ACIT 10(1), MUMBAI V. BIHARIJI FANCY FIBRES & FABRICS LTD, MUMBAI

ITA 1592/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70922 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: B V JHAVERI
• Keywords: Fair market value; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI . . , ! , ' # BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 1592 / / 2012 A.YS. 2008-09 ITA NO. : 1592/MUM/2012 (ASSESSMENT YEAR: 2008-09) ACIT -10(1), 455, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020 VS M/S. BIHARIJI FANCY FIBRES & FABRICS LTD., FLAT NO. 115, PLOT NO. 133, C. LEGEND APARTMENT, BEHIND CHURCH, SANTACRUZ (EAST), MUMBAI -400 055 .: PAN: AAACB 4279 M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURENDRA KUMAR RESPONDENT BY : SHRI B.V. JHAVERI /DATE OF HEARING : 02-09-2013 !' / DATE OF PRONOUNCEMENT : 04-09-2013 ' O R D E R ! , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE DEPARTMENT, AGAINST THE ORDER OF THE CIT(A) 21, MUMBAI, DATED 30.12.2011, WHEREIN, THE CIT(A ) HAS DELETED THE PENALTY OF RS. 15,35,983/- LEVIED UNDER SECTION 271(1)(C) BY THE AO. 2. THE FACTS, LEADING TO INITIATION AND LEVY OF PENALTY ARE TH AT, IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESS EE HAS SOLD M/S. BIHARIJI FANCY FIBRES & FABRICS LTD. ITA 1592/M/2012 2 SHARES AT A LOSS, WHEREBY, CLAIMING LOSS ON THE SALE OF THE SHARES. AS PER THE DETAILS FILED, IT IS SEEN THAT THE ASSESSEE COMPANY SOLD 50,000 SHARES OF THE AAA STEEL & ENERGY (I) LTD. AT RS. 5,00,000/- AND ANOTHER TRANSACTION, SOLD 37,850 SHARES OF DEEPAK HOTELS PVT LTD AT TOTAL CONSIDERATION OF RS. 1,09,76,500/-. ACCORDING TO THE AO , THE ASSESSEE DELIBERATELY BOOKED A LOSS OF RS. 45,00,000/- AND RS. 18,925/- IN THESE TRANSACTIONS. THE AO, THEREFORE, DISALLOWED A TOTAL LOSS CLAIMED AT RS. 45,18,925/- HOLDING THEM TO BE BOGUS A ND AGAINST THE MARKET TREND. 3. THE ASSESSEE ACCEPTED THE DISALLOWANCE OF LOSS BY NOT FILING ANY APPEAL BEFORE THE CIT(A). 4. IN CONSEQUENCE OF THE ASSESSMENT ORDER, WHEREIN, THE AO HAD DISALLOWED A LOSS OF RS. 45,18,925/-, THE AO PROCEEDED TO INIT IATE PENALTY UNDER SECTION 271(1)(C), WHEREBY HE SOUGHT TO LEVY PENALTY. 5. IN THE SUBMISSIONS MADE BEFORE THE AO IN THE PENALTY PROCEEDINGS, THE ASSESSEE ONCE AGAIN WAS UNABLE TO PROV IDE ANY EXPLANATION, WHICH WOULD HAVE SATISFIED THE AO AS TANGIBLE EXPLANATION FOR THE RIGHTFUL EXPLANATION BY THE ASSESSEE. THE AO, IN T HE PENALTY ORDER, RELIED ON THE DECISION OF UNION OF INDIA VS DH ARMENDRA TEXTILES PROCESSORS, REPORTED IN 212 CTR 432 (SC) WHEREIN, THE HONBLE SUPREME COURT HELD THAT PENALTY IS A CIVIL MATTER HENCE A LEVY OF PENALTY IS CORRECT. 6. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A) IN PENA LTY PROCEEDINGS PRAYING FOR CANCELLATION OF THE INITIATION AND IMPO SE OF PENALTY OF RS. 15,35,983/-. 7. BEFORE THE CIT(A), THE ASSESSEE PLEADED THAT, IT IS THE CASE OF THE ASSESSEE COMPANY THAT IT HAS DISCLOSED ALL THE FACTS RELATING TO SALE OF SHARES OF M/S. AAA STEEL & ENERGY INDIA LTD. TO SMT. CHITRA AGARWAL AND SALE OF SHARES OF M/S. DEEP AK HOTELS PVT. LTD. TO M/S. QUALITY SYNTHETIC INDUSTRIES LTD. THE ASSES SEE COMPANY HAD RECEIVED THE CONSIDERATION ON SALE OF THE SAID SHAR ES AND THE SAID M/S. BIHARIJI FANCY FIBRES & FABRICS LTD. ITA 1592/M/2012 3 SHARES HAVE BEEN TRANSFERRED IN THE NAMES OF THE PU RCHASERS. IT IS SUBMITTED THAT THE FACTS OF SALE OF SHARES OF BOTH THE AFORESAID COMPANIES ARE ON THE RECORD OF THE ASSESSING OFFICE R AND THE SALE OF THE SAID SHARES IS NOT IN DISPUTE. THE ONLY REASON FOR DISALLOWING THE LOSS IS THAT THE ASSESSEE COMPANY COULD NOT FURNISH THE BOO K VALUE OF THE SAID SHARES SOLD BY IT DURING THE YEAR UNDER CONSIDERATI ON AND THEREFORE, THE ASSESSING OFFICER INFERRED THAT THE ASSESSEE COMPAN Y HAD SOLD THE SAID SHARES WITH AN INTENTION TO BOOK THE LOSSES. IN THI S RESPECT YOUR HONOURS KIND ATTENTION IS INVITED TO THE RETURNS O F INCOME OF THE ASSESSEE COMPANY FOR A.Y. 2009-10 AND 2010-11 WHICH ARE AT PAGES 27 & 28 AND 29 TO 31 OF THE PAPER BOOK FILED BEFORE YOUR HONOUR. ON PERUSAL OF THE RETURN OF INCOME FOR A.Y. 2009.10 AT PAGE 28 YOUR HONOUR WILL FIND THAT THE ASSESSEE COMPANY IS CLAIMED CARR Y FORWARD OF LOSSES OF A.Y. 2008-09 OF RS. 47,78,262/-. SIMILARLY IN TH E RETURN OF INCOME FOR A.Y. 2010-11 ALSO THE ASSESSEE COMPANY IS CLAIMING CARRY FORWARD OF LOSSES OF A.Y. 2008-09 OF RS. 47,78,262/-. WHILE FI LING THE RETURN OF INCOME FOR A.Y. 2011-12 ON 27 TH SEPTEMBER, 2011 THE ASSESSEE COMPANY HAD ALREADY RECEIVED THE ORDER FOR A.Y. 200 8-09 WHEREIN THE ASSESSING OFFICER HAD COMPUTED LOSS OF RS. 10,615/- ONLY AND DISALLOWED THE LOSS OF RS. 45,18,925/-. HENCE IN TH E RETURN OF INCOME FOR A.Y. 2011-12 THE ASSESSEE COMPANY HAS CLAIMED CARRY FORWARD OF LOSS OF A.Y. 2008-09 ONLY OF RS. 10,615/-. IT IS, THEREF ORE, RESPECTFULLY SUBMITTED THAT THE ASSESSEE COMPANYS CLAIM OF LOSS ON SALE OF SHARES WAS A BONA FIDE CLAIM MADE IN GOOD FAITH INASMUCH A S THE ASSESSEE COMPANY SOLD THE SAID SHARES AT A PRICE LESSER THAN THE COST PRICE AND HENCE IT HAD INCURRED THE LOSS ON SALE OF SHARES. T HE AFORESAID LOSS WAS DISALLOWED BY THE ASSESSING OFFICER AND THEREFORE, THE ASSESSEE COMPANY VOLUNTARILY AND IN GOOD FAITH WITHDREW ITS CLAIM OF CARRY FORWARD OF THE SAID LOSS IN ITS RETURN OF INCOME FO R A.Y. 2011-12. IT IS, THEREFORE, SUBMITTED THAT THE INFERENCE DRAWN BY TH E ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAD SHOWN THE LOSS ON SAL E OF SHARES FOR TAX EVASION PURPOSES IS CONTRARY TO THE FACT ON RECORD. AS SHOWN HEREINABOVE, THE ASSESSEE COMPANY HAS NOT SET OFF T HE CARRY FORWARD OF LOSSES ON SALE OF SHARES IN THE SUBSEQUENT YEARS. H ENCE, THE ASSESSEE COMPANY HAS NOT SOLD THE SHARES FOR THE PURPOSE OF CLAIMING THE SET OFF OF THE LOSSES INCURRED ON SALE OF SHARES. 8. THE ASSESSEE, RELIED ON THE DECISION OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., REPORTED IN 322 ITR 158, WHEREIN, TH E HONBLE SUPREME COURT HELD THAT EVEN A WRONG CLAIM OR DISALLOWANC E WOULD NOT AUTOMATICALLY ATTRACT PENALTY, IF THE ASSESSEE HAS FUR NISHED COMPLETE DETAILS BEFORE THE AUTHORITIES. HE, THEREFORE, WENT ON TO DELETE THE PENALTY, WHEREIN, HE HELD AS UNDER: CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCE S, IT IS HELD THAT THERE WAS NO CASE OF FURNISHING INACCURATE PARTICUL ARS OF INCOME OR CONCEALING PARTICULARS OF SUCH INCOME. THE APPELLAN T CLAIMED LOSS ON SALE OF SHARES IN A GOOD FAITH. SUCH CLAIM WAS BONA FIDE DULY SUPPORTED BY THE EXPLANATION THAT THESE TWO COMPANIES WERE NO N DIVIDEND PAYING COMPANIES, HAVING NO FUTURE PROSPECT AND NO BUYERS OF THE SHARES OF THESE TWO COMPANIES WERE AVAILABLE IN THE MARKET AN D CONSEQUENTLY THE APPELLANTS CAPITAL WAS UNNECESSARILY LYING BLOCKED THEREIN. THE APPELLANTS EXPLANATION WAS BONAFIDE AND SATISFACTO RY. SUCH M/S. BIHARIJI FANCY FIBRES & FABRICS LTD. ITA 1592/M/2012 4 EXPLANATION WAS NOT FOUND TO BE FALSE. THE APPELLAN T DISCLOSED ALL THE FACTS IN THE RETURN OF INCOME AS WELL AS DURING ASS ESSMENT PROCEEDINGS. IN THE FACTS AND CIRCUMSTANCES THE PROVISIONS OF SE C. 271(1)(C) WERE NOT ATTRACTED. THE PENALTY LEVIED BY THE A.O. IS THEREF ORE, DELETED. THIS GROUND OF APPEAL IS ALLOWED. 9. AGAINST THIS ORDER, THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 10. BEFORE US, THE DR SUBMITTED THAT DESPITE THE FACT TH AT THE ASSESSEE WAS GIVEN AMPLE OPPORTUNITY TO EXPLAIN THE NATU RE OF LOSS CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME, THE ASSE SSEE FAILED TO FURNISH ANY DETAILS WITH REGARD TO THIS LOSS. THE DR, THERE FORE, PLEADED THAT THE AO HAD RIGHTLY DISALLOWED THE LOSS AND CONSEQUE NTIALLY LEVIED THE PENALTY UNDER SECTION 271(1)(C), WHICH IS IMPUGNED BEFORE US. 11. ON A SPECIFIC QUERY BY THE BENCH, AS TO WHETHER THE AO CONDUCTED ANY ENQUIRY WITH REGARD TO THE PRICING OF THE SHARES SOLD BY THE ASSESSEE, THE DR WAS UNABLE TO PRODUCE ANY MATERIA L TO SHOW THAT ANY ENQUIRY HAD BEEN CONDUCTED BY THE AO. THE BALD PLEA OF THE AO AND ALSO BY THE DR BEFORE US THAT THE ASSESSEE HAS CLA IMED A LOSS CANNOT BY ITSELF JUSTIFY THE EXIGIBILITY OF PENALTY UNDER SEC TION 271(1)(C). IT IS A FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE THE DETAILS OF THE SHARES OF THE TWO COMPANIES BEFORE THE AO BUT, BEFORE TH E CIT(A), THE ASSESSEE WAS ABLE TO PRODUCE THE BALANCE SHEET AND P ROFIT & LOSS ACCOUNT OF THE TWO IMPUGNED COMPANIES, WHOSE SHARES, TH E ASSESSEE HAS SOLD AT A LOSS. AS HAS BEEN HELD BY THE CIT(A), THE BO OK VALUE COULD NOT BE THE SOLE CRITERIA FOR DECIDING THE FAIR MARKET VALUE OF THE SHARES SOLD. THE CO-ORDINATE BENCH IN THE CASE OF RUPEE FINANCE & MANAGEMENT (P) LTD., REPORTED IN 22 SOT 174, MUMBAI, ITAT H ELD THAT IN CASE OF TRANSFER OF SHARES TO A GROUP COMPANY AT COS T PRICE, DIFFERENCE BETWEEN FAIR MARKET VALUE OF THE SHARES AND THE IR COST PRICE CANNOT BE BROUGHT TO TAX AS CAPITAL GAINS. SINCE, THERE B EING NO MATERIAL TO SHOW THAT THE ASSESSEE HAD RECEIVED MORE C ONSIDERATION THEN RECORDED IN THE BOOKS. IN THIS CASE, THE DEPARTMEN T TOOK THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT, WHEREIN, THE BOMBAY HIGH COURT AFFIRMED THE DECISION OF THE TRIBUNAL. M/S. BIHARIJI FANCY FIBRES & FABRICS LTD. ITA 1592/M/2012 5 12. ONE OF THE OTHER REASONS WAS DISALLOWANCE OF THE LOSS CLAIMED HAS BEEN NON-FILING OF APPEAL AGAINST THE ORDER OF THE AO, AS MENTIONED BY HIM. THIS, CANNOT, BY ITSELF, JUSTIFY THAT PENALT Y IS EXIGIBLE AND LEVIABLE ON THE ASSESSEE, DESPITE THE FACT THAT THE ASSESSEE HAS PLACED ALL THE MATERIAL FACTS BEFORE THE AO. THERE COULD HAVE BEEN VARIOUS REASONS FOR NON FILING OF THE APPEAL, WHICH FACT COUL D NOT LEAD TO A CONCLUSION OF FURNISHING OF INACCURATE PARTICULARS OF INC OME OR CONCEALING PARTICULARS OF SUCH INCOME. 13. WE ARE, THEREFORE, UNABLE TO SUSTAIN THE PENALTY ON TH E FACTS AS EMERGING FROM THE ORDERS OF THE AO AND ALSO THE RELIANCE PLACED BY THE AO ON THE DECISION OF DHARMENDRA TEXTILES (SUPRA), AND THE REASONS ADOPTED BY THE CIT(A), WHICH HAS BEEN IMPUGNED BEFORE US BY THE DEPARTMENT. 14. THE ISSUE IS ALSO FORTIFIED BY DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD., RE PORTED IN 322 ITR 158. HENCE, THE PLEA OF THE DEPARTMENT FOR FILING THE AP PEAL BEFORE US IS REJECTED, HENCE THE APPEAL IS DISMISSED. 15. RESULTANTLY, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 SEPTEMBER, 2013. SD/- SD/- ( . . ) ( ! ) (R.S. SYAL) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 04 SEPTEMBER, 2013 / COPY TO:- M/S. BIHARIJI FANCY FIBRES & FABRICS LTD. ITA 1592/M/2012 6 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & & ' ( ) - 21 MUMBAI / THE CIT (A)-21, MUMBAI. 4) & & ' M.C.- X, MUMBAI / THE CIT, M.C. -X, MUMBAI, 5) )*+ , - , & , , .- / THE D.R. B BENCH, MUMBAI. 6) +/ 0 COPY TO GUARD FILE. &12 / BY ORDER / / TRUE COPY / / [ 3 / 4 5 & , , .- DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *784 . . * CHAVAN, SR. PS