Shri Sunil Dutt, New Delhi V. DCIT, Panipat

ITA 4094/DEL/2011

• Counselvise Citation: 409420114 RSA 2011
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDDI SRIVASTAVA
• Assessee Lawyers: O P SAPRA
• Keywords: Business income; Cost of acquisition
• Section: 10; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.4093 & 4094/DEL/2011 ASSESSMENT YEAR : 2004-05 SHRI ANIL DUTT & DCIT, SHRI SUNIL DUTT, C/O PANIPAT CIRCLE, O.P.SAPRA & ASSOCIATES, PANIPAT. C-763-NEW FRIENDS COLONY, NEW DELHI. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.ABJPD ABJPD ABJPD ABJPD- -- -8568 8568 8568 8568- -- -Q QQ Q APPELLANT BY : SHRI O.P. SAPRA, ADVOCATE. RESPONDENT BY : SMT. NIDDI SRIVASTAVA, SR. DR. ORDER PER TS KAPOOR, AM: THESE ARE TWO SEPARATE APPEALS FILED AGAINST THE COMMON ORDER OF LD CIT(A) DATED 28.7.2011. THE APPEALS ARE AGAINST THE ORDER OF LD CIT(A) BY WHICH HE HAD CONFIRMED THE PENALTY IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C ) OF THE INCOME TAX ACT, 1961 . IN BOTH THE APPEALS SIMILAR GROUNDS HAVE BEEN TAKEN AND THE DI FFERENCE IS ONLY WITH RESPECT TO AMOUNT OF PENALTY. HOWEVER, THE FACT S IN BOTH THE APPEALS REMAIN SAME. BOTH THESE APPEALS WERE HEARD TOG ETHER AND FOR THE SAKE OF CONVENIENCE A COMMON ORDER IS BEING PASSED. 2. THE FACTS OF THE CASES ARE THAT ASSESSEES WERE DEALING A ND ACTING AS INVESTORS AND WERE EARNING INCOME IN THE F ORM OF INTEREST, DIVIDEND, CAPITAL GAINS AND INCOME FROM TRADING OF SHARES AND ITA NO4093 & 4094/DEL/2011 2 SECURITIES. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEES MADE AN INVESTMENT OF ` .1 CRORE& ` .2 CRORES RESPECTIVELY IN THE UNITS OF ING VYASA MUTUAL FUNDS ON 19.11.2003 AND WERE ALLOTTED BO NUS UNITS AFTERWARDS. THE ASSESSEE SOLD THE ORIGINAL UNITS ON 20.1 1.2003 WHICH RESULTED IN A LOSS AS BY ISSUE OF BONUS UNITS, THE NET ASSET VALUE OF UNITS HAD DECREASED. THE ASSESSEE VALUED THE BONUS AT NIL VALUE. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD DELIBERATELY B OOKED LOSSES ON THE SALE OF ORIGINAL UNITS AND HAD VALUED THE BONUS UNITS AT NIL VALE WHICH OTHERWISE HAD THE VALUE AS THE SAME WER E SOLD IN THE NEXT YEAR. THE ASSESSING OFFICER HELD THAT LOSS THUS INCU RRED BY THE ASSESSEE FROM THE TRANSACTION OF PURCHASE AND SALE OF THE SE UNITS WAS NOT A LOSS WHICH COULD BE SET OFF OF AGAINST THE BUSINESS INCOME OF THE ASSESSEE AND WAS TO BE TREATED AS COST OF BONUS UNITS. THE REFORE, THE ASSESSING OFFICER ISSUED PENALTY NOTICES U/S 271(2)( C) BY HOLDING AS UNDER:- IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE OPINION THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME IN THE FORM OF NOT FOLLOWING THE PROVISIONS OF SECTION 94(7) OF THE I NCOME TAX ACT, 1961 CLAIMING WRONG EXEMPTION U/S 10 OF THE ACT ON INCOME FROM OTHER SOURCES WHICH HAS BEEN WRONGLY SHOWN AS AGRIC ULTURAL INCOME AND CLAIMING UN-ALLOWABLE SET UP OFF OF LOSSES A GAINST OTHER INCOME IN CERTAIN TRANSACTIONS I.E. SMF, IVMF ETC. AND HENCE DOING TAX AVOIDANCE BY USING COLOURABLE DEVICE S, SO IT IS A FIT CASE TO INITIATE PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE IT ACT, 1961. THEREAFTER, THE ASSESSING OFFICER PASSED PENALTY ORDER IN BOTH CASES VIDE ORDER DATED 29.3.2010 AND IMPOSED PENALTIES TO ` .13,77,450/- AND ` .28,05,210/- RESPECTIVELY. ITA NO4093 & 4094/DEL/2011 3 3. AGGRIEVED WITH THE ORDER, THE ASSESSEE FILED APPEAL BEFORE LD CIT(A) AND SUBMITTED AS UNDER:- I) THAT ASSESSEE WHOLLY DEPENDED ON HIS COUNSEL FOR PREPARI NG THE RETURN AND ASSESSEE BEING A LAY MAN DOES NOT KNOW TH E TECHNICALITY OF IT LAW. II) THAT THE ONLY CHARGE OF ASSESSING OFFICER IS THAT ASSESSEE H AD NOT FOLLOWED THE PROVISIONS OF SECTION 94(7) AND HAD C LAIMED WRONG EXEMPTION U/S 10 ON INCOME FROM OTHER SOURCES BU T FURTHER DISCUSSION THAT THE ASSESSEE HAD WRONGLY SHOWN INCOME FROM OTHER SOURCES AS AGRICULTURAL INCOME ARE INCORRECT. III) THAT IN PARA 4 OF IMPUGNED PENALTY ORDER, THE ASSESSING OFFICER HAS REPRODUCED THE FINDINGS OF LD CIT(A) IN W HICH WHILE REJECTING THE GROUNDS OF APPEALS THE CIT(A) HAD REFER RED TO THE PROVISIONS OF SECTION 94(8) WHICH PROVIDE FOR IGNORING OF SUCH LOSS AND ALLOWING IT AS DEEMED COST OF BONUS UNITS HAVI NG BEEN BROUGHT ON THE STATUTE BOOK BY FINANCE NO.2 (20 04) ACT W.E.F. 1.4.2005 WHICH WERE APPLICABLE FROM ASSESSMENT YEAR 2005-06 AND THEREFORE ACCORDING TO LD CIT(A) THE ASSE SSEE COULD NOT TAKE ADVANTAGE OF SECTION 94(8) IN THE YEA R UNDER APPEAL. THEREFORE, THE LD CIT(A) HAS HELD LOSS INCURRE D BY THE ASSESSEE AS COST OF BONUS UNITS. IN OTHER WORDS, SUCH AMOUNT WAS TO BE CLAIMED AS DEDUCTION WHEN SUCH BONUS UNITS ARE SOLD. THEREFORE, IN OTHER WORDS, THE ISSUE INVOLVED INTERPRETATION OF PROVISION OF SECTION 94(8) AND IF A SSESSEES COUNSEL HAD FILED RETURN BY TAKING ONE VIEW OF SUCH P ROVISION, PENALTY WAS NOT LEVIABLE. IV) THAT THERE WAS NO LOSS TO THE REVENUE AS THE LOSS INCURRE D WAS ALLOWED TO BE TAKEN AS COST OF OPENING STOCK OF BONUS U NITS ITA NO4093 & 4094/DEL/2011 4 AND IN SUCCEEDING YEAR THE ASSESSING OFFICER HAS ALLOWED THE COST OF SUCH UNITS AGAINST THE SALE PROCEEDS OF SUCH UNITS. 4. IN VIEW OF THE ABOVE SUBMISSION, IT WAS SUBMITTED TH AT THERE WAS NO FURNISHING OF INACCURATE PARTICULARS OF ASSESSEES INCO ME AND IT IS THE CASE WHEREIN THE VIEW TAKEN BY THE ASSESSEE WAS NOT A CCEPTED BY REVENUE. RELIANCE IN THIS RESPECT WAS PLACED ON THE FO LLOWING CASES:- 1. SMT. PRITI N. AGARWAL DECIDED BY HON'BLE DELHI HIGH COURT REPORTED IN 309 ITR 140 WHICH WAS FURTHER DISMISSED BY HON'BLE SUPREME COURT VIDE JUDGMENT DATED 6.4.2009. 2. CIT V. RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158. 3. CAPLIN POINT LABORATORIES LTD. (MAD.) 293 ITR 524 4. ASHOK PAI V. CIT 292 ITR 11. 5. THE LD CIT(A), HOWEVER, DID NOT AGREE WITH THE C ONTENTIONS OF THE ASSESSEE AND UPHELD THE PENALTY ORDER BY HOLDING AS UNDE R:- IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS NOTED THAT THE ENTIRE EXERCISE WAS CARRIED OUT BY THE APPELLANT TO GENERATE LOSS TO BE ADJUSTED/SET OFF AGAINST THE OTHER INCOME AND AS SUCH, T O REDUCE THE TAX LIABILITY. FURTHER THE LONG TERM CAPITAL GA IN OF ` .39,91,649/- EARNED ON SALE OF BONUS UNITS IN THE ASSES SMENT YEAR 2006-07 HAS BEEN CLAIMED EXEMPT. THE PLEA OF T HE APPELLANT TO SHIFT THE ONUS ON THE COUNSEL IS THEREFORE NOT TENABLE AND HENCE IT IS HELD THAT THE APPELLANT FURN ISHED INACCURATE PARTICULARS OF HIS INCOME AND HENCE IS LIA BLE FOR PENALTY U/S 271(1)( C) OF THE ACT. THE CASE LAWS RELIE D UPON BY THE APPELLANT ARE OF NO HELP BEING DISTINGUISHABLE ON FACTS. FOR EXAMPLE, THE ISSUE IN THE CASE OF CIT V. PREETI N. AGG ARWALA 309 ITR 140 (DEL.) RELIED UPON BY THE APPELLANT, IS REGA RDING THE ITA NO4093 & 4094/DEL/2011 5 LEGALITY OF SATISFACTION RECORDED BY THE ASSESSING OFFICE R. THE ITAT CANCELLED THE PENALTY PROCEEDINGS ON THE GROUND THAT NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER WHICH WAS CONFIRMED BY THE HON'BLE HIGH COURT. SIMILARLY THE FACTS OF THE CASE OF THE APPLICANT ARE ENTIRELY DIFFERENT WITH TH E FACTS OF THE CASE OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. R ELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC). THE APPELL ANT FURTHER REFERRED TO THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF ASHOK PAI V., CIT 292 ITR 11 (SC) IN WHICH THE H ON'BLE COURT HELD THAT THE WORD INACCURATE IN THE CONTEXT OF L EVYING PENALTY U/S 271(1)( C) SIGNIFIES A DELIBERATE OMISSION ON THE PA RT OF THE ASSESSEE. FROM THE FACTS DISCUSSED ABOVE, IT IS NOTED THAT T HE ENTIRE EXERCISE OF PURCHASE AND SALE OF UNITS WAS A DEL IBERATE ATTEMPT TO INCUR LOSS DURING THE YEAR UNDER CONSIDERA TION WHICH WAS ADJUSTED/SET OFF AGAINST OTHER INCOME AND THE PROFI T EARNED SUBSEQUENTLY ON SALE OF BONUS UNITS WAS CLAIMED EXEMPT. THOUGH MENS REA IS NOT REQUIRED TO BE ESTABLISHED IN T HE PENALTY PROCEEDINGS UNDER THE IT ACT AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UOI V. DHARMENDRA TEXTI LE PROCESSORS 306 ITR 277 (SC) YET IN VIEW OF THE FACTS DI SCUSSED ABOVE IT IS NOTED THAT THE ENTIRE EXERCISE WAS CARRIED OUT INTENTIONALLY TO REDUCE THE TAX LIABILITY. IN VIEW OF THE FACTUAL AND LEGAL POSITION DISCUSSED ABO VE IT IS HELD THAT THE APPELLANT FURNISHED INACCURATE PARTICULARS OF HIS INCOME AND HENCE IS LIABLE FOR PENALTY U/S 271(1)( C) OF THE ACT. THE ASSESSING OFFICER LEVIED THE MINIMUM PENALTY OF 100% AN D HENCE THE SAME IS HEREBY CONFIRMED. SHRI SUNIL DUTT. SHRI SUNIL DUTT. SHRI SUNIL DUTT. SHRI SUNIL DUTT. ITA NO4093 & 4094/DEL/2011 6 THE FACTS IN THIS CASE ARE SAME AS IS IN THE CASE OF SHRI ANIL DUTT EXCEPT THE QUANTUM OF PURCHASE OF UNITS. THE APPELLAN T PURCHASED UNITS OF ` .2 CRORES ON 19.1.2003 WHICH WERE SOLD ON 20.11.2003 FOR ` .1,21,99,059.65 AND THEREBY INCURRED A LOSS OF ` .78,00,940.33. THE ASSESSEE WAS ALLOTTED 774331.15 UNITS AS BONUS UNITS WHICH WAS SOLD IN THE NEXT YEAR AND CAPITAL GAIN OR ` .79,69,744/- EARNED THEREON WAS CLAIMED EXEMPT. THE ASSESSEE CLAIMED THE LOSS AS BUSINESS LOSS AND CARRIED FORWARD THE BONUS UNITS AT NIL AND SOLD THEM SUBSEQUENTLY. THE LOSS WAS DIS ALLOWED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). T HE ASSESSING OFFICER LEVIED PENALTY U/S 271(1)(C ) OF THE A CT WHICH IS CHALLENGED BY THE APPELLANT VIDE APPEAL UNDER CONSID ERATION. THE FACTS IN THE CASE UNDER CONSIDERATION ARE, AS SUCH SAME A S IN THE CASE OF SHRI ANIL DUTT WHEREIN THE PENALTY U/S 271(1) (C ) LEVIED BY THE ASSESSING OFFICER HAS BEEN CONFIRMED. FOLLOWING THE ORDER OF THIS OFFICE IN THE CASE OF SHRI ANIL DUTT, PENALTY L EVIED IN THIS CASE BY THE ASSESSING OFFICER IS ALSO CONFIRMED. 6. AGGRIEVED, THE ASSESSEES FILED APPEALS BEFORE THIS TRIB UNAL. 7. AT THE OUTSET, THE LD AR SUBMITTED THAT LD CIT(A) HAS CONFIRMED THE PENALTY HOLDING THAT THE ASSESSEE HAD GENERATED LOSS TO REDUCE TAX LIABILITY ONLY AS IN THE SUCCEEDING YEAR THE ASSESSEES HAD SOLD THESE UNITS AT A PROFIT. IN THIS RESPECT THE LD AR SUBMITTED THAT GENUINENESS OF TRANSACTION WAS NOT DOUBTED BY HIM OR EVEN BY THE ASSESSING OFFICER AND ASSESSEE WAS ENTITLED TO VALUE THE BONUS UNITS AT NIL VALUE AND THERE WAS NOTHING WRONG IF THE ASSESSEE CLAIMED LONG TE RM EXEMPT CAPITAL GAIN IN SUCCEEDING YEAR. CONTINUING HIS ARGU MENTS HE SUBMITTED THAT HOWEVER IN SUCCEEDING YEAR THE ASSESSING OFFICER HAD NOT ACCEPTED THE INCOME ON SUCH UNITS AS LONG TERM CA PITAL GAIN AND ITA NO4093 & 4094/DEL/2011 7 INSTEAD TREATED THE SAME AS BUSINESS INCOME. HE INVITED O UR ATTENTION TO PAPER BOOK PAGES 48 TO 52 WHERE A COPY OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 2006-07 WAS PLACED. ARGUING FURTHER THE LD AR SUBMITTED THAT ASSESSEE WAS DEPENDENT ON HIS COUNSEL DUE T O COMPLICATED PROVISIONS OF INCOME TAX AND HE WAS NOT EX PECTED TO KNOW ALL THE APPLICABLE PROVISIONS. RELIANCE IN THIS RESPECT WAS PLACED ON THE JUDGMENT OF CWT V. RAMNIK LAL D MEHTA REPORTED IN 1 36 ITR 729. HE FURTHER ARGUED THAT IT WAS A CASE WHERE TWO OPINIONS WERE POSSIBLE AND ASSESSEE HAD TAKEN ONE OF THE POSSIBLE VIEWS AND IF THE ASSE SSEES PLEA WAS NOT ACCEPTABLE TO REVENUE THE ASSESSEE CANNOT B E SUBJECTED TO PENALTY U/S 271(1)( C) AS NO WRONG PARTICULARS OF INCOME WERE FURNISHED AND RATHER THE ASSESSEE HAD VALUED BONUS UNITS A T NIL VALUE WITH A BONA FIDE BELIEF THAT THESE WERE TO BE VALUED AT NIL VALUE. RELIANCE IN THIS RESPECT WAS PLACED ON A NUMBER OF JUD GMENTS INCLUDING THOSE RELIED BEFORE LD CIT(A) AND PARTICUL ARLY RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- I. (2009) 122 TTJ (PUNE) KANBAY SOFTWARE (P) LTD. V. D CIT. II. 322 ITR 158, CIT V. RELIANCE PETROPRODUCTS PVT. LTD. , (SC). III. 322 ITR 80 CIT V. SIDHARTHA ENTERPRISES (P&H). IV. 335 ITR 558 CIT V. RUBBER UDYOG VIKAS PVT. LTD. (P&H ). V. 258 ITR 58 (CHD.) V.SMT. SUNDER KAUR. VI. 292 ITR 11 ASHOK PAI V. CIT. VII. 288 ITR 670 CIT V. NATH BROTHERS EXIM INTERNATIONAL LTD. VIII. 349 ITR 112 AT PAGE 123 (DHC) KARAN RAGHAV EXPORT P. LTD. V. CIT. IX. 293 ITR 524 CIT V. CAPLIN POINT LABORATORIES. X. 347 ITR 478 CIT V. LAKHANI FOOTWEAR LTD. 8. IN VIEW OF THE ABOVE ARGUMENTS THE LD AR ARGUED T HAT PENALTY U/S 271(1)( C ) WAS NOT LEVIABLE. ITA NO4093 & 4094/DEL/2011 8 9. THE LD DR, ON THE OTHER HAND, HEAVILY RELIED UPO N THE ORDER OF ASSESSING OFFICER AND LD CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. SECTION 271(1)( C) OF THE ACT HAS A DIRECT BEARING ON THE CONTROVERSY AN D THEREFORE IT IS SALUTARY UPON US TO TAKE NOTE OF THE RELEVANT PROVISIO NS OF SECTION 271(1)( C) ALONG WITH EXPLANATION-1 WHICH READS AS UN DER:- 271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICE S, CONCEALMENT OF INCOME, ETC. (1). IF THE ASSESSING OFFICER OR THE COMMISSIONER (APPEAL S) OR THE CIT IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, I S SATISFIED THAT ANY PERSON (A) AND (B)******** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FUR NISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF P ENALTY. (I) AND (INCOME-TAX OFFICER,)******** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLAUSE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL NO T BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICU LARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURAT E PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1.- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, ITA NO4093 & 4094/DEL/2011 9 (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFE RS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR T HE COMMISSIONER(APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT A BLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATE RIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED B Y HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TH E TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESE NT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONC EALED. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THAT FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) DURING THE COURSE OF ANY PROCEED INGS BEFORE THEM SHOULD BE SATISFIED, THAT THE ASSESSEE HAS; (I ) CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTICUL ARS OF INCOME. AS FAR AS THE QUANTIFICATION OF THE PENALTY I S CONCERNED, THE PENALTY IMPOSED UNDER THIS SECTION CAN RANGE IN BE TWEEN 100% TO 300% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE, AS A RESULT OF SUCH CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THE OTHER MOST IMPORTANT FEA TURES OF THIS SECTION IS DEEMING PROVISIONS REGARDING CONCEALMENT OF INCOME. THE SECTION NOT ONLY COVERED THE SITUATION IN WHICH T HE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PART ICULARS, IN CERTAIN SITUATION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEMING FICTION FOR CONCEALMENT OF INCO ME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF EXPLANAT ION I TO SECTION 271(1)(C) POSTULATES TWO SITUATIONS; (A) FIRST WHETHER I N RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL I NCOME UNDER ITA NO4093 & 4094/DEL/2011 10 THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPE ALS); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE CO MPUTATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSE E IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE ASSESSEE FAI LS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATING TO THE SAME AND MA TERIAL TO THE COMPUTATION OF THE TOTAL INCOME. UNDER FIRST SITU ATION, THE DEEMING FICTION WOULD COME TO PLAY IF THE ASSESSEE FAIL ED TO GIVE ANY EXPLANATION WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASSESSI NG OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CATEGORICAL FINDING TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO P LAY BY THE FAILURE OF THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL IN COME