TIL INVESTMENTS P. LTD, MUMBAI V. ITO 7(3)(3), MUMBAI

ITA 4418/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5016 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 06-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Keywords: Bonafide belief; Initiation of penalty proceedings; Speculation loss; Set aside
• Section: 271(1)(c); 143(3); 250; 274; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 4418/MUM/2018 ( ASSESSMENT YEARS: 2005-06 ) TIL INVESTMENTS P. LTD., 306, JAI ANTARIKASH, NEAR THAKAR HOUSE, MAKWANA ROAD, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI. / VS. ITO 7(3)(3) MUMBAI ./ ./ PAN/GIR NO. : AABCT4024F ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI AMIT PRATAP SINGH, DR / DATE OF HEARING 13/10/2020 !'# / DATE OF PRONOUNCEMENT 14/10/2020 / O R D E R PER PAVAN KUMAR GADALE - JM: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) -18, MUMBAI, PASSED U/S 271(1)(C) AND 250 OF THE INCOME TAX ACT, 1961.NONE APPEARED ON BEHALF OF THE ASSESSEE, WE HEARD THE SUBMISSIONS OF LD. DR AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 2 - 1. THE LD. CIT(A) HAD ERRED IN SUSTAINING THE PENALTY OF RS. 6,39,324/-. 2. THE ORDER OF THE LD. CIT(A) IS BAD IN LAW AND ON THE FACTS OF THE CASE. 3. THAT WE WOULD BE ALLOWED TO ALTER, AMEND OR ADD FRESH GROUNDS OF APPEAL AT THE TIME OF HEARING. 4. APPELLANT PRAYS THAT THE PENALTY BE DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES AND HAS INCOME FROM SALE OF SHARES, DIVIDEND INCOME AND INTEREST ON FIXED DEPOSITS. THE ASSESSEE COMPANY HAS FILED THE RETURN OF INCOME FOR THE A.Y 2005-06 ON 25.10.2005 WITH TOTAL LOSS OF RS . 9, 10,224/-. BUT, THE A.O CONSIDERING THE SUBMISSIONS AND INFORMATION ON RECORD PASSED ORDER U/S 143(3) OF THE ACT DATED 24.07.2007 DETERMINING THE TOTAL INCOME OF RS10,07,986/-.SUBSEQUENTLY, THE A.O HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE ASSESSEE HAS FILED EXPLANATIONS ON 26.03.2012. WHEREAS, THE A.O FOUND THAT THE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 3 - ASSESSEE HAS CLAIMED SETOFF OF SPECULATION LOSS AGAINST THE INCOME ON FIXED DEPOSITS. IN THE ASSESSMENT PROCEEDINGS INCOME ON FIXED DEPOSITS WAS TAXED AND THE SPECULATION LOSS WAS ALLOWED TO BE CA RRY FORWARD. THE A.O FOUND THAT THE ASSESSEE HAS NOT GIVEN SATISFACTORY EXPLANATIONS ON THE CLAIM. THE OBSERVATIONS OF THE A.O ARE THAT THE TRADING IN SHA RES IS TO BE TREATED AS SPECULATION BUSINESS AND APPLIE D THE PROVISIONS OF THE SEC. 73 OF THE ACT AND LEVIED A PENALTY OF RS.6,39,324/- AND PASSED ORDER U/S 271(1)(C) OF THE ACT DATED 30.02.2012. AGGRIEVED B Y THE PENALTY ORDER THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(A). WHEREAS, THE CIT(A)CONSIDERED THE GROUNDS OF APPEAL AND SUBMISSIONS OF THE ASSESSEE BUT CONFIRMED THE PENALTY AND DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 3. AT THE TIME OF HEARING NONE APPEARED ON BEHALF O F THE ASSESSEE. WE HEARD THE SUBMISSIONS OF THE LD. D R AND PERUSED THE MATERIAL ON RECORD. THE LD. DR SUPPORTED THE ORDERS OF THE CIT(A).THE ASSESSEE COMPANY HAS CLAIMED THE SET OFF OF BUSINESS LOSS AGAINST THE INCOME FROM OTHER SOURCES, WHEREAS, THE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 4 - A.O HAS TREATED IT AS SPECULATION LOSS AND TAXED INCOME ON FIXED DEPOSITS AND PASSED THE ORDER U/S 143(3) OF THE ACT. WE FIND THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND DERIVE INCOME FROM SALE OF SHARES, DIVIDEND INCOME AND INTEREST ON FIXED DEPOSITS. THE A.O IN THE ASSESSMENT PROCEEDINGS INVOKED THE EXPLANATIONS TO SEC. 73 OF THE INCOME TAX ACT AND IS OF THE OPINION THAT THE ASSESSEE S INCOME IS IN THE NATURE OF SPECULATION INCOME, THEREFORE SALE AND PURCHASE OF SHARES ARE SPECULATION ACTIVITIES. HENCE THE SET OF F OF SPECULATION LOSS WITH OTHER INCOME IS NOT PERMITTED . THE ASSESSEE HAS DISCLOSED THE DIVIDEND INCOME, INTEREST ON FIXED DEPOSITS UNDER INCOME FROM OTHER SOURCES, THOUGH THE DIVIDEND INCOME IS EXEMPTED. TH E ASSESSEE HAS CLAIMED THE SET OFF OF BUSINESS LOSS AGAINST INCOME FROM OTHER SOURCES. THE ASSESSEE IS A INVESTMENT COMPANY AND THE MAIN OBJECTS ARE TO MAKE INVESTMENTS AND TRADING IN SHARES AND TO RECEIVE DIVIDEND INCOME. THE ASSESSEE HAS DISCLOSED THE INCOME IN THE FINANCIAL STATEMENTS WHICH IS NOT DISPUTED BY THE A.O. WE FIND THAT THE A.O. HAS LEVI ED THE PENALTY BECAUSE OF SET OFF CLAIMED BY THE ASSES SEE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 5 - AND THE MERE DISALLOWANCE OR DISAGREEMENT OF A CLAI M CANNOT BE A BASIS FOR LEVY OF PENALTY AND ALSO THE ADDITION MADE IN THE ASSESSMENT ORDER BY THE A.O CANNOT BE A GATEWAY FOR AUTOMATIC LEVY OF PENALTY. THE LD. CIT(A) HAS PASSED A ELABORATE ORDER CONFIRMING THE PENALTY, OVERLOOKING THE FACTS, NATURE AND METH OD OF OPERATIONS OF THE ASSESSEE BUSINESS. WE ARE OF THE VIEW THAT PENALTY CANNOT BE AUTOMATIC AND RELY ON THE DECISION OF THE CIT VS. MANJUNATHA COTTON AND GINNING FACTORY, [2013] 359 ITR 564 (KAR), AND THE PRINCIPLES AS UNDER: IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY , KARNATAKA HIGH COURT HAS LAID DOWN THE FOLLOWING PRINCIPLES FOR LEVY OF PENALTY UNDER SECT ION 271(1)(C) OF THE INCOME TAX ACT, 1961 :- (A) PENALTY UNDER SECTION 271(L)(C) IS A CIVIL LIAB ILITY. (B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSI NG PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. (C) WILFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIE NT FOR ATTRACTING CIVIL LIABILITY. (D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 2 71(L)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. (E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISC ERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTH ORITY OR REVISIONAL AUTHORITY. (F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(L)(C), AT L EAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNI BLE FROM THE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 6 - SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUT E CONCEALMENT BECAUSE OF DEEMING PROVISION. (G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE AS SESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDIN GS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSMENT OFFI CER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CO NTAINED IN SECTION 1(B). (H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMI SSIONER. (I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. (J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. (K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORD ER OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TA X AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PE NALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT I S ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILI TY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT O RDER. (L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPL ANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOS ING PENALTY COULD BE PASSED. (M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUB STANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL F ACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOT AL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMP OSED. (N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. (O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY S ATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PR OCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFAC TION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APP ELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 7 - (P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPEC IFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(L)(C), I.E., W HETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF INCOME (Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTI ONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIRE MENT OF LAW. (R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE H AS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUST ICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. (S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AN D FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. (T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE A SSESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEP ENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. (U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEED INGS INSOFAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCOR RECT PARTICULARS WOULD NOT OPERATE AS RES JUDICATA IN T HE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PENALTY IS LE VIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE A SSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE P ENALTY PROCEEDINGS. 5. FURTHER, THE A.O HAS LEVIED THE PENALTY FOR CONCEALMENT OF INCOME AS THE ASSESSEE COMPANY HAS THE TREATED THE SPECULATION LOSS AS A BUSINESS LOSS AND CLAIMED SET OFF AGAINST THE INCOME FROM OTHER SOURCES. WE FIND THAT, THE CLAIM OF THE ASSESSEE IS IN CONSIDERATION OF THE FINANCIAL STATEMENTS AND THE ASSESSEE ADOPTED ONE OF THE POSSIBLE VIEWS THAT THE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 8 - BUSINESS LOSS CAN BE SET OFF AGAINST THE INCOME FRO M OTHER SOURCES. THE ASSESSEE HAS MADE A CLAIM UNDER THE BONAFIDE BELIEF THAT IT IS ALLOWABLE UNDER THE LAW. WE ALSO RELY ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROLEUM PRODUCTS LTD., 322 ITR AND THE OBSERVATIONS ARE R EAD AS UNDER: 271(1) IF THE A.O OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS U NDER THE ACT, IS SATISFIED THAT ANY PERSON (C) HAS CONCE ALED THE PARTICULAR OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. A GLANCE AT HIS PROVISION WOULD SUGGEST THAT IN ORDER TO BE COVERED THERE HAS TO BE CONCEALMENT OF THE PARTICULAR OF THE INCOME OF THE ASSESSEE. SECONDLY , THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULAR OF HIS INCOME. THE PRESENT IS NOT A CASE OF CONCEALMENT O F THE INCOME. THAT IS NOT THE CASE OF THE REVENUE EITHER . HOWEVER, THE LD. COUNSEL FOR REVENUE SUGGESTED THAT BY MAKING INCORRECT CLAIM FOR THE EXPENDITURE ON INTER EST, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULAR OF THE INCOME. AS PER LAW LEXICON, THE MEANING OF THE WOR D PARTICULARS IS A DETAILS OR DETAILS (IN PLURAL SE NCE); THE ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 9 - DETAILS OF THE CLAIM, OR THE SEPARATE ITEM OF AN AC COUNT. THEREFORE, THE WORD PARTICULAR USED IN THE SECTION 271(1)(C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MADE. IT IS AN ADMITTED POSITION IN THE PRES ENT CASE THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND T O BE INCORRECT ON INACCURATE. IT IS NOT AS IF ANY STATE MENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUAL LY INCORRECT. HENCE, AT LEAST, PRIMA FACIE, THE ASSES SEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. THE LD. COUNSEL ARGUED THAT SUBMITTING AN INCORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INCOME. WE DO NOT THINK THAT SUCH CAN BE THE INTERPRETATION OF THE CO NCERNED WORDS. THE WORDS ARE PLAIN AND SIMPLE. IN ORDER T O EXPOSE THE ASSESSEE TO THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIONS, THE PENALTY PRO VISIONS CANNOT BE INVOKED. BY AN STRETCH OF IMAGINATION, MA KING IN INCORRECT CLAIM IN LAW CANNOT BE TANTAMOUNT TO FURNISHING IN ACCURATE PARTICULARS. 6. ACCORDINGLY, WE FOLLOW THE RATIO OF THE JUDICIA L DECISIONS AND SET ASIDE THE ORDER OF THE CIT(A) AN D DIRECT THE A.O TO DELETE THE PENALTY AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. ITA NO .4418 /MUM/2018 TIL INVESTMENTS PVT., LTD., MUMBAI. - 10 - 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.10.2020 SD/- SD/- (RAJESH KUMAR) (PAVAN KUMAR GADALE ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 14/10/2020 KRK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / THE CIT(A) 4. ) ( ) / CONCERNED CIT 5. ,-. //'( , '(# , & / DR, ITAT, MUMBAI 6. .34 5 / GUARD FILE. / BY ORDER, , / //TRUE COPY// 1. / ( ASST. REGISTRAR) !' #, / ITAT, MUMBAI