Calcutta High Court
Principal Commissioner Of Income Tax 5 vs Ram Awatar Dhoot on 7 March, 2025
Author: T.S. Sivagnanam
Bench: T.S. Sivagnanam
OD-10
IN THE HIGH COURT AT CALCUTTA
SPECIAL JURISDICTION
(INCOME TAX)
ORIGINAL SIDE
ITAT/21/2025
IA NO:GA/1/2025
PRINCIPAL COMMISSIONER OF INCOME TAX 5, KOLKATA
VS.
RAM AWATAR DHOOT
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE JUSTICE CHAITALI CHATTERJEE (DAS)
Dated : 7th March, 2025.
Appearance:
Mr. Tilak Mitra, Adv.
Mr. Amit Sharma, Adv.
..for Appellant
Mr. Sutirtha Das, Adv.
..for respondent
THE COURT : This appeal by the Revenue filed under Section 260A of
the Income Tax Act, 1961 (the Act) is directed against the order dated 29 th
August, 2024 passed by the Income Tax Appellate Tribunal, “B” Bench, Kolkata
in ITA No.51/Kol/2011, for the assessment year 2015-16.
The Revenue has raised the following substantial questions of law for
consideration:
“(i) Whether on the facts and in the circumstances of the case, the
Hon’ble ITAT was justified in deleting the penalty of Rs. 4,61,771/- u/s.
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271(1)(c) imposed by the A.O. on the addition of unexplained cash credit
u/s. 68 to the tune of Rs. 14,94,407/- on sale of shares of penny stock
M/s. Sulabha Engineering Ltd. falsely claimed by the assessee as Long-
Term Capital Gains exempt u/s. 10(38) of the IT Act, 1961 ?
ii) Whether on the facts and in the circumstances of the case, the
Hon’ble ITAT was justified in holding that stricter proof of culpability is
missing in this case when the AO had clearly established in the
assessment order that the assessee had shown bogus LTCG from sale of
scrips of an identified Penny Stock and claiming it as exempt with the
objective of evading taxes ?
iii) Whether on the facts and in the circumstances of the case, the
Hon’ble ITAT was justified in allowing the appeal of the assessee by
deleting the penalty imposed by the A.O. vide order u/s. 271(1)(c) dated
25/01/2023 even though the Hon’ble High Court at Calcutta vide order
dated 16.06.2022 in ITAT No. 20/2022 was pleased to uphold the
quantum addition in favour of the Department ?
iv) Whether on the facts and in the circumstances of the case, the
Hon’ble ITAT erred in law and on facts by deleting the penalty imposed by
the A.O. amounting to Rs. 4,61,771/- vide order u/s. 271(1)(c) dated
25/01/2025 even though the decision of the Hon’ble Jurisdictional High
Court in the lead case of Pr. CIT -vs.- Smt. Swati Bajaj squarely covers the
issue of bogus Long Term Capital Gain from sale of penny stocks and also
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covered by exceptions laid in respect of Circular No. 5 of 2024 dated
15.03.2024 issued by the CBDT vide F. No. 279/Misc. 142/2007-ITJ (Pt.)
dated March 15, 2024 ?”
We have heard Mr. Tilak Mitra, learned standing counsel, assisted by Mr.
Amit Sharma, learned Advocate appearing for the appellant/revenue and Mr.
Sutirtha Das, learned Advocate appearing for the respondent/assessee.
The undisputed fact is that the addition made by the Assessing Officer
on the assessee under Section 68 of the Act was affirmed by this Court by
judgment dated 8th July, 2022 in a batch of cases namely, PCIT vs. Swati Bajaj
and Others, 2022 SCC Online Cal. 1572. The present proceedings arise out of
penalty proceedings initiated under Section 271(1)(c) of the Act to the tune of
Rs.4,61,771/-. Learned Tribunal in the impugned order noted that the addition
made by the Assessing Officer on the ground of bogus claim of long term
capital gain was affirmed by this court, observed that the penalty proceedings
being a different proceeding than the matter concerning quantum addition
during the assessment proceedings, the penal provisions of levy of penalty
under Section 271(1)(c), the stricture yardstick of culpability is required to be
established. After making such an observation, the learned Tribunal proceeded
to hold that considering the overall facts and circumstances of the case and
also considering that the assessee had claimed a small amount of long term
capital gain and that the possibility that the assessee might be a bona fide
4beneficiary of a long term capital gain cannot be ruled out, gave the benefit of
doubt to the assessee and deleted the penalty.
The learned senior counsel for the appellant/revenue pointed out that
certain observations made by the learned Tribunal in paragraph 6 seeks to give
an impression as if the learned Tribunal was sitting in appeal over the decision
in the case of Swati Bajaj. Though we also had such an impression on going
through paragraph 6 of the impugned order, all that is required to be clarified
is that the learned Tribunal cannot do so in a proceeding which has come up in
appeal before it which arises out of a penalty proceeding under Section
271(1)(c) of the Act. Therefore, even if the Revenue is of the opinion that the
observations give such an impression, it needs to be clarified that the learned
Tribunal cannot do so and such impression need not be drawn from the
observations made in paragraph 6 of the impugned order.
The learned Tribunal while granting relief to the assessee, made an
observation that for levying penalty under Section 271(1)(c) of the Act, stricter
yardstick of culpability is required to be established. This finding, in our view,
is not legally sustainable. We support our conclusion by placing reliance on the
decision of the Hon’ble Supreme Court in Union of India & Ors. vs.
Dharamendra Textile Processors & Others, (2008) 13 SCC 369. The question
which falls for consideration before the larger Bench in a batch of appeals was,
whether Section 11-AC of the Central Excise Act, 1944 with the intention of
imposing mandatory penalty on the persons who evaded payment of tax should
5be read to condone mens rea as an essential ingredient and whether there is a
scope for levying penalty below the prescribed medium. The assessee in the
said case referred to Section 271(1)(c) of the Income Tax Act and took a stand
that Section 11-AC of the Central Excise Act is identical and in a given case it
was open to the Assessing Officer not to impose penalty. The Hon’ble Supreme
Court had taken note of the statutory provisions namely, Section 271(1)(c) and
Section 276-C referred to the decisions in Chairman, SEBI vs. Shriram Mutual
Fund & Another, (2006) 5 SCC 361, Director of Enforcement vs. MCTM
Corporation (P) Ltd. (1996) 2 SCC 471, Gujarat Travancore Agency vs. CIT, (1989)
3 SCC 52 and held that the explanations appended to Section 271(1)(c) of the
Income Tax Act entirely indicates the element of strict liability on the assessee
for concealment or for giving inaccurate particulars while filing return. It was
further held that the judgment in Dilip N. Shroff vs. CIT, (2007) 6 SCC 329, has
not considered the effect and relevance of Section 276-C of the Income Tax. It
was further pointed out that the object behind the enactment of Section
271(1)(c) read with explanations indicates that the said Section has been
enacted to provide for a remedy for loss of revenue. The penalty under the
proceedings is a civil liability and willful concealment is not an essential
ingredient for attracting civil liability as in the matter of prosecution under
Section 276-C of the Income Tax Act.
Accordingly, it was held that the decision in Dilip N. Shroff‘s case was
not correctly decided but SEBI‘s case has analyzed the legal position in the
6correct perspective. In the light of the decision in Dharamendra Textile
Processessors, the observations made by the learned Tribunal which appears to
suggest that the culpability has to be established does not lay down the correct
legal principle. In other words, the Tribunal cannot hold that wilful
concealment/culpability is required to be established, which is not required to
be done as the same is a civil liability as explained in Dharamendra Textile
Processors [supra].
Therefore, we are inclined to set aside that portion of the order passed by
the learned Tribunal while interpreting the provisions of section 271(1)(c) of the
Act as it is not in consonance with the decision of the Hon’ble Supreme Court
in Dharamendra Textile Processors.
As rightly pointed out by the learned senior standing counsel for the
revenue, various provisions of the Act which fall in Chapter XXII of the Income
Tax Act stand in a different pedestal as the said Chapter deals with offence and
prosecution, by way of illustration if we refer to section 278-A, in such offences,
under the said provision it requires a palpable mental state on the part of the
accused whereas section 271(1)(c) falls in Chapter XXI which deals with
penalty is imposable. This is one more distinction which has been drawn in the
Act itself which is of utmost relevance.
With regard to the penalty which has been imposed on the assessee,
considering that the penalty is less than Rs.5 lakhs and the assessee being an
individual, we do not propose to interfere with the relief granted by the learned
7Tribunal to the assessee by deleting the penalty. Therefore, to that extent the
order is affirmed.
Accordingly, the appeal is partly allowed and the substantial questions of
law are answered in favour of the revenue.
The stay application, IA NO:GA/1/2025, is disposed of.
(T.S. SIVAGNANAM, CJ.)
(CHAITALI CHATTERJEE (DAS), J.)
Sm/SN/Pkd/S.Das
