the AO that such furnishing/concealment occurred. Precedent Treatment: Tribunal relied on earlier decisions (including Dilip N. Shroff and Shadilal Sugar principles as applied in prior ITAT orders) to hold that mere acceptance of an addition or withdrawal of a claim does not automatically sustain penalty. Interpretation and reasoning: The Tribunal emphasised that the assessee withdrew the exemption claim and that the AO made no specific adverse/conclusive finding in the penalty order explaining how the particulars were inaccurate or how concealment occurred. The Tribunal noted absence of inquiry to disprove documents filed by the assessee and absence of material linking the assessee to the alleged sham transactions beyond circumstantial findings in assessment. Ratio vs. Obiter: Ratio - penalty cannot be levied solely because an addition was made where the assessee has withdrawn the claim and AO has not demonstrated inaccurate particulars or concealment by specific findings. Obiter - observations on potential commercial reasons for withdrawal. Conclusion: Penalty under section 271(1)(c) could not be sustained on the basis of the AO's assessment addition alone; cancellation of penalty upheld. Issue 2 - Voluntariness of surrender made after departmental detection Legal framework: Distinction between voluntary disclosure and disclosure after detection (relevance to mitigation of penalty is contested in authorities). Precedent Treatment: Revenue relied on Supreme Court dictum that voluntary disclosure does not automatically absolve penalty; Tribunal distinguished that principle where AO has failed to make requisite findings supporting penalty. Interpretation and reasoning: Tribunal accepted that the surrender was made after detection but held that even where surrender is post-detection, mere surrender without further independent findings proving inaccurate particulars or concealment is insufficient to levy penalty. The Tribunal focused on AO's failure to establish mens rea or collusion rather than on the timing of surrender alone. Ratio vs. Obiter: Ratio - timing of surrender (pre- or post-detection) is not decisive where the AO has not proved inaccurate particulars or concealment; the absence of specific adverse findings is fatal to penalty. Obiter - comments distinguishing cases where clear evidence of sham transactions and collusion exists. Conclusion: Post-detection surrender did not sustain penalty in absence of AO's specific findings and evidence of furnishing inaccurate particulars. Issue 3 - Reliance on assessment additions without specific adverse findings to impose penalty Legal framework: Penalty proceedings are quasi-criminal in nature and require the AO to demonstrate, independently of assessment additions, how the particulars were inaccurate or concealed; reference to principle that mens rea must be shown. Precedent Treatment: Tribunal followed earlier ITAT findings (including a Raipur Bench decision and cases cited in the appellate order) that penalty cannot be levied automatically on assessment additions; Supreme Court authorities were invoked to underscore requirement of proof of deliberate concealment for penalty. Interpretation and reasoning: The Tribunal found the penalty order deficient because it essentially relied on the assessment addition and circumstantial material without explaining how the assessee furnished inaccurate particulars. The Tribunal noted that the AO did not record specific findings of collusion or demonstrate that the assessee acted with requisite mens rea; reliance on broad inferences and investigative notes about the scrips was inadequate. Ratio vs. Obiter: Ratio - imposition of penalty requires independent and specific findings linking the assessee to inaccurate particulars or concealment; mere additions in assessment are insufficient. Obiter - remarks on the need for AO to disprove documents filed by assessee where transactions are disputed. Conclusion: Penalty quashed because the AO failed to make out a case in the penalty order beyond repeating assessment additions. Issue 4 - Requirement to specify exact charge in show-cause/penalty notice Legal framework: Section 274 read with section 271(1)(c) requires that the show-cause notice and proceedings clearly indicate the nature of the charge so the assessee can adequately meet it. Precedent Treatment: Tribunal relied on prior ITAT decisions emphasising that the notice must clearly state whether penalty is for concealment or for furnishing inaccurate particulars. Interpretation and reasoning: The appellate order observed that the AO's show-cause did not specify precise charge; penalty was imposed on the basis of assessment findings without clear articulation in the notice of the particular ground being relied upon, undermining the fairness and sufficiency of the proceedings. Ratio vs. Obiter: Ratio - defective or nonspecific show-cause/penalty notice that fails to indicate the exact charge is a valid basis to quash a penalty where prejudice to the assessee flows therefrom. Obiter - applicability where notice defects are curable by further clarification. Conclusion: Defects in specificity of the penalty charge contributed to invalidating the penalty in the facts before the Tribunal. Issue 5 - Whether AO's materials on penny-stock transactions constituted conclusive proof of mens rea and collusion Legal framework: Circumstantial or investigative material may support a finding of non-genuine transactions, but mens rea and collusion must be established with reference to the assessee's individual conduct and evidence. Precedent Treatment: Tribunal distinguished the AO's general investigative findings about the scrip and other persons from evidence tying the assessee personally to a colourable device; relied on authority that admission or acceptance of addition is not equivalent to admission of deliberate concealment. Interpretation and reasoning: The Tribunal noted investigative allegations about the scrip being a penny stock and used by others to generate LTCG, but held there were no facts brought on record to establish the assessee's involvement in collusion or the manner in which inaccurate particulars were furnished. The Tribunal emphasised the availability of legitimate market mechanisms by which shares can be purchased/sold and that such transactions alone do not prove culpability. Ratio vs. Obiter: Ratio - evidence of non-genuineness of a scrip or market manipulation, standing alone, does not establish an assessee's culpability for penalty unless the AO adduces specific evidence of the assessee's deliberate role. Obiter - observations on market mechanics and possible legitimate explanations. Conclusion: AO's materials were insufficient to prove mens rea or collusion by the assessee; penalty could not be sustained on that basis. Issue 6 - Applicability of Supreme Court authority on voluntary disclosure and CBDT circulars relied on by Revenue Legal framework: Supreme Court authority cited by Revenue holds that voluntary disclosure does not automatically absolve penalty; CBDT circulars set monetary or administrative thresholds for litigation or treatment of cases. Precedent Treatment: Tribunal acknowledged the Revenue's citation but did not find the Supreme Court dictum determinative because the AO had not discharged the burden of proof required for penalty; Tribunal relied on case law requiring specific findings of concealment/mens rea. The Tribunal did not find it necessary to apply any CBDT circular exception relied upon by Revenue given its conclusion on deficiencies in the penalty order. Interpretation and reasoning: The Tribunal treated the Supreme Court authority as not directly applicable where the fundamental requisites for imposing penalty (specific findings, proof of inaccurate particulars) were absent; administrative circular thresholds were not decisive in light of the substantive failure to justify penalty. Ratio vs. Obiter: Ratio - higher court dicta on voluntary disclosure do not override the statutory requirement that the AO must make independent and specific findings to impose penalty. Obiter - administrative circulars may guide litigation policy but do not cure substantive defects in penalty orders. Conclusion: Reliance on the cited Supreme Court authority and CBDT circular did not salvage the defective penalty in this case; grounds of appeal on these points failed. Final Conclusion The Tribunal held that the Assessing Officer failed to make specific, adverse findings demonstrating that the assessee furnished inaccurate particulars or concealed income; reliance solely on assessment additions and investigative material regarding the scrip was inadequate to establish mens rea or collusion. The penalty under section 271(1)(c) was therefore quashed. The Revenue's appeal was dismissed.