Sagar Drugs & Pharmaceuticals Ltd., Ahmedabad V. The Dy.CIT., Circle-8, Ahmedabad

ITA 3923/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5629 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 07-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 23-10-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Assessee Lawyers: S N SOPARKAR SRAR
• Keywords: Capital asset; Cost of acquisition; Revised return; Capital Gains
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3923/AHD/2007 [ASSTT.YEAR: 2002-03] SAGAR DRUGS & PHARMACEUTICALS LTD. VS- DCIT, CIRCL EL-8, SAGAR, OPP. KAMDHENU COMPLEX AHMEDABAD NR. SAHAJANAND COLLEGE, AMBAWADI AHMEDABAD, PAN NO.AADCS9311E (APPELLANT) (RESPONDENT) REVENUE BY : SHRI GAURAV BATHAM, DR ASSESSEE BY: SHRI S.N.SOPARKAR, SR-AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD IN APPEAL NO. C IT(A)-XIV/C.8/3/2007-08 DATED 06-08-2007. THE ASSESSMENT WAS FRAMED BY ITO , WARD-8(2) AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 18-03-2005 FOR ASSESSMENT YEAR 2002-03. THE PENALTY UNDER DISPUTE WAS LEVIED BY THE DCIT(OSD), CIRCLE-8, AHMEDABAD U/ S.271(1)(C) OF THE ACT VIDE ORDER DATED 29-03-2007. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE LEVY OF PENALTY ON LONG TERM CAPITAL GAINS AND ADDITION MADE U/S.94(7) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED FOLLO WING THREE EFFECTIVE GROUNDS :- (1) THE LEARNED COMMISSIONER (APPEAL) FAILED TO UN DERSTAND THE FACTS AND CIRCUMSTANCES OF THE CASE. (2) THE LEARNED COMMISSIONER (APPEAL) ERRED IN CONF IRMING THE PENALTY U/S.271(1) FOR FURNISHING INACCURATE PARTICULARS O F INCOME IN RESPECT OF THE ADDITIONS AGAINST WHICH NO PENALTY PROCEEDINGS WERE INITIATED IN THE ASSESSMENT ORDER U/S.143(3) OF THE I.T. ACT, 1961 I T MAY BE NOTED THAT THE ITA NO.3923/AHD/2007 A.Y. 2002-03 SAGAR DRUGS & PHARMACEUTICALS LTD. V. DCIT, CIR-8, ABD PAGE 2 PENALTY PROCEEDINGS WERE INITIATED AGAINST THE REDU CTION IN THE QUANTUM OF DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961. 3) THE LEARNED COMMISSIONER (APPEAL) ERRED IN CONFI RMING THE LEVY OF PENALTY U/S.271(1)(C) AGAINST THE FOLLOWING ADDITIONS:- NATURE OF DISALLOWANCE RUPEES LONG TERM CAPITAL GAIN 2955714/- ADDITION U/S.94(7) 467124/- 4) THE LEARNED COMMISSIONER (APPEAL) ERRED IN NOT G IVING ANY FINDINGS ON THE ALTERNATE GROUND WHICH IS REPRODUCED HERE UNDER, ALTERNATIVELY, WITHOUT PREJUDICE TO ABOVE GROUNDS O F APPEAL, THE LEARNED ASSESSING OFFICER ERRED IN CALCULATING PENALTY OF R S.25,33,858/- IN STATEMENT OF FACTS ENCLOSED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURERS OF DYE INTERMEDIATES AND FINE CHEMICALS. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2002-03 ON 28-10-2002 SHOWING INCOME OF RS.60, 48,460/-. THE ASSESSMENT PROCEEDINGS WAS FINALIZED U/S.143(3) DATED 02-03-19 95 DETERMINING TOTAL INCOME AT RS.1,74,25,710/-. THE ASSESSEE-COMPANY PREFERRED AP PEAL BEFORE CIT(A), WHICH WAS DISPOSED OFF VIDE ORDER DATED 05-10-2005. AS PE R THE ORDER GIVING EFFECT TO CIT(A)S ORDER THE TOTAL INCOME STOOD AT RS.1,64,58 ,000/-. AS PER ASSESSMENT ORDER DATED 18-03-2005 THE FOLLOWING ADDITIONS WERE MADE WHICH NOW STAND FINALIZED AS ASSESSEE-COMPANY DID NOT FILE APPEAL AGAINST THESE: - (I) LONG TERM CAPITAL GAIN RS.29,65,714/- (II) ADDITION U/S.94(7) RS. 4,67,124/- (III) DISALLOWANCE OF INTEREST ATTRIBUTABLE TO SHARE TRADING ACTIVITIES. RS. 2,60,5 74/- 4. THE ASSESSING OFFICER STARTED PENALTY PROCEEDING S BY ISSUING NOTICE U/SS.274 R.W.S. 271(1)(C) OF THE ACT DATED 18-03-2005. THE AO LEVIED PENALTY BY STATING THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO PERUSED THE CERTIFICATE OF REDEMPTION OF MUTUAL FUNDS AND OBSERVED THAT THE MU TUAL FUNDS REDEEMED ON WHICH LTCL WAS RETUNED ON BONUS ISSUES ON WHICH AS PER TH E SETTLED LEGAL POSITION THE COST OF ACQUISITION WAS TO BE TAKEN AT RS. NIL. ACC ORDING TO THE ASSESSING OFFICER, AGAINST THIS IN THE RETURN OF INCOME THE ASSESSEE-C OMPANY HAD TAKEN THE AVERAGE COST OF ORIGINAL AND BONUS UNITS AS THE COST OF ACQ UISITION AND ACCORDING TO HIM, THE ITA NO.3923/AHD/2007 A.Y. 2002-03 SAGAR DRUGS & PHARMACEUTICALS LTD. V. DCIT, CIR-8, ABD PAGE 3 ASSESSEE-COMPANY HAD FURNISHED INACCURATE PARTICULA RS OF INCOME WITH REGARD TO THE CLAIM OF LTCL, IT IS LIABLE FOR PAYMENT OF PENALTY U/S.271(1). THE ANOTHER ISSUE FOR WHICH PENALTY WAS LEVIED BY A SSESSING OFFICER IS AS REGARDS TO ADDITION MADE U/S.94(7) OF THE ACT ON AC COUNT OF WORKING OF INCOME FROM SHARE TRADING. AO LEVIED THE PENALTY BY STATING TH AT ON BEING POINTED OUT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE-COMPANY VIDE LE TTER DATED 22-12-2004 ADMITTED THAT IN THE WORKING OF INCOME FROM SHARE T RADING IT HAD NOT TAKEN INTO ACCOUNT THE PROVISIONS OF SECTION 94(7). AS THE ASS ESSEE-COMPANY HAD FURNISHED INACCURATE PARTICULARS OF INCOME WITH REGARD TO THE DISALLOWANCE U/S.94(7), IT IS LIABLE FOR PAYMENT OF PENALTY U/S.271(1)(C). AGGRIEVED, AS SESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) CONFIRMED THE LEVY OF PENALTY BY GIVING FOLLOWING FINDINGS IN PAGE- 4 OF HIS APPELLATE ORDER:- THE APPELLANTS NEXT ARGUMENT IS THAT IT, SUO MOTU , OFFERED THESE ITEMS FOR TAXATION BEFORE DETECIN BY THE AO, WHICH IS ALSO NO T ACCEPTABLE. THE AO HAS ISSUED NOTICED U/S.143(2) & QUESTINAIRE U/S.142(1) ON 2/9/2003 AND THE APPELLANT FILED REVISED RETURN ON 25-2-2004. IN THI S REVISED RETURN, IT HAS NOT OFFERED THESE ADDITIONS FOR TAXATION. THE APPELLANT MENTIONED ABOUT THE APPLICATION OF SEC. 94(7) ONLY ON 22-12-2004. AS RE GARDS THE ADDITION ON ACCOUNT OF LONG TERM CAPITAL GAIN, THE AO HAS CLEAR LY MADE QUERY VIDE ORDER SHEET ENTRY DT. 27-2-2005 TO PRODUCE PROOF OF SALE OF MUTUAL FUND AND ASKED FOR THE CORRECT WORKING OF LTCG. ONLY AFTER THIS SP ECIFIC ENQUIRY, THE APPELLANT SUBMITTED THE REVISED WORKING OF LTCG ON 4/5/2005. HENCE, THE SUBMISSION THAT IT HAS SUO MOTO, OFFERED THIS AMOUNT FOR TAXAT ION BEFORE DETECTION BY THE DEPTT. IS SNOT CORRECT./ FURTHER, THE APPELLANT IS A CORPORATE ASSESSEE SUPPORTED BY MANY STAFF MEMBERS, CHARTERED ACCOUNTA NTS, WHICH ONLY SUGGEST THAT IT HAS DELIBERATELY TIED TO EVADE THE TAX AND HENCE THE ACTION OF THE AO WAS QUITE JUSTIFIED IN RESPECT OF ADDITION O F LTCG AND ADDITION U/S.94(7) OF THE ACT. HOWEVER, IN RESPECT OF DISALL OWANCE U/S.14A AND DEDUCTION U/S.80HHC, IT S HELD THAT AS THERE ARE TW O VIEWS POSSIBLE, PENALTY IS NOT LEVIABLE ON THESE ADDITIONS. THEREFORE, THE PEN ALTY LEVIED IN RESPECT OF ADDITIONS OF RS.29,,65,714/- AND RS.4,67,124/- IS H EREBY CONFIRMED. THE AO IS DIRECTED TO RECALCULATE THE PENALTY ACCORDINGLY. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SHRI S.N . SOPARKAR ARGUED THAT AS REGARDS TO LONG TERM CAPITAL GAIN, THE ASSESSEE WAS IN THE PROCESS OF VERIFICATION OF THE WORKING OF THE SHARES, SINCE THE SHARES AND UNITS OF THE MUTUAL FUNDS SOLD DURING THE YEAR WERE PURCHASED IN EARLIER YEARS AND THE VERIFICATION OF THE ACTUAL DATE OF ACQUISITION AND THE COST OF ACQUISITION WAS ASCE RTAINED AND AS ADMITTED BY THE ASSESSEE THAT DUE TO OVERSIGHT FOR VALUING OF COST OF ACQUISITION THE AVERAGE COST ITA NO.3923/AHD/2007 A.Y. 2002-03 SAGAR DRUGS & PHARMACEUTICALS LTD. V. DCIT, CIR-8, ABD PAGE 4 ADOPTED FOR PREPARING ACCOUNTS AS PER COMPANYS ACT WAS TAKEN FOR INCOME-TAX PURPOSES ALSO. THE ASSESSEE ITSELF SUBMITTED REVISE D STATEMENT SHOWING CALCULATION AND REVISED WORKING OF CAPITAL GAINS OF ALL SHARES SHOWN DURING THE YEAR. THE ASSESSEE ALSO PAID TAX OF RS.5,24,451/- ON THE LONG TERM CAPITAL GAIN INCREASED AT RS.29,65,740/-. BUT THE LD. COUNSEL FOR ASSESSEE RE FERRED TO SECTION 55(2)(A) SUB- CLAUSE (III) OF THE ACT AND STATED THAT IN CASE WHE RE BY VIRTUE OF HOLDING CAPITAL ASSETS BEING A SHARE OR ANY OTHER SECURITY WITHIN THE MEAN ING OF CLAUSE (H) OF SECTION 2 OF THE SECURITIES CONTACTS (REGULATION) ACT, 1956 THE ASSESSEE IS ALLOTTED ANY ADDITIONAL ASSET WITHOUT ANY PAYMENT , IN RELATION TO THE FINANCIAL ASSET TO WHICH THE ASSESSEE HAS SUBSCRIBED ON THE BASIS OF THE SAID EN TITLEMENT, MEANS THE AMOUNT ACTUALLY PAID BY HIM FOR ACQUIRING SUCH ASSETS AND IN VIEW OF THIS, LD. COUNSEL FOR ASSESSEE FURTHER ARGUED THAT THE SECURITIES CONTRAC TS (REGULATION) ACT, 1956 WAS AMENDED BY THE SECURITIES LAWS (AMENDMENT) ACT, 200 4 W.E.F. 12-10-2004 BY INSERTING THE CLAUSE [(ID)], WHICH READS AS UNDER:- [(ID)] UNITS OR ANY OTHER SUCH INSTRUMENT ISSUED T O THE INVESTORS UNDER ANY MUTUAL FUND SCHEME. HE FURTHER REFERRED TO THE DEFINITION OF SECURITIES AS PROVIDED IN SEC. 2(H) AS UNDER:- (H) SECURITIES INCLUDES- (I) SHARES, SCRIPS, STOCKS, BONDS, DEBENTURES, DEBE NTURE STOCK OR OTHER MARKETABLE SECURITIES OF A LIKE NATURE IN OR OF ANY INCORPORATED COMPANY OR OTHER BODY CORPORATE; IN VIEW OF THESE, HE STATED THAT THIS AMENDMENT OF UNITS OF MUTUAL FUND IS INCLUDED IN SECURITIES W.E.F. 12-10-2004 AND PRIOR TO THAT THE VALUATION IS TO BE DONE IN TERMS OF SEC. 55(2)(AA) SUB-CLAUSE (III) OF THE ACT AND THE ASSESSEE HAS WRONGLY SURRENDERED THE LONG TERM CAPITAL GAIN DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. ON THE OTHER HAND, LD. SR-DR RELIED ON THE ORDERS OF THE L OWER AUTHORITIES. 6. AS REGARDS TO THE DIVIDEND STRIPING, THE LD. COU NSEL FOR THE ASSESSEE STATED THAT IN THE CASE OF PURCHASE AND SALE OF SHARES OF GERMEN REMEDIES LTD. THE ASSESSEE HAS INCURRED LOSS OF RS.65,53,428/- AND TH E SHARES WERE HELD FOR LESS THAN 90 DAYS AND THE ASSESSEE HAS ALSO RECEIVED DIVIDEND OF RS.4,67,124/-.THE ASSESSEE HAS FILED REVISED COMPUTATION OF TAX AFTER MAKING P AYMENT OF TAX AND THIS CALCULATION IS MADE BY THE ASSESSEE UNDER MISTAKEN NOTION THAT THE DIVIDEND IS NOT TO BE REDUCED FROM THE LOSS OF SHARES. THE EXPLANATION S UBMITTED BY THE ASSESSEE, ITA NO.3923/AHD/2007 A.Y. 2002-03 SAGAR DRUGS & PHARMACEUTICALS LTD. V. DCIT, CIR-8, ABD PAGE 5 ACCORDING TO THE LD. COUNSEL IS BONA FIDE AND REASO NABLE. ACCORDINGLY, HE URGED TO DELETE THE PENALTY ON BOTH THE COUNTS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE DEFINI TION OF SECURITIES AS AMENDED BY THE SECURITIES LAWS (AMENDMENT) ACT, 2004 W.E.F. 12 -10-2004 AND THE RELEVANT ASSESSMENT YEAR INVOLVED IS 2002-03, HENCE, THE EXP LANATION SUBMITTED BY THE LD. COUNSEL BEFORE US IS BONA FIDE AND REASONABLE AND O N THE ISSUE OF LONG TERM CAPITAL GAIN, THE ASSESSEE IS NOT LIABLE TO BE PENALIZED UN DER THE PROVISION OF SECTION 271(1) OF THE ACT. AS REGARDS TO THE ISSUE OF DIV IDEND STRIPING, WE FIND THAT THE ASSESSEE HAS EXPLAINED THAT HE WAS UNDER MISTAKEN N OTION THAT THE DIVIDEND EARNED IS NOT TO BE REDUCED FROM LOSS OF SHARES AND EVEN B EFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE ADMITTED THAT THE PROVISION OF SECTION 94(7) OF THE ACT. ARE APPLICAB LE TO THE ASSESSEE AND THE ASSESSEE HAS TO REDUCE THE LOSS ARISES FROM THIS TR ANSACTION OF SHARES TO THE EXTENT OF DIVIDEND RECEIVED. WE ACCEPT THE EXPLANATION OF THE ASSESSEE AS BONA FIDE AS THIS CLAIM WAS MADE BY THE ASSESSEE UNDER MISTAKEN NOTION. ACCORDINGLY, ON THIS ISSUE ALSO ASSESSEE SHOULD NOT BE PENALIZED U/S.271 (1) OF THE ACT. ACCORDINGLY, ON BOTH THE COUNTS THE ASSESSEE IS NOT EXIGIBLE TO PENALTY U/S.271(1) OF THE ACT. WE DELETE THE LEVY OF PENALTY AND THE O RDERS OF THE LOWER AUTHORITIES ARE REVERSED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS DAY OF 9 TH JULY ,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 09/07/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XIV, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD