ACIT, Varanasi V. Banaras Beeds Ltd., Varanasi

ITA 32/ALLD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5630 (ITAT-ALLAHABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2001-2002
• Appeal Filed On: 28-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJKUMAR LACHHIRAMANKA
• Assessee Lawyers: R P AGRAWAL
• Keywords: Cost of acquisition; Speculation loss; Reassessment proceedings
• Section: 143(3); 147; 263

Judgement Text

1 ITA NO. 32/ALLD/2014 IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH ALLAHABAD BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND MS.SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.32/ALLD/2014 ASSESSMENT YEAR: 2001-02 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-3 VARANASI PAN: AAACB2252L VS. M/S BENARAS BEADS LTD. A-1, INDUSTRIAL ESTATE, VARANASI-221001 (APPELLANT) (RESPONDENT) REVENUE BY SHRI RAJKUMAR LACHHIRAMANKA . CIT DR ASSESSEE(S) BY : SHRI R. P. AGRAWAL, ADV / DATE OF HEARING : 28/06/2017 /DATE OF PRONOUNCEMENT: 14/07/2017 ORDER PER SUCHITRA KAMBLE: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 14/11/2013 PASSED BY THE CIT(A). 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) IS JUSTIFIED IN DELETING PENALTY IMPOSED U/S 271(I)(C) FOR THE SUM OF RS.15,00,000/- BY THE A.O IGNORING THE FACTS THAT L OSS ON SHARES ON ACCOUNT OF DECLINE IN THE VALUE OF SHARE IN THE NAT URE OF SPECULATING LOSS OF 2 ITA NO. 32/ALLD/2014 RS.37,85,586/- HAS BEEN CONFIRMED BY THE LD.CIT(A) AS NO ACTUAL TRANSACTION HAS TAKEN PLACE. 2. THAT THE ORDER OF THE LD.CIT(A) MAY KINDLY BE RE VERTED AND THE ORDER OF THE ASSESSING OFFICER MAY KINDLY BE RESTORED. 3. CRAVES FOR LEAVE TO RAISE ANY GROUNDS OF APPEAL THAT MAY BE TAKEN AT THE TIME OF HEARING. 3. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE/EXPORT OF GLASS BE ADS, WOOLEN CARPETS, HANDICRAFTS ETC. DURING THE ASSESSMENT YEAR UNDER C ONSIDERATION, THE ASSESSEE ALSO ENTERED INTO SEVERAL TRANSACTIONS OF PURCHASE AND SALE OF SHARES. IN THE COURSE OF ITS BUSINESS, THE ASSESSEE HAD GIVEN SOME LOANS TO A COMPANY KNOWN AS M/S COSMOS FINANCIAL SERVICES P LTD. IN EARLIER YEARS. THE SAID COMPANY DEFAULTED IN REPAYMENT OF PART OF THE LOAN AMOUNT A ND HENCE AFTER LONG AND ARDUOUS NEGOTIATION, AN AGREEMENT WAS ARRIVED AT DU RING THE ASSESSMENT YEAR UNDER WHICH THE SAID COMPANY AGREED TO HANDOVER CER TAIN SHARES TO THE ASSESSEE IN SETTLEMENT OF THE OUTSTANDING LOAN AMOU NT. THE DETAILS ABOUT SUCH SETTLEMENT AND THE DETAILS OF SHARES RECEIVED IN SU CH SETTLEMENT WERE PRODUCED BEFORE THE ASSESSING OFFICER. ALL THE SHARES RECEIV ED BY THE ASSESSEE UNDER THE ABOVE SETTLEMENT FROM M/S COSMOS FINANCIAL SERVICES P LTD WERE LISTED ON STOCK EXCHANGE. THE ACQUISITION OF SHARES UNDER THE ABOVE SETTLEMENT WITH M/S COSMOS FINANCIAL SERVICES P LTD WAS A BUSINESS DEAL AND THE SHARES SO ACQUIRED WERE PART OF THE BUSINESS ASSETS. THEY DID NOT REPRESENT NORMAL INVESTMENTS. THE ACQUISITION OF THE SAID SHARES WAS IN FACT RECOVERY OF LOANS IN KIND. HENCE THE SAID SHARES WERE SHOWN IN THE BALAN CE SHEET 'UNDER A SEPARATE AND DISTINCT HEAD OF SHORT TERM INVESTMEN T. THE SHARES WERE SOLD BY THE ASSESSEE WITHIN A SHORT PERIOD. SOME OF THE SHARES WERE SOLD DURING THE ASSESSMENT YEAR 2001-02 ITSELF WHILE SOME OTHER SHA RES WERE SOLD IN THE SUBSEQUENT YEAR. THE LOSS INCURRED ON SHARES SOLD D URING THE YEAR WAS DEBITED 3 ITA NO. 32/ALLD/2014 IN THE PROFIT & LOSS A/C AS LOSS ON SALE OF SHARES . THE DETAILS OF SHARES SO SOLD AND LOSS INCURRED THEREON IS PART OF THE RECOR D OF THE ASSESSMENT. REGARDING THE SHARES SOLD IN THE SUBSEQUENT ASSESSM ENT YEAR, IT WAS FOUND THAT THE MARKET VALUE OF SUCH SHARES HAD CONSIDERAB LY DECLINED. HENCE, IN VIEW OF MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE COMPANY AND THE APPLICABLE ACCOUNTING STANDARD, THE STATUTORY AUDIT ORS INSISTED THAT SUCH SHARES SHOULD BE VALUED AT MARKET PRICE AND THE LOSS CAUSED DUE TO DECLINE IN MARKET VALUE OF THE SHARES BE DEBITED TO P & L A/C AS BUSINESS LOSS AS TO REFLECT THE TRUE AND FAIR VIEW OF THE PROFIT/LOSS O F THE ASSESSEE COMPANY FOR THE FY 2000-01 [AY 2001- 02]. THEREFORE, THE ASSESSEE V ALUED SUCH UNSOLD SHARES AT THE MARKET PRICE AS AT THE CLOSE OF THE FY 2000- 01 AND THE DECLINE IN THE MARKET VALUE OF SUCH SHARES AGGREGATING TO RS.37,85,586 WAS DEBITED TO THE PROFIT & LOSS AS BUSINESS LOSS. THE CASE WAS TAKEN UP FOR SCRUTINY ASSESSMENT UNDER SECTION 143(3) AND ULTIMATELY ASSESSMENT WA S MADE ON 23-03-2004 UNDER SECTION 143(3) AND THERE WAS NO DISALLOWANCE OF ABOVE LOSS OF RS.37,85,586. THE CASE WAS SUBSEQUENTLY REOPENED U/ S 147 AND THEREAFTER FRESH ASSESSMENT ORDER DATED 22-12-2008 WAS PASSED. IN THE SAID REASSESSMENT ORDER ALSO AGAIN THERE WAS NO DISALLOW ANCE OF ABOVE LOSS OF RS.37,85,586. AFTER THAT, CIT, VARANASI INITIATED P ROCEEDINGS UNDER SECTION 263 AND CANCELLED THE' REASSESSMENT ORDER DATED 21- 12-2008 AND DIRECTED THE AO TO MAKE FRESH ASSESSMENT AFTER TAKING INTO CONSI DERATION THE ISSUES DISCUSSED IN THE ORDER PASSED BY HIM. THE ADMISSIBI LITY OF BUSINESS LOSS OF RS.37,85,586 CLAIMED BY THE ASSESSEE ON ACCOUNT OF DECLINE IN VALUE OF SHARES WAS ALSO ONE OF THE ISSUES IN THE SAID ORDER. IN TH E REASSESSMENT ORDER, THE AO TREATED THE ABOVE LOSS OF RS.37,85,586 AS SPECULATI VE LOSS ON THE GROUND THAT SINCE THE ASSESSEES MAIN BUSINESS IS MANUFACTURE, PURCHASE AND SALE OF BEADS, ANY LOSS ON SALE OF SHARES SHOULD BE TREATED AS SPECULATION LOSS AND SHOULD BE SET OFF AGAINST SPECULATION INCOME ONLY. THEREAFTER, THE CIT (A), VARANASI VIDE HIS ORDER DATED 10-08-2011 DELETED AL L THE ADDITIONS MADE IN THE ASSESSMENT ORDER DATED 28-12-2010 EXCEPT ADDITI ON OF RS.37,85,586 WHICH WAS CONFIRMED FOR THE REASONS AS STATED IN PARA 9 O F THE ORDER: 9. AS REGARDS 4 ITA NO. 32/ALLD/2014 THE ADDITION OF RS.37,85,586/- MADE ON ACCOUNT OF R EDUCTION OF VALUE DUE TO DECLINE IN VALUE OF SHARES, WHICH HAS BEEN CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT ASSESSING OFFICER HAS CORRECTLY DISA LLOWED SUCH MENTIONED LOSS AS NO ACTUAL TRANSACTION HAS TAKEN PLACE. ASSESSEE HAS ALL THE RIGHT TO CLAIM LOSS/ PROFIT ON TRANSACTION OF SUCH SHARE WHEN THE ACTUAL TRANSACTION TAKES PLACE. THEREFORE, NO INTERFERENCE IS REQUIRED ON TH IS COUNT. HENCE DISALLOWANCE OF RS.37,85,586 IS HEREBY CONFIRMED. THE A.O. PASSED THE PENALTY ORDER U/S 271 (L)(C) DA TED 29.01.2013 LEVYING PENALTY OF RS. 15,00,000. 4. BEING AGGRIEVED BY PENALTY ORDER, THE ASSESSEE F ILED APPEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THERE HAS BEEN NO ATT EMPT ON THE PART OF THE APPELLANT TO CONCEAL THE PARTICULARS OF INCOME NOR HAS THE ASSESSEE FURNISHED ANY INACCURATE PARTICULARS OF INCOME. MERE FACT THA T A CLAIM MADE IN THE RETURN IS NOT ACCEPTED DOES NOT AMOUNT TO CONCEALM ENT OR INACCURATE PARTICULARS. 5. THE LD. DR RELIED UPON THE ORDER OF ASSESSING OF FICER /PENALTY ORDER. 6. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDER OF CIT(A). THE CIT(A) IN PARA 5 OF THE ORDER HELD AS UNDER: 5. THE SUBMISSIONS OF THE AR AND THE CONTENTIONS O F THE A.O. HAVE BEEN CONSIDERED. IT IS A MATTER OF FACT AS WELL AS RECOR D THAT THERE WAS A DECLINE IN THE MARKET VALUE OF THE SHARES AND THE SAID LOSS ON VALUATIONS OF SHARES WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS RELEVANT TO POINT 5 ITA NO. 32/ALLD/2014 OUT THAT THE A.O. HAD NOT DETECTED SUCH LOSS BY ANY PROCESS OF INQUIRY OR INVESTIGATION. THE INFORMATION ABOUT SUCH LOSS WAS ALREADY ON RECORD. THERE WAS NO ALLEGATION AT ALL AT ANY STAGE THAT TH E ASSESSEE HAD CONCEALED THE INFORMATION OF THE SAID LOSS OR HAD G IVEN ANY INACCURATE INFORMATION ABOUT THE TRANSACTION RESULTING IN SUCH LOSS. THE GENUINENESS AND CORRECTNESS OF FACTS ABOUT THE DECLINE IN THE V ALUE OF ABOVE SHARES, THE COST OF ACQUISITION OF SHARES, THE MARKET PRICE AS AT THE CLOSE OF THE FY AND THE QUANTUM OF LOSS ETC. WERE NOT DISPUTED BY THE A .O. IN FACT, AS MENTIONED ABOVE IN THE HISTORY OF THE CASE, THIS EN TRY OF LOSS ON ACCOUNT OF DECLINE IN THE MARKET VALUE OF THE SHARES WENT UNTO UCHED AND UNNOTICED TWICE DURING THE ORIGINAL ASSESSMENT PROCEEDINGS U/ S 143(3) AND ALSO DURING THE REASSESSMENT PROCEEDINGS U/S 148. IT WAS ONLY AFTER THE PROCEEDINGS U/S 263 THAT THIS ENTRY WAS CONSIDERED TO BE OF INADMISSIBLE NATURE. THE SEQUENCE OF EVENTS CLEARLY SHOWS THAT T HERE WAS NO ATTEMPT ON THE PART OF THE ASSESSEE TO CONCEAL THE PARTICUL ARS OF INCOME. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT AP PEARS THAT THERE IS NEITHER ANY CONCEALMENT NOR FURNISHING OF ANY INACC URATE PARTICULARS AND IT IS ONLY THE VERSION OF THE ASSESSEE THAT LOSS DU E TO DECLINE IN MARKET VALUE HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. THE APPELLANT HAD NOT HIDDEN OR CONCEALED ANY INFORMATION FROM THE A.O. I T WAS PURELY ADDING BACK OF AN INADMISSIBLE ITEM. IT HAS BEEN HELD BY H ONBLE SUPREME COURT IN THE JUDGMENT REPORTED IN [2010] 3 TAXMAN.COM 47 (AND ALSO REPORTED IN 2010 (322) ITR 158) IN THE CASE OF M/S RELIANCE PETROPRODUCTS THAT FOR LEVYING PENALTY UNDER SECTION 271(L)(C), THERE HAS TO BE CONCEALMENT OF PARTICULARS OF INCOME BY THE ASSESSEE OR THE ASSESS EE MUST HAVE FURNISHED INACCURATE PARTICULARS OF INCOME. WHERE N O INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. I N ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. THE ASSESS EES CASE IS ALSO 6 ITA NO. 32/ALLD/2014 HAVING THE SAME FACTS AND CIRCUMSTANCES. ULTIMATELY , IN ASSESSEE'S CASE, AN INADMISSIBLE ITEM IN THE PROFIT AND LOSS ACCOUNT WAS ADDED BACK TO THE INCOME, WHICH CAN NEITHER BE HELD AS CONCEALMEN T OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. IT IS ALSO SEEN T HAT AT LEAST, PRIMA FACIE, THE ASSESSEE COULD NOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS AS THERE WAS NO FINDING THAT ANY DETAILS SUPPLIED B Y THE ASSESSEE IN ITS RETURN OF INCOME WERE FOUND TO BE INCORRECT OR ERRO NEOUS OR FALSE. IN THE FACTS AND CIRCUMSTANCES EXPLAINED ABOVE, IT IS CLEA R THAT THERE HAS BEEN NO ATTEMPT ON THE PART OF THE APPELLANT TO CONCEAL THE PARTICULARS OF INCOME NOR HAS THE ASSESSEE FURNISHED ANY INACCURATE PARTI CULARS OF INCOME. MERE FACT THAT A CLAIM MADE IN THE RETURN IS NOT ACCEPTE D DOES NOT AMOUNT TO CONCEALMENT OR INACCURATE PARTICULARS. THERE WA S NO MENS-REA ON THE PART OF THE ASSESSEE TO INDULGE IN ANY CONCEALMENT OR TO FURNISH ANY INACCURATE PARTICULARS ABOUT THE TRANSACTIONS IN QU ESTION. THEREFORE, CONSIDERING ALL THESE FACTS AND CIRCUMSTANCES, THE PENALTY LEVIED U/S 271(L)(C) AND AMOUNTING TO RS. 15,00,000/- IS HEREB Y DELETED. THE CIT(A) IS RIGHT IN ALLOWING THE APPEAL OF THE A SSESSEE AND DELETING THE PENALTY AS THERE IS NO INACCURATE PARTICULARS OR CO NCEALMENT ON BEHALF OF THE ASSESSEE. THERE IS NO NEED TO INTERFERE WITH THE O RDER OF THE CIT(A). 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON THE DAY OF 14TH JULY, 2017. SD/- SD/- (R. K. PANDA) (SU CHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 14/07/2017 R. NAHEED 7 ITA NO. 32/ALLD/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR ITAT ALLAHABAD DATE 1. DRAFT DICTATED ON 10/07/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 10/07/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 12.09.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 12.09 .2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 8 ITA NO. 32/ALLD/2014 10. DATE OF DISPATCH OF ORDER.