DCIT, CHENNAI V. M/s. Lohia Metals P Ltd., CHENNAI

ITA 1548/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1051 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Date of conversion; Wrong claim
• Section: 271(1)(c)

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL: C - BENCH:CHEN NAI (BEFORE SHRI ABRAHAM P. GEORGE. ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEM BER) ITA NO. 1548/ MDS/10 ASST. YEAR 2005-06 THE DCIT, CO. CIR.1I(4), CHENNAI VS. M/S LOHIA METALS P. LTD., FLAT NO.5, 111 CHINTAMANI RD, ANNANAGAR EAST, CHENNAI 600102 PAN AAACL1054G (APPELLANT) (RESPONDENT) APPELLANT BY RESPONDENT BY: SHRI. G.BASKAR SHRI TAPAS KUMAR DUTTA,CIT(DR) ORDER PER SHRI ABRAHAM P.GEORGE, A.M: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 25-06-2010 OF THE CIT(A)-III, CHENNAI, BY WHICH THE LD. CIT(A) DELETED PENALTY OF ` 9,88,453/- LEVIED ON THE ASSESSEE UNDER SEC. 271(1) (C) OF THE INCOME-TAX ACT, 1961 (THE ACT FOR SHORT). ACCORDI NG TO THE REVENUE, ITA NO. 1548/MDS /10 2 DECISION OF HONBLE APEX COURT IN THE CASE OF CIT V S. RELIANCE PETRO PRODUCTS P LTD. (322 ITR 158) WAS DISTINGUISHABLE. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, ENGAGED I N MANUFACTURE OF LEAD INGOTS, HAD CONVERTED ON 01-04-2004, SHARES IN CERTAIN COMPANIES HELD BY IT AS STOCK-IN-TRADE TO INVESTMENT. IN ITS SCHEDULE TO THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR THERE W AS AN ITEM PROFIT ON SALE OF INVESTMENT ` 64,62,266/-. IN ITS COMPUTATION ASSESSEE HAD CLAIME D A SUM OF ` 1,45,858/- AS SHORT TERM CAPITAL GAINS AND ` 63,16,406/- AS LONG TERM CAPITAL GAINS. ON THE LONG TERM CAPITAL GAINS OF `63,16,406/- A SUM OF `63,02,807/- WAS CLAIMED EXEMPT UNDER SEC.10(38) OF T HE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT T HE LONG TERM CAPITAL GAINS CLAIMED BY ASSESSEE RELATED TO SALE OF SHARES SHOWN AS INVESTMENT, BUT SUCH SHARES WERE BEFORE 01-04-2004 H ELD AS STOCK - IN-TRADE. AS PER THE ASSESSEE, CHANGE FROM STOCK IN TRADE TO INVESTMENT WAS CONSEQUENT TO CHANGE OF ITS MAIN OBJRCT S. AO DENIED EXEMPTION CLAIMED BY THE ASSESSEE UNDER SEC. 10(38) OF T HE ACT, SINCE ACCORDING TO HIM, SALE OF SUCH SHARES GAVE RISE TO ONLY SHORT TERM CAPITAL GAINS, ASSESSEE HAVING CONVERTED THE SHARES FROM STOCK-IN- TRADE TO INVESTMENT IN THE RELEVANT PREVIOUS YEAR. AS PER AO, THEREFORE, THE HOLDING PERIOD OF THE CAPITAL ASSET WAS LESS THAN 12 MONTHS AND THE SURPLUS ARISING ON SALE THEREOF WAS ONLY SHORT TERM C APITAL GAINS. THOUGH ASSESSEE ARGUED THAT THERE WAS NO ACTUAL TRANSFER AND FOR THE ITA NO. 1548/MDS /10 3 PURPOSE OF DETERMINING THE NATURE OF CAPITAL GAINS, T HE PERIOD OF HOLDING FROM THE DATE OF ORIGINAL PURCHASE WAS RELEVA NT, AO WAS NOT IMPRESSED. 3. ASSESSEES APPEAL BEFORE THE CIT(A) AND LATER BE FORE THE TRIBUNAL MET WITH NO SUCCESS. AO THEREAFTER INITIATED PENALT Y PROCEEDINGS FOR FILING INACCURATE PARTICULARS REGARDING THE INCOME. ACCORD ING TO HIM, ASSESSEE HAD CONCEALED TAXABLE INCOME OF ` 63,02,807/-. REPLY OF THE ASSESSEE TO THE NOTICE WAS AS UNDER: THE MAIN ADDITION MADE IN THE ASSESSMENT HAS BEEN CONFIRMED BY THE CIT(A)/TRIBUNAL. THE AO/CIT(APPEALS)/TRIBUNAL HAS FORMED AN OPINION THAT THE CAPITAL GAIN WAS A SHORT TERM ONE AND THEREFORE TAXABLE. TH ERE HAS BEEN NO DISPUTED ABOUT THE AMOUNT OF INCOME EARNED. ITS TAX ABILITY OR OTHERWISE ALONE HAS BEEN THE SUBJECT MATTER OF CONT ROVERSY. ALL THE DETAILS NECESSARY FOR COMPUTING THE ASSESSA BLE INCOME DISCLOSED. SUBSTITUTION OF ONE 0OPINION OVER ANOTHE R CANNOT MEAN THAT THERE WAS A CONCEALMENT OR FURNISHING OF INCOR RECT PARTICULARS OF INCOME. OUR CLAIM WAS BASED ON A FEW DECISIONS OF COURTS. T HE BONAFIDE EXPLANATIONS OFFERED WERE NOT ACCEPTED. INCOME WAS COMPUTED BY THE DEPARTMENT ONLY ON THE BASIS OF THE INFORMATION FURNISHED BY US. NOTHING WAS GATHERED FROM ANY OTHER SOURCE. THE PERIOD DURING WHICH THE SHARES IN COMPANIES WER E HELD AS STOCK IN TRADE HAS BEEN EXCLUDED BY THE DEPARTMENT WHILE COMPUTING THE TOTAL PERIOD OF HOLDING. NON FILING OF AN APPEAL OR DISMISSAL OF APPEAL BY C IT(A)/TRIBUNAL DOES NOT MEAN THAT ANY INCOME WAS CONCEALED. CONCEALMENT MEANS TO HIDE, TO KEEP SECRET, TO CO VER FROM SIGHT TO WITHHOLD KNOWLEDGE OF. NONE OF THESE HAS BEEN COMMI TTED. ITA NO. 1548/MDS /10 4 4. AO, HOWEVER, WAS OF THE OPINION THAT BUT FOR THE SCRUTINY, THE AMOUNT WOULD HAVE ESCAPED ASSESSMENT. FURTHER AS PER THE A O, STAND OF THE ASSESSEE BEFORE THE CIT(A) AS WELL AS THIS TRIBUNAL WAS THAT ITS VIEW REGARDING THE DATE OF ORIGINAL PURCHASE BEING RELE VANT FOR THE PURPOSE OF COMPUTING THE HOLDING PERIOD WAS LAWFUL AND THEREF ORE, ASSSESSEE WAS TAKING A DOUBLE STAND. FURTHER AS PER THE AO, STATI NG SHORT TERM CAPITAL GAINS AS LONG TERM CAPITAL GAINS ITSELF CONSTITUTED FURNISHING OF INACCURATE PARTICULARS. FURTHER, ASSESSEE HAVING CLAIMED EXEMP TION UNDER SEC.10(38) OF THE ACT ON LONG TERM CAPITAL GAINS WHICH WERE NE VER THERE, THERE WAS A PURPOSEFUL EFFORT FOR EVASION OF TAX. RELYING ON TH E DECISION OF HONBLE APEX COURT IN THE CASE OF UNION OF INDIA VS.DHARMEN DRA TEXTILE (306 ITR 277), PENALTY WAS LEVIED AT 100% OF THE TAX SOUGHT TO BE EVADED. 5. IN ITS APPEAL BEFORE THE CIT(A) ARGUMENT OF THE ASSESSEE WAS THAT CONDITIONS SPECIFIED IN EXPLANATION 1 TO SEC. 271(1 )(C) OF THE ACT DID NOT EXIST IN ITS CASE AND THEREFORE, PENALTY OUGHT NOT HAVE BEEN LEVIED. ACCORDING TO THE ASSESSEE, JUST BECAUSE A CLAIM MAD E BY ASSESSEE WAS NOT ACCEPTED, WOULD NOT RENDER ITSELF EXIGIBLE TO L EVY OF PENALTY, SINCE THERE WAS NO FURNISHING OF INACCURATE PARTICULARS OR CONC EALMENT OF INCOME. RELIANCE WAS PLACED ON THE DECISIONS OF HONBLE APE X COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA). ITA NO. 1548/MDS /10 5 6. LD. CIT(A) WAS APPRECIATIVE OF THESE CONTENTIONS . ACCORDING TO HIM, JUST BECAUSE AN ADDITION WAS MADE AND LATER CONFIRM ED BY APPELLATE AUTHORITIES, IT WOULD NOT AUTOMATICALLY LEAD TO IMP OSITION OF PENALTY. AS PER THE CIT(A) THE ONLY ISSUE WAS WHETHER PROFIT ON SAL E OF SHARES WAS TO BE CONSIDERED AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS, BASED ON PERIOD OF HOLDING OF SHARES. CONSIDERING THE PENALT Y PROCEEDINGS TO BE DIFFERENT AND INDEPENDENT FROM ASSESSMENT PROCEEDIN GS, CIT(A) WAS OF THE OPINION THAT A WRONG CLAIM OF DEDUCTION BY ITSE LF DID NOT AMOUNT TO CONCEALMENT. HE, THEREFORE, DELETED THE LEVY. 7. NOW BEFORE US THE LD. DR STRONGLY ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT ASSESSEE HAD CLAIMED GAINS ARISING O N SALE OF SHARES AS LONG TERM IN NATURE WHEN IT WAS WELL AWARE THAT THE CONVERSION OF SUCH SHARES FROM STOCK IN TRADE TO INVESTMENT WAS DONE WITHIN A SPAN OF 12 MONTHS PRIOR TO THE DATE OF SALE OF THE SHARES. ACC ORDING TO HIM, ASSESSEE DESPITE BEING AWARE OF THIS, CLAIMED SURPLUS ARISIN G ON SALE AS LONG TERM CAPITAL GAINS AND THE PERIOD PRIOR TO THE DATE OF C ONVERSION OF SHARES AS STOCK IN TRADE TO INVESTMENT, COULD NOT HAVE BEEN R ECKONED FOR CALCULATING THE PERIOD OF HOLDING. 8. PER CONTRA, LD. AR, SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT ASSESSEE HAD ITSELF SHOWN CLEARLY THE LONG TERM CAP ITAL GAINS AND CLAIMED EXEMPTION UNDER SEC. 10(38) OF THE ACT IN ITS RETUR N OF INCOME WITH BONA- ITA NO. 1548/MDS /10 6 FIDE BELIEF AND RELIANCE WAS PLACED ON THE COMPUTAT ION STATEMENT PLACED AT PB PAGE 1 IN THIS REGARD. ACCORDING TO HIM, JUST BE CAUSE A CLAIM WAS MADE AND SUCH CLAIM WAS NOT FOUND ACCEPTABLE, WOULD NOT MEAN THAT LEVY OF PENALTY WAS JUSTIFIED. STRONG RELIANCE WAS PLACED B Y LD. AR ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE P ETRO PRODUCTS PVT. L:TD. (SUPRA). 9. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THERE IS NO DISPUTE THAT THE PERIOD OF HOLDING OF SHARES ON WHICH LONG TERM CAPITAL GAINS WERE ADMITTED BY ASSESSEE, IF RECKONED FROM T HE DATE OF CONVERSION OF SUCH SHARES FROM STOCK IN TRADE TO INVESTMENT, W AS LESS THAN 12 MONTHS. ASSESSEES CLAIM FOR TREATING SUCH GAINS AS LONG TE RM WAS NOT ACCEPTED BY THE AO AND ITS ARGUMENT THAT THE HOLDING PERIOD PR IOR TO SUCH CONVERSION WAS ALSO TO BE CONSIDERED FOR RECKONING THE TENURE OF HOLDING, WAS NOT ACCEPTED BY ANY OF THE HIGHER APPELLATE AUTHORITIES . BUT THERE IS NO DISPUTE WHATSOEVER THAT THE SHARES WERE HELD BY IT IN ITS NAME FOR A PERIOD OF MORE THAN 12 MONTHS. OF COURSE, IF IT WAS CONTINUED BY T HE ASSESSEE AS STOCK IN TRADE, SURPLUS ARISING ON SALE THEREFROM WOULD HAVE BEEN ONLY BUSINESS INCOME. ASSESSEE HAD CHOSEN TO CONVERT THE SHARES I NTO INVESTMENT. CAN WE SAY THAT THE CLAIM WAS NOT BONA-FIDE JUST FOR A REASON THAT ASSESSEE CONSIDERED THE PERIOD OF HOLDING FROM THE DATE OF P URCHASE OF THE SHARES, FOR WORKING OUT THE NATURE OF ITS CAPITAL GAINS? TH E ANSWER WOULD BE A FIRM ITA NO. 1548/MDS /10 7 NO. THIS IS FOR THE REASON THAT THE SHARES NO DOU BT WERE HELD BY THE ASSESSEE FROM THE DATE OF PURCHASE AND IF THE ASSES SEE HARBOURED A VIEW THAT THE PERIOD STARTING FROM THE DATE OF PURCHASE COULD BE CONSIDERED FOR ASCERTAINING THE NATURE OF GAINS I.E., WHETHER LONG TERM OR SHOT TERM, WE CANNOT SAY THAT IT WAS AN ILLEGAL VIEW OR A CLAIM W HICH WAS PATENTLY WRONG OR MALAFIDE. NO DOUBT, CLAIM WAS NOT FOUND TENABLE IN LAW AND THE GAINS WERE EVENTUALLY AS CONSIDERED SHORT TERM IN NATURE. THIS, IN OUR OPINION, WOULD NOT RESULT IN CONCEALMENT. DISALLOWANCE OF A CLAIM FOR DEDUCTION, ONLY IF IT ARISES ON ACCOUNT OF FURNISHINGS INACCUR ATE PARTICULARS CAN BE CONSIDERED AS SUSCEPTIBLE FOR LEVY OF PENALTY UNDER SEC. 271(1)(C) OF THE ACT. HERE, ON THE OTHER HAND, ASSESSEE HAD CLEARLY IN ITS RETURN, GIVEN DETAILS OF THE GAINS ARISING OUT OF THE SALE OF SHA RES, THOUGH IT HAD CLAIMED IT TO BE LONG TERM IN NATURE. MAKING AN INCORRECT C LAIM IN LAW WOULD NOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS, AS HELD BY THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS P . LTD. (SUPRA), RIGHTLY RELIED ON BY THE CIT(A). MERELY BECAUSE CLAIM OF TH E ASSESSEE WAS NOT ACCEPTED BY THE REVENUE PENALTY UNDER SEC. 271(1)(C ) OF THE ACT WAS NOT ATTRACTED. HONBLE APEX COURT GAVE THIS DECISION AF TER CONSIDERING A HOST OF DECISIONS REGARDING PENALTY INCLUDING ITS OWN DECIS ION IN DHARMENDRA TEXTILE (SUPRA), WHICH INCIDENTALLY FORMED THE BASI S OF THE PENALTY ORDER OF THE AO HERE. WE ARE, THEREFORE, OF THE OPINION THAT THE PENALTY WAS RIGHTLY DELETED BY LD. CIT(A). NO INTERFERENCE IS CALLED FO R. ITA NO. 1548/MDS /10 8 10. APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11 - 02-2011. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (ABRAHAM P.GEORGE) ACCOUNTANT MEMBER CHENNAI: 11TH FEBRUARY, 2011. NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.