M/s. Mahipat Raichand Sharebroking Pvt. Ltd., Ahmedabad V. The ACIT., Circle-2(1), Ahmedabad

ITA 2794/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9081 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-09-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 13-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Question of law; Speculation loss
• Section: 271(1)(c); 201; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 8.09.2009 DRAFTED ON: 9.09 .2009 ITA NO.2794/AHD/2006 ASSESSMENT YEAR : 1998-99 MAHIPAT RAICHAND SHARE BROKING PVT. LTD. 701, 702, PREMIUM HOUSE, OFF ASHRAM ROAD, HANDLOOM HOUSE, AHMEDABAD. VS. ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 2(1), AHMEDABAD. PAN/GIR NO. : 31-138-CT-8473 (APPELLANT) .. (RESPONDENT) ITA NO.216/AHD/2007 ASSESSMENT YEAR : 1998-99 ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), AHMEDABAD. VS. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. 701, 702, PREMIUM HOUSE, OFF ASHRAM ROAD, HANDLOOM HOUSE, AHMEDABAD. PAN/GIR NO. : 31-138-CT-8473 (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SANJAY R. SHAH RESPONDENT BY: SHRI M.C.PANDIT SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-III, AHMEDABAD DAT ED 13.10.2006 PASSED IN ASSESSMENT YEAR 1998-99. THE ASSESSEE IS IN APPEAL AGAINST THE LEVY OF PENALTY OF RS.1,62,236/- ON DISALLOWANCE OF SUB-BROKERAGE O F RS. 4,63,532/- AND THE ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 2 - REVENUE IS IN APPEAL AGAINST DELETION OF PENALTY OF RS.5,37,764/- ON DISALLOWANCE OF SHARE TRADING LOSS OF RS.11,84,848/ - BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF SHARE BROKING. IT IS HAVING MEMBERSHIP OF NATIONAL STOCK EXCHANGE. DURING THE PREVIOUS YEAR 1997-98 RELEVANT TO ASSESSMENT YEAR 1 998-99, IT FILED ITS RETURN SHOWING TOTAL INCOME OF RS10,24,137/- ON 20.10.1998 . AFTER CLAIMING DEDUCTION OF LOSS DUE TO TRADING IN SHARES AT RS.11,84,848/. THE LEARNED ASSESSING OFFICER CONSIDERED THE ABOVE LOSS AS SPECULATION LOSS AND D ISALLOWED DEDUCTION FOR THE SAME BUT ALLOWED CARRIED FORWARD OF THE SAME FOR AD JUSTMENT IN SUBSEQUENT YEAR AGAINST SPECULATIVE PROFIT. THE DISALLOWANCE W AS MADE BY THE LEARNED ASSESSING OFFICER BY INVOKING PROVISIONS OF EXPLANA TION TO SECTION 73 OF THE ACT. 3. THE LEARNED ASSESSING OFFICER ALSO DISALLOWED PA YMENT OF SUB-BROKERAGE OR RS.4,63,532/- INCURRED FOR CANVASSING THE BUSINE SS FOR THE ASSESSEE AND INTRODUCING CLIENTS TO THE ASSESSEE. THE DISALLOWAN CE WAS MADE ON THE GROUND THAT EITHER THE PAYEE HAS NOT SHOWN SUFFICIENT INCO ME IN HIS RETURN OR THAT HE HAS SET OFF AGAINST LOSS FROM THE OTHER BUSINESS OR THAT HE HAS NOT FILED HIS RETURN OF INCOME OR THAT HIS ULTIMATE INCOME IS BEL OW TAXABLE LIMIT OR THAT THE DEBIT NOTES IN THE CASE OF ALL THE PAYEES ARE IDENT ICAL, ALTHOUGH ALL OF THEM CONFIRMED THAT THEY HAVE RECEIVED SUB-BROKERAGE FOR DOING BUSINESS THROUGH THE ASSESSEE. IN APPEAL, THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) CONFIRMED THE DISALLOWANCE OF BROKERAGE AND TRADING LOSS. ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 3 - 4. THE LEARNED ASSESSING OFFICER THEREAFTER, ISSUED NOTICE UNDER SECTION 271(1)(C) OF THE ACT AND LEVIED PENALTY OF RS.7 LAC S ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME BY CLAIMING DEDUCT ION OF SUB-BROKERAGE OF RS. RS. 4,63,532/- AND SHARE TRADING LOSS OF RS.11,84,8 48/-. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE PEN ALTY OF RS. 5,37,764/- LEVIED ON DISALLOWANCE OF SHARE TRADING LOSS OF RS. 11,84,848/- BY TREATING IT AS SPECULATIVE LOSS UNDER EXPLANATION TO SECTION 73 OF THE ACT BY OBSERVING THAT FILED A LETTER DATED IN WHICH THE DIFFERING JUDICIA L OPINION WAS CITED AND A REQUEST WAS MADE TO ALLOW THE LOSS TO BE CARRIED FO RWARD, IF IT WAS HELD AS SPECULATIVE IN NATURE. THUS THE ISSUE OF LOSS BEING SPECULATIVE OR TRADING WAS A DEBATABLE ISSUE ON WHICH PENALTY CANNOT BE LEVIED U NDER SECTION 271(1)(C) ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SUSTAINED PENAL TY OF RS. 1,62,236/- ON DISALLOWANCE OF SUB-BROKERAGE OF RS. . 4,63,532/-FO R THE REASON THAT LEARNED ASSESSING OFFICER HAS ELABORATELY DISCUSSED THE REA SONS FOR TREATING THE SUB- BROKERAGE PAYMENT AS NOT RELATED TO THE BUSINESS OF THE ASSESSEE AND THE ASSESSEE HAS NOT CONTROVERTED THE REASONS OF THE LE ARNED ASSESSING OFFICER . 5. BEING AGGRIEVED BY THE SAID ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BOTH REVENUE AND THE ASSESSEE A RE IN APPEAL BEFPRE US. 6. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE FILED BEFORE US A CONSOLIDATED ORDER OF THE TRIBUNAL PASSED IN APPEAL OF THE REVENUE IN ITA NO.3549/AHD/2004 AND THE CROSS OBJECTION OF THE ASS ESSEE IN C.O.273/AHD/2004 IN ASSESSMENT YEAR 1998-99 DATED 2 7.02.2009 AND SUBMITTED THAT THE TRIBUNAL FOLLOWING THE DECISION OF CALCUTTA HIGH COURT IN THE ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 4 - CASE OF CIT VS. ARVIND INVESTMENTS LTD. (1991) 192 ITR 365 (CAL.) CONFIRMED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) DISALLOWING THE LOSS OF RS.11,84,848/- ON TRADING IN SHARES AS SPECULATI VE LOSS INVOKING PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. AS REGARDS D ISALLOWANCE OF SUB-BROKERAGE OF RS.4,63,532/- INCURRED FOR CANVASSING THE BUSINE SS FOR THE ASSESSEE AND INTRODUCING CLIENTS TO THE ASSESSEE, THE TRIBUNAL R ESTORED THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR VERIFICAT ION AS PER DIRECTIONS GIVEN BY THE TRIBUNAL. THE LEARNED ASSESSING OFFICER WHILE GIVING EFFECT TO THE SAID ORDER OF THE TRIBUNAL DELETED THE DISALLOWANCE OF R S.4,63,532/- OBSERVING THAT THIS ISSUE HAS BEEN VERIFIED WITH THE DETAILS FILED BY THE ASSESSEE AND THE SAME IS ALLOWED ACCORDINGLY. HE THEREFORE, PRAYED THAT P ENALTY LEVIED ON SUB- BROKERAGE OF RS.4,63,532/- DISALLOWED BY THE LEARNE D ASSESSING OFFICER SHOULD BE DELETED AS THE ADDITION ITSELF HAS BEEN DELETED BY THE LEARNED ASSESSING OFFICER. WITH REGARD TO THE SHARE TRADING LOSS OF R S.11,84,848/-, TREATED AS SPECULATION LOSS BY INVOKING PROVISION OF SECTION 7 3 OF THE ACT, HE SUBMITTED THAT DISALLOWANCE HAS BEEN MADE BY INVOKING A DEEMI NG PROVISION AND THEREFORE, PENALTY SHOULD NOT BE LEVIED FOR THIS HE RELIED ON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSISTANT COMMISSIONER OF INCOME-TAX, VS. M/S. VARUN FINSTOCK PVT. LTD. ITA N O.757/AHD/2007 IN ASSESSMENT YEAR 2001-02 ORDER DATED 4.09.2009 AND S UBMITTED THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE PENALTY LEVIED WAS DELETED BY OBSERVING AS UNDER:- THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) DATED 23NOVEMBER, 2006 FOR ASSESSMENT YEAR 2001-02, BY TA KING THE FOLLOWING EFFECTIVE GROUND OF APPEAL: THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CANCEL ING THE PENALTY OF RS.5,39,620/-LEVIED U/S 271(1)(C) OF THE I.T. ACT. ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 5 - 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE PURCHASED 75800 SHARES OF SHARDUL SECURITIES LTD. @ RS.22/-PER SHARE FOR A TOTAL CONSIDERATION OF RS.16,67,600/-. THESE SHARES WERE HELD AS A CLOSING STOCK AS ON 31- 03-2001 WHEN THE MARKET VALUE FELL TO RS.4/-PER SHA RE. THESE SHARES WERE VALUED AT RS.3,03,200/-AND WERE SHOWN IN THE TRADING ACCOUNT AS WELL AS IN THE BALANCE-SHEET AT RS.3,03,200/-. THUS THE ASSESSEE INCURRED A LOSS OF RS.13,64,400/- . THE AO TOOK THE VIEW THAT THIS LOSS IS A SPECULATION LOSS IN VIEW OF THE PROVISIONS OF EXPLANATION TO SECTION 73 AND ALLOWED IT TO BE CARRIED FORWARD FOR BEING SET OFF AGAINST THE SPECULATION PROFIT OF THE SUBSEQUENT ASSESSMENT YEARS. ON THE BASIS OF THESE FACTS THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT, 19 61. THE AO ISSUED A SHOW CAUSE NOTICE. THE ASSESSEE SUBMITTED ITS WRITTEN SUBMISSI ONS VIDE LETTER DATED 04-11-2005 AND EXPLAINED THAT THE ASSESSEE CLAIMED THE LOSS IN THE P&L ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. IN SCHEDULE-I TO THE P&L ACCO UNT, SHARE TRADING HAS BEEN SHOWN WHERE THE DETAILS OF PURCHASE OF ABOVE STOCK AND TH E VALUE OF THE SAME CLOSING STOCK HAS BEEN MENTIONED. THEREFORE, THE ASSESSEE HAS DIS CLOSED ALL MATERIAL FACTS REQUIRED FOR COMPUTATION OF INCOME. THE ASSESSEE HAS ALSO SU BMITTED THAT THE ABOVE LOSS HAS NOT BEEN CLAIMED ON THE BASIS OF ANY FACT WHICH IS FOUND TO BE FALSE. NEITHER THE CLAIM HAS BEEN MADE BY SUPPRESSING CERTAIN FACTS. HOWEVER , THE AO DID NOT ACCEPT THE ASSESSEES CONTENTIONS AND LEVIED THE PENALTY OF RS .5,39,620/-U/S 271(1)(C) OF THE ACT. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CANCELLED THE PENALTY BY OBSERVING AS UNDER: 8. I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THERE ARE DIVERGENT OPINIONS OF COURTS ON THE ISSUE. SOME OF THE DECISIONS IN FAVOU R OF THE APPELLANT ARE AS UNDER: (I) SWAMINI LEASING & LNV. (P) LTD. VS. JCIT, ITAT D BENCH, MUMBAI, ITA NO.21 50/MUM/2000 DATED 26.5.2004. (II) DCIT VS. VENKATESHWAR LNV. & FINANCE(P) LTD., 92 TTJ CAL (SB) 1129 (III) GODAVARI CAPITAL LTD. VS. DCIT. (IV) AMAN PORTFOLI (P) LTD. VS DCIT, 82 TTJ 351 (DE L) (V) HSBC SECURITIES & CAPITAL MARKET (I) PVT. LTD. VS JCIT, ITA NO.3386/MUM/2001. (VI) DCIT VS. CONCORD COMMERCIALS PVT. LTD., 94 TTJ MUMB. (SB) SOME OF THE DECISIONS AGAINST THE ASSESSEE ARE AS U NDER: (IV) SRJ SECURITIES V ACIT 81 TTJ DEL 484. (V) CIT VS. SUN DISTRIBUTORS & MINING CO. LTD., 68 TAXMAN 223 (CAL) (VI) DCIT VS. AAKRISH INVEST. & LEASING P. LTD., 90 TTJ ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 6 - (I) RPG INDUSTRIES LTD. VS ACIT, 79 TTJ 819 (CAL) (II) ROHINI CAPITAL SERVICE LTD. VS. DCIT, 93 TTJ DEL.13 7 (III)DCIT VS. FRONTLINE CAPITAL SERVICES LTD., 97 T 1J DEL 201 (IV) PAHARPUR COOLING FANS LTD. VS.DCIT, 85 LTD 745 (KOL). 8.1 THUS THE ISSUE IS ONE ON WHICH TWO OPINIONS AR E POSSIBLE. THE DISALLOWANCE IS MADE PURELY ON A QUESTION OF LAW. IN SUCH A SITUATI ON, PENALTY U/S 271(1)(C) CANNOT BE IMPOSED. I FIND THAT THE APPELLANT HAS CLAIMED THE LOSS IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH RETURN OF INCOME. IN SCHEDULE-I TO PROFIT & LOSS ACCOUNT SHARE TRADING HAS BEEN SHOWN WHERE THE DETAILS OF PURCHASE OF ABO VE STOCK AND THE VALUE OF THE SAME CLOSING STOCK HAS BEEN MENTIONED. THEREFORE, I T CAN BE SAID THAT THE APPELLANT HAS DISCLOSED ALL THE MATERIAL FACTS REQUIRED FOR C OMPUTATION OF INCOME. THE ABOVE LOSS HAS NOT BEEN CLAIMED ON THE BASIS OF ANY FACT WHICH IS FOUND TO BE FALSE. NEITHER THE CLAIM HAS BEEN MADE BY SUPPRESSING CERTAIN FACTS. 8.2 FURTHER, THE APPELLANTS CLAIM IS SUPPORTED BY A NUMBER OF DECISIONS QUOTED AT PARA-8 ABOVE. THUS, THE ISSUE HAS BECOME DEBATABLE ON WHICH CLEARLY TWO OPINIONS ARE POSSIBLE. IN THE CASE OF CIT VS. HARSHVARDHAN CHEMI CALS & MINERAL LTD., 259 ITR 212, THE HONBLE RAJASTHAN HIGH COURT (JAIPUR BENCH) HAV E HELD AS UNDER: FROM THE FOREGOING DISCUSSION IT FOLLOWS THAT SUCH A DEDUCTION COULD BE AN ARGUABLE, CONTROVERSIAL OR A DEBATABLE QUESTI ON. IN SUCH A SITUATION THE CLAIM COULD NOT BE SAID TO BE FALSE. IF THIS WERE NOT SO, IT WOULD BECOME IMPOSSIBLE FOR ANY ASSESSEE TO RAISE A NY CLAIMS OR CLAIM ANY DEDUCTIONS WHICH ARE DEBATABLE. IT IS NOT CERTA INLY THE INTENTION OF THE LEGISLATURE TO MAKE PUNISHABLE SUCH CLAIMS OR D EDUCTIONS UNDER SECTION 271(1)(C), IF THEY ARE NOT ACCEPTED. AFFIRMING THE DECISION OF THE APPELLATE TRIBUNAL, T HE HONBLE COURT IN THIS CASE HAVE HELD THAT NO PENALTY IS LEVIABLE WHEN THE ASSE SSEE HAS CLAIMED DEDUCTION OF AN AMOUNT THAT WAS DEBATABLE. IT COULD NOT BE SA ID THAT THE ASSESSEE HAS CONCEALED ANY INCOME OR FURNISHED INACCURATE PARTIC ULARS FOR EVASION OF TAX. 8.3 IN THE CASE OF CIT VS. S.P.K. STEELS (P) LTD., 270 1TR 156, THE HONBLE MADHYA PRADESH HIGH COURT HAVE HELD THAT NO PENALTY IS LEVIABLE U/S 271(1 )(C) IN A CASE WHERE LOSS IS GENUINE BUT NOT ALLOWED BEC AUSE OF DEEMING PROVISIONS OF EXPLANATION TO SEC. 73. ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 7 - 8.4 THE APPELLANTS CASE IS SQUARELY COVERED BY THE ABOVE DECISIONS. ON CONSIDERATION OF THE FACTS OF THE CASE AND FOLLOWIN G THE DECISION OF HONBLE RAJASTHAN HIGH COURT AND HONBLE MADHYA PRADESH HIG H COURT I HOLD THAT PENALTY IS NOT LEVIABLE IN THE CASE OF APPELLANT WH ERE ITS CLAIM OF SHARE TRADING LOSS HAS BEEN DISALLOWED. ACCORDINGLY, THE PENALTY LEVIED BY THE AO IS CANCELLED. 3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITI ES BELOW. WE HAVE ALSO GONE THROUGH THE CASE LAWS AS CITED BEFORE US. 4 SECTION 271(1)(C) READS AS UNDER: 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF ANY PROCEEDINGS UNDE R THIS ACT, IS SATISFIED THAT ANY PERSON (A) .. (B) .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR (D) .. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY,- EXPLANATION 1-WHERE IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB- SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPEC T OF WHICH PARTICULARS HAVE BEEN CONCEALED. AS PER THE PROVISIONS OF SECTION 271(1)(C) THE PENA LTY UNDER THIS SECTION IS LEVIABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDING UNDER THIS ACT THAT ANY PERSON HAS ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 8 - CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. THE PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDINGS BOTH ARE DIFFERENT. EXPLANATION 1 TO SECTION 271(1)(C) IN RESPECT OF AN Y FACT RELATING TO THE COMPUTATION OF TOTAL INCOME STATES THAT THE AMOUNT ADDED OR DISALL OWED IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE SHALL BE DEEMED TO BE THE INC OME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THIS DEEMING PROVI SION FOR CONCEALMENT IS NOT ABSOLUTE ONE. EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT AN AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF A PERSON FALLING UNDE R CLAUSE (A) OR (B) OF EXPLANATION 1 SHALL, FOR THE PURPOSE OF SECTION 271(1)(C), BE DEE MED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAD BEEN CONCEALED. EX PLANATION 1 REFERS TO TWO SITUATIONS IN WHICH PRESUMPTION OF CONCEALMENT CREA TED BY EXPLANATION 1 IS AVAILABLE. THE FIRST SITUATION IS WHERE THE ASSESSEE, IN RESPE CT OF ANY FACTS MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME, FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR THE COMMISSIONER TO BE FALSE. THE SECOND SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME, OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND ALSO FAILS TO PROVE THAT SUCH EXPLANATION WAS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE COMPUTATION OF TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THE PRESUMPTION AVAILABLE UNDER EXPLANATION 1 CANNOT BE DRAWN UNLESS THE CASE OF THE ASSESSEE FALLS UNDER EITHER OF THE CLAUSES, VIZ., CLAUSE (A) OR CLAUSE (B). THE PRESUMPTION UNDER EXPLANATION 1 IS REBUTTABLE A ND NOT CONCLUSIVE. THE ASSESSEE CAN SUBMIT THE EXPLANATION AS THE ONUS SHIFTED ON T HE ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED THE PARTICULARS OF THE INCOME. THE AS SESSEE IN THIS CASE HAS DULY SUBMITTED THE EXPLANATION. NO COGENT MATERIAL OR EV IDENCE WAS BROUGHT TO OUR KNOWLEDGE WHICH MAY PROVE THAT THE REVENUE HAS DETE CTED THE CONCEALMENT OR THE EXPLANATION SUBMITTED BY THE ASSESSEE WAS FALSE ONE . EVEN THERE IS NO MATERIAL WHICH MAY PROVE THAT THE ASSESSEE WAS NOT ABLE TO SUBSTAN TIATE ITS EXPLANATION. MERELY THE ADDITION HAS BEEN MADE IN THE ASSESSMENT IN OUR OPI NION THE ASSESSEE CAN NOT BE ENTRUSTED WITH THE PENALTY BY SIMPLY INVOKING EXPLA NATION 1. 5. THE EXPLANATION SUBMITTED BY THE ASSESSEE, IN OU R OPINION, PROVED THAT THE ASSESSEE HAS DISCHARGED HIS ONUS AND HAS REBUTTED T HE PRESUMPTIONS AVAILABLE TO THE REVENUE UNDER EXPLANATION 1 TO SECTION 271(1)(C). T HIS EXPLANATION GIVEN BY THE ASSESSEE CANNOT BE REGARDED TO BE A FALSE EXPLANATI ON UNTIL AND UNLESS, IN OUR OPINION, THE REVENUE PROVES THAT THE EXPLANATION GIVEN BY TH E ASSESSEE IS FALSE. IN OUR OPINION, NO PENALTY U/S 271(1)(C) CAN BE IMPOSED ON THE ASSE SSEE. ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 9 - 6. IN THE CASE OF NATIONAL TEXTILES V CIT 249 ITR 1 25 (GUJ) THE QUESTION BEFORE THE HONBLE GUJARAT HIGH COURT WAS ABOUT THE LEVY OF PE NALTY U/S 271(1)(C) IN RESPECT OF THE ADDITION MADE U/S 68 BY RECOURSE TO EXPLANATION 1 BELOW SECTION 271(1)(C). IN THIS CASE THE HONBLE GUJARAT HIGH COURT WHILE HOLDING T HE IMPOSITION OF PENALTY WAS NOT JUSTIFIED OBSERVED: IN ORDER TO JUSTIFY THE LEVY OF PENALTY, TWO FACTO RS MUST CO-EXIST, (I) THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADING TO THE RE ASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESENT THE ASSESSEES INCOME. IT IS NOT ENOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSE D AS INCOME, AND (II) THE CIRCUMSTANCES MUST SHOW THAT THERE WAS ANIMUS, I.E. , CONSCIOUS CONCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS ON T HE PART OF THE ASSESSEE. EXPLANATION 1 TO SECTION 271(1)(C) HAS NO BEARING O N FACTOR NO.1 BUT HAS A BEARING ONLY ON FACTOR NO.2. THE EXPLANATION DOES N OT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE FACT S AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOTHESIS THAT THE AMO UNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHICH IS UNPROVED BUT NOT DISPROVED, I. E., IT IS NOT ACCEPTED BUT CIRCUMSTANCES DO NOT LEAD TO THE REASONABLE AND POS ITIVE INFERENCE THAT THE ASSESSEES CASE IS FALSE, THE EXPLANATION CANNOT HE LP THE DEPARTMENT BECAUSE THERE WILL BE NO MATERIAL TO SHOW THAT THE AMOUNT I N QUESTION WAS THE INCOME OF THE ASSESSEE. ALTERNATIVELY, TREATING THE EXPLAN ATION AS DEALING WITH BOTH THE INGREDIENTS (I) AND (II) ABOVE, WHERE THE CIRCU MSTANCES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE S EXPLANATION IS FALSE, THE ASSESSEE MUST BE HELD TO HAVE PROVED THAT THERE WAS NO MENS REA OR GUILTY MIND ON HIS PART. EVEN IN THIS VIEW OF THE MATTER T HE EXPLANATION ALONE CAN NOT JUSTIFY LEVY OF PENALTY. ABSENCE OF PROOF ACCEPTABL E TO THE DEPARTMENT CANNOT BE EQUATED WITH FRAUD OR WILLFUL DEFAULT. IN OUR OPINION, EVEN IF THE TRIBUNAL HAS CONFIRMED THE ADDITION DOES NOT MEAN THAT THE ASSESSEE HAS CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 7. SINCE THE LEARNED DR HAS VEHEMENTLY RELIED ON TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES PR OCESSORS (SUPRA), WE THEREFORE HAVE TO REFER TO THAT DECISION ALSO. IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS (SUPRA), WE NOTED THAT THE HON'BLE SUPREME COURT HA S HELD THAT PENALTY U/S 271(1)(C) IS A CIVIL LIABILITY AND THAT WILLFUL CONCEALMENT AND MENS REA ARE NOT ESSENTIAL INGREDIENTS FOR ATTRACTING THE CIVIL LIABILITY AS I S THE CASE IN THE MATTER OF PROSECUTION U/S 276 OF THE ACT. IT HAS FURTHER BEEN HELD IN THA T CASE THAT MENS REA IS NOT AN ESSENTIAL INGREDIENT FOR IMPOSING THE PENALTY. THE HON'BLE SUPREME COURT IN THIS CASE NOWHERE HELD THAT IF THE ADDITION IS MADE, PENALTY IS AUTOMATIC. THIS JUDGMENT DOES ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 10 - NOT OVERRULE THE EXPLANATIONS APPENDED TO SECTION 2 71(1)(C). IT EVEN HELD THAT THE OBJECT BEHIND THE ENACTMENT OF SECTION 271(1)(C) RE AD WITH EXPLANATIONS INDICATES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE. THE PENALTY UNDER THAT PROVISION IS A CIVIL LIABILITY. THUS, THE RATIO LAID DOWN IN THIS JUDGMENT WAS CONFINED TO TREATING THE WILLFUL CONCE ALMENT IS NOT ESSENTIAL FOR IMPOSING THE PENALTY U/S 271(1)(C) OF THE ACT. WHER E AN ASSESSEE GENUINELY MAKES A CLAIMS FOR A PARTICULAR DEDUCTION BY DISCLOSING ALL THE NECESSARY FACTS RELATING TO THE SAME THAT CANNOT BE REGARDED TO BE CONCEALMENT EVEN IF THE ASSESSEES CLAIM IS REJECTED. THIS IS THE SETTLED LAW THAT PENALTY PROC EEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND, THEREFORE, IF ANY ADDIT ION IS MADE, IT DOES NOT MEAN THAT THE PENALTY WILL AUTOMATICALLY BE LEVIED. IN THE PE NALTY PROCEEDINGS THE ASSESSEE IS GIVEN AN OPPORTUNITY TO EXPLAIN HIS CASE IF HE SUCC ESSFULLY EXPLAINS HIS POSITION AND IS NOT TRAPPED WITHIN THE PARAMETERS OF SECTION 271(1) (C) ALONG WITH THE EXPLANATIONS DEEMING THE CONCEALMENT OF INCOME, PENALTY CANNOT B E IMPOSED. IN THIS CASE, WE NOTED, THE PENALTY HAS BEEN IMPOSED FOR CONCEALMENT OF INCOME BY THE ASSESSEE BY INVOKING EXPLANATION TO SEC. 271(1)(C). SECTION 271 (1)(C) DEALS WITH THE TWO SITUATIONS FOR IMPOSING THE PENALTY; (A) HAS CONCEALED THE PARTICULARS OF HIS INCOME; OR (B) HAS FURNISHED THE INACCURATE PARTICULARS OF SUC H INCOME. EXPLANATION 1 IS APPLICABLE ONLY IN CASE OF FIRST S ITUATION I.E. AMOUNT ADDED OR DISALLOWED IN THE TOTAL INCOME BE DEEMED TO REPRESE NT THE INCOME IN RESPECT OF WHICH THE PARTICULARS HAVE BEEN CONCEALED. 8. INACCURATE PARTICULARS MEANS THAT THE PARTICUL ARS ARE INCORRECT OR INACCURATE OR NOT CORRECT. THAT MEANS, THE PARTICULARS HAVE NO T BEEN FURNISHED IN CORRECT / EXACT MANNER AS IS REQUIRED TO BE FURNISHED TO DETERMINE THE CORRECT INCOME CHARGEABLE TO TAX OF THE ASSESSEE. AT THE TIME WHEN THE RETURN WA S FILED BY THE ASSESSEE, CAN THE PARTICULARS SUBMITTED BY THE ASSESSEE RELATING TO T HE TOTAL INCOME, BE REGARDED TO BE INCORRECT. THE CLAIM MADE BY THE ASSESSEE IS BONA F IDE AS THERE ARE TWO VIEWS POSSIBLE ON THE APPLICABILITY OF SECTION 73 OF THE ACT. MERE LY THE CLAIM OF ASSESSEE NOT ACCEPTED DOES NOT MEAN THAT THE ASSESSEE BE PENALIZED. 9. IN VIEW OF OUR AFORESAID DISCUSSION, WE ARE OF T HE VIEW THAT THIS IS NOT A CASE WHERE THE ASSESSEE HAS SUBMITTED THE INACCURATE PAR TICULARS OF HIS INCOME WHILE SUBMITTING THE INCOME-TAX RETURN AND, THEREFORE, WE CONFIRM THE ORDER OF THE CIT(A) DELETING THE PENALTY IMPOSED U/S 271(1)(C). ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 11 - 6. HE ALSO ARGUED THAT THE LOSS WAS NOT FOUND TO BE BOGUS BY THE LEARNED ASSESSING OFFICER AS CARRY FORWARD OF THE SAME WAS ALLOWED BY THE LEARNED ASSESSING OFFICER AFTER HOLDING IT AS SPECULATIVE LOSS. HENCE , FOR THIS REASON ALSO PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED SUB-BROKERAGE OF RS. 4,63, 532/- A ND SHARE TRADING LOSS OF RS.11,84,848/- WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER DELETED THE DISALLOWANCE OF SUB-BROKERAGE PAYMENT IN THE ORDER PASSED PURSUANCE TO THE DIRECTION OF T HE TRIBUNAL ON 4.05.2009. THUS, AS THE VERY BASIS FOR LEVY OF PENALTY DOES NO T SURVIVE THEREFORE, THE PENALTY ALSO DOES NOT SURVIVE. HENCE, WE DELETE THE LEVY OF PENALTY ON THE SUB- BROKERAGE PAYMENT OF RS.4,63,532/-. AS REGARDS THE DISALLOWANCE OF SHARE TRADING LOSS OF RS.11,84,848/- WE FIND THAT THE UND ISPUTED FACTS ARE THAT THE ASSESSEE HAS SUFFERED LOSS ON DEALING IN SHARES OF RS.11,48,848/-. THE ASSESSEE CLAIMED DEDUCTION FOR THE AFORESAID LOSS IN THE RET URN OF INCOME WHICH WAS DISALLOWED DUE TO THE DEEMING PROVISIONS OF EXPLANA TION TO SECTION 73 OF THE ACT AND THE ASSESSEE WAS EVEN ALLOWED TO CARRY FORW ARD THIS LOSS IN THE SUBSEQUENT YEAR TO SET OFF AGAINST THE SPECULATIVE PROFIT OF THE SUBSEQUENT YEAR. THUS IT IS OBSERVED THAT THE LOSS CLAIMED BY THE ASSESSEE WAS NOT FOUND TO BE BOGUS OR FICTITIOUS. THE DIFFERENCE WAS ONLY WIT H RESPECT TO THE HEAD OF COMPUTATION, AS PER THE ASSESSEE IT WAS NORMAL BUSI NESS LOSS WHEREAS AS PER THE DEPARTMENT IT WAS A SPECULATIVE LOSS. NO MATERI AL WAS BROUGHT ON RECORD ITA NO.2794/ AHD/2006, ITA NO .216/AHD/2007 M/S. MAHIPAT RAICHAND SHARE BROKING PVT. LTD. ASST.YEAR -1998-99 - 12 - THAT THE ASSESSEE HAS AT ANY TIME CONCEALED ANY MAT ERIAL PARTICULARS IN RESPECT OF TRANSACTIONS IN SHARES OR FURNISHED ANY INACCURA TE PARTICULARS. IN THE ABOVE CIRCUMSTANCES IN OUR CONSIDERED VIEW THERE WAS NO E RROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN DELE TING THE PENALTY ON RS. 11,84,848/- ON ACCOUNT OF SHARE TRADING LOSS TREATE D AS SPECULATIVE LOSS BY THE DEPARTMENT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AND THAT OF THE REVENUE IS DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/09/2009. SD/- SD/- ( H.L. KARWA ) ( N.S. SAINI ) JUDICIAL MEMBER ACCO UNTANT MEMBER AHMEDABAD; DATED 11/09/ 2009 PARAS# COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD