Commissioner of Income Tax vs Smt. Malti Mishra

The present appeal has been filed by the Department under s. 260A of the IT Act, 1961 against the judgment and order dt. 7th Nov., 2008, passed by the Tribunal, Lucknow in ITA No. 285/Luck/2006 for the asst. yr. 2002-03. On 20th May, 2010, a Co-ordinate Bench of this Court has admitted the appeal on the following substantial question of law:

Whether in spite of the fact that the income was surrendered by the assessee before the AO and tax thereon was deposited, the learned Tribunal has committed substantial illegality in deleting the additions on account of the alleged bogus capital gains and also without opportunity to carry on necessary enquiries by the AO?

The brief facts of the case are that the assessee is an individual, who had income from partnership firm, dividend interest. In the return, it was declared that the assessee was having the capital gain bond in NABARD worth Rs. 20 lacs, which was purchased through M/s. Goyal Achal Sampati. Later, it was sold for a consideration of Rs. 20,54,592. The capital gain was worked out to Rs. 19.99,238. The assessee has claimed exemption from tax as she had reinvested Rs. 20 lacs in RBI capital bonds. On scrutiny, the AO found that the transactions are not genuine, so he made the addition. The CIT(A) has confirmed the same, but in second appeal, the Tribunal has deleted the addition. Being aggrieved, the Department has filed the present appeal.

With this backdrop, Sri. D.D. Chopra, learned counsel for the Department, at the strength of written submission, has justified the order passed by the AO. He submits that the transactions were not recorded by M/s. Goyal Achal Sampati. The assessee herself has surrendered a sum of Rs. 20,64,598 with a condition that no penal proceedings be initiated against her. But, the assessee has filed an appeal before the first appellate authority. However, the same was dismissed by a reasoned and detailed order by following the ratio laid down by the jurisdictional High Court in the case of S.C. Gupta Vs. Commissioner of Income Tax, .

Learned counsel further submits that the Tribunal has failed to appreciate that in spite of repeated opportunities by the assessee, no suitable reply was filed regarding the transaction through M/s. Goyal Achal Sampati. Lastly, he made a request that the impugned order may kindly be set aside.

On the other hand, Sri. K.R. Rasthogi, advocate holding brief of Sri. S.K. Garg, learned counsel for the assessee, at the strength of the written submission, has justified the impugned order passed by the Tribunal. He submits that during the course of regular assessment proceedings, the AO referred the matter to the Addl. Director of IT (Inv.), Ahmedabad, who made enquiries from the said company, namely, M/s. Goyal Achal Sampati. The Addl. Director of IT has informed that in the record of the company, the name of the assessee did not appear. The claim of the assessee that the consideration was received through the broker M/s. CMS Security Ltd., was not considered by the AO.

Learned counsel further submits that the amount was offered in good faith just to buy peace with the Department so that no penalty whatsoever would be initiated. He read out the assessee''s letter, which on reproduction reads as under:

In the light of above facts and constraints of the undersigned, buy peace of mind and to avoid mental agony with an understanding that no penalty whatsoever will be initiated against the undersigned, the undersigned is agreeing to let your Honour to treat the said amount of Rs. 20,64,598 as the income from other sources.

The AO took undue advantage of the innocence of the assessee. The assessee is not an expert in tax. The letter was conditional, given on the specific undertaking that no penalty whatsoever would be initiated. As in terms of the assessment order dt. 18th March, 2005, the penalty proceedings under s. 271(1)(c) had been initiated with particular reference to this very receipt, the issue of taxability of the said receipt had become open for adjudication by the appellate authority.

There is no dispute that the assessee had acquired instruments in question in the immediately preceding year, through M/s. CMS Security Ltd., a member of National Stock Exchange. The instruments so acquired in the earlier year had been sold through the broker in the year under appeal. The transaction was fully supported by the statement of account submitted by the said broker and during the course of assessment proceedings, in support of the said statement, even a confirmatory letter had been filed.

Learned counsel further submits that after it was found in terms of the letter dt. 20th Jan., 2005, no additional item of income was disclosed, but it merely contained a conditional agreement about change of head of income, it is to be seen as to whether the assessment has to be made as per the provisions of law, or as per the statement made by the assessee. To support his arguments, learned counsel relied on the ratio laid down in the following cases:

(i) Vinod Solanki vs. Union of India & Anr. in Civil Appeal No. 7407 of 2008 [arising out of SLP(C) No. 3537 of 2008];

(ii) Shri Krishnan Vs. The Kurukshetra University, Kurukshetra, ;

(iii) Nagubai Ammal and Others Vs. B. Shama Rao and Others, ;

(iv) Avadh Kishore Das Vs. Ram Gopal and Others, ;

(v) Suchitra Components Ltd. Vs. Commissioner of Central Excise, Guntur, ,

(vi) The Commissioner of Income Tax Vs. K. Bhuvanendran, P.S.K. Jagannathan and B. Saroja (LH) Legal Heir of P.S.K. Balasubramaniam, ;

(vii) Commissioner of Income Tax Vs. Shri Ramdas Motor Transport, ;

(viii) Krishan Lal Shiv Chand Rai Vs. Commissioner of Income Tax, ; and

(ix) Commissioner of Income Tax and Another Vs. Dr. N. Thippa Setty, .

We have heard both the parties at length and gone through the material available on record.

From the record, it appears that the assessee had purchased the capital gain bond in NABARD worth Rs. 20 lacs; the same was duly disclosed in the return. The purchases were made through M/s. Goyal Achal Sampati. When the assessee has shown the investment, then the purchases are genuine and the same cannot be treated as bogus. The amount was reinvested in the RBI capital bond. The AO was having an opportunity to examine both the bonds, but he has not examined the same. The sale proceedings were made through the bank channel as M/s. CMS Security Ltd. was duly registered in the stock exchange. The confirmatory letter dt. 16th Aug., 2004 received from M/s. CMS Security Ltd. was produced before AO where it was confirmed that they have sold the instruments. The only fault of the assessee is that the assessee''s name did not appear in the record of the broker. For this act, the assessee cannot be held responsible as there is no fault on her part. Inquiry report collected on the back of the assessee could not have been relied without producing the person for cross-examination. It was contended by the assessee that at the relevant time, it was not necessary for a buyer to have DMAT account in respect of transactions. In the remand report, the first appellate authority submitted that the assessee was claiming exemption but at the same time she surrendered the amount for tax being undisclosed amount.

In the instant case, there is no concealment on the part of the assessee regarding the transactions. All the transactions were duly disclosed. If the income as per law is exempted, then the offer of the assessee is meaningless as the law will prevail and will supersede the "offer" made by the assessee. In the instant case, surrender was to buy the peace as the assessee is not an expert in income tax matter. The Department cannot take the advantage of the ignorance of the assessee as per CBDT Circular No. 14(XL-35)/1955 dt. 1st April, 1955 mentioned in Parekh Brothers Vs. Commissioner of Income Tax and Others, .

In the instant case, the statement was recorded of the broker, who had confirmed the sale and purchase. No concealment was made by the assessee even then she has made an offer to treat the said income as income from "other sources". The only reason for making the addition is that it was not entered in the register of the company, for which, the assessee is not responsible specially when she has discharged the burden of proof by disclosing all the transactions In the return, as per the ratio laid down by the Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs. Smt. Sudarshan Gupta through-L/H . Hence, we are of the view that the surrender letter will have to be ignored. Thus, we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with reasons mentioned therein. The answer to the substantial questions of law is in favour of the assessee and against the Revenue.

In the result, the appeal filed by the appellant-Department is hereby dismissed.