AND IN ADDITION TO THIS THE ASSESSEE IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL IN COME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITUATIONS PROVIDE D IN EXPLANATION 1 APPENDED TO SECTION 271(1)(C) MAKES IT CLEAR THAT THAT WHEN THIS DEEMING FICTION COMES INTO PLAY IN TH E ABOVE TWO SITUATIONS THEN THE RELATED ADDITION OR DISALLOWANCE I N COMPUTING THE TOTAL INCOME OF THE ASSESSEE, FOR THE PURPOSE OF SEC TION 271(1)(C) WOULD BE DEEMED TO BE REPRESENTING THE INC OME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN FUR NISHED. 11. NOW LOOKING INTO THE FACTS OF THE PRESENT CASES WE FIND THAT ASSESSEES WERE ISSUED BONUS UNITS WHICH THEY VALUED AT NIL V ALUE AS ITA NO4093 & 4094/DEL/2011 11 THEY WERE ISSUED FREE OF COST AND ASSESSEE HAD NOT PAID AN Y AMOUNT FOR RECEIPT OF THE SAME. THE ASSESSEE HAD VALUED THESE U NITS AT NIL VALUE AND HAD SOLD THE ORIGINAL UNITS ON WHICH THEY HAD INCURRED LOSSES AND HAD CLAIMED SET OFF OF THE SAME. THE ASSESSING OFFICE R WAS OF THE VIEW THAT LOSS INCURRED WAS NOTIONAL IN NATURE AS ALONG WITH SALE OF BONUS UNITS IN SUCCEEDING YEAR THE ASSESSEE HAD IN FACT EARNED PROFITS AND THEREFORE HE DISALLOWED THE SET OFF OF LOSS AND IMP OSED PENALTY FOR CONCEALMENT OF INCOME U/S 271(1) (C ) OF THE IT ACT. TO DISPOSE OFF THESE APPEALS WE HAVE TO SEE AS TO WHETHER THE ASSESSEE HA S FURNISHED INACCURATE PARTICULARS OR NOT. IN THE PRESEN T CASES THERE IS NO DISPUTE ABOUT THE SALE PRICE OF ORIGINAL UNITS AND LO SS INCURRED BY THE ASSESSEE ON ORIGINAL UNITS AND ALSO IT IS AN UNDISPUTED FA CT THAT THIS LOSS CANNOT BE SAID TO BE NOTIONAL AS ASSESSEE HAD ACTUALLY MADE THE SALE OF ORIGINAL UNITS. THEREFORE, TO THIS EXTENT, TH ERE DOES NOT SEEM TO BE A CASE OF FURNISHING OF INACCURATE PARTICULARS. 12. NOW COMING TO THE SECOND POINT OF VALUE OF BONUS UNITS WE FIND THAT SUB SECTION (IIIA) OF CLAUSE (2) OF SUB SECTION 55 PERMITS THE ASSESSEE TO VALUE SUCH BONUS UNITS AT NIL VALUE. THE RELE VANT CLAUSE READS AS UNDER:- IN RELATION TO FINANCIAL ASSETS ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSETS SHALL BE TAKEN TO BE NIL IN THE CASE OF SUCH ASSESSEE. THEREFORE, THE ASSESSEE MUST HAVE VALUED SUCH UNITS KEEPIN G IN VIEW THIS PROVISION OF THE ACT. THOUGH THIS SECTION RELATES T O VALUATION FOR THE PURPOSE OF CALCULATION OF COST OF ACQUISITION FOR CALCULATING CAPITAL GAINS BUT THERE IS NO OTHER EXPRESS PROVISION IN THE INC OME TAX ACT AVAILABLE UNDER THE HEAD BUSINESS AND PROFESSION FOR VAL UATION OF SUCH ITA NO4093 & 4094/DEL/2011 12 BONUS UNITS., SUB CLAUSE (A) OF SECTION 145A PROVIDES FO R VALUATION OF INVENTORY FOR THE PURPOSE OF DETERMINING INCOME CHAR GEABLE UNDER THE HEAD PROFITS & BUSINESS WHICH SAYS THAT VALUATION WILL B E CONE IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULARLY EMPL OYED BY THE ASSESSEE. THE LD CIT(A) IN THE QUANTUM PROCEEDINGS HAS RE JECTED THE VALUATION MADE BY ASSESSEE AND VALUED THE BONUS UNITS ON THE BASIS OF ACCOUNTING PRACTICES WHEREBY COST OF ORIGINAL UNITS BE COMES THE COST OF TOTAL UNITS OF ORIGINAL UNITS AND BONUS UNITS AND TH EREFORE AFTER ASSIGNING THE VALUE TO BONUS UNITS HAD ARRIVED AT THE F IGURE OF PROFIT INSTEAD OF LOSS AND ALLOWED THE VALUE OF BONUS UNITS TO BE CARRIED FORWARD TO NEXT YEAR WHICH WAS TO BE SET OFF AGAINST SALE PROCEEDS OF BONUS UNITS. BY THIS ACT THE LD CIT(A) HAS ONLY SHIFTED THE AMOUNT OF LOSS OR PROFIT TO SUCCEEDING YEAR IN WHICH SUCH UNITS WE RE SOLD. IF LD CIT(A) HAD AGREED TO THE LOSS CLAIMED BY ASSESSEE, ALL AM OUNTS RECEIVED FROM SALE OF BONUS UNITS IN NEXT YEAR WOULD HAVE BEEN INCOME OF THE ASSESSEE AS THERE WAS NIL VALUE OF BONUS UNITS AS PER CLAIM OF THE ASSESSEE. THEREFORE, THERE WAS NO LOSS TO REVENUE OR T O ASSESSEE AS CLAIM DENIED DURING THE PRESENT YEAR HAS RESULTED IN TO GAIN TO ASSESSEE IN SUCCEEDING YEAR AS ASSESSEE WAS ABLE TO ADJUST CO ST OF SUCH BONUS UNITS AGAINST SALE OF SUCH UNITS. THEREFORE THE SE ARE NOT THE CASES WHERE INACCURATE PARTICULARS OF INCOME WERE FURNISHED AND RATHER IN THESE CASES, THE ASSESSEE HAD TAKEN ONE OF THE P OSSIBLE VIEWS. 13. WE FURTHER FIND THAT THE PROVISIONS OF SECTION 94( 8) WERE INSERTED IN THE STATUTE TO CURB TAX AVOIDANCE IN SUCH TYPE OF CIRCUMSTANCES ONLY WHICH WERE APPLICABLE FROM ASSESSMENT YEAR 2005-06, TH E FACT LD CIT(A) HAS NOTED IN HIS ORDER ALSO. THE PRESENT CASES RE LATE TO ASSESSMENT YEAR 2004-05 AND THEREFORE IN THESE YEARS THE ASSESSEE HAD NOT VIOLATED THE PROVISIONS OF SECTION 94(8) AND T HEREFORE HAD ITA NO4093 & 4094/DEL/2011 13 VALUED THE BONUS UNITS AS PER PROVISIONS OF SECTION 55(2) (IIIA) WHICH IS AN ACCEPTED METHOD THOUGH FOR DIFFERENT PURPOSES. THE ASSESSING OFFICER HAD CHARGED THE ASSESSEE WITH THE VIOLATION OF PROVISIONS OF SECTION 94(7) WHICH IS NOT THE FACT AS SECTION 94(7) RELATES TO THE CASES WHERE AN ASSESSEE EARNS DIVIDEND OR INCOME ON SUCH SECURIT IES. THE OTHER CHARGE OF ASSESSING OFFICER IS THAT ASSESSEE HAD SHOW N INCOME FROM OTHER SOURCES AS AGRICULTURAL INCOME IS ALSO NOT C ORRECT AS LD CIT(A) IN QUANTUM PROCEEDINGS HAD ACCEPTED THE CLAI M OF ASSESSEE. THEREFORE, KEEPING IN VIEW ALL THE FACTS AND CIRCUMST ANCES OF THE CASES, WE ARE OF THE CONSIDERED OPINION THAT ASSESSEE HAD VALUE D THE BONUS UNITS AT NIL VALUE BY TAKING ONE OF THE POSSIBLE VIEWS AND VARIOUS COURTS HAS HELD THAT PENALTY UNDER THESE CIRCUMSTANCES IS NOT L EVIABLE. MOREOVER HON'BLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS LTD. HAS HELD THAT MERE MAKING A CLAIM WHICH IS NOT SUBSTANTIATE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNI SHING OF INACCURATE PARTICULARS.. THEREFORE, KEEPING IN VIEW ALL FACTS AN D CIRCUMSTANCES, WE ARE OF THE VIEW THAT PENALTIES FOR CONCEALMENT OF IN COME U/S 271(1)( C) IS NOT IMPOSABLE. 14. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEES ARE ALLOWED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DAY O F DECEMBER, 2013. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 31.12.2013. HMS COPY FORWARDED TO:- 1. THE APPELLANT ITA NO4093 & 4094/DEL/2011 14 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 24.10.2013 DATE OF DICTATION 11.12.2013 DATE OF TYPING 11.12.2013 DATE OF ORDER SIGNED BY 31.12.2013 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET NET NOT WORKING & SENT TO THE BENCH CONCERNED.