DCIT - 4(2)(2), MUMBAI V. NETWORTH STOCK BROKING LTD., MUMBAI

ITA 2310/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0092 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHARDR
• Assessee Lawyers: NEHA PRANJPE
• Keywords: Question of law; Speculation loss; Wrong claim
• Section: 143(3); 43(5); 2

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./2310/MUM/2016, / ASSESSMENT YEAR: 2009-10 DCIT-4(2)(2) ROOM NO.642, 6TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. NETWORTH STOCK BROKING LTD. NO.1001/1002, 10TH FLOOR ATLANTA CENTRE, OPP. UDYOG BHAVAN SONAWALA LANE, GOREGAON (E) MUMBAI-400 063. PAN:AAACN 1184 F ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI V. VIDHYADHAR-DR /ASSESSEE BY: MS. NEHA PRANJPE / DATE OF HEARING: 11/12/2017 / DATE OF PRONOUNCEMENT: 01/03/2018 , / PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 19/02/2016 OF THE CIT (A)-9,MUMBAI,THE ASSESSING OFFICER (AO)HAS FILED PRESENT APPEAL.ASSESSEE-COMPANY IS EN GAGED IN THE BUSINESS OF BROKING OF SECURITIES,FINANCIAL-PRODUCT-DISTRIBUTION,DEPOSITOR Y-PARTICIPANT,MARKETING OF INSURANCE PRODU- CTS,MERCHANT-BANKING, TRADING AND ARBITRAGE ACTIVIT Y. IT FILED ITS RETURN OF INCOME ON 29/ 09/ 2009,DECLARING TOTAL INCOME AT RS.12.65 CRORES.THE AO COMPLETED ASSESSMENT ON 2 7/12/2011 U/S.143(3) OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.3.95 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING PENAL TY OF RS.82.67 LAKHS IMPOSED BY THE AO U/S. 271(1)(C)OF THE ACT.WHILE COMPLETING THE ASSES SMENT,THE AO MADE CERTAIN DISALLOWANCES AND INITIATED PENALTY PROCEEDINGS ON THE ISSUE OF E XPLANATION TO SECTION 73 OF THE ACT.IN HIS PENALTY ORDER,THE AO OBSERVED THAT THE ASSESSEE HAD CHALLENGED THE ASSESSMENT ORDER BEFORE THE FIRST APPELLATE AUTHORITY(FAA),THAT THE FAA PAR TLY ALLOWED THE APPEAL OF THE ASSESSEE, THAT THE PERUSAL OF THE FINANCIAL STATEMENTS OF THE ASSESSEE REVEALED THAT THE ASSESSEE HAD SET OFF SHARE TRADING LOSS OF RS.6.31 CRORES ON EQUITY BASED TRANSACTIONS AGAINST THE INCOME FROM DERIVATIVE TRADING, THAT AS PER CLAUSE (D) TO PROVI SO TO SECTION 43(5) OF THE ACT INCOME FROM DERIVATIVE TRADING ON RECOGNIZED STOCK EXCHANGE WAS NON SPECULATIVE IN NATURE. HE REPRODUCE -ED THE PROVISION TO EXPLANATION TO SECTION 73 AND HELD THAT INCOME/LOSS ARISING FROM SHARE TRANSACTION WERE DEEMED TO BE SPECULATIVE IN NATURE , THAT SPECULATION LOSS COULD ONLY BE SET OFF AGAINST SPECULATIVE INCOME, THAT IT HAD INCURRE D SHARE TRADING LOSS OF RS.6.31 CRORES,THAT IT HAD CLAIMED SET OFF OF SHARE TRADING LOSS OF RS.2.1 9 CRORES AGAINST NON SPECULATIVE INCOME FROM DERIVATIVE TRADING, THAT THE SAME WAS NOT ALLO WABLE AS PER THE EXPLANATION TO SECTION 73 2310/MUM/2016 M/S. NETWORTH STOCK BROKING LTD. 2 OF THE ACT.HE FURTHER OBSERVED THAT FOR THE SPECULA TIVE TRANSACTIONS 12% (RS.24.18LAKHS ) EXPENDITURE HAD TO BE COMPUTED. AFTER CONSIDERING THE REPLY OF THE ASSESSEE,FURNISH ED IN RESPONSE TO THE PENALTY NOTICE, HE HELD THAT ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF RS.2.43 CRORES(RS.2.19CRORES +24.18 LAKHS).FINALLY,HE LEVIED A PENALTY OF 82,67,384/- F OR FURNISHING INACCURATE PARTICULARS OF INCOME FOR THE YEAR UNDER CONSIDERATION. 3. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FIRST APPELLATE AUTHORITY(FAA),THE ASSESSEE MADE DETAILED SUBMISSIONS AND RELIED UPON MANY A CA SE LAWS.AFTER CONSIDERING ASSESSMENT ORDER,PENALTY ORDER AND THE SUBMISSIONS OF THE ASSE SSEE,THE FAA HELD THAT IN THE QUANTUM PROCEEDINGS THE THEN FAA HAD GIVEN PART RELIEF, THA T THE ASSESSEE HAD DEMONSTRATED THAT THERE WERE DIVERGENT VIEW FOR INVOKING EXPLANATION TO SEC TION 73, THAT HE REFERRED TO CASE OF HARVEST DEALS SECURITIES PVT.LTD. (ITA/6165/MUM/201 3-AY 07-08 DTD.27/02/2015) WHEREIN IT WAS HELD THAT PENALTY U/S. 271(1) (C ) COULD NOT BE IMPOSED WHERE SPECULATION LOSS HAD BEEN DISALLOWED TO BE SET OFF AGAINST NON SPECULATIVE IN COME.HE ALSO REFERRED TO THE CASES OF LATEST IMPEX PVT.LTD.(ITA/2598/MUM/2009,AY.03-04),MAHIPAT RAICHAND SHARE BROKING PVT.LTD. (ITA/2794/AHD./2006,AY-98-99,DTD.11.9.2009)AND OBSE RVED THAT THE DISALLOWANCE WAS MADE PURELY ON A QUESTION OF LAW,THAT THERE WERE DIVERGE NT VIEW ABOUT THE ISSUE, THAT THE ASSESSEE HAD CLAIMED LOSS IN THE P&L ACCOUNT FILED ALONG WIT H RETURN OF INCOME, THAT IN THE FINANCIAL STATEMENTS SHARE TRADING HAD BEEN DISCLOSED,THAT IT COULD NOT BE SAID THAT ASSESSEE HAD NOT DISCLOSED ALL MATERIAL FACTS REQUIRED FOR COMPUTATI ON OF INCOME, THAT THE LOSS CLAIMED WAS NOT SUPPRESSED, THAT THE ISSUE HAD BECOME DEBATABLE ON WHICH TWO OPINIONS HAD BECOME POSSIBLE. REFERRING TO JUDGMENT OF HONBLE RAJASTHAN HIGH COU RT IN THE CASE OF HARSHVARDHAN CHEMICALS AND MINERALS LTD.(259ITR212),HE HELD THAT NO PENALTY WAS LEVIABLE WHEN THE ASSESSEE HAD CLAIMED A DEDUCTION OF AN AMOUNT THAT WAS DEBATABLE. HE ALSO REFERRED TO CASE OF S.P.K STEELS (P.) LTD.(270ITR156) OF THE HONBLE MADHYA PRADESH HIGH COURT WHEREIN IT WAS HELD THAT PENALTY U/S. 271(1) (C) COULD NOT BE LEVIED WHERE LOSS WAS GENUINE BUT WAS NOT ALLOWABLE BECAUSE OF DEEMING PROVISION OF EXPLANATI ON TO SECTION 73. 4. BEFORE US,DEPARTMENTAL REPRESENTATIVE RELIED UPON T HE ORDER OF THE AO AND STATED THAT ASSESSEE HAD FILED INACCURATE PARTICULARS OF INCOME .THE AUTHORISED REPRESENTATIVE CONTENTED THAT QUANTUM APPEAL ABOUT THE SPECULATION LOSS WAS IN FAVOUR OF THE ASSESSEE.SHE RELIED UPON THE CASES OF SHREEARAN ELECTROCAST (P) LT.D (166 IT D 209); HARVESTDEAL SECURITIES P.LTD. 1615/MUM/2013-AY.07-08,DTD.27/2/2015 AND ITA 1017/M UM/2013 AY.01-02 DATED 22/6/ 2016) 2310/MUM/2016 M/S. NETWORTH STOCK BROKING LTD. 3 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD DULY DISCLOSED LOSS ON SHARE TRADING A CTIVITIES AND DERIVATIVE ACTIVITIES IN THE P&L ACCOUNT,THAT THE AO HAD TREATED BUSINESS LOSS A S SPECULATION LOSS FOR LEVYING PENALTY,THAT HE INVOKED THE DEEMING PROVISIONS OF E XPLANATION TO SECTION 73. WE ARE OF THE OPINION THAT TREATMENT OF BUSINESS LO SS AS SPECULATION LOSS BY THE DEPARTMENTAL AUTHORITIES SHOULD NOT AND WOULD NOT RESULT IN HOLD ING THAT IT WAS A CASE OF FURNISHING INACCURATE PARTICULARS/CONCEALING PARTICULARS OF IN COME.WE FIND THAT THE FAA HAS RELIED UPON CASES THAT ARE DIRECTLY DEALING WITH THE ISSUE.WE WOULD LIKE TO REFER TO THE CASE OF HARVEST - DEAL SECURITIES LTD.(SUPRA)WHEREIN THE SIMILAR ISSU E WAS DEALT AS UNDER: 3. THE ROOT FOR THE LEVY OF PENALTY LIE IN THE ASS ESSMENT ORDER DT. 21.12.2009 MADE U/S. 143(3) OF THE ACT. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED SHARE TRADING AND OTHER LO SS AT RS. 4,90,13,303/- OUT OF WHICH LOSS OF RS. 4,97,62,744/- COMPRISES OF F &O LOSS AND SPECUL ATION LOSS. ON PERUSING THE BIFURCATION, THE AO NOTICED THAT THE LOSS OF RS. 32,91,021/- PER TAINS TO DAILY SQUARED UP LOSS WHICH WAS TREATED AS SPECULATION LOSS BY THE AO. THE AO DISMI SSED THE CLAIM OF THE ASSESSEE THAT IT IS ALSO HAVING SHARE TRADING INCOME ON DELIVERY BASIS AND BEING A PRIVATE LIMITED COMPANY, THE SAME SHOULD BE TREATED AS SPECULATIVE INCOME AND TH E SAME IF SET OFF AGAINST THE SPECULATIVE LOSS AS TAKEN BY THE AO, THERE WILL BE STILL SPECUL ATION PROFIT. THE AO COMPLETED THE ASSESSMENT BY TREATING DAILY SQUARED UP LOSS AS SPE CULATION LOSS AND INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT FOR FILING IN ACCURATE PARTICULARS OF INCOME. 4. DURING THE COURSE OF THE PENALTY PROCEEDINGS, T HE ASSESSEE CONTENDED THAT PENALTY CANNOT BE IMPOSED IF BUSINESS LOSS IS TREATED AS SPECULATI ON LOSS. FURTHER THERE IS NO TAX LIABILITY AND THERE IS NO LOSS OF REVENUE BY CHANGING THE HEAD FR OM BUSINESS LOSS TO SPECULATION LOSS BECAUSE THE TOTAL CARRY FORWARD LOSSES ARE THE SAME . THE CLAIM OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE AO. THE AO WAS OF THE FIRM BELI EF THAT THE ASSESSEE HAS WILLFULLY CLAIMED SPECULATION LOSS AS BUSINESS LOSS AND PROCEEDED BY LEVYING PENALTY U/S. 271(1)(C) OF THE ACT AT RS. 15 LAKHS. XXXXX 8.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHO RITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD. IN SO FAR AS THE LOSS OF RS. 32,91,021/- IS CONCERNED, THERE IS NO DISPUTE THAT THIS IS A GENUINE LOSS SUFFERED BY THE ASSESSEE. THE ONLY POINT OF DISPUTE IS THAT THE ASSESSEE HAS SUFFERED THIS LOSS ON DAILY TRANSACTIO NS WHICH WERE SQUARED UP DURING THE DAY ITSELF BY INVOKING THE PROVISIONS OF SEC. 73 OF THE ACT, THE AO HAS TREATED SUCH LOSSS AS SPECULATION LOSS. IN OUR CONSIDERATE OPINION, SUCH ACTION OF THE AO DOES NOT PROVE THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME . ON SIMILAR SET OF FACTS, THE CO ORDINATE BENCH IN ITA NO. 2598/M/2009 OBSERVED AS UNDER: WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEV ANT RECORD. WE NOTED THAT THE ASSESSEE DISCLOSED AND FURNISHED RELEVANT PARTICULA RS AND MATERIAL NECESSARY FOR THE ASSESSMENT.THE AO HAS FRAMED THE ASSESSMENT BASED O N RECORD AVAILABLE AND FILED BY THE ASSESSEE. THEREFORE, THE DISALLOWANCE WAS MEREL Y, BY TREATING THE LOSS ON SALE OF SHARES AS SPECULATIVE LOSS INSTEAD OF BUSINESS LOSS CLAIMED BY THE ASSESSEE AND NOT ON THE BASIS OF ANY BOGUS CLAIM OR FALSE CLAIM MADE BY THE ASSESSEE. WHEN THE ASSESSEE DISCLOSED ALL THE MATERIAL FACTS REGARDING THE SOUR CE OF INCOME /LOSS THEN IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED THE PARTICULAR S OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE ADDITION ON ACCOUNT OF T REATMENT OF LOSS BY APPLYING THE PROVISIONS OF SECTION 73 ITSELF SHOWS THAT THE DISA LLOWANCE WAS MADE BY THE AO BY APPLYING THE DEEMING PROVISIONS, UNDER SECTION 73 W HICH DOES NOT AMOUNT TO CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. 2310/MUM/2016 M/S. NETWORTH STOCK BROKING LTD. 4 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE DECISION OF THE CO ORDINATE BENCH AND CONSIDERING THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT. 10. I N THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE ORDER AND THE ORDE RS OF THE TRIBUNAL RELIED UPON BY THE AR BEFORE US, WE HOLD THAT THE ORDER OF THE FAA DOES N OT SUFFER FROM ANY LEGAL INFIRMITY. SO, CONFIRMING THE SAME,WE DECIDE EFFECTIVE GROUND OF A PPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2018. ! ' # 01 $ , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :01.3.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.