Nath Royal Ltd., Aurangabad V. Assistant Commissioner of Income-tax,

ITA 1744/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7475 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-09-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 19-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: N R AGARWAL
• Keywords: Cost of acquisition; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1744 /P U N/201 4 / ASSESSMENT YEAR : 20 0 4 - 05 NATH ROYAL LTD., NATH HOUSE, NATH ROAD, AURANGABAD PAN : AABCN1641C ....... / APPELLANT / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, AURANGABAD / RESPONDENT ASSESSEE BY : S HRI N.R. AGARWAL REVENUE BY : SHRI VIVEK AGGARWAL / DATE OF HEARING : 0 7 - 09 - 2017 / DATE OF PRONOUNCEMENT : 15 - 0 9 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) , AURANGABAD DATED 30 - 07 - 2014 FOR THE ASSESSMENT YEAR 2004 - 05 CONFIRMING LEVY OF PENALTY U/S. 271(1)(C) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 2 ITA NO . 1744/PUN/2014, A.Y. 2004 - 05 2. SHRI N.R. AGARWAL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A SUBSIDIARY OF M/S. NATH SEEDS LTD. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISALLOWED TRADING LOSS OF RS. 8,49,47,027/ - AND CAPITAL LOSS OF RS.2,43,06,000/ - . PENALTY PROCEEDINGS U/S. 271(1)(C) WERE INITIATED. THE ASSESSING OFFICER VIDE ORDER DATED 07 - 03 - 2013 LEVIED PENALTY OF RS.3,88,13,090/ - ON BOTH THE AFORESAID ADDITIONS. AGGRIEVED BY THE ORDER LEVYING PENALTY U/S. 271(1)(C) , THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). DURING THE FIRST APPELLATE PROCEEDINGS THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED LEVY OF PENALTY ON ADDITION OF RS.2,43,06,000/ - AND CANCELLED LEVY OF PENALTY ON ADDITION OF R S.8,49,47,027/ - . THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL AGAINST CONFIRMING OF LEVY OF PENALTY ON DISALLOWANCE OF CAPITAL LOSS RS.2,43,06,000/ - . 2.1 THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SOLD SHARES TO SISTER CONCERNS ON WHICH THE ASSESSEE HA S SUFFERED LOSS OF RS.2.43 CRORES. THE ASSESSEE NEITHER IN RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR NOR, IN THE SUBSEQUENT ASSESSMENT YEARS HAS CLAIMED CAPITAL LOSS AGAINST CAPITAL GAIN. THEREFORE, THERE IS NO TAX EFFECT. THE LD. AR FURTHER CONTENDED THAT PENALTY U/S. 271(1)(C) FOR IDENTICAL REASONS WAS LEVIED IN THE CASE OF NATH SEEDS LTD. FOR ASSESSMENT YEAR 2001 - 02. THE SAID COMPANY CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL IN ITA NO. 1745/PUN/2014 . THE TRIBU NAL VIDE ORDER DATED 05 - 07 - 2017 DELETED THE PENALTY. THE LD. AR PLACED ON RECORD A COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF NATH SEEDS LTD. VS. ACIT (SUPRA). 3 ITA NO . 1744/PUN/2014, A.Y. 2004 - 05 3. SHRI VIVEK AGGARWAL REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE ORDERS OF COMMIS SIONER OF INCOME TAX (APPEALS) IN CONFIRMING LEVY OF PENALTY IN RESPECT OF DISALLOWANCE OF CAPITAL LOSS OF RS.2.43 CRORES. THE LD. DR SUBMITTED THAT THE ASSESSEE FAILED TO FURNISH RELEVANT DOCUMENTS IN SUPPORT OF LOSS CLAIMED ON SALE OF INVESTMENT. THE A SSESSING OFFICER FOUND THE CLAIM OF ASSESSEE FAKE AND FICTITIOUS. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF ASSESSEE I.E. NATH SEEDS LTD. VS. ACIT (SUPRA) , HAS DELETED PENALTY ON THE ADDITI ONS MADE UNDER SIMILAR CIRCUMSTANCES. 4. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . IN THE PRESENT CASE PENALTY U/S. 271(1)(C) HAS BEEN LEVIED ON ADDITION OF RS.2.43 CRORES ON ACCOUNT OF DISALLOWANCE OF CAPITAL LOSS. THE PENALTY HAS BEEN LEVIED ON THE GROUND THAT THE ASSESSEE HAS MADE FAKE AND FICTITIOUS CLAIM OF CAPITAL LOSS. WE FIND THAT IN THE CASE OF GROUP CONCERN OF THE ASSESSEE , NATH SEEDS LTD. (SUPRA) , DISALL OWANCE OF CAPITAL LOSS WAS MADE ON SIMILAR ADDITION AND PENALTY U/S. 271(1)(C) WAS LEVIED. THE TRIBUNAL DELETED PENALTY BY OBSERVING AS UNDER : 42. WE FIND THERE IS NO DISPUTE ON THE BASIC FACT THAT THE ASSESSEE OWN CERTAIN SHARES OF THE GROUP CONCERN AND SOLD THEM AT MARKET RATE THE SHARES AND SECURITIES TO THE SISTER CONCERNS (SAY S1), WHICH IN TURN SOLD THE SAID SHARES TO ANOTHER SISTER CONCERN ( SAY - S2) AT THE THEN PREVAILING MARKET RATES OF THAT DATE/TIME. ALL THESE TRANSACTIONS ARE DONE OFF - LINE. HOWEVER, THE SALE PRICE OF THE SHARES IS BASED ON EITHER AT MARKET RATE OR THE NAV OF THE COMPANY. IN EFFECT, THE ASSESSEE SOLD THE SHARES AT THE RATES BELOW PAR. THERE IS NO CONTRARY EVIDENCE WITH THE AO TO SUBSTANT IATE THAT THE SALE PRICE IS MANIPULATED. IT IS ALSO A FACT THAT THE ASSESSEE FINANCED S2 TO PURCHASE THE SECURITIES. ON THIS ASPECT, WE DON'T FIND ANY ABNORMALITY. ALL THESE 4 ITA NO . 1744/PUN/2014, A.Y. 2004 - 05 TRANSACTIONS ARE DULY ENTERED IN THE CONCERN BOOKS OF ACCOUNTS OF THE ASSESSEE. IN EFFECT, THE AO DOES NOT HAVE ANY CONTRARY INFORMATION OR FIGURES AND THEREFORE, HE DOESN'T DISPUTE ANY OF THE ABOVE FACTS. ON SEEING THE 1. SAID CHAIN OF TRANSFER OF BOTH LISTED AND UNLISTED SHARES AND DEBENTURES AMONG THE GROUP CONCERNS; 2. INVOLVING MAN Y LAYERS AMONG THE GROUP CONCERNS; 3. INVOLVING BOTH ONLINE AND SOME OFF - MARKET TRANSACTIONS PARTLY; 4. ALONG WITH DIMINISHING RATES PER SHARES OR DEBENTURES FROM THE ASSESSEE - THE ORIGINAL TO S1 AND THEN TO S2, AO IS OF THE VIEW THAT IT IS THE CASE OF 'F URNISHING OF THE INACCURATE PARTICULARS' IN THE RETURN OF INCOME. 43. FURTHER, AO IGNORED THE U NDISPUTED FACT THAT THE ASSESSEE MADE CLAIM OF LOSS IN THE RETURN VIDE THE CONTENTS IN THE COMPUTATION OF INCOME. ASSESSEE FURNISHED DETAILS OF THE SALE AND PURCHASES OF THE SECURITIES. DATES OF PURCHASE, PURCHASE COST PER SHARES, SALE PRICE PER SHARES, DATE OF SALES, NAMES OF THE BUYERS, THE CALCULATION OF THE LOSS EARNED OUT OF THE EACH SISTER CONCERN ETC., ARE FILED BY THE ASSESSEE. THE SAID DETAILS WERE DULY REMANDED BY THE FIRST APPELLATE AUTHORITY AND CALLED FOR REPORT OF THE AO BEFORE ADMITTING AND LEVY OF PENALTY. 44. FURTHER, WE HAVE VERIFIED THE ARGUMENTS WITH THE HELP OF THE DOCUMENTS AVAILABLE ON RECORDS RELATING TO THE FURNISHING OF THE PARTIC ULARS, DISCHARGING OF THE ONUS, BONAFIDE NATURE OF THE CLAIM OF THE ASSESSEE IN THE RETURN AND THE SUBMISSIONS OF THE EXPLANATION MADE DURING THE PENALTY PROCEEDINGS. 45. ACCORDINGLY, WE ARE OF THE CONSIDERED OPINION THAT THE PENALTY PROCEEDINGS ARE DIFFERENT FROM THE ASSESSMENT PROCEEDINGS AND IT IS A SETTLED LEGAL PROPOSITION OF LAW. DESCRIBING THE ALLEGED TRANSACTIONS AS FAKE OR FICTITIOUS ONES MAY BE OKAY FROM THE POINT OF VIEW OF THE QUANTUM ADDITIONS. BUT WHEN IT COMES PENALTY PROCEEDINGS, AO NEEDS TO REBUT THE EXPLANATION OF THE ASSESSEE BY BRINGING INCRIMINATING EVIDENCE ON RECORD TO DEMONSTRATE THAT THE CLAIM OF THE ASSESSEE IS NOT BONAFIDE AND THE EXPLANATION GIVEN BY THE ASSESSEE SUFFER FROM MALAFIDE. IN THE INSTANT CASE, BUT THE DIFFERENT AND A POSSIBLE VIEW TAKEN BY THE AO IN LEVYING THE PENALTY, WE FIND THAT NO INCRIMINATING MATERIAL IS GATHERED BY THE AO TO PROVE THAT THE SAID TRANSACTIONS ARE FICTITIOUS O R FAKE. GENERALLY, WHAT IS NOT TRUE OR GENUINE IS THE FAKE OR FICTITIOUS. ON ANALYSING THE FACTS OF THE PRESENT CASE, WE FIND THE SALE TRANSACTIONS ARE GENUINE FOR THE PURPOSE OF PENALTY PROCEEDINGS, BOOK ENTRIES ARE GENUINE, SHARE TRANSFERS ARE RECORDED , THE PAYMENTS OF THE CONSIDERATION ARE SQUIRED - UP OR THE LIABILITIES DO EXISTS IN THE BOOKS OF 5 ITA NO . 1744/PUN/2014, A.Y. 2004 - 05 ACCOUNTS ETC. WE CANNOT UNDERSTAND WHAT IS FAKE ABOUT THEM. THEREFORE, IN OUR VIEW, IT IS THE CASE OF MERE SUSPICION. CONSIDERING THE PENALTY PROCEEDINGS, SUCH SUSPICION IS NOT ADEQUATE ENOUGH TO PENALISE THE ASSESSEE U/S 271(1)(C) OF THE ACT. IT IS RIGHTLY SO, AS THE PENALTY HAS THE OTHER IMPLICATIONS OF PROSECUTION UNDER THE LAW. AS SUCH, THE AO HAS NO INCRIMINATING INFORMATION AGAINST THE ASSESSEE TO PROVE T HAT THE IMPUGNED SHARE TRANSACTIONS CONSTITUTES FAKE OR FICTITIOUS ETC., AND THEY ARE ENTERED INTO BY THE ASSESSEE FOR MALAFIDE INTENTIONS. 46. REGARDING THE ARGUMENTS RELATING TO FURNISHING OF PARTICULARS AND THEREFORE, THE ABSENCE OF DEFAULT OF DISCL OSURE OF DETAILS IN THE RETURN OR THE AO/CIT(A), WE PERUSED THE RELEVANT DOCUMENTS CITED BY THE AUTHORISED REPRESENTATIVE , MENTIONED IN THE PARAGRAPHS ABOVE, AND FIND WE NEED TO APPROVE THE ARGUMENTS OF THE AUTHORISED REPRESENTATIVE . FURTHER, REGARDING THE DISCHARGE OF PRIMARY ONUS, WE FIND THAT THE AO HAS NO GRIEVANCE IN THE MATTER. REGARDING THE BONAFIDE OF THE ASSESSEE IN MATTERS RELATING TO ACCOUNTING OF THE TRANSACTIONS, MAKING CLAIM OF LOSS IN THE RETURN, SUBMITTING THE EXPLANATIONS DURING THE ASSESS MENT AND PENALTY PROCEEDINGS, WE FIND THERE IS NO COMPLAIN FROM THE SIDE OF THE AO. IT IS ALSO RELEVANT TO MENTION THAT THE ASSESSEE NEVER CLAIMED THE SAID LOSS FOR SET OFF AGAINST THE GAINS, IF ANY, IN THE LATER ASSESSMENT YEARS. THUS, IN OUR VIEW, THE ASSESSEE DISCHARGED THE INITIAL OR PRELIMINARY ONUS CAST HIM IN SO FAR AS FURNISHING OF CORRECT PARTICULARS. WE DON'T FIND ANY INACCURACY IN MATTERS OF FURNISHING OF DETAILS/PARTICULARS. THUS, IT IS NOT THE CASE OF DEEMED CONCEALMENT BY WAY OF FURNISHING O F PARTICULARS. HENCE, IT IS NOT THE FIT CASE OF LEVY OF CONCEALMENT PENALTY U/S.271(1)(C) OF THE ACT FOR THE ALLEGATION OF FURNISHING OF INACCURATE PARTICULARS. CONSEQUENTLY, THE CONCLUSIONS OF THE AO AND THE CIT(A) ON THIS PART OF THE PENALTY NEEDS TO BE REVERSED. ACCORDINGLY, RELEVANT ARGUMENTS/GROUNDS OF THE ASSESSEE ARE ALLOWED. 5. IT IS AN ADMITTED POSITION THAT THE FACTS IN THE CASE OF ASSESSEE AND IN THE CASE OF NATH SEEDS LTD. (SUPRA) ARE SIMILAR AND PENALTY U/S. 271(1)(C) HA S BEE N LEVIED FOR IDENTICAL REASONS. SINCE, THE CASE OF ASSESSEE IS AT PARITY WITH SISTER CONCERN NATH SEEDS LTD. (SUPRA), WE FIND NO REASON TO 6 ITA NO . 1744/PUN/2014, A.Y. 2004 - 05 TAKE CONTRARY VIEW. ACCORDINGLY, WE DIRECT THE CANCELLATION OF PENALTY ON DISALLOWANCE OF CAPITAL LOSS OF RS.2,43,0 6,000/ - FOR SIMILAR REASONS. 6. IN THE RESULT, THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING LEVY OF PENALTY ON ADDITION OF RS.2,43,06,000/ - ARE SET ASIDE AND THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 15 TH DAY OF SEPTEMBER, 2017 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 15 TH SEPTEMBER, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) , AURANGABAD 4. / THE CIT , AURANGABAD 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE