Additions towards share capital in question would not ipso facto tantamount to alleged concealment of income: ITAT deletes penalty

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench while deleting the penalty held that the Additions towards share capital in question would not be ipso facto tantamount to alleged concealment of income.

The assessee company, M/s. Aagam Shares & Commodities Pvt. Ltd. earlier named KGMS Financial Services Pvt. Ltd. is engaged in the business of dealing in stock market and purchase and sale of shares. The assessee filed return of income for AY 2007-08 declaring total income of Rs.24,60,420/-.

The return filed by the assessee was subjected to scrutiny assessment under s.143(3) of the Act wherein total income was determined at Rs.69,69,045/-. The AO inter alia made an addition of Rs.45 Lakhs under s.68 of the Act on account of introduction of share capital at premium in the books of account and consequently imposed a penalty of Rs.13,50,000/- thereon.

The quantum addition was sustained by the CIT(A) as well as the ITAT. The imposition of penalty of Rs.13,50,000/- was challenged before the CIT(A) without any success.

The main grievance of the assessee is the imposition of penalty of Rs.13,50,000.

The assessee contended that addition towards share capital at premium was agreed by the assessee vide letter dated 17th September, 2009 placed before the AO whereby, without prejudice to the bonafides claimed in the share capital, the addition was conditionally agreed to buy mental peace and to avoid long and protracted litigation on a clear understanding that no penalty shall be initiated or be imposed as a consequence of such addition.

The assessee submitted that the AO has initiated penalty proceedings under s.274 read with section 271(1)(c) of the Act using the expression ‘furnishing inaccurate particulars/concealment of income’. It was thus contended that apparently, the AO himself has not made any definite satisfaction towards the nature of charge leveled against the assessee required under section 271(1)(c) read with section 271(1B) of the Act.

The coram headed by the Vice President, Rajpal Yadav clarified that The penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of contumacious conduct or dishonest act. The explanation offered towards bonafide issue of share capital thus cannot be outrightly rejected when tested on the touchstone of penalty proceedings of strict nature. The fact in the present case does not conclusively establish the malafide on the part of the assessee company.

“Hence, additions towards share capital in question would not ipso facto tantamount to alleged concealment of income. It is trite that finding in quantum proceedings for such additions/disallowance cannot be automatically adopted for the purposes of Section 271(1)(c) of the Act,” the ITAT said.

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