JAMNADAS M CHOKSHI JEWELLERS, MUMBAI V. ITO 14(1)(1), MUMBAI

ITA 1505/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48664 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: SANJUKTA CHOW DHURY
• Keywords: Business income; Speculation loss; Bad and doubtful debts
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1505/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. JAMNADAS M. CHOKSHI JEWELLERS INCOME TAX OFFIC ER - 14(1)(1) 223/225, J.M.C. HOUSE MUMBAI ZAVERI BAZAR, MUMBAI 400002 VS. PAN - AAAFJ 1895 L APPELLANT RESPONDENT APPELLANT BY: SMT. SANJUKTA CHOWDHURY RESPONDENT BY: SMT. VANDANA SAGAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE PENALTY ORDER UNDER SECTION 271(1)(C) PASSED BY THE ITO 14(1)(1) AND CONFIRMED BY THE CIT(A)- XXV, MUMBAI VIDE ORDER DATED 16.12.2009. 2. BRIEFLY STATED, THE ASSESSEE HAD FILED ITS RETURN O F INCOME DECLARING A TOTAL INCOME OF ` 5,95,860/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND WAS SELECTED FOR SCRUTINY BY ISSUE OF NO TICE UNDER SECTION 143(2). THE ASSESSMENT WAS FINALLY COMPLETED ON 16.06.2008 BY DETERMINING THE TOTAL INCOME AT ` 33,82,286/-. WHILE DETERMINING THIS INCOME THE A.O. HAD MADE THE DISALLOWANCE OF BAD DEBT CLAIM AND TREATED LOSS CLAIMED AS SPECULATION LOSS AND ALSO INITIATED PENALTY PROCEED INGS UNDER SECTION 271(1)(C). THE SUBMISSION MADE BY THE ASSESSEE WERE NOT FOUND TO BE ACCEPTABLE TO THE A.O. AND HE PROCEEDED TO LEVY PEN ALTY UNDER SECTION 271(1)(C) AMOUNTING TO ` 9,35,070/- VIDE ORDER DATED 07.11.2008. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE PENALTY HOLDING THAT EVEN THE CLAIM OF AN INCOME OR LOSS UN DER AN INCORRECT HEAD OF INCOME OR LOSS WOULD TANTAMOUNT TO FURNISHING OF IN ACCURATE PARTICULARS AND CLAIM OF BAD DEBTS WHICH COULD NOT BE SUBSTANTI ATED WOULD ALSO AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. ITA NO. 1505/MUM/2010 M/S. JAMNADAS M. CHOKSHI JEWELLERS 2 3. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT T HE ASSESSEE HAS ADVANCED MONIES IN EARLIER YEARS AND INTEREST WAS B EING SHOWN AS BUSINESS INCOME AND THE MONIES WERE NOT RECOVERED. ON THE AD VICE OF THE CHARTERED ACCOUNTANT THE SAME WAS WRITTEN OFF. WHEN THE LEGAL POSITION WAS BROUGHT TO THE NOTICE OF THE MANAGING PARTNER IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT BAD DEBTS WRITTEN OFF IN THE CASE OF MISTRY PRABHUDAS NANJI ENGINEERING PVT. LTD. OF ` 10 LAKHS AND GAMBIR TRADING CORPORATION OF ` 5 LAKHS CANNOT BE ALLOWED, ASSESSEE HAD NO OPTION THA N TO ACCEPT ADDITION AS THE SAID CHARTERED ACCOUNTANT WHO ADVISED THE COMPA NY HAS PASSED AWAY. FURTHER THE ASSESSEE HAS SUFFERED LOSS OF AN AMOUNT OF ` 12,78,000/- IN MCX GOLD TRADE AND CLAIMED AS BUSINESS LOSS, AS ASSESSE E IS A JEWELLER AND TRADING IS CONSIDERED AS A PART OF BUSINESS ACTIVIT Y BUT THE A.O. TREATED IT AS SPECULATIVE LOSS. THEREFORE, THE ASSESSEE HAS OFFER ED THE DISALLOWANCE OF THE ABOVE TWO AMOUNTS FOR ASSESSMENT. ASSESSEE HAS NOT PREFERRED ANY APPEAL ON THE SAME AS PART OF AMOUNT OF BAD DEBT WAS RE COVERED IN A.Y. 2008-09 WHICH WAS OFFERED IN THAT YEAR IN THE P & L ACCOUNT TO THE EXTENT OF ` 10,00,000/- AND THE SPECULATION LOSS WAS ALLOWED TO BE CARRIED OVER TO NEXT ASSESSMENT YEAR FOR SET OFF. IN VIEW OF THIS, JUST BECAUSE ASSESSEE HAS NOT PREFERRED ANY APPEAL IT IS NOT CORRECT TO STATE THA T ASSESSEE HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. THIS IS A BONAFIDE CLAIM MADE BEFORE THE A.O. AND THE A.O. HAS EXPRESS ED HIS OPINION THAT THE BAD DEBTS CANNOT BE CLAIMED WHEN ASSESSEE WAS NOT I NVOLVED IN MONEY LENDING ACTIVITY, EVENTHOUGH THE INTERESTS RECEIVED WERE OFFERED AS INCOME. ASSESSEE HAD BONAFIDELY ACCEPTED THE SAME AS IT HAD RECOVERED AN AMOUNT OF ` 10,00,000/- IN SUBSEQUENT YEARS AND ASSESSEE WOULD GET BENEFIT IN THAT YEAR AND HAS ACCEPTED LOSS AS SPECULATIVE LOSS. IT WAS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF GOLD JEWELLERY AND T RADED IN MX GOLD TRADING AND OF THE VIEW THAT IT WAS CLEARLY BUSINESS TRANSA CTIONS BUT THE A.O. WAS OF THE OPINION THAT THESE WERE SPECULATIVE TRANSACTION S. THEREFORE, HE ALLOWED IT TO BE CARRIED FORWARD. JUST BECAUSE THE CLAIMS ARE NOT ACCEPTED IT DOES NOT LEAD TO FURNISHING OF INACCURATE PARTICULARS AND TH E LEARNED COUNSEL RELIED ITA NO. 1505/MUM/2010 M/S. JAMNADAS M. CHOKSHI JEWELLERS 3 UPON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS P. LTD. 322 ITR 158. 4. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A) TO SUBMIT THE ASSESSEE HAS MALAFIDELY MADE C LAIMS THEREBY REDUCING THE TAXABLE INCOME, HENCE PENALTY IS WARRANTED. 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ORDE R OF ASSESSMENT, A.O. RECORDED A STATEMENT FROM THE PARTNER WITH REF ERENCE TO THE CLAIM OF BAD DEBT AND EXTRACTED IN PARA 4 OF THE ASSESSMENT ORDER. HE RAISED AN OBJECTION THAT THE BAD DEBT IS ALLOWABLE ONLY IF IT IS ROUTED THROUGH THE TRADING ACCOUNT AND THE LOAN AMOUNT CAN BE WRITTEN OFF AS BAD DEBT ONLY IF THE ASSESSEE IS INVOLVED IN THE BUSINESS OF MONEY L ENDING. FURTHER THE A.O. ASKED DID YOUR CHARTERED ACCOUNTANTS WHO HAD AUDIT ED YOUR BOOKS NOT POINTED OUT THIS FACT THAT THE LOAN AMOUNT CANNOT B E WRITTEN OFF AS BAD DEBT? ASSESSEE REPLIED THAT NO. OUR CA DID NOT TE LL ANY SUCH THING. HE STATED THAT SINCE THE LOAN AMOUNT IS NOT RECOVERABL E, THE SAME CAN BE CLAIMED AS BAD DEBTS. NOW THE CA SHRI RAJNIKANT PAR EKH HAS PASSED AWAY ABOUT 6 MONTHS BACK. AFTER EXTRACTING THESE QUESTI ONS AND ANSWERS THE A.O. CAME TO A CONCLUSION THAT IT IS CLEAR THE ASSE SSEE MADE WRONGFUL CLAIM OF BAD DEBTS OF ` 15,00,000/- WITH A MALAFIDE INTENTION OF EVADING TA X BECAUSE THE ASSESSEE IS NOT A MONEY LENDER AND A L OAN AMOUNT CANNOT BE CLAIMED AS BAD DEBT. EVENTHOUGH THE ASSESSEE HAS AC CEPTED THIS ORDER AS ASSESSEE HAS RECOVERED AN AMOUNT OF ` 10,00,000/- IN LATER YEAR, IT DOES NOT ESTABLISH THAT ASSESSEE HAD MADE WRONGFUL CLAIM OF BAD DEBTS. IT IS A FACT THAT ASSESSEE ADVANCED THESE AMOUNTS OUT OF ITS OWN FUNDS ABOUT 8-9 YEARS BACK AND WAS OFFERING INTEREST AS BUSINESS INCOME. THERE IS NO DISPUTE ABOUT THIS FACT. IT IS ALSO ON RECORD THAT A.O. DID NOT DISPROVE THE CLAIM OF THE ASSESSEE THAT CHARTERED ACCOUNTANTS LATE SHRI R AJNIKANT PAREKH ADVISED THEM IN CLAIMING BAD DEBT AND THE SAID CHAR TERED ACCOUNTANTS WAS NO LONGER ALIVE TO SUPPORT OR REFUTE THE STATEMENT. THE A.O. ALSO DID NOT MAKE ANY ENQUIRY NOR EXAMINED THE LEGAL POSITION WH ETHER THE ADVANCING OF MONIES AMOUNT TO MONEY LENDING ACTIVITY OR NOT OR W HETHER THE AMOUNTS ITA NO. 1505/MUM/2010 M/S. JAMNADAS M. CHOKSHI JEWELLERS 4 WERE 'TAKEN INTO ACCOUNT' SO AS TO ALLOW THEM UNDER SECTION 36(1)(VII) R.W.S. 36(2). JUST BECAUSE THE ASSESSEE HAS NOT CONTESTED THE FINDINGS OF THE A.O. IT MAY NOT LEAD TO A SITUATION WHERE THE ASSESSEE C AN BE VISITED WITH PENALTY ON THE PRETEXT OF WRONGFUL CLAIM OF BAD DEBTS. OTHE R ISSUE ON WHICH PENALTY WAS CONSIDERED WAS CLAIM OF LOSS IN GOLD TRADING. T HE ASSESSEE IS A JEWELLER AND INVOLVED IN TRADING IN MCX GOLD TRADE AND SUFFE RED LOSS. THE A.O. INVOKING THE PROVISIONS OF SECTION 43(5) DISALLOWED THE LOSS AS SPECULATION LOSS. AS SEEN FROM PARA 5.1 THE A.O. ASKED THE ASSE SSEE TO SUBMIT RELEVANT DETAILS AND HE NOTICED THAT AN AMOUNT OF ` 12,78,000/- WAS DEBITED TO THE P & L ACCOUNT UNDER THE HEAD LOSS ON MCD GOLD TRADE. THAT PARA ALSO RECORDS A FINDING THAT THE ASSESSEE HAS FURNISHED R ELEVANT DETAILS AND ON VERIFICATION OF ALL THE DETAILS FILED IT WAS NOTICE D THAT ASSESSEE HAS NEITHER TAKEN ANY DELIVERY NOR GIVEN ANY DELIVERY OF GOLD I .E. PURCHASE OR SALE. IN VIEW OF THIS, THE A.O. CAME TO THE CONCLUSION THAT THE CLAIM OF LOSS IS SPECULATION LOSS AND WAS NOT ALLOWABLE TO BE DEBITE D FROM THE NORMAL BUSINESS INCOME OF THE ASSESSEE. HOWEVER, HE ALLOWE D IT TO BE CARRIED FORWARD. THEREFORE, IT CANNOT BE STATED THAT THE LO SS IS A BOGUS LOSS OR THERE IS AN INTENTION TO CONCEAL INCOME OR FURNISH INACCU RATE PARTICULARS. IT IS A MERE CLAIM WHICH WAS NOT ACCEPTED BY THE A.O. IN VI EW OF THESE FACTS WE ARE OF THE OPINION THAT THE ASSESSEE HAS NEITHER CONCEA LED PARTICULARS OF INCOME NOR FURNISHED ANY INACCURATE PARTICULARS. JUST BECA USE THE CLAIMS MADE BY THE ASSESSEE ARE NOT ALLOWED BY THE A.O. PENALTY UN DER SECTION 271(1)(C) CANNOT BE LEVIED AS ESTABLISHED BY THE HON'BLE SUPR EME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. 223 ITR 15 8, AS UNDER: - A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICU LARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORD ER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRE TCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISH ING INACCURATE ITA NO. 1505/MUM/2010 M/S. JAMNADAS M. CHOKSHI JEWELLERS 5 PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHIN G WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS T HE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF H IS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. THE ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS O R FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF , WILL NO AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. KEEPING IN VIEW THE PRINCIPLES STATED ABOVE AND FA CTS OF THE CASE, WE ARE OF THE OPINION THAT THE PENALTY UNDER SEC 271(1)(C) IS NOT WARRANTED. THE DISALLOWANCE OF BAD DEBT CLAIM AND TREATMENT OF LOS S AS SPECULATION LOSS ARE BASED ON THE DETAILS FURNISHED BY THE ASSESSEE WHIC H ARE NOT FOUND TO BE INCORRECT OR FALSE. THEREFORE, PENALTY IS CANCELLED . 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.