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Asstt. Commissioner of Income Tax, Circle –I, Faridabad Versus Shri Pawan Kumar Malhotra

2016 (6) TMI 797 - ITAT DELHI

Penalty u/s 271(1)(c) - addition u/s 68 being sale proceeds of shares, as income from undisclosed sources - Held that:- The issue on hand is debatable, open and capable of having an alternate view as the same is held to be representing a substantial question of law by the Jurisdictional High Court at the time of admission of appeal. Accordingly, it is appropriate for us to hold, that the assessee was under a bona fide belief for staking its claim and in the presence of these factors, no penalty .....

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HANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri N.J. Singh, Sr. DR For The Respondent : Dr. Rakesh Gupta & Sh. Somil Agrawal, Adv. ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER The present appeal is preferred by the Department against the order dated 27.09.2011 passed by the Ld. CIT(A), Faridabad deleting the penalty amounting to ₹ 29,04,614/- imposed u/s 271(1)( c) of the Act for assessment year 2005-06. 2. The facts in brief are that the assessee filed his return of inc .....

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shares were purchased in F.Y. 2003-04 for ₹ 1,40,800/-. The case was selected for scrutiny and assessment was completed on 20.12.2009, wherein the AO disputed the claim of Long Term Capital Gains on sale of shares and made additions of ₹ 81,72,340/-, being sale proceeds of shares, as income from undisclosed sources and further addition of ₹ 4,08,615/-, being commission paid @ 5% on procuring accommodation entries in the wake of sale of shares by holding the transaction as sham .....

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07- 08 deleted the additions of ₹ 81,72,615/- and ₹ 4,08,615/-. On further appeal preferred by department, the ITAT reversed the order of Ld. CIT (Appeals) and upheld the order of the AO. Consequently, the AO issued a further show-cause notice dated 19.03.2010 in response to which the assessee filed written submissions contending mainly that there was neither concealment of any particulars of income nor furnishing of inaccurate particulars. The addition was made on account of disagre .....

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29,04,614/-, being 100% of amount of tax sought to be evaded, for furnishing inaccurate particulars of income. 3. On appeal before the First Appellate Authority, the Ld. CIT(A) while deleting the penalty observed in pages 23 and 24 of the impugned order as under:- There is no dispute to the fact that the assessee had disclosed all the material facts relating to his claim of exemption u/s 10(38) on account of long term capital gains on sale of shares in the return of income and before the AO. Th .....

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ve been controverted by the AO or otherwise established to be false. The ITO (Inv.) Kolkata has simply opined that the transaction of sale of shares the appellant were sham without establishing any truth of transactions. It is correct that degree of appreciation of facts and material evidences may vary at different appellate levels, as in the present case, where the additions were deleted by Ld. CIT (Appeals) but confirmed by Hon ble ITAT leading to inference as to the change of opinion. The add .....

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rate particulars of income while making the addition of ₹ 81,72,340/-. Hence, no penalty is exigible on such addition. As regards penalty on the addition of ₹ 4,08,615/- made by the AO by estimating the alleged commission @ 5 %, the same addition is based purely on estimation basis and no penalty is leviable in view of the decision of Hon ble Punjab and Haryana High Court in the case of CIT vs. Ajaib Singh (253 ITR 628). In the light of rationale laid down in the above judicial rulin .....

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cancelling the penalty u/s 271(1)(c) of the Income Tax Act, 1961. 5. The Ld. DR placed heavy reliance on the order of the Assessing Officer and emphasized that in the quantum proceedings, the ITAT had restored the disallowances/additions made by the Assessing Officer and in view of upholding of additions/disallowances by the ITAT, the penalty has been wrongly cancelled by the Ld. CIT (A). 6. The Ld. AR submitted that the assessee has preferred an appeal before the Hon'ble Punjab & Harya .....

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sely sustaining the addition under Section 68 of the Income Tax Act, 1961? 2. Whether on an application of the correct principles of law, was the Tribunal legally correct on the facts and in the circumstances of the case, in upholding the order of the Assessing Officer by applying the test of human probability evolved in the case of Sumat i Dayal v. CIT (1995) 214 ITR 801 (SC)? 3. Whether the impugned order passed by the Tribunal reversing the order of CIT (A) thereby having the effect of sustai .....

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n the case of CITII vs Liquid Investment & Trading Co. In I.T.A. No. 240/2009 and submitted that in view of the issue being a debatable one, the penalty was not sustainable and as such the same should be cancelled. 8. We have heard the rival submissions and perused the material on record. It is seen from the records that ITAT F Bench had earlier confirmed the penalty imposed in its order dated 8.3.2013 in I.T.A. No. 5556/Del/2013. However, the assessee had filed a Miscellaneous Application f .....

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where there are debatable issues specially where a question of law has been framed and admitted by the Hon'ble High Court as held in the case of CIT-II vs Liquid Investment and Trading Co. (ITA 240/2009) (Del.) (HC). 9. The issue also arose before the Hon ble Bombay High Court in the case of CIT vs. Nayan Builders, 368 ITR 722 wherein the court found that the appeal of the Revenue/Department could not be entertained as it did not raise any substantial question of law. In the said case the ad .....

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s confirmed by the Commissioner(Appeals). On a further appeal by the assessee to the Tribunal, challenging the levy of the penalty, the Tribunal held that, when the High Court admitted a substantial question of law on the merits of an addition/disallowance, it became apparent that the issue under consideration on the basis of which penalty was levied, was debatable. It held that the admission by the High Court lent credence to the bona fides of the assessee in claiming deduction. It held that th .....

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ad held that the issue of addition/disallowance represented a substantial question of law. On an appeal by the Revenue, the Hon ble Bombay High Court held that the imposition of the penalty was not justified. The court noted that the Tribunal, as a proof that the penalty was debatable and involved an arguable issue, had referred to the order of the court passed in the assessee's appeal in quantum proceedings and had also referred to the substantial questions of law which had been framed ther .....

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Tribunal only where the High Court is satisfied that the case involves a substantial question of law. A full bench of the Hon ble Supreme Court in the case of Santosh Hazari vs. Purshottam, 251 ITR 84 (SC) held that to be a substantial, a question of law must be debatable, not previously settled by law of the land or a binding precedent ...that it was not free from difficulty or that it called for a discussion for an alternate view. It further held that the word "substantial" qualifyi .....

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