SUNIDHI SECURITIES & FINANCE LTD ( FORMERLY M/S. SUNIDHI CONSULTANCY SERVICES P.LTD), MUMBAI V. ADDL CIT 4(2), MUMBAI

ITA 3760/MUM/2011

• Counselvise Citation: 376019914 RSA 2011
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-07-2014
• Assessment Year: misc
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Speculation loss
• Section: 143(3); 6

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND P.M . JAGTAP, AM .. , .. , ./ I.T.A. NO.3760 /MUM/2011 ( / ASSESSMENT YEAR : 2006-2007 M/S SUNIDHI SECURITIES & FINANCE LTD. (FORMERLY M/S SUNIDHI CONSULTANCY SERVICES PVT. LTD.), MAKER CHAMBER IV, 14 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. / VS. THE ADDL . COMMISSIONER OF INCOME TAX- 4(3), AAYAKAR BHAVAN, MUMBAI. ./ PAN : AADCS1567D ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI HIRO RAI R E SPONDENT BY : SHRI PRAKASH L. PATHADE ' ( / DATE OF HEARING : 15-07-2014 ' ( / DATE OF PRONOUNCEMENT : 30-7-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) -8, MUMBAI DATED 7-04-2011 WHEREBY HE CONFI RMED THE PENALTY OF RS. 42,56,788/- IMPOSED BY THE A.O. U/S 271(1)(C) OF TH E INCOME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK BROKING. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30-11-2006 DECLARI NG TOTAL INCOME OF RS. 6,40,87,992/-. IN THE SAID RETURN, LOSS OF RS. 97, 54,233/- WAS SHOWN BY THE ITA 3760/M/11 2 ASSESSEE ON ACCOUNT OF REVALUATION OF CLOSING STOCK OF SHARES AND SECURITIES. IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOM E TAX ACT, 1961VIDE AN ORDER DATED 25-06-2008, THE SAID LOSS WAS DISALLOWE D BY THE A.O. TREATING THE SAME AS SPECULATIVE IN NATURE BY INVOKING THE PROVI SIONS OF SECTION 73 OF THE ACT. SIMILARLY, EXPENSES OF RS. 28,92,198/- CLAIMED BY THE ASSESSEE ON EDUCATION AND TRAINING OF MR. RISHABH PAREKH, SON O F ONE OF ITS DIRECTORS WERE DISALLOWED BY THE A.O. TREATING THE SAME AS PERSONA L IN NATURE REJECTING THE CLAIM OF THE ASSESSEE THAT MR. RISHABH PAREKH HAVIN G AGREED TO JOIN THE ASSESSEE COMPANY AFTER COMPLETING HIS EDUCATION FOR A MINIMUM PERIOD OF FIVE YEARS, THE EXPENSES INCURRED ON EDUCATION AND TRAIN ING WERE FOR THE PURPOSE OF ITS BUSINESS. 3. ON CONFIRMATION BY THE LD. CIT(A) OF THE ABOVE T WO ADDITIONS MADE BY THE A.O., THE LATER ISSUED A NOTICE REQUIRING THE A SSESSEE TO SHOW CAUSE AS TO WHY PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE IMPOSED IN RESPECT OF THE SAID ADDITIONS. IN REPLY, IT WAS, INTER ALIA, SUBM ITTED ON BEHALF OF THE ASSESSEE THAT THERE WAS NO CONCEALMENT OF PARTICULARS OF ITS INCOME BY THE ASSESSEE COMPANY OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME SO AS TO ATTRACT PENALTY U/S 271(1)(C) OF THE ACT. IT WAS AL SO CONTENDED THAT THE ASSESSEE HAD NOT ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONTUMACIOUS OR DISHONEST CONDUCT. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. FOR THE FOLLOWING REAS ONS GIVEN IN THE PENALTY ORDER:- 1. THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE VERY CLEAR AND HENCE THERE IS NO SCOPE FOR AMBIGUITY. THEREFORE T HE ASSESSEE SHOULD NOT HAVE CLAIMED THE SPECULATION LOSS AS BUSINESS L OSS. THEREFORE IT CANNOT BE SAID THAT THE INDIRECT CLAIM WAS BONAFIDE . 2. THE CLAIM OF EXPENSES ON EDUCATION OF SON OF DIR ECTOR IS PURELY NON-BUSINESS EXPENSE. SUCH AN APPARENT INCORRECT C LAIM CANNOT BE SAID TO BE AN HONEST CLAIM AND ALSO THAT THE SAME W AS NOT A DELIBERATE ONE. ITA 3760/M/11 3 KEEPING IN VIEW THE ABOVE REASONS AND RELYING ON VA RIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED IN THE PENALTY ORDER, T HE A.O. HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS LEADI NG TO CONCEALMENT OF ITS INCOME ATTRACTING PENALTY U/S 271(1)(C) OF THE ACT. HE ACCORDINGLY IMPOSED PENALTY OF RS. 42,56,788/- U/S 271(1)(C) OF THE ACT BEING 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE. 4. THE PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT WAS CHALLENGED BY THE ASSESSEE BY WAY OF AN APPEAL FILED BEFORE TH E LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE A SSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) CONFIR MED THE PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT FOR THE FOLLOWING REASONS GIVEN IN PARA 1.4 OF HIS IMPUGNED ORDER:- 1.4. AS REGARDS THE APPELLANTS CONTENTION THAT TH ERE WAS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME AS TWO VIEWS WERE POSSIBLE IN RESPECT OF THE ISSUES INVOLVED IN THE INSTANT APPEAL, I FIND THAT THE QUESTION PERTAI NING TO ALLOWABILITY OF THE ASSESSEES CLAIM OF DEDUCTION IS REQUIRED TO BE DECIDED ON THE BASIS OF RELEVANT FACTS WHICH DOES NOT INVOLVE ANY INTERP RETATION OF LAW. IT IS, THEREFORE, ERRONEOUS TO CONTEND THAT WITH RESPECT T O THE PARTICULAR ISSUES PERTAINING TO THE INSTANT PROCEEDING, TWO VI EWS WERE POSSIBLE AND, THEREFORE, THE ASSESSEE CANNOT BE HELD TO HAVE CONCEALED THE PARTICULARS OF ITS INCOME AND FURNISH INACCURATE PA RTICULARS OF IT INCOME BY MAKING THE CLAIM OF DEDUCTION. THE ISSUE WHICH I S REQUIRED TO BE DETERMINED ON THE BASIS OF RELEVANT FACTS CANNOT BE SAID TO ATTRACT MULTIPLE VIEWS. THERE IS, THEREFORE, NO ESCAPE FROM THE CONCLUSION THAT THE ASSESSEE BY MAKING THE CLAIM HAD CONCEALED ITS INCOME AND FURNISHED INACCURATE PARTICULARS OF ITS INCOME, AS HAS BEEN RIGHTLY HELD BY THE A.O. THE A.O.S ACTION OF LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF INCOME OF RS. 126,46,431/- IS REQUIRED TO BE UPH ELD. THE LEVY OF PENALTY U/S 271(1)(C) IS, THEREFORE, CONFIRMED. THE APPEAL ON THIS GROUND IS NOT ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. ITA 3760/M/11 4 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PENALTY IN QUESTION U/S 271(1)(C) OF THE ACT IS IMPOSED IN THE CASE OF THE ASSESSEE IN RESPECT OF TWO ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF ED UCATION AND TRAINING EXPENSES OF SON OF ONE OF THE DIRECTORS OF THE ASSE SSEE COMPANY AND DISALLOWANCE OF LOSS CLAIMED BY THE ASSESSEE ON REV ALUATION OF CLOSING STOCK OF SHARES AND SECURITIES TREATING THE SAME AS SPECULAT ION LOSS. AS REGARDS THE DISALLOWANCE MADE ON ACCOUNT OF EDUCATION AND TRAIN ING EXPENSES, HE CONTENDED THAT SIMILAR EXPENSES CLAIMED BY THE ASSE SSEE IN THE CASE OF SAKAL PAPERS PVT. LTD. VS. CIT 114 ITR 256 (BOM) WERE HEL D TO BE ALLOWABLE BY THE HONBLE BOMBAY HIGH COURT WHILE THE DISALLOWANCE MA DE FOR SIMILAR EXPENSES WAS CONFIRMED BY THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. HINDUSTAN HOSIERY INDUSTRIES 209 ITR 383 (BOM). HE CONTENDED THAT THE CONFLICTING VIEWS TAKEN BY THE HONBLE BOMBAY HIGH COURT ON A SIMILAR ISSUE CLEARLY SHOW THAT IT IS A DEBATABLE ISSUE AND PENAL TY U/S 271(1)(C) OF THE ACT CANNOT BE LEVIED AS THE CLAIM WAS MADE BY THE ASSES SEE BY TAKING A POSSIBLE VIEW AS ALL THE MATERIAL FACTS RELATING TO THE SAID CLAIM WERE FULLY AND TRULY FURNISHED BY THE ASSESSEE. AS REGARDS THE ADDITION MADE ON ACCOUNT OF SPECULATION LOSS, HE SUBMITTED THAT THE RETURN OF I NCOME MAKING THE CLAIM OF SUCH LOSS WAS FILED BY THE ASSESSEE ON 30-11-2006 W HEN CONFLICTING VIEWS TAKEN BY THE TRIBUNAL ON THIS ISSUE WERE AVAILABLE AND ALTHOUGH THIS ISSUE WAS SUBSEQUENTLY DECIDED BY THE HONBLE BOMBAY HIGH COURT AGAINST THE ASSESSEE IN THE YEAR 2009, IT WAS A DEBATABLE ONE W HEN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY THE A SSESSEE MAKING THE CLAIM OF LOSS BY ADOPTING ONE POSSIBLE VIEW. HE THEREFORE CO NTENDED THAT THE PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF THIS ADDITIO N IS ALSO NOT SUSTAINABLE. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISI ON OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S 20 TH CENTURY HOLDINGS PVT. LTD. VS. JCIT RENDERED VIDE AN ORDER DATED 23-07-2010 PASSED IN I TA NO. 5130/MUM/2009. ITA 3760/M/11 5 6. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE THAT THE PRESENT CASE IS A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C) OF THE ACT . 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ISSUE RELATING TO THE DISALLOWANCE OF EDUCATION AND TRAINING EXPENSES INCURRED IN RESPECT OF SON OF ONE OF THE D IRECTORS OF THE ASSESSEE COMPANY IS A HIGHLY DEBATABLE ISSUE AND THIS POSITI ON IS CLEARLY EVIDENT FROM THE FACT THAT CONFLICTING VIEWS HAVE BEEN EXPRESSED BY THE HONBLE BOMBAY HIGH COURT, ONE IN FAVOUR OF THE ASSESSEE IN THE CA SE OF SAKAL PAPERS PVT. LTD. (SUPRA) AND OTHER AGAINST THE ASSESSEE IN THE CASE OF HINDUSTAN HOSIERY INDUSTRIES (SUPRA). WE THEREFORE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CLAIM MADE BY THE ASSESSE E FOR DEDUCTION ON ACCOUNT OF EXPENSES INCURRED ON EDUCATION AND TRAIN ING OF SON OF ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY WAS BASED ON A PO SSIBLE VIEW AND ALL THE PARTICULARS RELATING TO THE SAID CLAIM HAVING BEEN FULLY AND TRULY FURNISHED BY THE ASSESSEE, THE PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE IMPOSED IN RESPECT OF THE ADDITION MADE BY WAY OF DISALLOWANCE OF THE SAID EXPENSES. 8. AS REGARDS THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE OF ASSESSEES CLAIM FOR LOSS ON ACCOUN T OF REVALUATION OF CLOSING STOCK OF SHARES AND SECURITIES TREATING THE SAME AS SPECULATIVE IN NATURE, IT IS OBSERVED THAT THE PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF SIMILAR DISALLOWANCE WAS IMPOSED IN THE CASE OF 20 TH CENTURY HOLDINGS PVT. LTD. (SUPRA) AND THE SAME WAS CANCELLED BY THE CO-ORDINA TE BENCH OF THIS TRIBUNAL VIDE PARA 9 OF ITS ORDER DATED 23-07-2010 (SUPRA) W HICH READS AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE C1T(A) AND THE VARIOUS DECISIONS CITED BEFORE US. WE HAVE ALSO CON SIDERED THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. IN THE INSTAN T CASE WE FIND ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER BY INVOKING THE ITA 3760/M/11 6 PROVISIONS OF EXPLANATION TO SECTION 73 ON ACCOUNT OF DIMINUTION IN THE VALUE OF CLOSING STOCK OF SHARES AND PROPORTIONATE DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO SUCH SPECULATION BUSINE SS. WE FIND ON THE DATE OF FILING OF THE RETURN THERE WERE MORE THAN O NE VIEW BOTH FOR AND AGAINST THE ASSESSEE REGARDING THE APPLICABILITY OF EXPLANATION TO SECTION 73 ON ACCOUNT OF VALUATION LOSS OF CLOSING STOCK OF SHARES. DUE TO SUCH DIVERGENT VIEWS THE MATTER HAS BEEN REFERRE D TO THE SPECIAL BENCH. WE FIND THE JURISDICTIONAL HIGH COURT IN THE CASE OF PRASAD AGENTS (SUPRA) HAS DECIDED THE ISSUE DURING MARCH, 2009 AND HELD THAT PROVISIONS OF EXPLANATION TO SECTION 73 ARE APPLICA BLE TO LOSS ON ACCOUNT OF VALUATION OF CLOSING STOCK OF SHARES WHE N A COMPANY IS ENGAGED IN PURCHASES AND SALES OF SHARES. THEREFORE , WHEN THE ASSESSEE FILED ITS RETURN OF INCOME THERE WERE POSS IBLE VIEWS IN FAVOUR OF THE ASSESSEE REGARDING NON-APPLICABILITY OF EXPLANA TION TO SECTION 73 ON ACCOUNT OF DIMINUTION IN VALUE OF CLOSING STOCK OF SHARES. WE, THEREFORE, ARE OF THE CONSIDERED OPINION THAT ALTHOUGH THE ADD ITION HAS BEEN FINALLY SUSTAINED BY THE TRIBUNAL, HOWEVER, IT IS N OT A FIT CASE FOR INVOKING THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT FOR LEVY OF PENALTY. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDER OF THE C1T(A) AND DIRECT THE ASSESSING OFFICER TO CANCEL THE PENALTY. 9. AS ISSUE INVOLVED IN THE PRESENT CASE AS WELL A S ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF 20 TH CENTURY HOLDINGS PVT. LTD., WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL PASSED IN THE SAID CASE AND HOLD THAT THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE MADE ON ACCOUNT OF ASSESSEE S CLAIM FOR LOSS IS NOT SUSTAINABLE. WE THEREFORE CANCEL THE PENALTY IMPOSE D BY THE A.O. U/S 271(1)(C) OF THE ACT AND CONFIRMED BY THE LD. CIT(A ). 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2014. ' . / 0 30-7-2014 ' SD/- SD/- (H.L. KARWA) (P.M. JAGTAP ) /PRESIDENT ACCOUNTANT MEMBER MUMBAI ; 0 DATED 30=7=2014 ITA 3760/M/11 7 [ .B../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. C () / THE CIT(A) 8,, MUMBAI 4. C / CIT 48, MUMBAI 5. F 'BBH , ( H , / DR, ITAT, MUMBAI E BENCH 6. / GUARD FILE. / BY ORDER, #F 'B //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI