ITO, V. M/s. Abhinav Engineers Pvt. Ltd,

ITA 3931/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3892 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-05-2011
• Assessment Year: 1993-1994
• Appeal Filed On: 18-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: L N MALIK
• Keywords: Capital asset; Business income; Difference of opinion
• Section: 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI DELHI BENCH A : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM ITA NO.3931/DEL/2009 ITA NO.3931/DEL/2009 ITA NO.3931/DEL/2009 ITA NO.3931/DEL/2009 ASSESSMENT YEAR : 1993 ASSESSMENT YEAR : 1993 ASSESSMENT YEAR : 1993 ASSESSMENT YEAR : 1993- -- -94 9494 94 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -1(1), 1(1), 1(1), 1(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S ABHINAV ENGINEERS PVT.LTD., M/S ABHINAV ENGINEERS PVT.LTD., M/S ABHINAV ENGINEERS PVT.LTD., M/S ABHINAV ENGINEERS PVT.LTD., C CC C- -- -2, COM 2, COM 2, COM 2, COMMUNITY CENTRE, MUNITY CENTRE, MUNITY CENTRE, MUNITY CENTRE, NARAINA VIHAR, NARAINA VIHAR, NARAINA VIHAR, NARAINA VIHAR, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN NO.AAACA2138A. PAN NO.AAACA2138A. PAN NO.AAACA2138A. PAN NO.AAACA2138A. (APPELLANT) (RESPONDENT) APPELLANT BY : MS.ANUSHA KHURANA, SR.DR. RESPONDENT BY : SHRI L.N.MALIK, CA AND SHRI SATISH KHOSLA, ADVOCATE. ORDER ORDER ORDER ORDER PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : PER R.P.TOLANI, JM : THIS IS REVENUES APPEAL CHALLENGING DELETION OF PE NALTY IMPOSED U/S 271(1)(C). FOLLOWING GROUNDS ARE RAISED:- 1. LD.CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE BY DELETING PENALTY OF RS.3,09,180/- IMPOSED BY THE AO U/S 271(1)(C) OF THE ACT IGNORING THAT (I) THE ASSESSEE COMPANY FAILED TO PROVE THAT THE SHARES WERE PURCHASED AND HELD IN ITS NAME. (II) THE ASSESSEE COMPANY FAILED TO PRODUCE ITS BAN K STATEMENT REFLECTING SALE/PURCHASE OF SHARES ALONGW ITH NAMES OF THE PARTIES FROM/TO WHOM THE SAME WERE PURCHASED/SOLD. THUS GENUINENESS OF SHARE TRANSACT IONS REMAINED IN DOUBT. (III) THAT QUANTUM APPEAL OF ASSESSEE COMPANY HAS B EEN DISMISSED BY THE HONBLE ITAT ON THE ISSUE OF ASSES SABILITY OF LOSS AND THE MATTER HAS ATTAINED FINALITY. (IV) THAT ASSESSEE COMPANY HAS SHOWN ITS HOLDING OF SHARES/DEBENTURES AS INVESTMENT AND NOT AS STOCK -IN- TRADE. ITA-3931/DEL/2009 2 2. THE LD.CIT(A) HAS ALSO ERRED IN LAW AND ON FACTS OF THE CASE BY HOLDING THAT THE ASSESSEE COMPANY HAS FURNI SHED ALL THE REQUIRED DETAILS OF ITS INCOME AND THERE WA S NO CONCEALMENT ON ITS PART. BUT THE FACT IS THAT ASSE SSEE HAS DELIBERATELY FILED INACCURATE PARTICULARS OF LOSS O N ACCOUNT OF SHARE TRANSACTIONS AND BY CLAIMING THE SAME IN T HE P & L ACCOUNT WITH A CLEAR INTENT OF GETTING SET OFF SAME IN THE INCOME OF THE YEAR, AGAINST TREATMENT OF SAME AS CA PITAL LOSS BY THE AO. 2. BRIEF FACTS ARE THAT ASSESSEE CLAIMED TO DEAL IN EXPORT OF GARMENTS AND TRADING IN SHARES AND DEBENTURES. NOT ICE U/S 148 WAS ISSUED. CONSEQUENT THERETO, A RETURN OF INCOME WAS FILED ON 29.2.2000 DECLARING A LOSS OF `92,060/-. AO FRAMED THE ASSES SMENT U/S 144 OBSERVING THAT THOUGH ASSESSEE HAS FURNISHED ALL TH E RELEVANT DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE RE TURN FILED U/S 148 BEING LATE, THE ASSESSMENT WAS TECHNICALLY MADE U/S 144 AND ALSO ON THE BASIS OF INFORMATION CALLED DURING THE ASSESSME NT PROCEEDINGS. IN THE RETURN OF INCOME, A LOSS IN RESPECT OF TRADING IN SHARES AND DEBENTURES AT `5,97,448/- WAS CLAIMED. AO DISALLOW ED THE SETTING OFF OF ASSESSEES CLAIM OF BUSINESS LOSS BY FOLLOWING O BSERVATIONS:- 4. FROM THE DETAILS OF PROFIT & LOSS ACCOUNT, IT I S NOTICED THAT THERE IS A LOSS OF RS.5,97,448/- ON SALE OF DE BENTURES. AS BUSINESS OF THE ASSESSEE IS NOT TO DEAL IN SHARE S, BONDS, DEBENTURES ETC., THE LOSS ON SALE OF DEBENTURES CAN NOT BE TREATED AS A BUSINESS LOSS, BUT ONLY A CAPITAL LOSS WHICH SHALL NOT BE ALLOWED TO BE SET OFF AGAINST INCOME, IF ANY, UNDER OTHER HEADS OF THIS YEAR AND SAME SHALL BE CA RRIED FORWARD TO SUBSEQUENT YEAR SEPARATELY. DUE TO THIS ADDITION, THE ASSESSEES RETURNED LOSS WAS CONVERTED INTO INCOME, NO OTHER ADDITION WAS MADE IN THE ASSESSEE S CASE. 3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHERE IT WAS PLEADED THAT :- ITA-3931/DEL/2009 3 (I) THE AO HAS HELD THE LOSS TO BE CAPITAL LOSS ON THE GROUND THAT ASSESSEE WAS IN THE BUSINESS OF GARMENTS AND N OT IN THE TRADING OF SHARES. WHEREAS THE ASSESSEE HAS AUTHORIZED ARTICLE OF ASSOCIATION AND SUCH SALES, P URCHASES WERE DULY APPROVED BY BOARD OF DIRECTORS. (II) THE TRADING OF EQUITY SHARES WAS IN RESPECT OF RELIANCE INDUSTRIES, RATHI ALLOYS WHICH ARE WIDELY HELD PUBL IC LIMITED COMPANIES DULY LISTED ON THE STOCK EXCHANGE. (III) THE TRANSACTIONS WERE CARRIED OUT THROUGH REG ISTERED SHARE BROKERS M/S GUPTA & CO. A PERUSAL OF ACCOUNT REVEA LS THAT ACCOUNT WAS NOT SETTLED ON THE BASIS OF PROFIT AND LOSS BUT CREDIT AND DEBIT IN THE ACCOUNT WERE MADE ON THE BA SIS OF EACH TRANSACTION AND ACTUAL PAYMENT OF `17,93,495/- WAS MADE THROUGH CHEQUE DRAWN ON BANK OF INDIA. 4. APROPOS THE ISSUE ABOUT REGISTRATION OF SHARES I N THE NAME OF THE ASSESSEE, IT WAS PLEADED THAT THE TRANSACTION IS MA DE BEFORE THE CLOSURE OF THE BOOKS, THE TRADING TRANSACTIONS WERE GENUINE. CIT(A) WITHOUT ELABORATING ANYTHING FURTHER UPHELD THE AO S ACTION BY FOLLOWING SUMMARY OBSERVATIONS:- IN ABOVE VIEW OF THE MATTER, THE DECISION OF THE A .O. BEING IN ACCORDANCE WITH THE LAW DOES NOT REQUIRE ANY INTERFERENCE. THE DISALLOWANCE OF RS.5,97,448 IS, ACCORDINGLY, CONFIRMED. 5. ASSESSEE FILED APPEAL BEFORE THE ITAT WHICH GOT DISMISSED IN- LIMINE VIDE ORDER DATED 19.5.2006. 6. THEREAFTER, AO ISSUED PENALTY NOTICE U/S 271(1)( C) WHERE IT WAS SUBMITTED THAT :- ITA-3931/DEL/2009 4 (I) ALL THE FACTS MATERIAL TO THE COMPUTATION OF IN COME WERE BROUGHT TO THE KNOWLEDGE OF THE AO WHICH IS FURTHER CORROBORATED BY THE FACT THAT AO HIMSELF ADMITTED T HAT ALL THE DETAILS WERE FILED DURING THE COURSE OF ASSESSM ENT. (II) THE ASSESSEE WAS UNDER A BONA-FIDE BELIEF THAT ASSESSEE BEING DULY AUTHORIZED BY ITS ARTICLE OF ASSOCIATION AND BOARDS RESOLUTION TO CARRY ON EACH BUSINESS TRANSA CTION OF TRADING IN SHARES AND DEBENTURES, THE RESULT WAS TA XABLE UNDER THE HEAD INCOME FROM BUSINESS. AO HELD THE SAME TO BE CAPITAL GAIN ON THE BASIS THAT ASSESSEE WAS N OT AUTHORIZED TO DO BUSINESS WHICH IS NOT A CORRECT ASSUMPTION. MEMORANDUM, RESOLUTION OF BOARDS MEMB ERS AND DETAILS FROM BROKERS WERE FILED. 7. THIS ISSUE BEING DEBATABLE, RELIANCE WAS PLACED ON HON'BLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. GURBACHA N LAL 250 ITR 157 IN SIMILAR CIRCUMSTANCES OF TRADING LOSS VIS-A- VIS CAPITAL LOSS HELD THAT THE ELEMENT OF CONCEALMENT WAS NOT INVOLVED. FURTHER RELIANCE WAS PLACED ON HON'BLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. ATMA RAM PROPERTIES PVT.LTD. 258 ITR 246 IN WHICH THE ASSESSEES CLAIM OF RENTAL INCOME AND BUSINESS INCOME WAS NEGA TIVE AND WAS TAXED AS HOUSE PROPERTY INCOME, THE PENALTY IMPOSED THEREON U/S 271(1)(C) WAS DELETED. AO, HOWEVER, IMPOSED THE PE NALTY. 8. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHERE ASSESSEE AGAIN DEMONSTRATED THAT THE ARTICLE OF ASSOCIATION DULY A UTHORIZED CARRYING ON OF BUSINESS OF SHARES, STOCKS AND SECURITIES AND WAS FURTHER APPROVED BY THE BOARD OF DIRECTORS. ALL THE SUBMIS SIONS TAKEN BEFORE THE AO WERE REPRODUCED. IT WAS FURTHER PLEADED THA T :- ITA-3931/DEL/2009 5 (I) PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE. CIT(A) OBSERVED THAT AO HELD IT TO BE A CAPITAL LOSS ONLY ON THE ASSUMPTION THAT THE ASSESSEE WAS NOT AUTHORIZED BY ARTICLE OF ASSOCIATION WHICH IS NOT A CORRECT OBSERVATION I NASMUCH AS THE ASSESSEE HAS SUFFICIENT EVIDENCE THAT IT WAS AUTHORIZED TO DO BUSINESS IN SHARES, DEBENTURES AND SECURITIES. (II) AO DID NOT DOUBT THE EXISTENCE OF LOSS, THEREF ORE THERE WAS NO QUESTION ABOUT THE GENUINENESS OF THE TRANSACTIO N. (III) THE ALLEGATION THAT ASSESSEE FAILED TO PRODUC E THE DETAILS OF INVESTMENT IS NOT CORRECT AS COPY OF BANK STATEM ENT WAS PRODUCED. (IV) THE MERE NON-TRANSFER OF SHARES IN ASSESSEES NAME BY ITSELF CANNOT BE HELD AGAINST THE ASSESSEE FOR IMPO SING PENALTY. (V) THE ITAT JUDGMENT WAS NOT ON MERITS BUT ONLY IN -LIMINE AS ON THE DATE OF HEARING, ASSESSEE COULD NOT PRESENT HIMSELF. THOUGH THE ISSUE ABOUT THE TAXABILITY HAS TECHNICAL LY GAINED FINALITY, THE PENALTY PROCEEDINGS BEING DIST INCT AND SEPARATE, SAME CANNOT BE IMPOSED AUTOMATICALLY. (VI) THE ISSUE ABOUT CAPITAL OR REVENUE ALWAYS CARR IES AN ELEMENT OF DEBATE. IN THE INSTANT CASE, THE BONA-F IDE DIFFERENCE OF OPINION BETWEEN THE AO AND THE CIT(A) CANNOT BE RULED OUT. (VII) THE ASSESSEE GAVE A REASONABLE EXPLANATION WH ICH IS CORROBORATED BY EVIDENCE ON RECORD. THE ASSESSEE H AVING FURNISHED ALL THE MATERIAL FACTS DURING THE COURSE OF ASSESSMENT, THE PENALTY WAS DELETED BY CIT(A) RELYI NG ON FOLLOWING JUDGMENTS:- (A) NATIONAL TEXTILES VS. CIT 249 ITR 125 (GUJARA T). ITA-3931/DEL/2009 6 (B) CIT VS. GARG ENGINEERING CO. 235 ITR 451 (ALL AHABAD). (C) CIT VS. HARSHVARDHAN CHEMICALS AND MINERAL LTD. 259 ITR 212 (RAJASTHAN). 9. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 10. LEARNED DR CONTENDS THAT :- (I) ASSESSEE FAILED TO PROVE THAT SHARES WERE TRANS FERRED IN ITS NAME. (II) RELEVANT MATERIAL WAS NOT PRODUCED BY ASSESSEE . (III) THE ISSUE OF TAXABILITY HAS REACHED FINALITY IN THE QUANTUM PROCEEDINGS. THEREFORE, THE LOSS WAS NOT ELIGIBLE FOR SET OFF. 11. LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATED THE FACTS AND ARGUMENTS TAKEN BEFORE THE LOWER AUTH ORITIES. HE SUBMITTED THAT :- (I) THE ALLEGATION THAT ASSESSEE DID NOT PRODUCE SU FFICIENT DETAILS IS NOT BORNE OUT FROM THE RECORD INASMUCH A S AO HIMSELF IN HIS ASSESSMENT ORDER REFERS THE ASSESSEE HAVING ALREADY FILED ALL THE DETAILS. THEREFORE, NO ADVER SE INFERENCE CAN BE DRAWN ON THIS ISSUE. (II) AOS ASSUMPTION THAT ARTICLE OF ASSOCIATION DO ES NOT PERMIT SHARE TRADING BUSINESS WAS A MISTAKEN FINDING AS NO FURTHER QUESTION WAS ASKED AND BEFORE CIT(A), ASSES SEE DEMONSTRATED THE ARTICLE OF ASSOCIATION AND BOARDS RESOLUTION IN RESPECT OF EACH SHARE TRADING. ITA-3931/DEL/2009 7 (III) THE GENUINENESS OF TRANSACTION HAS NOT BEEN D OUBTED INASMUCH AS ONLY THE HEAD OF TAXABILITY HAS BEEN CH ANGED AND THERE IS NO ALLEGATION OTHERWISE. (IV) ASSESSEE ACCEPTED THE TRANSACTION BUT CHANGED THE HEAD OF TAXABILITY ONLY ON THE SOLE OBSERVATION THAT ASS ESSEE WAS IN GARMENTS EXPORT AND NOT AUTHORIZED IN SHARE TRAD ING. THERE WAS NO OTHER ALLEGATION WHATSOEVER IN THE ASSESSMENT ORDER. (V) ASSESSEES APPEAL TO ITAT HAS BEEN DISMISSED IN -LIMINE WITHOUT DECIDING THE MERITS. THEREFORE, THE FINALI TY OF THE ISSUE CANNOT AUTOMATICALLY LEAD TO CONSEQUENT PENAL TY AGAINST THE ASSESSEE. (VI) ASSESSEE FURNISHED ALL THE MATERIAL FACTS BEFO RE THE LOWER AUTHORITIES AND IT CANNOT BE ALLEGED TO HAVE FURNIS HED INACCURATE PARTICULARS OR CONCEALED ANY PARTICULARS . (VII) THERE BEING NO DOUBT ABOUT THE BONA-FIDE OF T HE TRANSACTION, THE ISSUE OF SHARE GETTING TRANSFERRED IN THE NAME OF THE ASSESSEE WILL ALSO BECOME IRRELEVANT IN ASMUCH AS FOR CAPITAL LOSS PURPOSES, THEY ARE HELD TO BE A SSESSEES SHARES. (VIII) THE ASSESSEE FILED A BONA-FIDE EXPLANATION W HICH IS DULY CORROBORATED AND HAS NOT BEEN FOUND TO BE FALSE OR UNTRUE. (IX) EXPLANATION 1A AND 1B TO SECTION 271(1)(C) ARE NOT ATTRACTED IN THESE CIRCUMSTANCES. (X) THE ALLEGATION HAS BEEN CHANGED BY LOWER AUTHOR ITIES ONCE FROM THE ARTICLE OF ASSOCIATION, THEN ABOUT NON-TRA NSFER OF SHARES WHICH HAVE BEEN DULY EXPLAINED BY THE ASSESS EE. THE CHANGE OF TAXING HEAD CANNOT LEAD TO IMPOSITION OF CONCEALMENT OF PENALTY AGAINST THE ASSESSEE. RELIA NCE IS PLACED ON AHMEDABAD SPECIAL BENCH DECISION IN THE C ASE ITA-3931/DEL/2009 8 OF GUJARAT CREDIT CORPORATION LTD. 302 ITR (AT) 2 50 AND STAR INTERNATIONAL (P) LTD. 308 ITR (AT) 33 (LUCK NOW). 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACTS HAVE BEEN NARRATED I N DETAIL ABOVE. THE AO IN THE ASSESSMENT ORDER HAS NOT ALLEGED ANY SORT OF NON- COOPERATION AND NON-FURNISHING OF INFORMATION. A C ATEGORICAL OBSERVATION IS MADE THAT THOUGH ASSESSEE HAS FILED ALL THE REQUISITE INFORMATION TECHNICALLY, THE ASSESSMENT WAS BEING F RAMED U/S 144. FURTHER, THE ASSESSEES CLAIM OF BUSINESS LOSS WAS TREATED AS CAPITAL LOSS BY THE AO ON THE ACCOUNT THAT ASSESSEE WAS IN GARMENTS EXPORT AND WAS NOT AUTHORIZED TO TRADING IN SHARES AND SEC URITIES. ASSESSEE CLAIMS THAT THIS OBSERVATION IS NOT CORRECT AS NO S UCH QUESTION WAS ASKED. 13. DURING THE COURSE OF APPELLATE PROCEEDINGS, ASS ESSEE FILED ARTICLE OF ASSOCIATION, COPY OF BOARDS RESOLUTION, AUTHORI ZING THE SHARE TRADING. BESIDES, THE ENTRIES IN THE BOOKS DID NOT REPRESENT CHARACTER OF SETTLEMENT WITH THE BROKER ON DIFFERENCE OF PURC HASE AND SALE, RATHER THERE ARE ENTRIES OF EACH PURCHASE AND PAYME NT WHICH IS FURTHER EVIDENCED BY A PAYMENT OF `17,93,495/- IN FAVOUR OF THE BROKER M/S GUPTA & CO. BY BANK OF INDIA CHEQUE. THE SHARES TR ADING IS IN RESPECT OF WIDELY HELD PUBLIC LIMITED COMPANIES WHICH ARE L ISTED AND IT IS NOT DISPUTED THAT THE BROKER WAS REGISTERED. 14. ASSESSEE DURING ASSESSMENT AND PENALTY PROCEEDI NGS FILED PROPER REPLIES WHICH ARE CORROBORATED BY EVIDENCE. IT IS NOT THE CASE OF THE LOWER AUTHORITIES THAT THE TRANSACTIONS WERE BO GUS OR PAPER TRANSACTIONS, ALBEIT, THEY ARE ACCEPTED ONLY AS CAP ITAL TRANSACTIONS. WHEN THE CAPITAL ASSET IS TREATED TO BE HELD IN FAV OUR OF THE ASSESSEE, IT CANNOT BE ASSUMED THAT IF HEAD OF TAXATION CHANG ES, CANNOT BE HELD ITA-3931/DEL/2009 9 THAT SHARES WERE NOT PURCHASED IN THE HANDS OF THE ASSESSEE. CONSEQUENTLY, WE ARE UNABLE TO ACCEPT THIS PLEA OF THE DEPARTMENT. APROPOS SECOND PLEA, THE ASSESSEE HAS GIVEN SUFFICI ENT MATERIAL AND EVIDENCE TO CORROBORATE ITS REPLY. THE SAME MAY NO T HAVE BEEN HELD TO BE SUFFICIENT FOR QUANTUM PROCEEDINGS, BUT FOR P ENALTY, IT CANNOT BE HELD TO BE FALSE. PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE AND THE ENTIRE MATERIAL IS TO BE CONSIDERED WHILE CONSIDERI NG THE IMPOSITION OF PENALTY. IN VIEW OF THE FOREGOING DISCUSSION, WE S EE NO INFIRMITY IN THE ORDER OF LEARNED CIT(A) DELETING THE PENALTY. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2011. SD/- SD/- (K.D.RANJAN) (K.D.RANJAN) (K.D.RANJAN) (K.D.RANJAN) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) (R.P.TOLANI) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER DATED : 27.05.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR