Midland Services Ltd., V. DCIT, Circle-6(1),

ITA 3721/DEL/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3873 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-05-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 20-09-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: SANJEEV JAINC A
• Keywords: Business income; Income from undisclosed sources; Share purchase agreement; Opportunity of being heard; Speculation loss; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 3721(DEL)/2005 ASSESSMENT YEAR: 1996-97 MIDLAND SERVICES LTD., DEPUTY COM MISSIONER OF INCOME 196, SAINIK FARM, VS. TAX, CIR CLE 6(1), NEW DELHI. NEW DELHI. (APPELLANT) (RESPOND ENT) APPELLANT BY : SHRI SANJEEV JAIN,C.A. RESPONDENT BY : SHRI KISHORE B., SR. DR ORDER PER K.G. BANSAL : AM IN THIS CASE, THE TRIBUNAL HAD PASSED THE ORDER ON 22.11.2006, IN WHICH THE APPEAL OF THE ASSESSEE WAS ALLOWED AND THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961, OF RS. 4,12 ,011/- WAS DELETED ON THE GROUND THAT THE ASSESSING OFFICER HAD NOT RE CORDED SATISFACTION REGARDING THE CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME IN THE ASSESSMENT ORDER. THE REVENUE MOVED APPEAL BEFORE THE HONBLE DELHI HIGH COURT. IN ITA NO. 1043/2007, DATED 26.8.2009, THE HONBLE COURT SET ASIDE THE ORDER AND REMANDED T HE CASE BACK TO THE TRIBUNAL FOR DETERMINATION OF THE APPEAL ON MERI TS ON THE GROUND THAT CLAUSE (1B) HAS BEEN INSERTED IN SECTION 271 BY THE FINANCE ACT, 2009, RETROSPECTIVELY WITH EFFECT FROM 01.04.1989. THE HONBLE COURT ALSO ITA NO. 3721(DEL)/2005 2 NOTED ITS OWN DECISION IN THE CASE OF MADHUS HREE GUPTA VS. UNION OF INDIA & ANOTHER, IN WP (C) NO. 5059/2008 AND ME NTIONED THAT IT WOULD BE OPEN TO THE ASSESSEE TO ARGUE THE MATTER BEFORE THE TRIBUNAL ON THE BASIS OF PRINCIPLES LAID DOWN IN THE SAID JUDGMENT. THE JUDGMENT INTER-ALIA HELD THAT PRIMA FACIE SATISFACTION OF THE AO THA T THE CASE MAY DESERVE IMPOSITION OF PENALTY SHOULD BE DISCERNIBLE F ROM THE ASSESSMENT ORDER, HOWEVER, THE FINAL CONCLUSION CAN BE ARRIVED AT ONLY AFTER HEARING THE ASSESSEE. FOR THE SAKE OF READY REFERENCE, THE SIX CONCLUSIONS ARRIVED AT BY THE HONBLE COURT IN THIS CASE ARE REPRODUCED BELOW:- (I) SECTION 271(1B) OF THE ACT IS NOT VIOLATIVE OF ARTICLE 14 OF THE CONSTITUTION. (II) THE POSITION OF LAW BOTH PRE AND POST-AMENDMENT IS SIMILAR, IN AS MUCH, THE ASSESSING OFFICER WILL HAVE TO ARR IVE AT A PRIMA FACIE SATISFACTION DURING THE COURSE OF PROCEEDINGS WITH REGARD TO THE ASSESSEE HAVING CONCEALED PA RTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS, BEFO RE HE INITIATES PENALTY PROCEEDINGS. (III) PRIME FACIE SATISFACTION OF THE ASSESSING OFFIC ER THAT THE CASE MAY DESERVE THE IMPOSITION OF PENALTY SHOUL D BE DISCERNIBLE FROM THE ORDER PASSED DURING THE COUR SE OF THE PROCEEDINGS. OBVIOUSLY, THE ASSESSING OFFICER W OULD ARRIVE AT A DECISION, I.E., A FINAL CONCLUSION ONLY A FTER HEARING THE ASSESSEE. (IV) AT THE STAGE OF INITIATION OF PENALTY PROCEEDING THE ORDER PASSED BY THE ASSESSING OFFICER NEED NOT REFLECT SATISFACTION, VIS--VIS EACH AND EVERY ITEM OF ADDITION OR DIS ALLOWANCE IF OVERALL SENSE GATHERED FROM THE ORDER IS THAT A F URTHER PROGNOSIS IS CALLED FOR. ITA NO. 3721(DEL)/2005 3 (V) HOWEVER, THIS WOULD NOT DEBAR AN ASSESSEE FRO M FURNISHING EVIDENCE TO REBUT THE PRIMA FACIE SATISFACTION OF THE ASSESSING OFFICER; SINCE PENALTY PROCEEDING ARE NOT A CONTINUATION OF ASSESSMENT PROCEEDINGS. [JAIN BROT HERS V. UNION OF INDIA (1970) 77 ITR 107 (SC)]. (VI) DUE COMPLIANCE WOULD BE REQUIRED TO BE MADE IN RE SPECT OF THE PROVISIONS OF SECTION 274 AND 275 OF THE ACT . 2. IN THE COURSE OF HEARING BEFORE US, THE LD. CO UNSEL FOR THE ASSESSEE RAISED ONE MORE GROUND ON 18.2.2010 THAT THE LD. INCOME-TAX OFFICER, WARD 6(4), NEW DELHI, ERRED IN PASSING THE IMPUGNED PENALTY ORDER AND LEVYING A PENALTY OF RS. 4,12,011/- UNDER SECTION 271(1)(C) OF THE ACT WITHOUT ANY VALID JURISDICTION AND WITHOUT BEING SATISFIED THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS IN COME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE INTEN T OF THIS GROUND HAS BEEN EXPLAINED TO US THAT THE ASSESSMENT ORDER WAS P ASSED BY JOINT COMMISSIONER OF INCOME-TAX, SPECIAL RANGE-27, NEW DELHI, ON 22.3.1999, ASSESSING THE TOTAL INCOME AT RS. 1,41 ,44,690/-. PENALTY PROCEEDINGS WERE INITIATED IN THE COURSE OF THIS ASSESSMENT BY HIM. HOWEVER, THE ORDER OF PENALTY WAS FRAMED BY TH E ITO, WARD 6(4), NEW DELHI. SINCE THE PROCEEDINGS WERE INITIATED BY THE JOINT COMMISSIONER, HE ALONE WAS COMPETENT TO DECIDE THE MATTER REGAR DING LEVY OR NON-LEVY OF PENALTY. IN THIS CONNECTION, RELIANCE HAS BEEN PLACED ON THE DECISION OF ITA NO. 3721(DEL)/2005 4 HONBLE DELHI HIGH COURT IN THE CASE OF VALVOLINE COMMINS LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX & OTHERS, (2008) 307 ITR 103. IT HAS BEEN SUBMITTED THAT THE GROUND IS JURISDICTIONAL IN NATURE, WHICH CAN BE RAISED BY THE ASSESSEE AT ANY POINT OF TIME. T HE GROUND DOES NOT REQUIRE DISCOVERING NEW FACTS AND, THEREFORE, IT SHOULD B E ADMITTED. 2.1 IN REPLY, THE LD. DR SUBMITTED THAT THIS GROU ND HAS NOT BEEN TAKEN UP BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, C IT(APPEALS), THE TRIBUNAL IN THE FIRST ROUND OF PROCEEDINGS OR THE HONBLE HIGH COURT. THE HONBLE HIGH COURT ALSO DIRECTED THE TRIBUNAL TO DECIDE T HE APPEAL ON MERITS. THEREFORE, THE JURISDICTION OF THE TRIBUNAL HAS NO W BEEN LIMITED TO DECIDE THE APPEAL ON MERITS. IT IS FURTHER SUBMITTED THAT THE INCOME-TAX DEPARTMENT WAS RESTRUCTURED IN THE YEAR 2001. IN THIS EXERCISE, THE POST OF JOINT COMMISSIONER OF INCOME-TAX (SPECIAL RANGE) WAS ABOLISHED AND THE CASES ASSESSED UNDER JURISDICTION OF SUCH RANGES WERE TRANSFERRED TO THE ITO, ASSISTANT COMMISSIONER OR THE DEPUTY COMMISS IONER, AS THE CASE MAY BE. THUS, SPECIAL RANGE-27 DID NOT EXIST AT THE TIME WHEN THE PENALTY ORDER WAS PASSED AND THIS CASE, EARLIER FALLING UNDER THAT JURISDICTION, WHICH WAS ASSIGNED TO THE INCOME- TAX OFFICER, WARD 6(4). ITA NO. 3721(DEL)/2005 5 2.2 IN THE REJOINDER, THE LD. COUNSEL SUBMITTED TH AT MERITS OF THE APPEAL INCLUDE THE JURISDICTION ALSO. WHEN QUESTIONED A S TO WHETHER THE ITO HAS HEARD THE ASSESSEE BEFORE LEVYING PENALTY, IT WAS SUBMITTED THAT PROPER OPPORTUNITY OF BEING HEARD WAS GRANTED. IT IS ALSO ACCEPTED BY HIM THAT ON THE DATE OF LEVY OF PENALTY, THIS CASE FELL UNDER THE JURISDICTION OF ITO, WARD 6(4). THE PROVISION CONTAINED IN SECTION 129 WAS ALSO DISCUSSED WITH HIM. HOWEVER, THE LD. COUNSEL PERSISTED WI TH THE ARGUMENT THAT THE INCOME-TAX OFFICER DID NOT HAVE JURISDICTION TO L EVY THE PENALTY. 2.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT AT THE TIME OF PASSING THE ORDER, THE CASE FELL UNDER THE JURISDICTION OF THE JOINT COMMISSI ONER OF INCOME-TAX, SPECIAL RANGE-27, NEW DELHI. THIS RANGE WAS ABOLISHED I N THE YEAR 2001 AND THEREAFTER THE CASE FELL UNDER THE JURISDICTION OF INCOME-TAX OFFICER, WARD 6(4), NEW DELHI. THE JOINT COMMISSIONER HAD INITI ATED THE PENALTY PROCEEDING, WHICH WAS COMPLETED BY THE INCOME-T AX OFFICER AFTER HEARING THE ASSESSEE. SECTION 129 INTER-ALIA PRO VIDES THAT WHENEVER IN RESPECT OF ANY PROCEEDINGS UNDER THE ACT, THE INC OME-TAX AUTHORITY CEASES TO EXERCISE JURISDICTION AND IS SUCCEEDED BY ANO THER WHO HAS AND EXERCISES JURISDICTION, THE INCOME-TAX AUTHORITY SO SUCCEEDED MAY ITA NO. 3721(DEL)/2005 6 CONTINUE THE PROCEEDINGS FROM THE STAGE AT WHICH THE PROCEEDING WAS LEFT BY HIS PREDECESSOR. THE PROVISO TO THIS PROVISIO N GRANTS A RIGHT TO THE ASSESSEE IN SUCH A CASE TO DEMAND THAT HE MAY BE RE-HEARD IN RESPECT OF PREVIOUS PROCEEDINGS OR ANY PART THEREOF. THIS PROVISION HAS BEEN COMPLIED WITH. OTHERWISE, THE PROVISION OF SEC TION 129 IS APPLICABLE TO THE ASSESSEE. THEREFORE, THE ITO COULD HAVE STARTED THE PROCEEDING OF PENALTY FROM THE STAGE AT WHICH THE JOINT COMMIS SIONER LEFT IT. THAT IS WHAT HAS BEEN DONE BY HER. WE FIND THAT THE DECIS ION IN THE CASE OF VALVOLINE COMMINS LTD. (SUPRA) DEALS WITH THE MEA NING OF THE EXPRESSION CONCURRENT JURISDICTION. WE ARE NOT DEALING WITH A CASE WHERE TWO INCOME-TAX AUTHORITIES ARE HOLDING CONCURRENT JUR ISDICTION OVER THE CASE OF THE ASSESSEE. ON THE CONTRARY, IT IS A CAS E OF SUCCESSION OF ONE AUTHORITY BY ANOTHER, WHICH IS GOVERNED UNDER S ECTION 129. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE JURISDICTIO N OF THE ITO WHEN SHE PASSED THE ORDER LEVYING THE PENALTY. 3. IN SO FAR AS THE PRE-CONDITION FOR LEVY OF P ENALTY, AS CLARIFIED BY HONBLE DELHI HIGH COURT IN THE CASE OF MADHUSH REE GUPTA AND ANOTHER, THE LD. COUNSEL DISCUSSED THE SAME ALONG WITH THE MERITS OF THE CASE. IT IS SUBMITTED THAT THE PENALTY WAS LEVIED ON FOUR GROUNDS. THE FIRST GROUND ITA NO. 3721(DEL)/2005 7 IS REGARDING DISALLOWANCE OF COMMISSION OF RS. 3,9 6,875/- PAID TO SHRI MANHAR BHAGAT. THIS MATTER IS DISCUSSED ON PAGE N O.7 OF THE ASSESSMENT ORDER. IT IS MENTIONED THAT THE ASSESSEE RECEIV ED COMMISSION FROM HMG FINANCIAL SERVICES CO. P. LTD. FOR MOBILIZING FUNDS IN RESPECT OF THE RIGHT ISSUE. OUT OF THE COMMISSION RECEIVED , A PAYMENT OF RS. 3,96,875/- WAS MADE TO SHRI MANHAR BHAGAT. HE I S A DIRECTOR IN NIRLON LIMITED. THE COMMISSION WAS DISALLOWED BY MENTIONI NG THAT IT IS DIFFICULT TO UNDERSTAND WHY SHRI BHAGAT ROUTED HIS MONEY THROUGH THE ASSESSEE COMPANY AND HMG FINANCIAL SERVICES CO. P. LTD. WHEN HE IS IN A POSITION TO DIRECTLY PROCURE THE MONEY FOR HIS COMPANY. IT IS FURTHER MENTIONED THAT THE ASSESSEE-COMPANY DID NOT FURNI SH ANY EVIDENCE ABOUT THE SERVICES RENDERED BY HIM FOR MOBILIZING FUND S FOR NIRLON LIMITED. THE ASSESSEE HAS ALSO NOT DEDUCTED TAX AT SOU RCE FROM PAYMENT MADE TO SHRI BHAGAT. IN THESE CIRCUMSTANCES, THE INCOME OF RS. 11,43,750/- WAS TREATED AS INCOME FROM UNDISCLOSED SOURCES AND PA YMENT TO SHRI BHAGAT WAS DISALLOWED. THE PENALTY HAS BEEN LEVIED BY MENTIONING THAT THE EXPLANATION HAS NOT BEEN FOUND TO BE SATISFACTORY UNDER EXPLANATION-1 TO SECTION 271(1)(C). THE PENALTY HAS BEEN CONFIRME D BY THE LD. CIT(APPEALS) BY STATING THAT THE ASSESSEE HAS NO T AGITATED THE MATTER IN QUANTUM APPEAL BEFORE THE TRIBUNAL FROM WHICH IT B ECOMES CRYSTAL CLEAR ITA NO. 3721(DEL)/2005 8 THAT THE PAYMENT HAD NOT BEEN MADE FOR THE PURPOSE OF BUSINESS. THEREFORE, THE EXPLANATION IS NOT BONA- FIDE. THE CASE OF THE LD. COUNSEL IS THAT THE PENALTY ON THIS GROUND HAS BEEN L EVIED MERELY BY REJECTION OF THE EXPLANATION SUBMITTED IN ASSESSMENT AS WELL AS PENALTY PROCEEDINGS. THE RENDERING OF SERVICES TO THE ASSESSEE HAS NO RELATION WITH THE FACT THAT SHRI BHAGAT WAS A DIRECTOR O F NIRLON LIMITED. IT WAS A BUSINESS DECISION TAKEN BY THE TWO PARTIES. THE FACTUM OF PAYMENT OF COMMISSION HAS NOWHERE BEEN DISPUTED. ALL THE FACTS HAVE BEEN DISCLOSED TO THE AO. IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS P. LTD., (2010) 322 ITR 158, IT IS ARGUED THAT THE PENALTY COULD NOT HAVE BEEN LEVIED. IN REPLY, THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 3.1 IT IS FURTHER SUBMITTED THAT THE SECOND ISSUE REGARDING LEVY OF PENALTY IS IN RESPECT OF VALUATION OF STOCK OF S HARES HELD AS STOCK-IN-TRADE. THE QUOTATIONS OF THE SHARE OF VTC INDIA LTD. ON 29.03.1996, BEING THE LAST DATE OF ITS QUOTATION IN THIS FINANCIAL YEA R, WERE RS. 48/- AND RS. 49/-, WITH CLOSING QUOTATION AT RS. 49/- PER SHARE. THE ASSESSEE HAD BEEN VALUING THE STOCK ON COST OR MARKET PRICE, WHICH EVER IS LESS. THE COST WAS MORE THAN RS. 49/-. THE ASSESSEE TOOK THE VALUE AT RS. 48/- PER SHARE, ITA NO. 3721(DEL)/2005 9 WHILE THE AO ADOPTED THE VALUE AT RS. 49/- PER SHARE, LEADING TO ADDITION OF AN AMOUNT OF RS. 2,96,300/-. THE ADDITION W AS MADE BY STATING THAT LAST CLOSING QUOTATION HAS TO BE TAKEN FOR THE PURPOSE OF VALUATION AS THERE COULD BE FLUCTUATION IN THE VALUE ON THE SA ME DAY AND THAT THE ASSESSEE HAS DONE THE SAME WHILE VALUING SHARES OF JCT ELECTRONICS LTD. THE PENALTY HAS BEEN LEVIED BY HOLDING THE EXPL ANATION TO BE NON- SATISFACTORY. THE PENALTY HAS BEEN CONFIRMED BY STATING THAT THE ADDITION HAS BEEN RIGHTLY MADE AND THE ASSESSEE HAS ACC EPTED THE DECISION OF THE CIT(APPEALS) IN QUANTUM APPEAL. THE FACTS AS ABOV E SHOW THAT THE EXPLANATION IS NOT BONA FIDE AS THE UNDER-VALUAT ION HAS BEEN MADE WITH A VIEW TO SUPPRESS THE INCOME. THE CASE OF THE LD. COUNSEL IS THAT IT IS A CASE OF MERE VALUATION, ON WHICH THERE COULD BE BO NA FIDE DIFFERENCE OF OPINION. IN ANY CASE, ALL THE FACTS WERE DISC LOSED TO THE AO AND, THEREFORE, THE DECISION IN THE CASE OF RELIANCE PETRO PRODUCTS P. LTD. (SUPRA) COMES TO THE AID OF THE ASSESSEE. 3.2 THE THIRD ISSUE IS REGARDING NON-INCLUSION O F SHARES OF BIRLA GLOBAL FINANCE LTD. IN THE CLOSING STOCK. THE C ASE OF THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS HAS BEEN THAT 500 SHARES IN THIS COMPANY WERE HELD IN MATERIAL FORM. THE SHARE CERTIFICATES WE RE MISPLACED. THEREFORE, ITA NO. 3721(DEL)/2005 10 THE VALUE OF THESE SHARES WAS NOT TAKEN INTO AC COUNT IN STOCK ON PRUDENT ACCOUNTING BASIS. THESE SHARES WERE FOUND SUB SEQUENTLY AND REFLECTED IN THE STOCK OF A SUBSEQUENT YEAR TAKEN AS ON 31. 3.1998. IT HAS BEEN HELD THAT EVEN IF THE CERTIFICATES WERE MISSING, TH E VALUE OF THE SHARES HAD TO BE TAKEN INTO ACCOUNT IN THE CLOSING STOCK OF THIS YEAR. THE REASON IS THAT THE COMPANY IS BOUND TO ISSUE DUPLICATE CERTIFICA TES ON MAKING PROPER APPLICATION. THEREFORE, THE VALUE OF THE SHARES C OMPUTED AT RS. 75,000/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. T HE PENALTY WAS LEVIED BY HOLDING THAT THE EXPLANATION OF THE ASSESSEE IS NOT BONA FIDE. THE LEVY WAS CONFIRMED BY THE LD. CIT(APPEALS) BY MENTIONING TH AT THE ASSESSEE IS FULLY AWARE OF THE LEGAL POSITION IN THE MATTER BUT DO ES NOT INCLUDE THE VALUE OF THE SHARES IN CLOSING STOCK KNOWING FULLY WELL TH AT NO LOSS HAS BEEN INCURRED. IT AGREED TO THE ADDITION ONLY WHEN THE AO POINTED OUT THE FACT OF NON-INCLUSION OF THE VALUE IN THE CLOSING STOCK. THEREFORE, THE DEFAULT HAS BEEN COMMITTED KNOWINGLY LEADING TO PENALIZATION FOR FURNISHING INACCURATE PARTICULARS OF INCOME. BEF ORE US, THE LD. COUNSEL RELIED ON THE DECISION OF HONBLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF PUNJAB KESARI HOSIERY FACTORY, (2008) 3 04 ITR 247. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDERS OF TH E AUTHORITIES BELOW. ITA NO. 3721(DEL)/2005 11 3.3 THE FOURTH AND LAST ISSUE IS REGARDING THE FI NDING OF THE AO THAT LOSS IN TRADING OF SHARES IS SPECULATION LOSS. THE D ETAILS OF SHARES PURCHASED AND SOLD HAVE BEEN MENTIONED ON PAGE 10 OF THE ASSESSMENT ORDER IN A TABULAR FORM, WHICH SHOWS THE LOSS AT RS. 1,27,500 /-. THE DETAILS ARE AS UNDER:- SHARES BROUGHT FOR YOU SHARES SOLD FOR YOU DEBIT (RS.) DATE QTY. RATE CREDIT DATE QTY. RATE LOSS INCURRED 1005300 24.11.95 18000 55.85 974700 24.11.95 18000 54.15 30600 1284550 28.11.95 23000 55.85 1245450 28.11.95 23000 54.15 39100 1061150 29.11.95 19000 55.85 1028850 29.11.95 19000 54.15 32300 837750 30.11.95 15000 55.85 812250 30.11.95 15000 54.15 25500 TOTAL: 127500 THE EXPLANATION OF THE ASSESSEE IS THAT THERE WER E OTHER DEALINGS IN SHARES. THE DETAILS OF THE TRANSACTION WERE SUBMITTED. O N THAT BASIS IT WAS POINTED OUT THAT FURTHER SHARES HAVE BEEN PURCHA SED AS THE PRICES HAD COME DOWN. THEREFORE, IT WAS ARGUED THAT THE TRANSACTIONS WERE UNDERTAKEN WITH A VIEW TO SAVE THE COMPANY FROM F URTHER LOSSES. THE AO DID NOT FIND THE SUBMISSIONS OF SUBSEQUENT PURCHA SES AT LOWER PRICE TO BE FACTUALLY CORRECT. THIS MATTER HAS BEEN DEALT WITH ON PAGE NO. 11 OF THE ASSESSMENT ORDER. THE ADMITTED POSITION IN RESPEC T OF THE TRANSACTIONS IS THAT PHYSICAL DELIVERY HAS NOT BEEN TAKEN AND T HE TRANSACTIONS HAVE BEEN ITA NO. 3721(DEL)/2005 12 SETTLED ON THE SAME DAY BY PAYING THE DIFFERENCE . ACCORDINGLY, RELYING ON CERTAIN DECIDED CASES IN THE MATTER, THE LOS S HAS BEEN HELD TO BE SPECULATIVE IN NATURE, THEREFORE, THE SAME WAS N OT ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME. THE PENALTY WAS LEVIE D BY HOLDING THAT THE ASSESSEE CONCEALED THE TRUE PARTICULARS OF INCOM E. THE LEVY HAS BEEN CONFIRMED BY THE LD. CIT(APPEALS) BY MENTIONING THA T THE ASSESSEE ACCEPTED THE VIEW OF THE AO IN THE COURSE OF ASS ESSMENT PROCEEDINGS ITSELF. IT HAS ALSO BEEN HELD THAT THE ASSESSEE F URNISHED INACCURATE PARTICULARS OF INCOME BY SETTING OFF THE LOSS A GAINST THE BUSINESS INCOME. BEFORE US, THE LD. COUNSEL RELIED ON THE DECISIO N OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AURIC INVESTMENT & S ECURITIES LTD., (2009) 310 ITR 121. ON THE OTHER HAND, THE LD. DR RE LIED ON THE ORDERS OF LOWER AUTHORITIES. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FIRST GROUND FOR LEVY OF PENALTY I S IN RESPECT OF DISALLOWANCE OF COMMISSION PAID TO SHRI MANHAR BHAGAT. THE DIS ALLOWANCE HAS BEEN ACCEPTED BY THE ASSESSEE. HOWEVER, THE FACTUM OF PAYMENT TO SHRI BHAGAT HAS NOT BEEN DISPUTED EITHER BY THE AO OR THE CIT (APPEALS). THE GROUND FOR DISALLOWANCE IS THAT THERE IS NO EVIDENCE OF RENDERING OF SERVICE. THE ITA NO. 3721(DEL)/2005 13 CASE OF THE ASSESSEE IS THAT ALL PARTICULARS HAVE BEEN DISCLOSED AND IT WAS A BUSINESS TRANSACTION BETWEEN IT AND SHRI MANHAR B HAGAT. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE FACTS REGARDING PAYMENT OF COMMISSION HAVE BEEN DISCL OSED BY THE ASSESSEE. ON THESE VERY FACTS, THE AO CAME TO THE CONCLUS ION THAT THE EXPENDITURE IS NOT ALLOWABLE. ALTHOUGH NO APPEAL HAS BEEN FILED AGAINST THE ORDER OF THE LD. CIT(APPEALS), THE FACT REMAINS THAT THE DISALLOWANCE HAS BEEN MADE BY WEIGHING PROBABILITIES WHEN IT IS MENTIO NED THAT SHRI BHAGAT WAS A DIRECTOR IN NIRLON LTD. AND BECAUSE OF TH IS FACT, THERE WAS NO NEED FOR HIM TO ENTER INTO ARRANGEMENT WITH THE ASSES SEE. NONETHELESS, SINCE ALL THE FACTS HAVE BEEN DISCLOSED, THE RATIO OF THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA) IS APPLICABLE. HENC E, IT IS HELD THAT PENALTY ON THIS GROUND SHOULD NOT HAVE BEEN LEVIED. 4.1 THE SECOND GROUND IS IN REGARD TO VALUATION OF THE SHARES OF VTC INDIA LTD. THE QUOTATIONS ON THE CLOSING DATE WERE RS. 48/- AND RS. 49/-. THE ASSESSEE ADOPTED THE RATE AT RS. 48/-, WHIC H WAS LOWER THAN THE COST PRICE. THE AO ADOPTED THE RATE OF RS. 49/- PER SHARE. THE DISPUTE IS REGARDING THE ADOPTION OF THE RATE, WHICH COU LD BE RS. 48/-, RS. 49/- OR RS. 48.50, BEING THE AVERAGE OF THE TWO QUOTATIONS . AS THERE IS A VALID ITA NO. 3721(DEL)/2005 14 DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE AO IN THIS MATTER, PENALTY COULD NOT HAVE BEEN LEVIED IN RESPECT OF T HIS ISSUE ALSO. 4.2 THE THIRD GROUND IS REGARDING OMISSION OF 500 SHARES OF BIRLA GLOBAL FINANCE LTD. FROM THE CLOSING INVENTORY ON THE GROUND THAT PHYSICAL SHARES HAD BEEN MISSING FOR QUITE SOME TIME. THE AO MADE THE ADDITION TO THE CLOSING STOCK BY MENTIONING THAT EVEN IF T HE SHARES WERE MISSING, THE ASSESSEE WAS ENTITLED TO RECEIVE DUPLICATE SH ARE CERTIFICATES FROM THE COMPANY. HOWEVER, NO AVERMENT IS MADE IN THIS PA RT OF THE ASSESSMENT ORDER THAT THE ASSESSEE WAS AWARE OF THE POS ITION OF LAW UNDER THE COMPANIES ACT OR NON-INCLUSION WAS WITH A VIEW TO SUPPRESS THE INCOME. THESE FACTS HAVE BEEN MENTIONED BY THE LD. CIT(A ) IN APPEAL ON QUANTUM. THE LD. COUNSEL HAS RELIED ON DECISION IN THE CA SE OF PUNJAB KESARI HOSIERY FACTORY (SUPRA). IN THIS CASE, THE TRI BUNAL HAD REDUCED THE ADDITION ON ACCOUNT OF UNACCOUNTED STOCK OF WOOL EN YARN FROM RS. 2,45,600/- TO RS. 1,26,000/- BY OBSERVING THAT THE RE WAS AN OMISSION OF NOT ACCOUNTING FOR CERTAIN STOCKS. THE OTHER ADDIT IONS WERE DELETED. THE BENEFIT OF ENHANCEMENT OF OPENING STOCK BY THE CORRESPONDING AMOUNT WAS ALLOWED TO THE ASSESSEE IN THE SUBSEQUENT Y EAR. THE TRIBUNAL, IN PENALTY PROCEEDINGS, ACCEPTED THE CONTENTION OF TH E ASSESSEE THAT THE ITA NO. 3721(DEL)/2005 15 POSITION OF THE TOTAL ADDITION OF RS. 4,25,000/- (RS. 2,45,600+ RS. 65,696+RS. 42,230) HAD VANISHED BECAUSE OF THE DE CISION OF THE TRIBUNAL. THEREFORE, THE PENALTY CANNOT SURVIVE. THE OM ISSION DOES NOT GIVE RISE TO ANY PENALTY FOR CONCEALMENT. THIS FINDING WA S CONFIRMED BY THE HONBLE COURT. WE FIND THAT THE FACTUAL POSITION IS SOME WHAT DISTINGUISHABLE AS IT IS NOT A CASE OF REDUCTI ON OF THE ADDITION FROM AN HIGHER AMOUNT CONSISTING OF THREE ITEMS TO A L OWER AMOUNT, BEING PART OF ONLY ONE ITEM. HOWEVER, IT IS ALSO A FAC T THAT THE ASSESSEE HAD TAKEN THE OPENING STOCK OF THE SUCCEEDING YEAR AT TH E LOWER AMOUNT BUT INCREASED THE CLOSING STOCK BY THE VALUE OF THE SHARES, WHEN THE SHARE CERTIFICATES WERE FOUND OUT. THEREFORE, ON OVE RALL CONSIDERATION OF THE FACTS, IT IS HELD THAT THE ASSESSEE IS NOT LIAB LE TO BE PENALIZED ON THIS GROUND ALSO. 4.3 THE LAST GROUND IS IN RESPECT OF THE FINDING THAT LOSS OF RS. 1,27,500/- IN RESPECT OF TRADING IN SHARES, WHE RE TRANSACTIONS WERE SETTLED BY PAYING THE DIFFERENCE, WAS SPECULATION LOSS AND, THEREFORE, IT COULD NOT BE DEDUCTED FROM THE PROFITS OF THE BUSINESS. T HERE IS NO ERROR IN SO FAR AS THE MAKING OF THE ADDITION IS CONCERNED. THE POSITION HAS BEEN ADMITTED BY THE ASSESSEE. IN THE CASE OF AURIC INVESTMENT AND SECURITIES ITA NO. 3721(DEL)/2005 16 LTD. (SUPRA), THE HONBLE COURT HELD THAT WHEN ALL REQUISITE INFORMATION REQUIRED BY THE AO HAS BEEN FURNISHED AND THERE IS NOTHING TO SHOW THAT THE ASSESSEE CONCEALED INCOME OR FURNISHED INACC URATE PARTICULARS OF INCOME, THEN MERE TREATMENT OF BUSINESS LOSS A S SPECULATION DOES NOT AUTOMATICALLY WARRANT THE LEVY OF PENALTY. THE A SSESSEE HAD FILED ALL DETAILS REGARDING TRADING IN SHARES. THEREFORE, N O FAULT COULD BE FOUND WITH THE VIEW TAKEN BY THE TRIBUNAL. WE FIND THAT THE FACTS ARE SIMILAR. THEREFORE, RELYING ON THIS DECISION, IT IS HELD T HAT THE PENALTY WAS NOT LEVIABLE. 5. IN THE RESULT, THE PENALTY IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27 MAY, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 27TH MAY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- MIDLAND SERVICES LTD., NEW DELHI. DY. CIT, CIRCLE 6(1), NEW DELHI. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.