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2023 (12) TMI 240 - AT - Income TaxPenalty u/s 271(1)(c) - disallowance of claim of loss - AO received information from DDIT (Investigation), exhibiting the fact that certain entry providers and hawala operators involved in providing entries of bogus LTCG, STCL and bogus business loss and AO issued notice u/s 148 - HELD THAT:- A perusal of the assessment order would reveal that AO 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 u/s 271(1)(c), the assessee has contested the issue in the penalty proceeding. AO 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 AO 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.Trading of shares was done through broker in a recognized stock exchange, Payment and receipt is through banking channel, Documentary evidence for transactions like contract note, demat statement, and bank statement are enclosed. Assessee offered the loss voluntarily to avoid litigation and requested the Assessing Officer to not initiate penalty proceedings u/s 271(1)(c), paid the tax due and challan copy is enclosed. No appeal is filed. These documents have not been held as false either by the AO during the assessment proceeding or during penalty proceeding. Therefore, the assessee does not deserve to be visited with penalty. Assessee appeal allowed.
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