ITO, New Delhi V. M/s. Moral Trading and Investment Ltd., New Delhi

ITA 4402/DEL/2011

• Counselvise Citation: 440220114 RSA 2011
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 26-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 04-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWEETY KOTHARI CAS
• Keywords: Capital asset; Share purchase agreement; Question of law; Cost of acquisition; Wrong claim; Reason to believe
• Section: 143(3); 14A

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 : E NEW DELHI DELHI BENCH : E NEW DELHI DELHI BENCH : E NEW DELHI DELHI BENCH : E NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A NO. 4481/DEL/11 ASSTT. YEAR 2006-07 M/S. MORAL TRADING AND INVESTMENT LTD. C/O MR. R.P. MITTAL, 81, SAINIK FARM, M.B. ROAD, NEW DELHI PAN AAACM1076B VS. ITO, WARD-5 (4) NEW DELHI. (APPELLANT) (RESPONDENT) I.T.A NO. 4402/DEL/11 ASSTT. YEAR 2006-07 INCOME TAX OFFICE, WARD 5(4), ROOM NO. 327, C.R. BUILDING, I.P. ESTATE, NEW DELHI. VS. M/S. MORAL TRADING AND INVESTMENT LTD. C/O MR. R.P. MITTAL, 81, SAINIK FARM, M.B. ROAD, NEW DELHI PAN AAACM1076B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VINOD BINDAL & MS. SWEETY KOTHA RI, CAS RESPONDENT BY: SHRI RAJ TANDON, CIT(DR) ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 2 DATE OF HEARING : 26-04-2012 DATE OF PRONOUNCEMENT : 31-05-2012 ORDER PER K.G. BANSAL, AM: THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENU E EMANATE FROM THE ORDER OF CIT(APPEALS) VIII, NEW DELHI, PASSED O N 29.7.2011, IN WHICH THE APPEAL WAS PARTLY ALLOWED. THE ASSESSEE HAS TAK EN UP TWO SUBSTANTIVE GROUNDS IN THE APPEAL. THE SUM AND SUBSTANCE OF THE GROUNDS IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S 271(I) (C) IN RE SPECT OF (I) ` 2.39 CRORES, BEING CAPITAL GAIN NOT SET OFF AGAINST THE LONG-TER M CAPITAL GAIN (LTCG) AND (II) ` 22,03,822/- DISALLOWED U/S 57 (III). ON THE OTHER HAND, THE REVENUE HAS ALSO TAKEN UP TWO SUBSTANTIVE GROUNDS T HE SUM AND SUBSTANCE OF WHICH IS THAT THE LD. CIT(A) ERRED IN DELETING THE PENALTY IN RESPECT OF THE CLAIM OF SHORT-TERM CAPITAL LOSS OF ` 8,64,15,538/-, WHICH SUBSEQUENTLY WAS ASSESSED AS LTCG OF ` 11,03,15,638 /- AND SHORT-TERM CAPITAL GAIN (STCG) OF ` 2.39 CRORES. 2. THE FACTS LEADING TO LEVY OF PENALTY ARE THAT TH E RETURN WAS FIELD ON 24.11.2006 DECLARING TOTAL INCOME OF ` 58,43,535/-. ASSESSMENT U/S 143(3) WAS COMPLETED ON 26.12.2006 AT TOTAL INCOME OF ` 38 ,50,75,969/-. IN THIS ASSESSMENT THE GAIN IN RESPECT OF SALE OF 23,90,000 SHARES OF HOTEL QUEEN ROAD PVT. LTD. (HQR FOR SHORT) WAS ENHANCED BY AD OPTING THE SALE CONSIDERATION AT ` 185.68 PER SHARE IN PLACE OF THE ACTUAL SALE PRICE OF ` ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 3 20/- SHARE. THE GAIN WAS HELD TO BE STCG AGAINST TH E CLAIM MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT IT WAS LTCG. THE RESULT WAS THAT THIS GAIN WAS NOT ALLOWED TO BE SET OFF AGAINST LON G-TERM CAPITAL LOSS INCURRED IN RESPECT OF ANOTHER SALE OF 898181 SHARE S OF HQR WHOSE SALE CONSIDERATION WAS ALSO ADOPTED AT ` 185.68 PER SHAR E. FURTHER THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST AMOUNTIN G TO ` 20,03,822/- AGAINST INTEREST INCOME. THIS DEDUCTION WAS ALSO NO T ALLOWED. BOTH THESE MATTERS WERE SUBJECT MATTER OF APPEAL BEFORE THE IT AT. THE APPEAL WAS DISPOSED OFF ON 30.4.2010 IN ITA NO. 4753/D/2009. BOTH THE ISSUES WERE DECIDED AGAINST THE ASSESSEE. THE DECISION IN RESPE CT OF THE NATURE OF GAIN ON SALE OF 23,90,000 SHARES IS CONTAINED IN P ARAGRAPH NO. 9.9 OF THE ORDER, WHICH IS REPRODUCED BELOW :- 9.9. ON PERUSAL OF EVIDENCE ON RECORD, IT CAN BE S AID THAT THERE WAS AN OFFER MADE BY THE ASSESSEE COMPANY TO THE HQ R FOR SUBSCRIBING TO ABOUT 22,50,000 SHARES. HOWEVER, IT WAS A CONDITIONAL OFFER THAT THE ALLOTMENT MUST BE MADE B EFORE 31.3.2004. THIS CONDITION HAS NOT BEEN SATISFIED BY THE HQR. I T IS ALSO A MATTER OF FACT ON RECORD THAT THE ASSESSEE HAD PAID ` 2.39 CRORE TO THE HQR BY 04.03.2004 AS SHARE APPLICATION MONEY. HOWEVER, IT IS NOT CLEAR WHETHER ANY BOARD MEETING TOOK PLACE OR THE DIRECTO RS BY MAJORITY OR CONSENSUS DECIDED TO ALLOT 23,90,000 SHARES TO THE ASSESSEE COMPANY. AS PER THE PROVISIONS OF COMPANIES ACT, TH E SHARES COULD BE ALLOTTED ONLY IF A MEETING HAD TAKEN PLACE TO CO NSIDER THE CONDITIONAL OFFICER AND A DECISION TAKEN TO ALLOT T HE AFORESAID SHARES TO THE ASSESSEE. IN THE CASE OF PORTUGUESE CONSOLID ATED COPPER MINES LTD. (SUPRA), THERE WAS NO PROOF AVAILABLE TO SHOW THAT THE DIRECTORS ACTUALLY MET TO APPROVE THE TRANSACTION, BUT THERE WAS ENDORSEMENT OF FIVE OUT OF SEVEN DIRECTORS, WHICH S HOWS THAT THEY CONSULTED ONE ANOTHER AND MAJORITY OF THEM WAS OF O NE MIND AND THIS WAS SUFFICIENT TO SIGNIFY THE AGREEMENT ON BEH ALF OF THE COMPANY. IN THE INSTANT CASE, LETTER DATED 04.04.20 04 DOES NOT INDICATE WHETHER ANY MEETING TOOK PLACE OR NOT AND IF NOT, WHETHER MAJORITY OF THE DIRECTORS OF THE HQR WAS OF ONE MIN D FOR ALLOTTING 2390000 SHARES TO THE ASSESSEE ON 4.4.2004. THE DEL AY IN ALLOTMENT ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 4 PROBABLY REQUIRED THE ASSENT OF THE ASSESSEE, WHICH IS ALSO NOT PROVED BY ANY EVIDENCE ON RECORD. THEREFORE, EVEN IN A SITUATION WHERE THE REQUISITE AMOUNT WAS PAID BY THE ASSESSEE COMPANY, IT CANNOT BE SAID THAT ANY LEGALLY BINDING AGREEMENT C AME INTO EXISTENCE BETWEEN THE ASSESSEE AND THE HQR ON THE B ASIS OF LETTER DATED 4.4.2004. IN OTHER WORDS THIS LETTER LOSES EV IDENTIARY VALUE, MORE SO BECAUSE IT HAS BEEN WRITTEN BY THE HQR WITH OUT NARRATING THE BACKGROUND DETAILS REGARDING MEETING ETC. AND A LLOTMENT. IN THE CASE OF S.N. ZUBIN GEORGE VS. CIT (2004) 265 ITR 68 3, RELIED UPON BY THE LD. DR, THE TRIBUNAL HAD RECORDED THE FINDIN G THAT THERE WAS NO EVIDENCE TO SHOW THAT THE SHARES WERE IN EXISTEN CE PRIOR TO 31.5.1998. EVEN IF THE MONEY BELONGING TO THE ASSES SEE WAS APPROPRIATED TO SHARE DEPOSIT ACCOUNT OF THE COMPAN Y THAT BY ITSELF WILL NOT AMOUNT TO ALLOTMENT OF SHARES. THE REASON BEING THAT THE SHARES CAN BE ISSUED ONLY AFTER COMPANY PASSES A RE SOLUTION DECIDING TO ALLOT SHARES. THE ASSESSEE COULD NOT ES TABLISH THAT THE SHARES WERE ALLOTTED TO THE EARLIER THAN 31.5.1988. THEREFORE, ITS FINDING THAT THE DATE OF ISSUE OF SHARE CERTIFICATE S WAS THE DATE OF ALLOTMENT WAS UPHELD BY THE HONBLE COURT. AS IN T HAT CASE, IN THIS ALSO THERE IS NO EVIDENCE REGARDING THE HOLDING OF BOARD MEETING TO CONSIDER ALLOTMENT OF SHARES TO THE ASSESSEE IN TER MS OF ITS CONDITIONAL OFFER DATED 11.11.2003. THE COMPUTATION OF GAIN AS SHORT-TERM CAPITAL GAINS BY THE ASSESSEE. IN THE RE TURN OF INCOME BY ASSESSEE ITSELF NEGATES THE CONTENT OF LETTER DATED 4.4.2004. WE ARE OF THE VIEW THAT SUCH A COMPUTATION WAS IN ACCORDAN CE WITH THE JUDGMENT IN THE CASE OF S.N. ZUBIN GEORGE (SUPRA). WE MAY ADD THAT THE ASSESSEE HAS NOT PRODUCED COPIES OF RECORD FROM THE OFFICE OF REGISTRAR REGARDING ALLOTMENT OF SHARES AND SHAREHO LDERS REGISTER SHOWING THE DATES ON WHICH THESE SHARES WERE ADDED AGAINST ITS NAME. THE ABSENCE OF THESE DOCUMENTS, THE ONUS OF P RODUCTION OF WHICH FOR SUBSTANTIATING ITS CLAIM WAS ON THE ASSES SEE, FURTHER WEAKENS THE CASE OF THE ASSESSEE. IT MAY ALSO BE AD DED THAT UNDER THE COMPANY LAW HOLDER OF EQUITY SHARES IS A TERM SYNONYMOUS WITH THE MEMBER OF THE COMPANY. MERE ALLOTMENT OF SHARES IN THE MEETING OF THE BOARD DOES NOT MAKE AN INVESTOR TO B E MEMBER OF THE COMPANY. HE BECOMES THE MEMBER ONLY WHEN HIS NA ME IS ENTERED IN THE SHAREHOLDERS; REGISTER AFTER COMPLET ING NECESSARY REQUIREMENTS UNDER THE COMPANIES ACT. HOWEVER, WE M AY NOT TAKE THIS FACTS INTO ACCOUNT AS THE CASE IS COVERED BY T HE DECISION IN THE CASE OF S.N. ZUBIN GEORGE (SUPRA). IN SUCH CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) WAS RIGHT IN HOL DING THAT THE ASSESSEE HELD THE SHARES WITH EFFECT FROM 27.7.200 4 AND, THUS, THE CAPITAL GAIN WAS TO BE TREATED AS SHORT-TERM CAPIT AL GAINS. ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 5 2.1 THE DISCUSSION IN RESPECT OF DISALLOWANCE OF ` 22,03,822/- IS CONTAINED IN PARAGRAPH NO. 11.3, WHICH IS ALSO REPR ODUCED BELOW FOR READY REFERENCE :- 11.3 THE FACTS CANVASSED BY THE LD. COUNSEL IN OUR CASE ARE THAT THE ASSESSEE HAD RAISED INTEREST-FREE LOANS FROM SH RI R.P. MITTAL. THE MONEY WAS ADVANCED TO HQR AND INTEREST INCOME WAS E ARNED ON THE ADVANCES. THE LOANS TAKEN FROM SHRI R.P. MITTA L WERE DISCHARGED BY REPAYING THE LOAN FROM BORROWED FUNDS FROM OTHER RAISED SUBSEQUENTLY. THE REASON IS STATED TO BE THA T SHRI MITTAL WAS DEMANDING RETURN OF HIS LOAN. SEEN IN THIS CONTEXT, THE DOMINANT PURPOSE OF BORROWINGS FROM OTHERS WAS TO RETURN THE LOAN TAKEN FROM SHRI R.P. MITTAL. THIS WAS DONE TO DISCHARGE A PRE-EXISTING CONTRACTUAL LIABILITY. THE FUNDS WERE NOT BORROWED FROM OTHERS TO INVEST THEM FOR THE PURPOSE OF EARNING THE INCOME. THUS, ALTHOUGH THE BORROWINGS FROM OTHERS MAY HAVE A REMOTE CONNEC TION WITH THE LENDING TO THE HQR, THOUGH REPUDIATED BY THE REVENU E, THE DOMINANT PURPOSE OF THE BORROWINGS WAS NOT TO EARN INTEREST INCOME. THEREFORE, IT CANNOT BE SAID THAT MONEYS WE RE BORROWED FROM OTHERS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME FROM THE HQR. THUS, THE PROVISION CONTAINED IN SECTION 57 (III) IS NOT APPLICABLE TO THE FACTS OF THE CASE AS SUBMITTED TO US AND BEFORE THE LOWER AUTHORITIES. THEREFORE, IT IS HELD THAT THE LD. CIT(APPEALS) WAS RIGHT IN DISALLOWING THE EXPEN DITURE IN COMPUTING INTEREST INCOME TAXABLE UNDER THE RESIDUA RY HEAD. 2.2 THE AO HAD ALSO INITIATED PENALTY PROCEEDINGS U /S 271(1). THESE PROCEEDINGS WERE DISPOSED OFF ON 31.1.2011 AND PENA LTY OF ` 2,03,30,842/- WAS LEVIED. IN APPEAL, THE ASSESSEE H AS BEEN GIVEN PART RELIEF WITH THE RESULT THAT THE PENALTY IN RESPECT OF STCG ON SALE OF 2390000 SHARES OF HQR AND DISALLOWANCE OF ` 22,03,8 22/- HAS BEEN CONFIRMED. AGGRIEVED BY THIS ORDER, BOTH THE PARTIE S ARE IN APPEAL BEFORE US. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REFE RRED TO THE DETAILS REGARDING SALE OF SHARES OF HQR FURNISHED ALONGWITH THE RETURN OF INCOME. ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 6 THE DETAILS SHOW THAT 898181 SHARES OF HQR WERE SOL D ON 10.5.2005 @` 20 PER SHARE. THESE SHARES WERE ACQUIRED @`10/- PER SHARE. ANOTHER LOT OF 2390000 SHARES WAS ALSO SOLD ON THE SAME DATE @` 20 /- PER SHARE. THESE SHARES WERE ALSO ACQUIRED @ ` 10 PER SHARE. THE TOT AL COST OF THESE SHARES WAS ` 32,88,181/- AND THE SALE PRICE WAS ` 6,57,63, 620/-. IN THE RETURN INCOME UNDER THE HEAD STCG WAS SHOWN AS LOSS OF ` 8 ,64,15,538/-. IT WAS MENTIONED THAT THIS LOSS WILL NOT BE SET OFF AGAINS T ANY OTHER HEAD OF INCOME. HOWEVER, IN THE COURSE OF ASSESSMENT, IT WA S SUBMITTED THAT THE LOSS IS TO BE CLASSIFIED AS LTCG AND THE COMPUTATIO N SHOULD BE MADE ACCORDINGLY. IN THIS CONNECTION, LD. COUNSEL HAS RE FERRED TO THE FINDINGS OF THE TRIBUNAL THAT THE GAIN IN RESPECT OF 23,90,000 SHARES IS STCG FOR THE REASON THAT THE SHARES WERE ACQUIRED ON 27.7.2004 A ND SOLD ON 10.5.2005. THUS THE GAIN ARISEN FROM SALE OF THESE SHARES CANNOT BE SET OFF AGAINST THE LOSS ARISING ON SALE OF 8,98,181 SH ARES. HE ALSO REFERRED TO THE FINDINGS OF THE TRIBUNAL IN RESPECT OF DISALLOW ANCE OF LOSS THAT THE LOANS WERE TAKEN FOR DISCHARGING THE LIABILITY OF SHRI R.P. MITTAL AND NOT FOR EARNING ANY INTEREST INCOME. THEREFORE, THERE IS NO NEXUS BETWEEN THE INTEREST INCOME AND THE INTEREST EXPENDITURE. 3.1IT IS SUBMITTED THAT THE CLAIM THAT INCOME ARIS ING ON ACCOUNT OF SALE OF 22,50,000 (IT SHOULD BE READ AS 23,90,000) SHARES O F HQR IS LTCG WAS BONAFIDE. THE ASSESSEE RECEIVED A LETTER DATED 11.1 1.2003 FROM HQR TO THE EFFECT THAT THE COMPANY WAS IN NEED OF FUNDS FO R COMPLETING THE ONGOING RENOVATION ACTIVITIES. THE FRESH LOANS ARE NOT FORTH COMING AND ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 7 AVAILABLE FUNDS ARE NOT SUFFICIENT TO MEET THE REQU IREMENT. BEING A PROMOTER, HOLDING ALMOST THE WHOLE OF EQUITY CAPITA L, THE ASSESSEE WAS URGED TO MAKE NECESSARY ARRANGEMENT OF ABOUT ` 2.0 0 TO ` 2.50 CRORES BY 31.3.2004 AS EQUITY FOR ALLOTMENT OF SHARES AT PAR ON CONFIRMED BASIS. THIS LETTER IS PLACED ON PAGE 3 OF THE PAPER BOOK. THE A SSESSEE REPLIED TO THIS LETTER ON THE SAME DATE STATING THAT NECESSARY SUBS CRIPTION IN CASH WILL BE MADE AS REQUIRED FOR ALLOTMENT TO FRESH SHARES AT P AR. HOWEVER THE SUBSCRIPTION SHALL BE MADE IN INSTALLMENTS AND A FI RM COMMITMENT TO SUBSCRIPTION OF ` 2.25 CRORES IS MADE. THE AMOUNT W ILL BE PAID BY 15.3.2004 WITH THE STIPULATION THAT THE ALLOTMENT O F SHARES MUST BE MADE BEFORE 31.3.2004. A CHEQUE OF ` 50 LAKHS WAS ALSO ENCLOSED WITH THIS LETTER. THIS LETTER IS PLACED ON PAGE NO. 4 OF THE PAPER BOOK. THE HQR WROTE A LETTER DATED 4.4.2004 ACKNOWLEDGING THE REC EIPT OF A SUM OF ` 2.39 CRORES AS CONTRIBUTION FOR ALLOTMENT 23,90,000 SHARES AT PAR. IT WAS CONFIRMED THAT A RIGHT HAS BEEN CREDITED IN FAVOUR OF THE ASSESSEE IN THESE SHARES, WHICH HAVE DISTINCT MEMBERS 898353 TO 32 ,88,352 WHICH SHALL BE DELIVERED SHORTLY AFTER MAKING REQUISITE COMPLIA NCES). THE CASE OF THE LD. COUNSEL IS THAT THE CLAIM OF LTCG WAS BONAFIDE AND IT IS CRUCIALLY DEPENDENT OF THIS CORRESPONDENCE. IT MAY BE MENTION ED THAT THESE LETTERS HAVE BEEN SIGNED BY SHRI R.P. MITTAL OR MRS. SARLA MITTAL, HIS WIFE. THESE PERSONS HAD BEEN HOLDING THE POSITION OF MANAGING DIRECTOR AND DIRECTOR IN HQR AND THE ASSESSEE COMPANY. IT IS AN ADMITTED FACT THAT SHARES HOLDERS REGISTER SHOWS THAT THE NAME OF THE ASSESSE E WAS ENTERED THEREIN ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 8 ON 27.7.2004 AND INTIMATION TO THE REGISTRAR OF COM PANIES WAS ALSO MADE THAT THE ASSESSEE COMPANY BECAME A MEMBER IN THE HQ R ON 27.7.2004. THE CASE OF THE REVENUE IS BUILT UPON DATA AVAILABL E IN OFFICIAL RECORD WHICH IS OPEN TO PUBLIC AND WHICH ACCORDING TO IT S HOWS THAT THE STATE OF AFFAIRS DEPICTED IN THE CORRESPONDENCE IS QUITE CON TRARY TO THE ACTUAL STATE OF AFFAIRS. 3.2 THE LD. COUNSEL DREW OUR ATTENTION TO PAGE NO. 2, P ARAGRAPH NO. 4 OF THE PENALTY ORDER, WHICH CONTAINS THE SUBMISSION S OF THE ASSESSEE THAT (I) THE DISALLOWANCE / ADDITION AND CONFIRMATION OF SUCH ACTION BY THE TRIBUNAL DOES NOT ATTRACT PENALTY; (II) PENALTY PRO CEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDINGS AND FINDINGS IN THE ASS ESSMENT PROCEEDINGS ARE NOT CONCLUSIVE FOR LEVY OF PENALTY, (III) THE A SSESSEES EXPLANATION SUBMITTED IN THE COURSE OF THE PENALTY PROCEEDINGS HAS TO BE CONSIDERED AND IF THE SAME IS FOUND TO BE BONAFIDE, THE PENALT Y CANNOT BE LEVIED ; AND (IV) THE ASSESSEE HAS GIVEN A BONAFIDE EXPLANATION THAT THE TRANSFER OF A CAPITAL ASSET IS TO BE DETERMINED IN ACCORDANCE WIT H THE CIRCULAR OF THE BOARD. IT MAY BE MENTIONED HERE THAT THIS CIRCULAR HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE QUANTUM ORDER IN PARAGRAPH NO. 9.2, IN WHICH IT HAS BEEN HELD THAT THE SAME IS NOT APPLICABLE BECAUSE T HE CIRCULAR DEALS WITH TRANSACTIONS IN SECURITIES UNDERTAKEN THROUGH STOCK EXCHANGES WHERE THE PERIOD OF HOLDING HAS TO BE RECKONED FROM THE DATE OF BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. FOR THE SAKE O F READY REFERENCE, THIS PARAGRAPH IS REPRODUCED BELOW :- ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 9 2. WHEN THE SECURITIES ARE TRANSACTED THROUGH STOCK EX CHANGES, IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FI RST ENTER INTO CONTRACTS FOR PURCHASES/SALE OF SECURITIES AND THER EAFTER, FOLLOW INTO WITH DELIVERY OF SHARES, ACCOMPANIED BY TRANSFER DEEDS DULY SIGNED BY THE REGISTERED HOLDERS. THE SE LLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. THE BOARD ARE OF THE OPINION THAT IT I S THE DATE OF BROKERS NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED S UCH TRANSACTIONS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. SIMILARLY, IN RESPECT OF THE PURCH ASERS OF THE SECURITIES, THE HOLDING PERIOD SHALL BE RECKONED FR OM THE DATE OF THE BROKERS NOTE FOR PURCHASE ON BEHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS TAKE PLACE DIRECTLY BETWEEN T HE PARTIES AND NOT THROUGH STOCK EXCHANGES, THE DATE OF CONTRA CT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIV ERY OF SHARES AND THE TRANSFER DEEDS. 3.3. THEREAFTER, HE DREW OUR ATTENTION TO THE FINDI NGS OF THE AO IN PARAGRAPH NO 14 THAT THERE ARE TWO ASPECTS OF THE G UILT. THE FIRST ONE IS THE MENTAL ELEMENT INVOLVED IN THE GUILT AND THE SE COND ONE IS OMISSION OR COMMISSION LEADING TO BREACH OF DUTY WITH OR WITHOU T GUILTY MIND. THE FORMER HAS TO BE PROVED IN OFFENCES COMMITTED AGAIN ST THE STATE. HOWEVER IN THE CASE OF CIVIL LIABILITY, IF THE AO I S ABLE TO ESTABLISH THAT THE ASSESSEE DID NOT FULLY AND TRULY DISCLOSED THE FACT S REQUIRED FOR DETERMINATION OF TAX LIABILITY, THE LIABILITY CAN B E FASTENED ON THE ASSESSEE. PENALTY U/S 271(1)(C) CAN BE LEVIED IF THE ASSESSEE FURNISHES INACCURATE PARTICULARS OF INCOME OR HAS CONCEALED ITS TRUE PAR TICULARS. THIS CONCLUSION IS ARRIVED AT ON THE BASIS OF FACTS DISCOVERED BY T HE AO. IF HE IS SATISFIED THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCO ME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME, THEN THE EXPLANAT ION OF THE ASSESSEE IS OBTAINED IN THE MATTER. THE SAME IS CONSIDERED AND IF IT IS FOUND THAT THE ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 10 ASSESSEE HAS FAILED TO SUBSTANTIATE THE EXPLANATION OR IT IS FOUND TO BE NOT BONAFIDE, THE CASE FALLS UNDER THE SECOND LIMB. ON FACTS, THE CASE OF THE ASSESSEE IS COVERED IN THE SECOND LIMIT OF THE MEN S-REA AND, THEREFORE , PENALTY HAS BEEN LEVIED. 3.4 OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS THE F INDINGS OF THE LD. CIT(A) IN WHICH IT IS MENTIONED THAT THE ASSESSEE H AS NOT SPELT OUT THE CIRCUMSTANCES IN WHICH PROFIT OF ` 2.32 CRORES HAD BEEN SET OFF AGAINST THE LOSS OF ` 11,03,15,538/-. THE PERSON WHO DID SO HAS NOT BEEN IDENTIFIED. THEREFORE, THE PLEA OF INADVERTENCE CAUSED BY CLERI CAL OR TYPOGRAPHICAL ERROR HAS NOT BEEN EXPLAINED. IT IS FURTHER MENTION ED THAT FACTS REGARDING PURCHASE OF SHARES OF HQR ARE IN THE EXCLUSIVE KNOW LEDGE OF THE DIRECTORS OF THE ASSESSEE COMPANY, HOWEVER, NO EVIDENCE IN TH IS REGARD HAS BEEN PLACED ON RECORD FOR THE REASONS BEST KNOWN TO THEM . HE HAS REFERRED TO THE DECISION OF THE TRIBUNAL IN QUANTUM APPEAL IN T HIS CONNECTION. IT IS FURTHER MENTIONED THAT THE ASSESSEE HAS BEEN FREQUE NTLY CHANGING ITS POSITION REGARDING THE CAPITAL GAINS AND THE CAPITA L LOSS WITH REFERENCE TO THEIR NATURE. IT HAS BEEN ESTABLISHED THAT THE GAIN IS STCG WHILE THE LOSS IS LTCG, THEREFORE, IT IS CLEAR THAT ASSESSEE HAS FAIL ED TO FURNISH ANY SATISFACTORY EXPLANATION. 3.5 IT IS SUBMITTED THAT THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS COULD NOT BE FILED BECAUSE THE MANAGEMENT OF THE COMPANY CHANGED ON ACCOUNT OF THE ORDER OF THE HONBLE HIGH COURT PASSED ON 14.1.2009. THE ASSESSEE THEREAFTER HAD NO ACCESS TO THE RECORD. AS A ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 11 MATTER OF FACT THE ASSESSEE HAD NO ACCESS TO ITS OW N RECORD BECAUSE OF DISPUTE BETWEEN OLD AND THE NEW MANAGEMENT. THE ASS ESSEE HAD REASON TO BELIEVE THAT THE SHARES HAD BEEN ALLOTTED TO IT ON 4.4.2004, THE DATE BY WHICH ALL THE PAYMENTS HAD BEEN MADE. THE CORRESPON DENCE NOT ONLY MENTIONS ABOVE CREATION OF RIGHT IN FAVOUR OF THE A SSESSEE BUT ALSO FURNISHES THE DISTINCTIVE NUMBER OF SHARES ALLOTTED TO IT. ACCORDINGLY, UNDER THE REASONABLE BELIEF THAT BOARD MAY HAVE PAS SED THE RESOLUTION BEFORE 31.3.2004, THE GAIN WAS SHOWN AS LTCG AND SE T OFF AGAINST OTHER LTCG LOSS. 4. IN REPLY, THE LD. CIT, DR SUBMITTED THAT THE ASS ESSEE HAD CLAIMED THE GAIN TO BE LTCG AND, THEREFORE, THE BURDEN TO F ILE RELEVANT INFORMATION OR FOR THAT MATTER TO DECLARE CORRECT NATURE OF CAP ITAL GAIN WAS ON THE ASSESSEE. THE ASSESSEE HAS RUED ABOUT LACK OF ACCES S TO RECORD. THERE IS NO EVIDENCE IN THIS BEHALF. NO DOUBT, THERE WAS DI SPUTE WITH THE NEW MANAGEMENT BUT IT IS ALL TOGETHER A DIFFERENT MATTE R TO SAY THAT THE ASSESSEE DID NOT HAVE ACCESS TO THE RECORD OF HQR. IN ANY CASE, THE ASSESSEE COULD HAVE REQUESTED THE AO ISSUE SUMMONS TO GET THE INFORMATION. THEREFORE, THESE SUBMISSIONS DO NOT HA VE ANY FORCE. 4.1 COMING TO THE MERITS, OUR ATTENTION HAS BEEN DR AWN TOWARDS PARAGRAPH NO. 1.2 OF THE ORDER OF THE TRIBUNAL IN Q UANTUM APPEAL WHICH FURNISHES THE FACTS THAT THE BID VALUE OF HOTEL A SHOK YATRI NIWAS WAS ABOUT 45.03 CRORE. HOWEVER, THE ASSESSEE TOOK OVER ONLY LAND AND BUILDING AND THE SUNDRY CREDITORS AND DEBTORS WERE TO BE DEALT WITH BY THE ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 12 ITDC. ON THIS BASIS THE VALUE OF ASSETS, TOOK OVER BY THE ASSESSEE FROM THE ITDC REPRESENTED BY 8,98,166 SHARES, WAS ABOUT `. 16.49 CRORES WHICH REPRESENTED 99.97% OF THE PAID UP CAPITAL. THE REST OF THE SHARES WERE ACQUIRED FROM OTHER SHARE HOLDERS AT ABOUT ` 1.65 C RORES. THEREFORE, THE COST OF ACQUISITION PER SHARE WAS ABOUT ` 183.63 PE R SHARE. SOME OTHER EXPENSES WERE INCURRED, WHICH WERE ADDED TO THE COS T OF ACQUISITION LEADING TO THE COST PER SHARE AT ` 185.68. THIS VAL UE WAS ADOPTED BY THE AO FOR WORKING OUT CAPITAL GAINS AGAINST THE CONSID ERATION ACTUALLY RECEIVED. THE AO EXAMINED THE TRANSACTION AND CAME TO THE CONCLUSION THAT THE SALE TO SHRI R.P. MITTAL WAS A COLOURABLE TRANSACTION AS SHRI R.P. MITTAL AND SMT. SARLA MITTAL, THE HUSBAND AND WIFE DUO, CONTROLLED THE ASSESSEE COMPANY. SINCE THE HQR WAS WHOLLY OWNED SU BSIDIARY COMPANY OF THE ASSESSEE COMPANY, IT WAS ALSO CONTROLLED BY THE HUSBAND AND WIFE . IN ORDER TO ARRIVE AT THIS CONCLUSION, RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF CIT VS. L. N. DALMIA (1994) 207 ITR 89, IN WHICH IT HAS BEEN HELD THAT SALE OF SHARES TO OTHER COMPANY FORMED BY THE ASSESSEE AT A LOWER RATE WAS A DEVICE TO AVOID TAX. IT IS CONTENDED THAT THE LEVY OF PENALTY SHOULD BE CONSIDERED IN THE LIG HT OF AFORESAID FACTS. FURTHER, HE REFERRED TO THE SUBMISSIONS MADE BEFORE THE TRIBUNAL IN THE COURSE OF QUANTUM PROCEEDINGS THAT THE AUTHENTICITY OF THE CORRESPONDENCE CANNOT BE RELIED UPON IN THE FACE OF THE FACT THAT IN THE RETURN OF INCOME, THE ASSESSEE HAD ITSELF TAKEN THE SHARES TO BE SHORT - TERM CAPITAL ASSET BY RECKONING THE PERIOD OF HOLDI NG FROM 27.7.2004. THE ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 13 ASSESSEE WAS REQUIRED TO PRODUCE THE MINUTES BOOK W HICH WAS NOT DONE ON THE GROUND OF DISPUTE WITH THE OTHER BROTHER SHR I ASHOK MITTAL. ACCORDINGLY HIS CASE IS THAT THE CORRESPONDENCE WAS FABRICATED TO SUIT ASSESSEES CASE WHICH IN ANY CASE IS AGAINST THE AC TUAL FACT THAT THE ASSESSEES NAME WAS ENTERED IN SHARE HOLDERS REGIS TER ON 27.7.2004 AND THIS DATE WAS ALSO INTIMATED TO THE REGISTRAR OF CO MPANIES. THEREAFTER, HE REFERRED TO THE FINDINGS OF THE TRIBUNAL, WHICH HAV E ALREADY BEEN REPRODUCED BY US. BRIEFLY, THE FINDING IS THAT THE DATE OF ACQUISITION OF SHARES IS 27.7.2004 AND NOT 4.4.2004. 4.2 THE CASE OF THE LD. CITDR IS THAT THE PLEA OF TYPOGRAPHICAL ERROR IS INCORRECT AND IT IS A CASE OF MAKING A POSITIVE CLA IM WHICH IS NOT BORNE BY ANY RELIABLE EVIDENCE. THE ASSESSEE FAILED TO SUBST ANTIATE THE CLAIM THAT THE SHARES WERE ACQUIRED ON 4.4.2004. THEREFORE THE CONDUCT OF THE ASSESSEE IS NOT BONAFIDE. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE SHOWED G AIN OF SALE OF 23,90,000 SHARES OF HQR AS STCG. THIS STAND WAS CHA NGED IN THE COURSE OF ASSESSMENT PROCEEDINGS AND IT WAS CLAIMED THAT T HE SHARES WERE LONG TERM CAPITAL ASSET, THEREFORE, THE GAIN WAS LTCG. S UCH A CLAIM , IF ACCEPTED BY THE AO, WOULD PERMIT THE ASSESSEE TO SE T OFF OTHER LTCG LOSS AGAINST THIS GAIN. THE CLAIM THAT THESE SHARES WERE ACQUIRED ON 4.4.2004 IS BASED ON THREE LETTERS TO WHICH WE HAVE ALREADY ADVERTED TO. THESE LETTERS HAVE BEEN WRITTEN BY SHRI R.P. MITTAL OR S MT SARLA MITTAL ON BEHALF ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 14 OF THE RESPECTIVE COMPANIES AND THESE TWO PERSON AR E HUSBAND AND WIFE. NO EVIDENCE IS ON RECORD TO PROVE THAT THE CONTENTS OF THESE LETTERS ARE CORRECT. ON THE OTHER HAND THE SHARE HOLDERS REGIST ER AS WELL AS INTIMATION TO THE REGISTRAR OF COMPANIES SHOW THAT THE SHARES WERE ACQUIRED BY THE ASSESSEE COMPANY ON 27.7.2004. ON THE BASIS OF THIS DATE OF ACQUISITION, THE GAIN HAS TO BE QUALIFIED AS STCG, WHICH CANNOT BE SET OFF AGAINST OTHER LOSS IN THE FORM OF LTCG. THE QUESTION IS WHETHER T HE ASSESSEE IS LIABLE TO BE PENALISED U/S 271(1)(C) ON THESE FACTS ? 5.1 IN ORDER TO SUPPORT HIS CASE, LD. COUNSEL HAS RELIED ON THE DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC.) . THE COURT MENTIONED THAT IT IS NOT CONCERNE D WITH MENS- REA. HOWEVER, IT HAS TO SEE WHETHER THE ASSESSEE HAS FUR NISHED INACCURATE PARTICULARS. IN THIS CONNECTION, IT REFERRED TO WEB STERS DICTIONARY WHICH FURNISHES THE MEANING OF THE WORD ACCURATE TO BE NOT ACCURATE, NOT EXACT OR CORRECT ; NOT ACCORDING TO TRUTH ; ERRONEO US ; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT. IN THIS CASE, THE P ENALTY WAS LEVIED ON ISSUE OF DISALLOWANCE U/S 14A AND IT WAS ARGUED ON BEHALF OF THE REVENUE THAT THE AO HAD CORRECTLY REACHED THE CONCLUSION TH AT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTION KNOWING THAT IT IS INCORRECT IT AMOUNTED TO CONCEALMENT OF INCOME, WHICH CAN TAKE EITHER OF THE TWO FORMS (I) A RECEIPT MAY BE SUPPRESSED FRAUDULENTLY, (II) AN ITE M OF EXPENDITURE MAY BE CLAIMED OF AN EXAGGERATED AMOUNT FALSELY. THE CO URT DID NOT AGREE WITH THIS ARGUMENT. IT IS MENTIONED THAT MERE ACCEP TANCE OR REJECTION OF A ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 15 CLAIM WOULD NOT LEAD TO LEVY OF PENALTY PROVIDED AL L FACTS REGARDING THE CLAIM HAVE BEEN CORRECTLY SHOWN IN THE RETURN OF IN COME. 5.2 LD. COUNSEL REFERRED TO VARIOUS CASES FIELD IN THE COMPILATION FROM PAGE NO. 68 TO 167 WHICH ARE AS UNDER :- UP STATE BRIDGE CORPORATION LTD. VS. DCIT (2009) 17 DTR (LUCKNOW) (TRIB) 297 IN WHICH IT HAS BEEN HELD THAT MERE D ISALLOWANCE OF CLAIM DOES NOT LEAD TO LEVY OF PENALTY; (II) RAJ PESTICID ES VS. INCOME TAX OFFICER (2004) 1SOT 216 (ASR) IN WHICH IT HAS BEEN HELD T HAT SINCE THE AO WAS NOT SURE AS TO WHETHER THE ASSESSEE CONCEALED THE P ARTICULARS OF INCOME OR HAD FURNISHED INACCURATE PARTICULARS OF INCOME , THE PENALTY IS LIABLE TO BE DELETED ; (III) ITO VS. ROBORANT INVESTMENTS (P) LTD,. (2006) 7 SOT 181 (MUM) IN WHICH IT HAS BEEN HELD THAT MERE REJECTI ON OF A LEGAL CLAIM OF ASSESSABILITY OF INCOME UNDER A PARTICULAR HEAD OF INCOME WHICH IS NOT ACCEPTED, CANNOT LEAD TO LEVY OF PENALTY. (IV) GUJA RAT CREDIT CORPN. LTD. VS. ACIT 2008 113 ITD 133 (AHMEDABAD), IN WHICH IT HAS BEEN HELD THAT SINCE THE DISALLOWANCE OF CAPITAL LOSS WAS NOT ACCEPTED B Y THE CIT(A) AS CORRECT, THEREFORE, THE ENTIRE EDIFIES CRUMBLES AND FALLS DO WN. ; (V) DEPUTY COMMISSIONER OF INCOME TAX VS. JMD ADVISORS (P) LT D. (2010) 124 ITD 223 (DEL) - IN WHICH IT HAS BEEN HELD THAT SINCE FAIR C APITAL MARKET CANNOT BE ADOPTED AS SALE CONSIDERATION IN ABSENCE OF ANY MAT ERIAL ON RECORD, PENALTY CANNOT BE LEVIED ; (VI) CIT V. SIDHARTHA EN TERPRISE (2010) 322 ITR 80 (P & H) IN WHICH IT HAS BEEN HELD THAT THE DEC ISION IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS & ORS (2008) 306 ITR ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 16 277 (SC) CANNOT BE READ TO MEAN THAT IN EVERY CASE WHERE PARTICULARS OF INCOME ARE INACCURATE, PENALTY MUST FOLLOW. ; (VII) MRS. MANINDER SIDHU VS. ASSTT. COMMISSIONER OF INCOME TAX (2010) 39 DTR (DE L) (TRIB) 233 IN WHICH IT HAS BEEN HELD THAT ONE HAS TO DISTINGUISH BETWEEN A WRONG CLAIM AND A FALSE CLAIM. IF THERE IS NO FALSITY OF FACTS IN MAKING THE CLAIM, PENALTY CANNOT LEVIED. 5.3 ON THE OTHER HAND, THE LD. CIT DR RELIED ON THE DECISION IN THE FOLLOWING CASES :- (I) CIT VS. HARPARSHAD & CO. LTD . (2010) 328 ITR 533 (DEL) IN WHICH IT HAS BEEN HELD THAT WHERE A BOG US CLAIM OF PAYMENT OF COMMISSION TO DIRECTOR HAS BEEN MADE AND IT IS FOUN D THAT THE DIRECTOR HAS NOT RENDERED ANY SERVICES ; AND ASSESSEE FAILS TO OFFER ANY EXPLANATION IN RESPECT OF THE DISALLOWANCE, PENALTY CAN BE LEVIED ; (II)CIT VS. ZOOM COMMUNICATION PVT. LTD. (2010)327 ITR 510 (DEL)- IN WHICH IT HAS BEEN HELD THAT IF A PRIME FACIE BOGUS CLAIM IN RESPECT OF PAYMENT OF INCOME TAX OR LOSS ON SALE OF ASSET IS MADE AND SUC H CLAIM IS NOT FOUND TO BE BONA FIDE, THEN PENALTY CAN BE LEVIED ; (III) CI T VS,. SPLENDER CONSTRUCTION 2011 TIOL- 54 - HC DEL - IT IN W HICH THE SUBSTANTIAL QUESTION OF LAW WAS ADMITTED BECAUSE THE ISSUE WHET HER AN ASSET IS LONG - CAPITAL ASSET OR SHORT CAPITAL ASSET IS SUCH A QUESTION ; IV) RAVINDRANATH S. DODDI (HUF) VS. ACIT (2011) 12 TXMANN.COM 117 (MUM.) IN WHICH LEVY OF PENALTY WAS UPHELD IN RESPECT OF HIGHER CLA IM OF COST OF ACQUISITION OF SHARES AND THE ASSESSEE FAILED TO SHOW THAT THE CLAIM WAS BONAFIDE. ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 17 5.4 WE HAVE CONSIDERED THESE CASES ALSO. REVERTING TO THE FACTS, THE QUESTION IS WHETHER, THE CLAIM BASED UPON CORRESP ONDENCE BETWEEN THE HUSBAND AND WIFE ON BEHALF OF HQR AND THE ASSESSEE COMPANY RESPECTIVELY IS A WRONG CLAIM OR A FALSE CLAIM ? IT IS SEEN THAT THESE LETTERS, ACTUALLY WRITTEN ON THE LETTERHEADS OF THE COMPANIE S, DO NOT SHOW ANY INWARD OR OUTWARD NUMBER OF THE COMPANIES. THE CONT ENTS OF THE CORRESPONDENCE ARE CONTRARY TO OFFICIAL RECORD, I.E . SHARE HOLDERS REGISTER AND INTIMATION AVAILABLE WITH THE REGISTRAR OF COMP ANIES. THEREFORE, A HEAVY BURDEN LIED ON THE ASSESSEE TO SHOW THAT THE CORRESPONDENCE WAS ACTUALLY MADE BETWEEN THE COMPANIES FOR PROVING THA T THE EXPLANATION IS BONAFIDE. WE ARE OF THE VIEW THAT THIS CORRESPONDEN CE CANNOT BE RELIED UPON AND THAT IT WAS MADE ONLY TO SHOW THE GAIN AS LTCG. IT IS A CASE OF FALSE CLAIM RATHER THAN A WRONG CLAIM. IN SUCH A SI TUATION, THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF ZOOM COMMU NICATION PVT. LTD. CLEARLY APPLICABLE. FURTHER SINCE PARTICULARS FURNI SHED FOR ASCERTAINING THE NATURE OF CAPITAL GAIN ARE INACCURATE, THE DECISION IN THE CASE OF RELIANCE PETRO PRODUCTS IS NOT APPLICABLE. IN THE LIGHT OF THIS FINDING, IT IS CLEAR THAT THE EXPLANATION IS NOT BONAFIDE. ACCORDINGLY, THE L EVY OF PENALTY ON THIS AMOUNT IS UPHELD. 6. THE SECOND ISSUE IS IN RESPECT OF DISALLOWANCE O F INTEREST WHILE COMPUTING INCOME UNDER THE RESIDUARY HEAD. THE CASE OF THE LD. COUNSEL IS THAT THE ADDITION HAS BEEN SUSTAINED ON INTERPRE TATION OF SECTION 57 (III) AND THERE IS NO FALSITY IN FURNISHING THE FACTS. TH E INTEREST HAS ACTUALLY ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 18 BEEN PAID. THEREFORE, THE EXPLANATION OF THE ASSESS EE IS BONAFIDE. AS AGAINST THIS, THE SUBMISSION OF THE LD. DR IS THAT THE LD. CIT(A) RIGHTLY LEVIED THE PENALTY AND IN THIS CONNECTION RELIANCE HAS BEEN PLACED ON HIS FINDING ON PAGE NO. 10 OF THE IMPUGNED ORDER. IT HA S BEEN MENTIONED THAT THE TRIBUNAL HAS GIVEN A CLEAR FINDING THAT THE CLA IM IS NOT ADMISSIBLE. A REASONABLE ASSESSEE COULD NOT HAVE MADE SUCH A CLAI M, THEREFORE, THE DECISION IN THE CASE OF ZOOM COMMUNICATION PVT. LTD . IS APPLICABLE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FI NDINGS OF THE TRIBUNAL HAVE ALREADY BEEN SUMMARISED BY US. IT IS MENTIONED THAT THE BORROWINGS WERE MADE TO DISCHARGE THE EXISTING LOAN TAKEN FROM SHRI R.P. MITTAL AND BORROWINGS WERE NOT MADE FOR EARNING ANY INCOME. THUS, ALTHOUGH THE BORROWINGS FROM OTHERS MAY HAVE REMOTE CONNECTION WITH LENDING, THE DOMINANT PURPOSE OF BORROWINGS WAS NOT TO EARN ANY INTEREST INCOME. THE TRIBUNAL HAS SUSTAINED DISALLOWANCE BEC AUSE LACK OF CONNECTION BETWEEN THE EARNING AND THE EXPENDITURE. YET, IT MAY BE NOTED THAT IT IS ALSO MENTIONED THAT THERE MAY BE REMOTE CONNECTION BETWEEN THE TWO. ALL FACTS HAVE BEEN CORRECTLY FURN ISHED AND THERE IS NO INACCURACY IN THEM. THEREFORE, THE DECISION IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. IS APPLICABLE. ACCORDINGLY, WE A RE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE LEVY OF PENALTY IN RESPECT OF THIS AMOUNT. 8. THE APPEAL OF THE REVENUE IS IN RESPECT OF ENHAN CEMENT OF CAPITAL GAIN WHICH WAS COMPUTED ON THE BASIS OF ESTIMATED F AIR MARKET VALUE, ITA NO. 4481/DEL/11 ASSTT. YEAR 2006-07 & ITA NO. 4402/DEL/11 ASSTT. YEAR 2006-07 19 WHICH WAS SUBSTITUTED IN PLACE OF ACTUAL CONSIDERAT ION. THIS ADDITION HAS BEEN DELETED BY THE TRIBUNAL IN THE QUANTUM ORDER. THEREFORE, THERE IS NO CASE FOR LEVY OF PENALTY ON SUCH ADDITION. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. SD/ SD/- [R.P. TOLANI] [K.G. BANSAL] JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT