SHRI CHANDRAKUMAR N. JARIWALA, MUMBAI V. DY. CIT-12(2), MUMBAI

ITA 3784/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49019 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 11-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGARWAL
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Bonafide belief; Wrong claim; Bonafide mistake
• Section: 27; 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND RAJENDRA SINGH ( A.M ) ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) SHRI CHANDRAKUMAR N JARIWALA, SHOP NO.5, BADRIKESHWAR HOUSING, 82, N.S.ROAD, E ROAD, MARINE LINES, MUMBAI-400002. PAN:AAAPJ6973D DY. COMMISSIONER OF INCOME TAX, 12(2), AAYAKAR BHAVAN, MUMBAI-400020 APPELLANT V/S RESPONDENT APPELLANT BY : SHRI DHIRENDRA M . SHAH RESPONDENT BY : SHRI L.K.AGARWAL O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1.4.2010 PASSED BY THE LEAR NED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL DERIVES INCOME FROM BUSINESS AS SHAR E OF PROFIT FROM THE FIRM, SPECULATION PROFIT ADJUSTED AGAINST THE BROUGHT FORWARD LOSSES, SHORT TERM CAPITAL GAIN ADJUSTED AG AINST THE LONG TERM LOSS AND INCOME FROM OTHER SOURCES. HE F ILED RETURN DECLARING TOTAL INCOME AT RS.16,43,694/-DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS WRONGLY SET OFF THE LONG TER M CAPITAL ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 2 LOSS OF RS.21,42,599/- OF THE CURRENT YEAR AGAINST THE SHORT TERM CAPITAL GAIN OF RS.37,76,623/-. ACCORDING TO THE AO, AS PER THE PROVISIONS OF SECTION 70(3) OF THE INCOME TAX ACT, 1961(THE ACT) A LONG TERM CAPITAL LOSS FOR THE YE AR CAN BE SET OFF ONLY AGAINST LONG TERM CAPITAL GAIN OF THE SAME YEAR. THE ASSESSEE HAS WRONGLY SET OFF THE LONG TERM CAP ITAL LOSS AGAINST THE SHORT TERM CAPITAL GAIN. THIS HAS BEEN SPECIFICALLY POINTED OUT TO THE ASSESSEE IN THE NOT ICE ISSUED UNDER SECTION 142(1) OF THE ACT DATED 22.5.2008 CA LLING FOR HIS COMMENTS. THE ASSESSEES A.R. IN HIS EXPLANAT ORY LETTER DATED 25.8.2008 HAS SUBMITTED THAT THE SAID ADJUSTM ENT HAS BEEN DONE DUE TO A MISUNDERSTANDING AS INTER HEAD S ET OFF UNDER SECTION 71 OF THE ACT AND THE TAXES PAID BY THE ASSESSEE ALREADY COVERS THIS ERROR. THE AO AFTER CO NSIDERING THE ASSESSEES SUBMISSIONS AND KEEPING IN VIEW THE AFORESAID LEGAL POSITION AS EXPLAINED ABOVE DISALLO WED THE SET OFF OF LONG TERM CAPITAL LOSS AGAINST SHORT TER M CAPITAL GAIN, BUT ALLOWED THE SAME TO BE CARRIED FORWARD. APART FROM THIS, THE AO NOTED THAT THE ASSESSEE HAS COMP UTED SHORT TERM CAPITAL GAIN AFTER CLAIMING EXPENSES OF RS.5,67,295/- TOWARDS PAYMENT BROKERAGE ETC. INCLU DING THE AMOUNT OF RS.3,36,708/- STT PAID ON TRANSFER OF SHA RES. ACCORDING TO THE AO, THE STT PAID IS NOT ALLOWABLE EXPENSES AGAINST THE SHORT TERM CAPITAL GAIN, HENCE HE DISAL LOWED THE SAME. HE FURTHER OBSERVED THAT WHEN THIS ISSUE WAS BROUGHT ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 3 TO THE NOTICE OF THE ASSESSEE, THE ASSESSEE ADMITTE D HIS MISTAKE. ACCORDINGLY, THE AO COMPLETED THE ASSESS MENT AT AN INCOME OF RS.41,23,000/- VIDE ORDER DATED 27.8. 2008 PASSED UNDER SECTION 143(3) OF ACT. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE AO ALSO INITIATED PENAL TY PROCEEDINGS UNDER SECTION 271(1)( C) OF THE ACT. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY THE PEN ALTY UNDER SECTION 271(1)( C ) SHOULD NOT BE IMPOSED, IT WAS INTER ALIA SUBMITTED BY THE ASSESSEE THAT THE CLAIM OF NE TTING OFF LONG TERM CAPITAL LOSS AND SHORT TERM CAPITAL GAIN WAS ARRIVED UNDER THE BONAFIDE BELIEF AS THE LOSS AND G AIN IS IN THE SAME ITEM I.E INVESTMENT IN SHARES. HOWEVER, THE ASSESSEE VOLUNTARILY, SUO MOTU, GIVEN ALL THE DETAI LS OF LOSS AND GAIN. IT WAS ONLY ON THE TECHNICAL GROUND THAT THE ASSESSEE HAS SETTING OFF LONG TERM CAPITAL LOSS AGA INST SHORT TERM CAPITAL GAIN. IT WAS, THEREFORE, SUBMITTED TH AT THERE IS NO CONCEALMENT OF INCOME OR SUBMISSION OF INACCURAT E PARTICULARS OF INCOME, THE PENALTY PROCEEDINGS BE D ROPPED. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLA NATION. HE HELD THAT THE ASSESSEE HAS COMMITTED DEFAULT IN RESPECT OF AMOUNT TOTALING TO RS.24,79,307/- (LONG TERM C APITAL LOSS RS.21,42,599 ADJUSTED AGAINST THE SHORT TERM CAPIT AL GAIN + DISALLOWANCE OF STT RS.3,36,708/-) AND ACCORDINGLY HE IMPOSED MINIMUM PENALTY OF RS.2,47,931/- VIDE ORD ER DATED 25.2.2009 PASSED UNDER SECTION 271(1)( C ) OF THE ACT ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 4 3. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (A) HELD THAT BY MAKING A WRONG CLAIM OF EXEMPTION, THE APPELLANT HAS ATTEMPTED TO REDUCE ITS TAX LIABILITY AND HAS FURNISHED INACCURATE PARTICULARS OF INCOME OF HIS INCOME AND ACCORDINGLY CONFIRMED THE PENALTY IMPOSED BY THE A O. 4. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE SUSTEN ANCE OF PENALTY OF RS.2,47,931/- IMPOSED BY THE AO UNDER SECTION 271(1)( C) OF THE ACT. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE AO AND THE LEARNED COMMISSIONE R OF INCOME TAX (A) THAT THE ASSESSEE HAD FILED DETAILE D SUBMISSIONS STATING THAT NETTING OFF OF SUCH GAIN AND LOSS WAS ARRIVED AT UNDER THE BONAFIDE BELIEF AS THE LOS S AND GAIN IS IN THE SAME ITEMS I.E. INVESTMENT IN SHARES AND THAT THE ASSESSEE HAD VOLUNTARILY, SUO MOTU, GIVEN ALL THE D ETAILS OF LOSS AND GAIN WHICH IS NOT IN DISPUTE, IT WAS ONLY ON TECHNICAL GROUND THAT THE SETTING OFF OF LONG TERM CAPITAL LOSS AGAINST THE SHORT TERM CAPITAL GAIN WAS REJECTED WHICH DOES NOT LEAD TO FILING OF INACCURATE PARTICULARS OF I NCOME OR ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 5 CONCEALMENT OF INCOME FILED THE COPY OF COMPUTATIO N OF INCOME, STATEMENT OF SHORT TERM GAIN AND LONG TERM LOSS APPEARING AT PAGES 1 TO 31 OF THE ASSESSEES PAPER BOOK AND FURTHER SUBMITS THAT SINCE THE ASSESSEE HAS DISCLO SED ALL THE MATERIAL FACTS/PARTICULARS, THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSEE. THE RELIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN MRS.MANINDER SIDHU VS. ASSISTANT COMMISSIONER OF INCOME TAX (2010)39 DTR ( DEL) (TRIB) 233. 6. ON THE OTHER HAND, THE LEARNED DR SUPPORTS THE O RDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME T AX (A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS CLAIMED SET OFF OF LONG TERM CAPITAL LOSS OF RS.21,42,599 /- OF THE CURRENT YEAR AGAINST THE SHORT TERM CAPITAL GAIN OF RS.37,76,623/- AND IN SUPPORT HE FILED COMPLETE STA TEMENT OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL LOSS APPEARING AT PAGES 2 TO 31 OF THE ASSESSEES PAPER BOOK. WE FURTHER FIND THAT WHEN IT WAS POINTED OUT TO THE ASSESSEE T HAT THE SET OFF OF LONG TERM CAPITAL LOSS AGAINST THE SHORT T ERM CAPITAL GAIN IS NOT ADMISSIBLE, THE ASSESSEE VIDE HIS LETTE R DATED 25.8.2008 SUBMITTED THAT THE SAID ADJUSTMENT HAS BE EN DONE ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 6 DUE TO MISUNDERSTANDING AS INTER-HEAD SET OFF UNDER SECTION 71 OF THE ACT AND THE ASSESSEE HAS PAID FULL TAXES. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE SINCE THE ASSESSEE HAS DISCLOSED ALL THE PARTICULARS AND TH E CLAIM WAS MADE ON ACCOUNT OF MISUNDERSTANDING OF LAW, TH EREFORE, THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSEE . PER CONTRA, ACCORDING TO THE REVENUE, THE ASSESSEE BY MAKING A WRONG CLAIM HAS ATTEMPTED TO REDUCE ITS TAX LIABI LITY AND HENCE FURNISHED INACCURATE PARTICULARS OF INCOME. HOWEVER, WE FIND THAT IT IS NOT THE CASE OF THE REVENUE THA T THE ASSESSEE HAS NOT DISCLOSED COMPLETE PARTICULARS OF INCOME OR THE AFORESAID CLAIMS MADE BY THE ASSESSEE WERE FOUND TO BE FALSE OR UNTRUE OR THE MISTAKE IS NOT BONAFIDE . MERELY BECAUSE, THE ABOVE CLAIMS MADE BY THE ASSESSEE WERE NOT ACCEPTED IN THE ASSESSMENT PROCEEDINGS THAT DOES N OT MEAN THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME. 8. IN ORDER TO APPLY THE PROVISIONS OF SECTION 271( 1)(C) THERE HAS TO BE CONCEALMENT OF PARTICULARS OF INCOM E, SECONDLY THE ASSESSEE MUST HAVE FURNISHED INACCURAT E PARTICULARS OF INCOME. 9. IN A RECENT JUDGMENT OF THE HONBLE APEX C OURT IN CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 7 158(SC) THEIR LORDSHIPS, AFTER CONSIDERING VARIOUS DECISIONS INCLUDING DILIP N. SHROFF VS. JCIT (2007) 291 ITR 5 19(SC), UNION OF INDIA VS. DHARAMENDRA TEXTILE PROCESSORS ( 2008) 306 ITR 277(SC) AND SREE KRISHNA ELECTRICALS VS. ST ATE OF TAMIL NADU (2009) 23 VST 249 (SC) HAVE OBSERVED AND HELD (PAGE 158 HEADNOTES) AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME- TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDL Y, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRA CE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXP OSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTL Y COVERED BY THE PROVISION, THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKIN G AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCUR ATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHI NG WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, T HE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DET AILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EX ACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS . WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORREC T OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. 10. IN MRS.MANINDER SIDHU (SUPRA), IN THE COURSE O F ASSESSMENT PROCEEDINGS, IT WAS INTER-ALIA FOUND TH AT THE ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 8 ASSESSEE INCURRED LONG TERM CAPITAL LOSS OF RS.82,8 44/- ON SALE OF SECURITIES. SHE HAD ALSO INCURRED LOSS OF RS.1,41,891/- FROM BUSINESS. THE LONG-TERM CAPITAL LOSS WAS ADJUSTED AGAINST SHORT-TERM CAPITAL GAIN OF RS.17,3 3,475/- EARNED BY THE ASSESSEE. WHEN THE ASSESSEE WAS QUEST IONED REGARDING THE ADJUSTMENT, THE CLAIM WAS WITHDRAWN. THE AO ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 27 1(1)( C), WHICH WERE DISPOSED OF BY WAY OF A SEPARATE ORDER P ASSED ON 24 TH MAY, 2007. IN THIS ORDER, IT WAS MENTIONED THAT T HE EXPLANATION OF THE ASSESSEE WAS THAT THE ADJUSTME NT WAS A MISTAKE MADE WHILE PREPARING THE RETURN. AS SOON AS THE MISTAKE CAME TO NOTICE IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF ADJUSTMENT WAS WITHDRAWN. THE AO DID NOT FIND THE EXPLANATION TO BE SATISFACTORY . IT WAS MENTIONED THAT A LONG PERIOD ELAPSED BETWEEN FILING THE RETURN AND RECEIPT OF NOTICE UNDER SECTION 143(2) O F THE ACT BY THE ASSESSEE. IF THERE WAS NOT ANY MALAFIDE INT ENTION IN MAKING THE CLAIM, IT COULD HAVE BEEN WITHDRAWN BEFO RE THE RECEIPT OF THE NOTICE. HOWEVER, THE CLAIM WAS WITH DRAWN AFTER LAPSE OF ABOUT 10 MONTHS OF FILING OF THE R ETURN, WHEN NOTICE UNDER SECTION 143(2) HAD BEEN ISSUED TO THE ASSESSEE. THEREFORE, IT WAS HELD THAT THE ASSESSEE MADE HERSE LF LIABLE FOR LEVY OF PENALTY. ACCORDINGLY, MINIMUM PENALTY OF RS.28,082/- WAS LEVIED. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) FOR THE REASONS MENT IONED ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 9 BY THE AO CONFIRMED THE PENALTY IMPOSED BY THE AO. ON FURTHER APPEAL, THE TRIBUNAL WHILE DISTINGUISHING THE DECISION IN THE CASE OF OF NARESH KUMAR VERMA V/S DCIT (200 9) 26 DTR (DEL)(TRIB) 17 HELD VIDE PARAGRAPHS 4.5 OF ITS ORDER THAT . IT IS ARGUED BY THE LEARNED COUNSEL THAT SETTI NG OFF OF THE LOSS AGAINST THE GAINS WAS AN INADVERTENT M ISTAKE, WHICH SHOULD BE TAKEN AS BONAFIDE MISTAKE. WE HAVE CONSIDERED THIS ARGUMENT ALSO. BOTH SPECIES OF INCO ME ARE CLASSIFIED UNDER THE HEAD CAPITAL GAINS, ONE AS S HORT-TERM CAPITAL GAINS AND THE OTHER AS LONG TERM CAPITAL L OSS, DEPENDING UPON THE PERIOD OF HOLDING THE ASSET. T HE ASSESSEE COULD BE UNDER BONAFIDE BELIEF THAT ONE CA N BE SET OFF AGAINST THE OTHER IN THE SAME YEAR. IN ABSENCE OF PROVING FALSITY IN THE DETAILS REGARDING COMPUTATION OF INC OME, WE ARE OF THE VIEW THAT SHE CANNOT BE CHARGED WITH THE PEN ALTY. IN OTHER WORDS, IN SUCH MATTERS ONE HAS TO DISTINGUISH BETWEEN A WRONG CLAIM AND A FALSE CLAIM. THE CLAIM IN THE CASE OF NARESH KUMAR VERMA (SUPRA) WAS FALSE BECAUSE TWO IN LAND SALES WERE CLUBBED WITH EXPORT SALES. NO CONVERTIB LE FOREIGN EXCHANGE WAS RECEIVED IN RESPECT OF INLAND SALES, WHICH WAS ALSO THE ESSENCE OF REQUIREMENT FOR DEDUCTION UNDER SECTION 10B. THERE IS NO SUCH FALSITY IN THIS CASE. THEREFO RE, WE ARE OF THE VIEW THAT THE CASES DISCUSSED ABOVE SUPPORT THE CASE OF THE ASSESSEE THAT PENALTY OUGHT NOT TO HAVE BEE N LEVIED ON HER IN RESPECT OF INADVERTENT BUT WRONG CLAIM. ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 10 11. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND KEEPING IN VIEW THAT THE CLAIMS MADE BY THE ASSESSEE WAS BA SED ON BONAFIDE BELIEF WHICH WAS NOT FOUND TO BE FALSE OR UNTRUE, WE ARE OF THE VIEW THAT THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSEE ON THE DISALLOWANCES WHICH MAY CA LL FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT . ACCORDINGLY, THE PENALTY OF RS.2,47,931/- IMPOSED B Y THE AO AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX(A) IS DELETED. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 12. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20TH MAY,201 1. SD SD (RAJENDRA SINGH ) (D.K.A GARWAL) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 20 TH MAY, 2011 SRL:12511 ITA NO.3784/MUM/2010 (ASSESSMENT YEAR: 2006-07) 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILED. TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI