RAJESH BEGUR, MUMBAI V. ASST CIT 11(3), MUMBAI

ITA 2569/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2013 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: DEEPAK TRASHQWALA
• Keywords: Earning of tax free income; Wrong claim; Avoidance of tax
• Section: 143(3); 142(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR , AM ITA NO . 2569/MUM/2014 ITA NO.2570/MUM/2014 (A.Y: 20 09 - 10 ) RAJESH BEGUR C/O. ARA LAW, THE CAPITAL, 1001 - C, B - WING, BANDRA KURLA COMPLEX, BANDRA (E) , MUMBAI - 400051 VS. ASST CIT 11 (3) AAYKAR BHAVAN, M.K. ROAD MUMBAI - 400020 PAN: AACPB3190L APPELLANT .. RESPONDENT ASSESSEE BY .. SHRI DEEPAK TRASHQWALA , AR REVENUE BY .. SHRI B.S BIST , SR. DR DATE OF HEARING .. 16 - 11 - 2016 DATE OF PRONOUNCEMEN T .. 16 - 11 - 2016 O R D E R PER MAHAVIR SINGH , JM : THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF THE DIFFERENT ORDERS OF THE CIT (A) - 2, MUMBAI IN APPEAL NO S . CIT (A) - 2 /IT - 362/2011 - 12 & CIT (A) - 2/IT - 31/2012 - 13 , BOTH OF EVEN DATE 05 - 12 - 2013 . ASSE SS MEN T W AS FRAMED BY THE ACIT CIRCLE 11(3), MUMBAI FOR A.Y. 200 9 - 10 VIDE HIS ORDER DATED 22 - 12 - 2011 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HERE IN AFTER THE ACT). THE PENALTY UNDER DISPUTE WAS LEVIED BY ACIT CIRCLE 11(3), MUMBAI U/S 271 (1) (C) OF THE ACT V IDE HIS ORDER DATED 21 - 11 - 2016. 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE A SSESSEE STATED THAT HE HAS INSTRUCTION S FROM THE ASSESS EE NOT TO PRESS THE Q UANTUM APPEAL FILED BY ASSESSEE IN ITA NO. 2569/MUM/2014 FOR THE A.Y. 2009 - 10. ACCORDINGLY, HE REQUESTED THAT THE SAME MUST BE DISMISSED A S WITHDRAWN. ON QUERY FROM THE BENCH, THE LEARNED SR. DR HAS NOT OBJECTED TO THE WITHDRAWAL OF THE APPEAL. IN VIEW OF THE ABOVE , WE DISMISS ASSESSEES APPEAL IN ITA NO. 2569/MUM/2014 AS WITHDRAWN. 3. THE ON LY ISSUE IN THE APP EAL OF ASSESSEE IN ITA NO. 2570/MUM/2014 IS AS REGARDS TO THE ORDER OF CIT (A) CONFIRMING THE LEVY OF PENALTY U/S 271(1) (C) OF THE ITA NO.2569 & 2570 /MUM/2014 2 ACT BY THE AO IN RESPECT OF CLAIM OF SHORT - TERM CAPITAL LOSS EVEN THOUGH THE PROVISIONS OF SECTION 94(7), CLEARLY DISALLOW T HIS LOSS. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL , WHO IS A PRACTICING ADVOCATE. THE ASSESSEE HAS DECLARED INCOME CONSISTING OF INCOME FROM HOUSE PROPERTY , INCOME FROM BUSINESS , CAPITAL GAIN S AND INCOME FROM OTHER SOURCES . THE A SSESSEE FOR THE YEAR UNDER CONSIDERATION FILED E - RETURN OF INCOME DECLARING TAXABLE INCOME OF RS. 1,75,41,782 / - BESIDES DECLARING CAPITAL L OSS OF CURRENT YEAR TO BE CARR I ED FORWARD AT RS.1,25,52,708/ - WHICH COMPRISES OF AMOUNTING TO RS.52,60,736 / - UNDER THE HEAD OF SHORT TERM CAPITAL LOSS AND AMOUNTING TO RS. 72,91,972 / - UNDER THE HEAD OF LONG TERM CAPITAL LOSS ARISING FROM SALE OF SHARES AND UNIT OF MUTUAL FUNDS. THE AO ISSUED NOTICE U/S 142(1) DATED 11 - 11 - 2011 AND REQUIRED ASSESS E E TO EXPLAIN AMONG ST OTHERS , TO GIVE EXPLA N ATION AND EVIDENCES , AS TO HOW CONDITIONS OF SECTION 94(7) OF THE ACT AND ARE NOT SATISFIED. THE ASSESSEE AFTER VERIFYING THE DETAILS IN RESPECT OF CAPITAL LOSS ON SALE OF SHARES AND UNITS OF MUTUAL FUNDS AGREED BEFORE THE AO THAT OUT OF NU MEROUS TRANSACTIONS, THREE TRANSACTIONS RELATING TO KOTAK FLEXI DEBT SCHEME, IDFC DYNAMIC FUND AND CANARA REBACO INCOME G ROWTH FUND COMES UNDER THE PROVISIONS OF SECTION 94(7) OF THE ACT AND HE VOLUNTARILY VIDE LETTER DATED 25 - 11 - 11 REQUESTED THE AO TO RED UCE THE SHORT - TERM CAPITAL LOS S DECLARED BY ASSESSEE A T RS.6,49,8 73 / - AND ONLY TO ALLOW THE NET LOSS OF RS. 1,8,92,815 / - TO BE CARRIED FORWARD. ACCORDI NGLY, AO REDUCED THE SUM OF RS. 6,49,873 / - FROM SHORT TERM CAPITAL LOSS BY OBSERVING AS UNDER: - IT IS SE EN FROM THE DETAILS OF SHORT TERM CAPITAL GAINS THAT THE ASSESSEE HAS INCURRED LOSS IN THE UNITS OF SCHEME AS PER DETAILS SUBMITTED. ACCORDINGLY, THE ASSESSEE WAS ASKED TO SHOW CAUSE REGARDING THE APPLICABILITY OF SECTION 94(7) . IN RESPONSE, THE AR HAS ADM ITTED THAT THE ASSESSEE HAD RECEIVED DIVIDEND ON UNITS AS PER DETAILS SUBMITTED AND THE LOSS WAS DISALLOWABLE AS THE SALE/PURCHASE WAS WITHIN THE STIPULATED PERIOD. ITA NO.2569 & 2570 /MUM/2014 3 COMPANY SHORT TERM CAPITAL GAIN DIVIDEND LOSS TO BE IGNORED U/S 94(7) KOTAK FLEXI DEBT S CHEME 1,70,00,000/ - 2,84,768/ - 54,204/ - IDFC DYNAMIC FUND 70,00,000/ - 1,76,987/ - 24,617/ - CANARA ROBECO INCOME FUND 2,00,000,000/ - 8,05,441/ - 5,71,052/ - TOTAL 6,49,873/ - THE AO ALSO INITIATE D THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FURN ISHING INACCURATE PARTICULARS OF INCOME. 5. THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME BE NOT LEVIED. THE ASSESSEE REPLIED THAT THE SHORT - TERM CAPITAL LOSS DECLARED BY AS SESS EE IN ITS RETURN DUE TO INADVERT ENCE AND THE PROVISION OF SECTION 94(7) OF THE ACT WAS NOT APPLIED. ACCORDING TO ASSESSEE , HE HAS RECEIVED DIVIDEND OF UNITS AS PER DETAILS SUBMITTED AND LOSS WAS THE DISALLOWABLE AS THE SALES/PURCHASES WERE WITHIN THE S TIPULATED PERIOD. IT WAS CLAIMED BEFORE THE AO THAT THIS IS AN INADVERTENT AND BONAFIDE AND GENUINE MISTAKE OF NOT INVOKING OF SECTION 94(7) OF THE ACT IN RESPECT OF JUST THREE TRANSACTIONS OUT OF VOLUMINOUS T RANSACTIONS . E VEN THE AUDITOR IN HIS TAR A ND ON THE BASIS OF WHICH THE RETURN IS FILED , COULD NOT RECORD THIS MISTAKE OR COULD NOT POINT OUT THIS MISTAKE. BUT THE AO HAS NOT ACCEPTED THE EXPLANATION OF ASSESSEE AND LEVIED PENALTY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF 100% TAX . ACCORDINGLY, HE LEVIED PENALTY AMOUNTING TO RS.2,20,892/ - . AGGRIEVED , ASSESSEE PREFERRED APPEAL BEFORE CIT (A), WHO ALSO CONFIRMED THE ACTION OF AO BY OBSERVING IN PARA 8 AS UNDER: - 8. IT IS NOT IN DISPUTE THAT THE APPELLANT HAS MADE A WRONG CLAIM W ITH REGARD TO THE SHORT TERM CAPITAL LOSS BY DISREGARDING THE PROVISIONS OF SECTION 94(7) OF THE INCOME - TAX ACT. THIS WRONG CLAIM IS DETECTED BY THE PROCESS OF SCRUTINY CARRIED OUT BY THE A.O. IT IS A SETTLED ISSUE THAT INCOME INCLUDES LOSS AND, THEREFORE, EVEN A WRONG CLAIM OF LOSS HAS TO BE SUBJECTED TO THE SCRUTINY AND THE APPLICABLE LEGAL CONSEQUENCES. AS CAN BE SEEN, SECTION 94(7) OF THE ACT IS ONE OF THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. ANTI - AVOIDANCE LEGISLATION IS ENACTED SO AS TO P REVENT THE ACTIONS OF TAXPAYERS THAT WOULD RESULT IN REVENUE LOSS, WHILE UNDULY BENEFITING THE TAXPAYERS. IN THIS CASE, THE APPELLANT IS BENEFITED BY THE EXEMPT INCOME IN THE FORM OF DIVIDENDS SECTION 94(7) OF THE ACT IS INTENDED TO PREVENT THE CLAIM OF SH ORT TERM CAPITAL LOSS IN THE TRANSACTION OF SECURITIES, WHICH ARE HELD FOR A SHORT PERIOD AND YIELD ITA NO.2569 & 2570 /MUM/2014 4 INCOMES. IN OTHER WORDS, THE TRANSACTIONS OF DIVIDEND STRIPPING AND SALE OF SECURITIES FOR A CONSIDERATION LOWER THAN THE PURCHASE PRICE, RESULTING IN CAPIT AL LOSS WAS FOUND TO BE DETRIMENTAL TO THE INTERESTS OF THE REVENUE AND, THEREFORE, SUCH LOOP HOLE WAS PLUGGED BY THE LEGISLATION SECTION 94(7) OF THE ACT. HAVING REGARD TO THESE IMPORTANT ASPECTS OF THE LEGISLATIVE INTENT, TRANSACTIONS OF THIS NATURE HAVE TO BE CARRIED OUT AS CONSCIOUS DECISIONS OF EARNING DIVIDEND INCOME AND SIMULTANEOUSLY & CONSCIOUSLY FOREGOING THE CLAIM OF LOSS ARISING FROM THE SALE OF SECURITIES AS REFERRED TO U/S 94(7) OF THE ACT. THE VERY PURPOSE OF ANTI - AVOIDANCE LEGISLATION IS DEF EATED IN CASES WHEREIN, THE TAXPAYERS DISREGARD THE SPECIFIC PROVISIONS U/S 94(7) AND WRONGLY COMPUTE AND CLAIM THE SHORT TERM CAPITAL LOSSES. IN VIEW OF THIS LEGAL POSITION, IT IS HEREBY HELD THAT THE APPELLANT HAS MADE A WRONG CLAIM, WHICH CANNOT BE TERM ED AS AN INADVERTENT MISTAKE. HAVING REGARD TO THESE FACTS AND THE LEGAL POSITION, THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT FOUND TO BE APPLICABLE TO THIS CASE. SINCE THE APPELLANT HAS MADE A WRONG CLAIM OF SHORT TERM CAPITAL LOSS, BY DISREGARDI NG SPECIFIC ANTI - AVOIDANCE PROVISIONS CONTEND U/S 94(7) OF THE ACT, IT IS HEREBY HELD THAT LEVY OF CONCEALMENT PENALTY IS JUSTIFIED. ACCORDINGLY, PENALTY LEVIED U/S 271(1)(C) OF THE INCOME - TAX ACT IS HEREBY CONFIRMED. AGGRIEVED ASSESSEE IS NOW IN SECOND A PPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE FACT S OF THE CASE ARE THAT THE ASSESSEE DECLARED CAPITAL LOSSES OF CURRENT YEAR TO BE CARRIED FORWARD, WHICH COMPRISED OF RS.52,60, 736/ - UNDER SHORT - TERM CAPITAL LOSS AND RS.72,91,972/ - UNDER LONG - TERM CAPITAL LOSS, BOTH ON SALE OF SHARES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON A SPECIFIC QUERY EXPLAINED BEFORE AO THAT AFTER VERIFICATION OF ENTIRE DETAILS IN RESPECT OF CAPITAL GAINS/LOSS ON SALE OF SHARES AND UNITS OF MUTUAL FUNDS, THE ASSESSEES TAX CONSULTANT MR. SAMEER P. BHAGAT NOTICED THAT OUT OF NUMEROUS TRANSACTIONS, THREE OF THE TRANSACTIONS RELATING TO KOTAK FLEXI DEBT SCHEME, ID FC DYNAMIC FUND AND CANARA REBACO INCOME GROWTH FUND LOSSES CLAIM FALLS UNDER THE MISCHIEF OF SECTION 94(7) OF THE ACT AND IS TO BE DISALLOWED. ACCORDINGLY, THE SAME WAS DISALLOWED BY THE ASSESSEE HIMSELF VIDE LETTER DATED 25 - 11 - 2011 REQUESTING THE AO TO R EDUCE THE AGGREGATE LOSS DECLARED BY ASSESSEE AND CLAIMED TO BE CARRIED FORWARD BY AN AMOUNT OF RS.6,49,873/ - . IN SUCH FACTS, IT IS SIGNIFICANT TO NOTE THAT THE QUANTUM OF SHORT - TERM AND LONG - TERM CAPITAL LOSS CLAIMED TO BE CARRIED FORWARD HAS NOT AT ALL A FFECTED THE QUANTUM OF INCOME ASSESSED AS COMPARED TO RETURN INCOME. THE REDUCTION IN THE ITA NO.2569 & 2570 /MUM/2014 5 QUANTUM OF LOSS TO BE CARRIED FORWARD HAS NO EFFECT ON REDUCING THE TAXABLE INCOME FOR THE A.Y. UNDER CONSIDERATION AS DETERMINED BY THE AO. FURTHER, WE ARE OF THE VI EW THAT THE ASSESSEE FILED EXPLANATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS TO HOW THIS CLAIM OF LOSS TO BE CARRIED FORWARD WAS IN ADVERTENTLY CLAIMED ON WRONG PREMISE THAT THE PROVISIONS OF SECTION 94(7) OF THE ACT WILL NOT APPLY. IT WAS ALSO EX PLAINED THAT THIS ENTRY IS TAX NEUTRAL FOR THE YEAR UNDER CONSIDERATION. IN OUR VIEW, IN THE GIVEN FACTS OF THE CASE THAT THE ASSESSEE VOLUNTARILY REDUCED THE LOSS CLAIMED TO BE CARRIED FORWARD VIDE LETTER DATED 25 - 11 - 2011 REQUESTING THE AO TO REDUCE THE A GGREGATE LOSS BY THE AMOUNT OF RS.6,49,873/ - . CONSIDERING ALL THESE FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS VOLUNTARILY REDUCED THE CLAIM OF LOSS BEFORE DETECTION OF CONCEALMENT IN THE COURSE OF ASSESSMENT PROCEEDINGS AND ON CONSIDERATION OF CONDUC T OF ASSESSEE RIGHT FROM REDUCTION OF LOSS BY FILING A LETTER BEFORE THE AO, BEFORE POINTED OUT BY THE AO SPECIFICALLY DISALLOWANCE OF LOSS U/S 94(7) OF THE ACT, SEEMS BONAFIDE OF ASSESSEE, WHICH IS APPARENT. ACCORDINGLY, THIS PENALTY LEVIED BY AO AND CONF IRMED BY CIT (A) DESERVES TO BE DELETED. HENCE, WE DELETE THE PENALTY AND ALLOW THE APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.2569/MUM/2014 IS DISMISSED AS WITHDRAWN AND APPEAL IN ITA NO.2570/MUM/2014 IS ALLOWED . ORDER P RONOUNCED IN THE OPEN COURT ON 16 - 11 - 2016 . BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI SD / ( RA JESH KUMAR ) ACCO U NTANT MEMBER MUMBAI, DATED: 16 - 11 - 2016 SUDIP SARKAR /SR.PS SD / ( M AHAVIR SINGH ) JUDICIAL MEMBER COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//