PANTHER FINCAP & MANAGEMENT SERVICES LTD, MUMBAI V. ASST CIT CEN CIR 40, MUMBAI

ITA 2374/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2488 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 10-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Capital asset; Business income
• Section: 234B; 145; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI AMARJIT SINGH, J M ./ I.T.A. NO S . 2849/MUM/2008 & & 2374/MUM/2012 ( / ASSESSMENT YEAR: 2005 - 06 ) PANTHER FINCAP & MANAGEMENT SERVICES LTD. BHUPEN CHAMBERS, GROUND FLOOR, 9, DALAL STREET, FORT, MUMBAI - 400 023 / VS. ASST. CIT, CENTRAL CIRCLE 40, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 ./ ./ PAN/GIR NO. AAACP 3045 P ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAJIV KHANDELWAL / RESPONDENT BY : DR. P. DANIEL / DATE OF HEARING : 08.7.2016 / DATE OF PRONOUNCEMENT : 20 .7.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF TWO APPEALS BY THE ASSESSEE UNDER SECTION 253 OF THE INCOME TAX ACT (THE ACT HEREINAFTER) , I.E., IN QUANTUM AND PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT , FOR THE ASSESSMENT YEAR (A . Y . ) 2005 - 06. QUANTUM A PPEAL (IN ITA NO. 2849/MUM/2008 ) 2. THE PRINCIPAL ISSUE ARISING IN TH I S APPEAL ; THE REVENUE BEING NOT IN APPEAL, IS THE MAINTAINABILITY OF THE LOSS ARISING TO THE ASSESSEE ON THE D IMI NU TION IN THE VALUE OF THE SH ARES IN G LOBAL T RUST B ANK AND PADMALAYA TEL. THE ASSESSING OFFICER 2 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT (AO) , ON THE GROUND THAT THE PURCHASE OF THESE SHARES WAS INCLUDED IN THE STOCK SCAM OF 2001 , REGARDED THE TRANSACTIONS OF PURCHASE IN THEIR RESPECT AND, THEREFORE, THE LOSS ARISING ON THE IR VALUATION (AT NIL) , AS NOT GENUINE. HE FURTHER CONSIDERED IT AS SPECULATIVE IN VIEW OF THE E XPLANATION BELOW SECTION 73 , ALLOWING THOUGH ITS CARRY FORWARD. IN APPEAL, THE LD. CIT(A) CONFIRMED THE LOSS AS NOT GENUINE. FURTHER, HE HELD THAT THERE WAS THEREFORE NO QUESTION OF CATEGORISATION OF THE SAID LOSS, NON GENUINE IN NATURE, AS SPECULATIVE , CONSIDERING THAT TO BE IN F ACT A CONTRADICTION IN T ERMS AND , TWO , OF IT BEING ALLOWED TO BE CARRY FORWARD. AGGRIEVED, TH E ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3 . BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, WOULD SUBMIT THAT T HE ASSESSEE IS A COMPANY ESTABLISHED IN 1983 AND SINCE INCEPTION ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. OPENING HIS ARGUMENTS, HE WOULD STATE THAT EVEN THOUGH THE ASSESSEE HAS RETURNED A PROFIT OF RS.243.43 L ACS (PER ITS P&L A CCOUNT), THE SAME IS PR INCIPALLY ON ACCOUNT OF SALE OF PLEDGED SHARES INVOKED BY THE MORTGAGEE /S . NO PURCHASE OR SALE OF SHARES HAS BEEN MADE BY THE ASSESSEE OF ITS OWN. THE ASSESSEE HAS ACCORDINGL Y NOT B REACHED THE INTERIM ORDER DATED APRIL 4, 2001 BY SEBI , FOLLOWED BY ITS FIN AL ORDER DATED DECEMBER 12, 2003 BARRING THE ASSESSEE - COMPANY FROM EXECUTING ANY TRADE IN SECURITIES FOR A PERIOD OF 14 YEARS. THE ASSESSEE HAD IN FACT APPEALED AGAINST THE SAME, FIRSTLY , TO THE SECURITIES APPELLATE TRIBUNAL (S A T), AND THEN TO THE HONBLE SUPREME COURT, WHICH FINALLY DISMISSED THE ASSESSEES APPEAL VIDE ITS ORDER DATED 18.5.2007. THE T RIBUNAL, HE CONTINUED, IN THE CASE OF K N P SECURITIES PVT. LTD. VS. ASST. CIT (IN ITA NO. 5 00 8 AND 5009/MUM/2007 DATED 29.5.2009), IN WHICH THE YEARS INVOLVED WERE A.YS. 2003 - 04 AND 2004 - 05, HELD , RELYING ON CIT VS. VELLORE ELECTRIC CORPORATION LTD. [2000] 243 ITR 5 2 9 ( M AD)), THAT THE ASSESSEE COULD NOT BE, FOR THE REASON THAT SEBI HAD PASSED AN ORDER BARRING THE ASSESSEE TO DO BUSINESS ACTIVITY, SAID TO HAVE DISCONTINUED BUSINESS AND, ACCORDINGLY, THE EXPENDITURE ON THE MA INTENANCE OF ITS ESTABLISHMENT WOULD BE DE DUCTI BLE, I.E., IN COMPUTING ITS BUSINESS INCOME. THE FINAL CLOSURE/DISCONTINUANCE , IT OPINED, COULD ONLY BE SAID TO 3 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT BE IN THE YEAR 2007, ON THE APP EAL AGAINST THE S A ID BAR BEING DISMISSED BY THE HONBLE APEX COURT. T HE TRIBUNAL , H E FURTHER CONTINUED, IN THE ASSESSEES OWN CASE FOR A.YS. 2001 - 02, 2002 - 03 AND 2004 - 05 (IN ITA NO S . 7278/MUM/2007 , 193/MUM/2008 AND 3 6 9/MUM/2008 , DATED 17.4.2013), FOR WHICH YEAR S THE FACTS A RE IDENTICAL , ALLOWED THE LOSS ON ACTUAL SALE, HOLDING THE SAME AS GENUINE, I.E., ON BOTH DELIVERY AND NON - DELIVERY BASED TRANSACTIONS. THE SAID ORDER WOULD, THEREFORE, APPLY FOR THE CURRENT YEAR AS WELL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD RELY ON THE ORDERS BY THE AUTHORITIES BELOW. 4 . WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE TRIBUNAL FOR THE EARLIER YEARS DID NOT CONSIDER, PERHAPS , WAS NOT EVEN AWARE OF , THE RESTRAINT ORDER S BY THE SEBI BARRING THE ASSESSEE FROM TRADE AND, THUS, UNDERTAKE ITS BUSINESS . IN FACT, THE MAIN ORDER BY THE TRIBUNAL IS FOR A.Y. 200 1 - 0 2 (IN ITA NO. 7278/M/2007 ), TO WHICH YEAR THE INTERIM ORDER BY SEBI (DATED 4.4.2001) THE FIRST ORDER IN THE MATTER, DID NOT APPLY, WITH I T S ORDERS FOR THE SUBSEQUENT TWO YEARS (I.E., FOR A.Y S . 2002 - 03 AND 2004 - 05) ONLY FOLLOWING THE ORDER FOR A.Y. 2001 - 02. HOW COULD THEN THE FAC TS BE CLAIMED AS IDENTICAL ; THE ASSESSEE FOR THE CURRENT YEAR CLAIMING NO PURCHASES AND SALES, WITH THAT SOLD BEING IN FACT THE SHARES UNDER PLEDGE, BY THE MOR T GAGEES , IN EXERCISE OF THEIR LIEN AND TOWARD DISCHARGE OF THEIR DEBT, EVEN AS THE SALES ( AND THE PROFIT OR LOSS THEREON) WOULD ONLY BE TO THE ACCOUNT OF THE ASSESSEE - COMPANY. THERE IS THOUGH, WE MAY ADD, NO QUESTION OF REGARDING THE TRANSACTIONS OF SALE OF SHARES AND, CONSEQUENTLY, THE INCOME ARISING THERE - FROM , AS NOT GENUINE. APART FROM THE TRIBUNAL HOLDING IT AS SO IN THE ASSESSEES CASE FOR THE PRECEDING YEARS, WHICH SHALL EQUALLY APPLY FOR THE CURRENT YEAR, THE REVENUE HAS ITSELF ASSESSED THE SAID INCOME AS BUSINESS INCOME , IMPLYING CONSIDERING IT AS GENUINE . HOW, THEN, ONE MAY ASK, COULD IT REGARD THE TRANSACTION S QUA THE BALANCE SHARES NOT SOLD, PERHAPS FOR THE REASON OF BEING NOT UNDER PLEDGE, AS NOT GENUINE? COMING TO THE ORDERS BY THE SEBI, TH E QUESTION THAT ARISES IS: COULD THE SAID (SEBI) ORDER S BE SAID TO BE RELEVANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE ? WE 4 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT SAY SO AS THE ACT ONLY SEEKS TO BRING TO TAX THE REAL INCOME. WHETHER THE SAME (INCOME) IS LEGAL OR NOT SO IS, IN FACT, OF LITTLE RELEVANCE. IF THE ASSESSEE HA S UNDERTAKEN BUSINESS, DESPITE THE LEGAL BAR WH ICH IS OPERATIVE FOR THE CURRENT YEAR IN - AS - MUCH AS NO STAY AGAINST THE SAME HA S BEEN SOUGHT, MUCH LESS GRANTED, THE SAME WOULD ONLY QUALIFY IT AS AN ILLEGAL TRADE, WITH ATTENDANT CONSEQUENCES, INCLUDING BUT NOT LIMITED TO P E N A L CONSEQUENCES UNDER THE SEBI ACT OR PERHAPS EVEN UNDER THE S ECURITIES C ONTR ACT ( R EGULATION) A CT . THE CONTENTION OF THE ASSESSEE THAT IT BEING IN APPEAL AGAINST THE SEBI ORDER BEFORE THE HIGHER FORUMS, SO THAT THERE WAS A POSSIBILITY OF IT BEING SUCCESSFUL AND, ACCORDINGLY, BEING ALLO WED TO TRADE, IS T O NO CONSEQUENCE. THIS IS AS AN ORDER ALLOWING ITS APPEAL, WHERE SO, WOULD ONLY OPERATE PROSPECTIVELY AND NOT ENTITLE IT TO DO BUSINESS RETROSPECTIVELY. A FAVOURABLE ORDER, OPERATE AS IT WOULD RETROSPECTIVELY, COULD AT BEST GRANT THE BUSINESS , IF ANY, UNDERTAKEN IN THE INTERIM , A LEGAL STATUS, WHICH HAS B EEN CONSIDERED BY US AS OF LITTLE MOMENT . WE MAY THOUGH CLARIFY THAT OUR OBSERVATION WITH REGARD TO THE ASSESSEE UNDERTAKING BUSINESS, I.E., DESPITE THE LEGAL EMBARGO THEREON, IS SUBJECT TO IT BEING POSSIBLE FOR IT DO SO, AS WHERE IT HOLDS VALID LICENCE/S TO OPERATE IN THE RELEVANT MARKETS, VIZ. BSE, NSE, ETC., AS WAS THE CASE IN KNP SECURITIES (P.) LTD . (SUPRA) (REFER PARA 5.1 OF THE ORDER) . THIS IS ALSO RELEVANT AS AN INCAPACITY TO TRADE WOULD ALSO ADVERSELY IMPACT ITS ABILITY TO P ASS A LEGAL TITLE TO THE TRANSFEREE OF THE SHARES SOLD. THE DECISION S IN VELLORE ELECTRIC CORPORATION LTD. (SUPRA) AND K N P SECURITIES PVT. LTD. ( SUPRA) ARE RENDERED IN THE CONTEXT OF ALLOWANCE OF THE MAINTENANCE EXPENSES REQUIRED TO BE INCURRED TO KEEP ALIVE THE BUSINESS ESTABLISHMENT, I.E., IN THE HOPE OF BEING SUCCESSFUL IN APPEAL. THE LOSS UNDER REFERENCE, HOWEVER, ARISES ON ACCOUNT OF THE VALUATION OF THE UNSOLD SHARES AT NIL, I.E., ON ACCOUNT OF DIM IN UTION IN THE IR VALUE, STATING THEM TO HAVE NO MARKET VALUE. THE MOOT QUESTION, AS PER THE LD. AR, THAT WOULD ARISE FOR DETERMINATION IS IF THE SHARES WOULD LOSE THE CHARACTER OF STOCK - IN - TRADE - WHICH IS TO BE VALUED AT COST O R MARKET VALUE, WHICHEVER IS LESS - ON ACCOUNT OF THE LEGAL BAR O N THE IR SALE ? IN OUR VIEW, THE SAID LEGAL BAR WOULD HAVE NO IMPACT ON THE CHARACTER 5 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT OF A STOCK/SHARE HELD BY THE ASSESSEE AS BEING EITHER A TRADING OR A CAPITAL ASSET. THE LEGAL BAR IS NOT PERMANENT, BUT FOR 14 YEARS. AN ASSESSEE MAY INTEND TO CONTINUE BUS INESS AFTER THE SAID HIATUS (I.E., TREATING THE TIME GAP AS SO), WHILE ANOTHER MAY NOT. IN EITHER CASE, IT WILL DISPOSE THE SHARES - WHEN AND TO THE EXTENT IT DOES, AT THE PREVAILING MARKET R A TE , EVEN AS A TREATMENT A N D CHARACTER OF THE GAIN/LOSS SO ARISIN G WOULD BE DIFFERENT , I.E., EITHER AS CAPITAL GAIN/LOSS OR AS BUSINESS GAIN/LOSS . THAT IS , IT IS THE INTENT WITH WHICH THE SHARES ARE HELD THAT IS MATERIAL AND RELEVANT. OUR OPINING OF INTENT AS BEING THE MATERIAL AND RELEVANT CONSIDERATION IN DETERMINING IF THE ASSESSEE IS IN BUSINESS OR NOT, IS ALSO IN RATIO, IN HARMONY WITH THAT BY THE TRIBUNAL IN K N P SECURITIES PVT. LTD . (SUPRA) , WHEREBY IT HOLDS THAT IN - AS - MUCH AS THE ASSESSEE WAS HOPEFUL OF CARRYING ON BUSINESS, AS DEMONSTRATED BY IT BEING IN APPEAL , RIGHT UP TO THE HIGHEST COURT OF LAW, INCURRING MAINTENANCE EXPENDITURE, IT SHOULD BE CONSIDERED AS HAVING NOT DISCONTINUED BUSINESS. SO, HOWEVER, THE QUESTION THAT WOULD ARISE IS IF THE ASSESSEE COULD , OR DID IT INDEED , CARRY ON BUSINESS DURING THE YEAR ? TH IS IS AS , AS IT APPEARS, IT , IN COMPLIANCE WITH THE RESTRAINT ORDER, DID NOT D O SO DURING THE PERIOD UNDER REFERENCE . SECTION 28(I) POSTULATES DETERMINATION OF BUSINESS INCOME ONLY WHERE BUSINESS IS (ACTUALLY) CARRIED OUT DURING THE RELEVANT YEAR. AS S UCH, QUITE APART FROM THE ASSESSEES INTENTION TO CONTINUE BUSINESS, I.E., ON THE EXPIRY OF THE BAR PERIOD, AND WHICH DECISION MAY ITSELF UNDERGO CHANGE IN TIME, THE QUESTION OF VALUING SHARES - WHICH WOULD CONTINUE TO BE THEREFORE THE ASSESSEES STOCK - IN - TRADE, IN DETERMINING THE BUSINESS INCOME, WOULD ARISE ONLY WHERE THE ASSESSEE ACTUALLY UNDERTAKES BUSINESS THE LEGAL STATUS OR THE MANNER OF THE BUSINESS NOTWITHSTANDING. THIS IS AS IT IS ONLY IN TH AT CASE THAT 28(I) WOULD COME INTO PLAY, NECESSITATING COMPUTATION OF INCOME, INCLUDING LOSS, ASSESSABLE UNDER CHAPTER IV - D OF THE ACT, HAVING REGARD TO SECTIONS 145 AND 145A THEREOF. WHERE, THEREFORE, NO BUSINESS IS ACTUALLY UNDERTAKEN, T HERE IS NO QUESTION OF LOSS ON VALUATION OF SHARES , OR OF IT BEING TAKEN INTO ACCOUNT IN DETERMINING BUSINESS INCOME ASSESSABLE U/S.28. AN ASSESSEE INTENDING TO CONTINUE BUSINESS (AFTER THE BAR PERIOD) MAY THEREFORE CONTINUE TO REGARD THE SHARES AS STOCK - 6 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT IN - TRADE AND VALUE THE SAME AS PER THE ACCOUNTING PRINCIPLES, I.E., AT CO ST OR MARKET VALUE, WHICHEVER IS LESS . THERE WOULD, HOWEVER, BE NO COMPUTATION OF BUSINESS INCOME (OR INCOME FROM THE SAID BUSINESS) UNDER THE ACT, RENDERING THE SAID VALUATION OF NO CONSEQUENCE. WE ARE, WHEN WE SAY SO, ALIVE TO THE FACT THAT THE HOLDING OF THE SHARES COULD ITSELF BE A POSITIVE, AS AGAINST A PASSIVE, ACT, I.E., A RESULT OF A CONSCIOUS DECISION TO HOLD ON TO THE SHARES HAVING REGARD TO THE PREVAILING MARKET AND FUTURE PROSPECTS THEREOF , AND NOT DISPOSE THE SAME, IN WHICH CASE THE HOL D DECISION ITSELF BECOMES A BUSINESS DECISION, INDICATIVE OF THE ASSESSEE BEING IN BUSINESS. THE FACTS OF THE CASE , AND IN THEIR ENTIRETY , WOULD NEED TO BE EXAMINED. COMING TO THE FACTS OF THE CASE, THERE IS FIRSTLY AN EMBARGO ON THE PURCHASE AND THE SALE OF S HARES , WHICH THE ASSESSEE HAS ADMITTEDLY AND, IN ANY CASE, IMPLIEDLY OBSERVED. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE COULD, EVEN IF INTENDED TO, OPERATE IN THE RELEVANT MARKETS , I. E., HELD VALID AND CURRENT LICENSES/PERMITS BY THE RELEVANT / MARKET ORGANISATIONS, VIZ. BSE, NSE, ETC., WHICH CAN ONLY BE PRESUMED TO BE AWARE OF THE SEBI ORDER; RATHER, WOULD STAND TO BE SERVED ON THEM AS WELL . ALSO WOULD ARISE THE QUESTION IF THE ASSESSEE COULD, IN VIEW OF THE RESTRAINT, PASS A LEGALLY VALID TITLE TO THE TRANSFER EE OF SHARES. FURTHER, NO DOUBT THE ASSESSEE HAS RETURNED AND BEEN ASSESSED FOR BUSINESS INCOME U/S. 28 (I) . THE ASSESSEE HAS HOWEVER CLARIFIED THAT THE SAME IS ONLY IN RESPECT OF TRADES EXECUTED BY THE PLEDG E E/S. THE SALE EXECUTED BY A PLEDGEE , WHO IS ONLY REALIZING ITS DUES BY SELLING THE SHARES HELD AS SECURITY, CANNOT BE, BY ANY STRETCH OF IMAGINATION, CONSIDERED AS A SALE IN THE CO URSE OF ITS BUSINESS BY THE ASSESSEE - DEBTOR. THE CREDITOR, IT NEEDS TO BE APPRECIATED, IS ONLY REALIZING HIS SECURITY, AND ITS CHARACTER, I.E., EITHER AS A TRADING OR CAPITAL ASSET , IN THE HANDS OF THE ASSESSEE, IS IRRELEVANT AS FAR AS HE IS CONCERNED. IN OTHER WORDS, THE ASSESSMENT OF BUSINESS INCOME , ARISING THUS , IN T HE ASSESSEE S HANDS CANNOT BE REGARDED AS EITHER A CONDUCT OF BUSINESS BY IT, OR EVEN A N EXPRESSION OR MANIFESTATION OF ITS INTENT TO DO BUSINESS. EXAMINING ITS CONDUCT, WE FIND THE ASS ESSEE HAS BEEN CONTINUOUSLY , I.E., SINCE F.Y. 2000 - 01 (THE PREVIOUS YEAR RELEVANT TO A . Y . 2001 - 02), SELLING SHARES, SO 7 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT THAT IT IS LEFT WITH ONLY TWO SHARES, VALUATION OF WHICH IS UNDER QUESTION , AND WHICH, AS IT APPEARS, IS FOR THE REASON THAT THE SAME A RE NOT UNDER PLEDGE AND, IN ANY CASE, HAVE NO VALUE . THE ASSESSEE IS THUS CLEARLY IN LIQUIDATION MODE, REALIZING IT S ASSETS, INCLUDING INVESTMENTS (REFER : ASSESSMENT ORDER , PARA 5 ), WITH A VIEW TO DISCHARGE ITS LIABILITIES AND, UNDERSTANDABLY , CONTAIN LOSSES . COUPLE THIS WITH THE FACT THAT IT HAS HUGE LOSSES, AS APPAR ENT FROM THE ORDER BY THE TRIBUNAL (SUPRA) IN ITS CASE (WHICH SPEAKS OF CUMULATIVE LOSSES AT RS. 1826 CRORES , AT PARA 9.1 ) , SO THAT IT (COMPANY) CANNOT SUSTAIN ITSELF IN BUSINESS WHICH IT IS EVEN OTHERWISE BARRED FOR A LONG PERIOD OF 14 YEARS, WITHOUT RE CAPITALIZATION , AND IT IS UNMISTAKABLY CLEAR THAT IT , EMBROILED AS IT IS IN COMPLETE FINANCIAL MESS AND LEGAL WRANGLES, IF NOT ALSO PROBES, IS NO LONGER IN BUSINESS ; RATHER, IS EXIT ING IT . THE HOLD DECISION , IF IT COULD BE SO CALLED, IS , UNDER THE CIRCUMSTANCES , ONLY A CONCOMITANT OF THE RELEVANT SHARES CARRYING NO VALUE (IF UNDER PLEDGE) AND/OR BEING UNABLE TO SELL (WHERE NOT UNDER PLEDGE ) . THE ASSESSEE BEING PRECLUDED FROM TRANSACTING A NY BUSINESS, THERE IS IN FACT NO BUSINESS IN THE EYES OF LAW. C ONCOMITANT LY, THE SHARES UNDER QUESTION CANNOT BE REGARDED AS STOCK - IN - TRADE. IN FACT, E VEN WHERE REGARDED AS SO, THE ASSESSEE HAVING NOT UNDERTAKEN ANY BUSINESS DURING THE YEAR , THE QUESTION OF DETERMINING ITS BUSINESS INCOME, VALUING THE STOCK - IN - TRADE, ALSO DOES NOT ARISE. IT COULD BE ARGUED THAT THE SHARE S UNDER REFERENCE MAY HAVE BEEN REGARDED AS STOCK - IN - TRADE FOR THE IMMEDIATELY PRECEDING YEAR. T HERE IS FIRSTLY NO FINDING BY THE TRIBUNAL TO THIS EFFECT . TWO, WE HAVE ALREADY NOTED THAT THE TRIBUNAL (FOR THAT YEAR) WAS NOT AWARE OF THE LEGAL BAR INFLICTED ON THE ASSESSEE. W E HAVE , IN FACT, IN ARRIVING AT OUR DECISION QUA THE ASSESSEE BEING IN EXIT MODE AND NO LONGE R IN BUSINESS, TAKEN INTO ACCOUNT THE CONSPECTUS OF THE CASE, INCLUDING ITS C ONDUCT OVER THE EARLIER PERIODS AS WELL. THE LOSS WOULD CONSEQUENTLY ONLY BE A LOSS IN THE VALUE OF A CAPITAL ASSET, I.E., A CAPITAL LOSS BY DEFINITION. IN - AS - MUCH AS SUCH LOSS , UNDER THE PROVISIONS OF THE ACT , ARISES ONLY ON THE TRANSFER OF THE ASSET, TO WHICH THE STATED VALUATION PRINCIPLE (OF COST OR MARKET VALUE, WHICHEVER IS LESS) DOES NOT APPLY, THE SAME WOULD NOT STAND TO BE COMPUTED UNDER THE ACT, MUCH LESS CAR RY FORWARD. THE 8 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT QUESTION OF ANY P ART OF THE IMPUGNED LOSS BEING SPE CULATIVE IN NATURE , I.E., U /S. 73 OF THE ACT WOULD ALSO, CONSEQUENTLY, NO T ARISE . THE ASSESSMENT OF THE GAIN ON SALE OF PLEDGED SHARES, RIGHTLY ASSESSABLE AS INCOME FROM OTHER SOURCES, AS BUSINESS INCOME BY THE REVENUE, WOULD NOT BE FATAL TO OUR FINDINGS. THE ASSESSEES ARGUMENT (BEFORE US) THAT THE REVENUE HAD NOT CONSIDERED THE LE GAL BAR ON IT TO TRANSACT BUSINESS (BY SEBI), WHICH (BAR) IS AN ADMITTED FACT, WOULD BE TO NO MOMENT. IS IT SO FOR THE REASON THAT THE ASSESSEE HAS FAILED TO DISCLOSE THE SAID FACT THERETO ? WHERE SO, IT COMMITS ITSELF TO PERJURY, CONCEALING A CRUCIAL FACT MATERIAL TO THE COMPUTATION OF ITS INCOME FROM THE REVENUE, WITH IMPLICATIONS FOR PENALTY AND PROSECUT ION PROCEEDINGS UNDER THE ACT. FURTHER, HOW DOES IT THEN RELY ON THE DECISION IN K N P SECURITIES PVT. LTD. (SUPRA)? THIS PERHAPS ALSO EXPLAINS THE ASSESSM ENT OF THE PROFIT ON THE SALE OF SHARES BY THE REVENUE AS BUSINESS INCOME. ON THE OTHER HAND, IT COULD BE THAT THE REVENUE HAS NOT REGARDED THIS FACT AS RELEVANT. THE SAME IS, IN FACT, EXTREMELY UNLIKELY IN - AS - MUCH AS THERE IS EVEN NO REFERENCE TO THE SA ID FACT - WHICH RATHER SUPPORTS THE REVENUES CASE AS THE SAID BAR ONLY FOLLOWS AND INDICTS THE ASSESSEE - COMPANY OF BEING INVOLVED IN THE SECURITIES SCAM - IN THE ASSESSMENT AND THE PENALTY ORDER. EVEN ASSUMING THAT IT REGARDS IT AS NOT RELEVANT, THE QUEST ION IS: DOES IT BAR THE TRIBUNAL FROM CONSIDERING IT AS SO ? SURELY, NOT. WE HAVE , ON A FACTUAL AND LEGAL EXAMINATION OF THE ISSUE , FOUND THE ASSESSEE AS HAVING NOT UNDERTAKEN ANY BUSINESS DURING THE YEAR; RATHER, CANNOT BE SAID TO BE IN BUSINESS. THE SAID FACT (OF LEGAL EMBARGO) IN FACT EXPLAINS THE ASSESSEES CONDUCT. THE ARGUMENT WOULD THUS BE OF NO ASSISTANCE TO THE ASSESSEE. BEFORE PARTING WITH OUR ORDER, WE MAY ADD THAT OUR DECISION MAY NOT APPEAR TO AGREE WITH THAT BY THE TRIBUNAL IN K N P SECURITIES PVT. LTD . (SUPRA) , WITH WHICH WE HAVE RATHER CLARIFIED AS BEING - IN RATIO IN HARMONY . THE SAID DECISION IS, AS EXPLAINED, DISTINGUISHABLE ON FACTS . IN THAT CASE THE APPELLANT - COMPANY WAS HOLDING VALID LICENCE/S TO TRANSACT BUSINESS, AND THERE WAS A POSI TIVE ACT OF INCURRING EXPENDITURE TOWARD MAINTAIN ING ITS ESTABLISHMENT , WHICH COULD BE UNDER THE CIRCUMSTANCE OF IT BEING IN APPEAL AGAINST THE BAR CONSIDERED AS INCURRED IN THE 9 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT COURSE OF ITS BUSINESS AND, THUS, DEDUCTIBLE . THERE IS, IN CONTRADISTINCTION, ABSENCE OF ANY SUCH POSITIVE ACTION AND NO UNDERTAKING OF BUSINESS IN THE PRESENT CASE. THE ASSESSEE HAS FURTHER NOT SHOWN TO BE ABLE TO, DESPITE THE BAR, UNDERTAKE BUSINESS. WE HAVE RATHER FOUND IT AS OVERWHELMED AND INUNDATED B Y DEBT AND LOSSES , ERODING ITS CAPITAL AND THE CAPACITY TO OPERATE , SO THAT IT, UNDER LIQUIDATION, COULD NO LONGER BE REGARDED AS IN BUSINESS. 5 . THE ONLY OTHER ISSUE IN APPEAL IS IN RESPECT OF THE CHARGE OF INTEREST U/S. 234B OF THE ACT (VIDE GD. 2). THE CHARGE IS MANDATORY (REFER: CIT VS. ANJUM M. H. GHASWALA AND OTHERS [2001] 252 ITR 1 (SC)), AND WHICH PERHAPS ALSO EXPLAINS THE NON PRESSING OF THIS G ROUND BY THE LD. C OUNSEL DURING HEARING. WE DECIDE ACCORDINGLY, EVEN AS THE ASSESSEE WOULD GET CO NSEQUENTIAL RELIEF, I.E., IN RESPECT OF THE ADDITION ( QUA DIVIDEND AT RS.12.14 LACS) DELETED BY THE LD. CIT(A) AND AGAINST WHICH THE REVENUE IS NOT IN APPEAL. 6 . WE DECIDE ACCORDINGLY , DISMISSING THE ASSESSEES APPEAL . PENALTY A PPEAL (IN ITA NO. 2374/MUM/2012) 7 . THE PENALTY IN THE INSTANT CASE HAS BEEN LEVIED U/S. 271(1)(C) OF THE ACT IN THE SUM OF RS.15,75,000/ - ON THE FOLLOWING ADJUSTMENTS TO THE RETURNED INCOME, I.E., AT MINIMUM (100%) OF THE TAX SOUGHT TO BE EVADED, WHICH WORKS TO RS.15,74,576/ - : A) LOSS ON SHARE TRADING RS.20,48,450/ - B) C LAIM FOR C APITAL LOSS RS.23,40,000/ - TOTAL RS.43,88,450/ - EVEN AS THE ASSESSEE BEFORE US CONTESTS THE ENTIRE LEVY, NO ARGUMENTS WERE MADE WITH REGARD TO THE ADJUSTMENT ON ACCOUNT OF CAPITAL LOSS , AS WAS THE CASE BEFORE THE FIRST APPELLATE AUTHORITY, THE ADDITION IN RESPECT OF WHICH, SINCE CONFIRMED BY IT, STANDS ACCEPTED BY THE ASSESSEE IN - AS - MUCH AS NO APPEAL HAS BEEN PREFERRED BY IT QUA THE SAME BEFORE ANY APPELLATE AUTHOR ITY. THE PENALTY LEVIED THEREON; THE FACTS AS WELL AS THE LEGAL POSITION BEING ADMITTED, IS ACCORDINGLY CONFIRMED. 10 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT AS REGARDS THE ADJUSTMENT ON ACCOUNT OF LOSS FROM SHARE TRADING, THE ISSUE, AS WOULD BE APPARENT FROM A READING OF THE QUANTUM ORDER, CLEARLY INVOLVES DETERMINATION OF THE CHARACTER OF THE LOSS ARISING TO THE ASSESSEE ON ACCOUNT OF DIMINUTION IN THE VALUE OF SHARES , STATED AS HELD A S STOCK - IN - TRADE, TO WHICH THEREFORE THE VALUATION PRINCIPLE OF COST OR MARKET VALUE (STATED TO BE NIL) , WHICHEVER IS LESS, APPLIES. THE ASSESSEES ACCOUNTS ARE AUDITED, AND IT HAS SPELLED OUT THE RELEVANT FACTS PER ITS RETURN , AND WHICH HAVE NOT BEEN FOU ND AS INC ORRECT OR UNTRUE. THAT IS, THE ASSESSEES EXPLANATION OF THE SHARES BEING VALUED THUS (AT NIL) AS THEY , FORMING PART OF ITS STOCK - IN - TRADE, HAD NO VALUE WHICH (NIL MARKET VALUE) HAS NOT BEEN DISPUTED OR FOUND UNTRUE BY THE REVENUE, CAN ONLY BE REGARDED AS REASONABLE CONSIDERING THE SHARES DID INDEED WERE ACQUIRED AS AND ALSO HELD IN THE PAST AS ITS STO CK - IN - TRADE. THE QUESTION, IN THE ASSESSEES VIEW, THAT ARISES FOR CONSIDERATION, AS EXPLAINED BY THE LD. AR DURING HEARING, IS IF THE SHARES WOULD LOSE THEIR CHARACTER AS STOCK - IN - TRADE DUE TO THE LEGAL BAR ON THEIR SALE? THIS IS TO BE CONSIDERED IN CONJU NCTION WITH ITS EXPLANATION OF BEING REGARDED AS IN BUSINESS IN VIEW OF THE DECISION IN VELLORE ELECTRIC CORPORATION LTD. (SUPRA). THE SAME CANNOT BE REGARDED AS NOT REASONABLE EVEN AS THE ISSUE ON MERITS WOULD REQUIRE CONSIDERATION OF OTHER RELEVANT ASPEC TS , AS EXPLAINED IN OUR DECISION ADJUDICATING THE QUANTUM PROCEEDINGS. FURTHER, FOLLOWING THE SAME, THE GAIN ON SALE OF SHARES WOULD STAND TO BE ASSESSED AS BUSINESS INCOME, AS RETURNED, WHICH IS ADEQUATE TO ABSORB THE IMPUGNED LOSS. THERE WOULD THUS BE NO OCCASION TO INVOKE EXPLANATION TO SECTION 73 OF THE ACT. AS SUCH, EVEN AS IT IS CLEAR THAT THE ASSESSEE HAD WITHHELD THE SEBI (OR EVEN SAT) ORDER/S FROM THE REVENUE, WHICH ARE MATERIAL TO ITS ASSESSMENT, SO THAT THE MATTER WITH REGARD TO THE LEVY OF PENA LTY OUGHT TO BE RESTORED TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH, WE DO NOT CONSIDER IT AS SO IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE ARE THEREFORE OF THE CLEAR VIEW THAT DESPITE THE SAID WITHHOLDING, ON THE BASIS OF WHICH FACT (OF LEGAL BAR) THE ASSESSEE IN FACT SUPPORTS ITS CASE ON QUANTUM, N O CASE FOR THE LEVY OF PENALTY QUA THIS ISSUE IS MADE OUT. WE DECIDE ACCORDINGLY. 11 ITA NOS. 2374/MUM/2012 & 2849/MUM/2008 (A.Y.2005 - 06) PANTHER FINCAP & MANAGEMENT SERVICES LTD. VS. ASST. CIT 8 . IN THE RESULT, THE ASSESSEES APPEAL (IN QUANTUM) IS DISMISSED , AND THAT CHALLENGING THE LEVY OF PENALTY U/S. 271(1)(C) IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 20 , 2016 SD/ - SD/ - ( AMARJIT SINGH ) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 20 .07.2016 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI