M/s Mokul Finance (P) Ltd., New Delhi V. ITO, New Delhi

ITA 3545/DEL/2011

• Counselvise Citation: 354520114 RSA 2011
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-11-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 14-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: ASHWANI TANEJA; DR RAKESH GUPTA
• Keywords: Bonafide belief; Speculation loss

Judgement Text

ITA NO. 3545/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3545/DEL/2011 A.Y. : 1997-98 M/S MOKUL FINANCE (P) LTD., C/O M/S RRA TAXINDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI 110 049 (PAN : AAACM6524G) VS. INCOME TAX OFFICER, WARD -5(4), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. ASHWANI TANEJA, CA AND DR. RAKESH GUPTA, ADV. DEPARTMENT BY : SH. R.S. NEGI, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 2.6.20 11 PERTAINING TO ASSESSMENT YEAR 1997-98. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE A SSESSING OFFICER IN LEVYING PENALTY OF ` 3,65,905/-.. 3. BRIEFLY STATED, THE FACTS ARE THAT THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS FILED BY TH E ASSESSEE COMPANY ON 30.11.1996 WHICH WAS PROCESSED U/S 143(1) ON 18.3.1998. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY A ND THE TOTAL INCOME WAS COMPUTED AT ` 452260/- AS AGAINST DECLARED LOSS OF ` 397680/-. IN ITA NO. 3545/DEL/2011 2 THE ORDER OF ASSESSMENT, THE LOSS OF ` 850938/- AR ISING OUT OF PURCHASE AND SALE OF SHARES WAS HELD TO BE SPECULATIVE IN NA TURE AND WAS NOT ALLOWED AGAINST THE OTHER HEADS OF INCOME. SUBSEQU ENTLY, THE ACTION OF THE ASSESSING OFFICER WAS SUSTAINED BY THE FIRS T APPELLATE AUTHORITY, VIDE HIS ORDER DATED 22.2.2011. HOWEVER, ON FURTHE R APPEAL, THE ITAT, VIDE ITS ORDER DATED 30.6.2005 REMANDED THE MATTER BACK TO THE ASSESSING OFFICER ON THE GROUND THAT RELEVANT MAT ERIAL TO VERIFY THE DIFFERENT HEADS OF INCOME WAS NOT AVAILABLE. IN VIEW OF THE AFORESAID, THE REASSESSMENT WAS MADE BY THE ASSESSING OFFICER IN TERMS OF SECTION 254/143(3) OF THE IT ACT, 1961 AND THE LOSS OF ` 850938/- WAS AGAIN HELD TO BE SPECULATIVE AND WAS NOT ALLOWED TO BE SET OFF AGAINST OTHER INCOMES. SUBSEQUENTLY, THE ACTION OF THE AS SESSING OFFICER HAS BEEN SUSTAINED BY THE FIRST APPELLATE AUTHORITY AND THE ITAT. HAVING REGARD TO THE FACT THAT THE CLAIM OF LOSS OF ` 8509 38/- HAS BEEN HELD TO BE IN ELIGIBLE FOR SET OFF AGAINST OTHER INCOME, THE ASSESSING OFFICER HAS IMPOSED PENALTY OF ` 365905/- U/S 271(1)(C) OF T HE IT ACT, 1961. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL O F THE ASSESSEE SUBMITTED THAT ONLY ISSUE IN THE PRESENT APPEAL IS AGAINST THE LEVY OF PENALTY ON ALLEGED CONCEALED INCOME OF ` 8,50,938/- BEING LOSS ON ACCOUNT OF TRADING IN SHARES, DISALLOWED IN ASSESSM ENT BY HOLDING THE SAME AS DEEMED SPECULATION LOSS UNDER EXPLANATION TO SECTION 73. LD. COUNSEL CONTENDED THAT THERE IS NO DISPUTE TH AT IN THIS CASE THAT THE SUBJECT LOSS WAS THERE AT A FIGURE OF ` 8,50,93 8/- AND THAT LOSS ITA NO. 3545/DEL/2011 3 AROSE ON TRADING IN SHARES. ALL THAT IT IS IN DI SPUTE IS AS TO WHETHER DEEMING FICTION AS PER EXPLANATION TO SECTION 73 CAN BE INVOKED IN RESPECT OF SUCH LOSS AND DUE TO THAT APPLICATION, WHETHER SUCH LOSS WAS LIABLE TO BE SET OFF. AND IF IT IS FOUND THAT IT WAS NOT LIABLE TO BE SET OFF AGAINST OTHER INCOME DUE TO THE SAID DEEMING FICTION, WHETHER THE ASSESSEE CAN BE HELD LIABLE FOR PENALTY U/S 271 (1)(C). LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE CASE OF THE ASSESSEE AGAINST THE IMPOSITION OF PENALTY IS THAT SINCE GROSS TOTAL INCOME OF THE ASSESSEE CONSISTS MAINLY OF INCOME WHICH WAS CHARGEA BLE UNDER THE HEAD INCOME FROM OTHER SOURCES, LOSS OF SHARES CAN NOT BE DEEMED TO BE SPECULATION UNDER EXPLANATION TO SECTION 73 DUE TO THE EXCEPTION CONTAINED THEREIN AND INCOME FROM HIRING AND MAIN TENANCE HAS BEEN TREATED AS INCOME FROM OTHER SOURCES IN ASSESSMENT YEAR 1998-99 BY THE ASSESSING OFFICER AND TRIBUNAL AND ON THIS LOGIC ONLY, IMPUGNED LOSS SHOULD BE TREATED AS NOT HIT BY DEEMING FICTION UNDER EXPLANATION TO SECTION 73. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND CONSIDERABLE COGENCY IN THE AVERMENT OF THE LD. COUNSEL OF THE ASSESSEE. WE FIND THAT SECTION 271(1)(C) OF THE INCOME TAX ACT POSTULATES THE LEVY OF PENALTY FOR FURNISHI NG OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. IN THIS CASE, WE FIND THAT ALL THE FACTS PERTAINING TO THE CLAIM OF THE ASSESSEE WERE DULY DISCLOSED, THE DISPUTE IS ONLY AS TO WHETHER DEEMING FICTION UND ER EXPLANATION 73 CAN BE INVOKED OR NOT? LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ASSESSEES TREATMENT HAS BEEN ACCEPTED IN THE N EXT ASSESSMENT ITA NO. 3545/DEL/2011 4 YEAR AND THE SAME HAVE BEEN APPROVED BY THE TRIBUNAL ALSO. SO POSSIBILITY OF TWO OPINIONS CANNOT BE RULED OUT ON THE IMPUGNED ISSUE. UNDER SUCH CIRCUMSTANCES, IN OUR CONSIDERED OPINION , ASSESSEE CANNOT BE HELD GUILTY OF CONCEALMENT OR FURNISHING OF INA CCURATE PARTICULARS. IN THIS BACKGROUND, IN OUR CONSIDERED OPINION, ASS ESSEE CONDUCT IS NOT CONTUMACIOUS SO AS TO ATTRACT LEVY OF PENALTY U/S 271(1)(C). 8. IN THIS REGARD, WE PLACE RELIANCE UPON THE HON BLE APEX COURT DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODU CTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010. IN THIS CASE VIDE ORDER D ATED 17.3.2010 IT HAS BEEN HELD THAT THE LAW LAID DOWN IN THE DILIP SH EROFF CASE 291 ITR 519 (SC) AS TO THE MEANING OF WORD CONCEALMENT AN D INACCURATE CONTINUES TO BE A GOOD LAW BECAUSE WHAT WAS OVERRU LED IN THE DHARMENDER TEXTILE CASE WAS ONLY THAT PART IN DILIP SHEROFF CASE WHERE IT WAS HELD THAT MENSREA WAS A ESSENTIAL REQU IREMENT OF PENALTY U/S 271(1)(C). THE HONBLE APEX COURT ALSO OBSERVE D THAT IF THE CONTENTION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WHERE THE CLAIM IS NOT ACCEPTED BY THE AO FOR ANY R EASON, THE ASSESSEE WILL INVITE THE PENALTY U/S 271(1)(C). TH IS IS CLEARLY NOT THE INTENDMENT OF LEGISLATURE. 9. WE WOULD ALSO LIKE TO REFER THE DECISION OF THE HONBLE APEX COURT RENDERED BY A LARGER BENCH COMPRISING OF THREE OF T HEIR LORDSHIPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 WHEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMIN AL PROCEEDINGS, AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PA RTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DI SREGARD OF ITS ITA NO. 3545/DEL/2011 5 OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY B ECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAI LURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF T HE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL T HE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBE D, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRI BED BY THE STATUTE. 10. IN THE BACKGROUND OF THE AFORESAID DISCUSSION A ND PRECEDENTS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW A ND DELETE THE LEVY OF PENALTY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/11/2011. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAH [SHAMIM YAH [SHAMIM YAH [SHAMIM YAHYA] YA] YA] YA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 24/11/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES