CHILAMIKA LALINI HARIANI, MUMBAI V. ITO WD 6(3)(1), MUMBAI

ITA 442/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2804 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHRI MAYUR R MAKADIA
• Keywords: Business income; Speculation loss
• Section: 43(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) MRS. CHILAMIKA LALINI HARIANI, C/O. GREW INDUSTRIES PVT. LTD., 202A, POONAM CHAMBERS, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018 PAN:AAAPH 7884B ... APPELLANT VS. THE ITO , WARD 6(3)(1), MUMBAI. .... RESPONDENT APPELLANT BY : SHRI SHRI MAYUR R. MAKADIA RESPONDENT BY : SHRI SANTOSH MANKOSKAR DATE OF HEARING : 30/06/2016 DATE OF PRONOUNCEMENT : 30/06/2016 ORDER THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERT AINING TO ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST AN OR DER PASSED BY CIT(A)-12, MUMBAI DATED 07/10/2014, WHICH IN TURN A RISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 15 /03/2013. 2. IN THIS APPEAL, THE SOLITARY ISSUE RELATES TO P ENALTY OF RS.2,01,425/- IMPOSED UNDER SECTION 271(1)(C) OF T HE ACT. 2 ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT ASSESS EE IS AN INDIVIDUAL WHO FILED HER RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 DECLARING A TOTAL INCOME OF RS.20,26,270/-, WHICH INTER-ALIA, I NCLUDED INCOMES BY WAY OF SALARY, CAPITAL GAINS AND OTHER SOURCES. I T WAS NOTICED THAT ASSESSEE HAD DECLARED A TOTAL CAPITAL GAIN OF RS.1 4,57,109/-, WHICH INTER-ALIA, INCLUDED GAIN FROM DERIVATIVE TRADING. THE ASSESSING OFFICER HELD THAT THE GAIN EARNED BY THE ASSESSEE IN DERIV ATIVE TRADING COULD NOT BE ASSESSED AS SHORT TERM CAPITAL GAIN BUT W AS TO BE TREATED AS BUSINESS INCOME. HOWEVER, FINALLY ASSESSED-INCOM E REMAINED THE SAME AS RETURNED BY THE ASSESSEE AT RS.20,26,270/-. THE ONLY DIFFERENCE BETWEEN THE RETURNED AND THE ASSESSED INCOME BEING THE TREATMENT OF THE INCOME EARNED ON DERIVATIVE TRADING OF RS.5,98, 411/-, WHICH WAS TAXED AS BUSINESS INCOME INSTEAD OF SHORT TERM C APITAL GAIN DECLARED BY THE ASSESSEE. 4. SUBSEQUENTLY, THE ASSESSING OFFICER HELD THE ASS ESSEE GUILTY OF DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT, QUA THE AFORESAID DIFFERENCE BECAUSE, ACCORDING TO HIM SHOR T TERM CAPITAL GAIN WAS TAXABLE AT THE LOWER RATE ON 10%, WHEREAS THE B USINESS INCOME WAS TAXABLE AT NORMAL RATES. ACCORDINGLY, VIDE ORDER DATED 15/3/2013, THE ASSESSING OFFICER LEVIED A PENALTY OF RS.2,01,425/- UNDER SECTION 271(1)(C) OF THE ACT. SUCH PENALTY HAS SINCE BEEN AFFIRMED BY CIT(A) AND ACCORDINGLY, ASSESSEE IS IN FURTHER APPEAL BEFORE T HE TRIBUNAL. 5. BEFORE ME, THE LD. REPRESENTATIVE FOR THE ASSESS EE SUBMITTED THAT THE GAIN EARNED FROM DERIVATIVE TRADING HAS BE EN CONSIDERED AS 3 ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) BUSINESS INCOME BY THE ASSESSING OFFICER PRIMARILY, IN VIEW OF THE PROVISIONS OF SECTION 43(5) OF THE ACT, WHICH DEALS WITH SPECULATIVE TRANSACTIONS TO MEAN A TRANSACTION IN SHARES OR COM MODITIES, WHICH IS ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DE LIVERIES OF THE SHARES OR DIFFERENCE. LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EXPLANATION -2 BELOW TO SECTION 28 IS ALSO RELEVANT , WHICH READS AS UNDER:- EXPLANATION 2.WHERE SPECULATIVE TRANSACTIONS CARRI ED ON BY AN ASSESSEE ARE OF SUCH A NATURE AS TO CONSTITUTE A BUSINESS, T HE BUSINESS (HEREINAFTER REFERRED TO AS SPECULATION BUSINESS ) SHALL BE DE EMED TO BE DISTINCT AND SEPARATE FROM ANY OTHER BUSINESS. 5.1 ACCORDING TO THE LD. REPRESENTATIVE FOR THE ASS ESSEE, ON A COMBINED READING OF SECTION 43(5) AND THE EXPLANATI ON -2 BELOW SECTION 28, IT CAN BE INFERRED THAT EVERY SPECULATION TRANS ACTION MAY NOT CONSTITUTE A BUSINESS TRANSACTION, THEREFORE, ACCOR DING TO HIM THE ACTION OF THE ASSESSING OFFICER IN TREATING THE GAIN ON DE RIVATIVE TRADING AS A BUSINESS INCOME IS AN ISSUE ON WHICH TWO VIEWS ARE POSSIBLE. IT WAS, THEREFORE, CONTENDED THAT IN SUCH A SITUATION, PENA LTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT MERITED. 6. THE LD. DEPARTMENTAL REPRESENTATIVE HAS DEFENDE D THE ACTION OF THE LOWER AUTHORITIES BY POINTING OUT THAT DERIVATI VE TRANSACTIONS WERE WRONGLY CONSIDERED BY THE ASSESSEE AS SHORT TERM CA PITAL GAIN TO AVAIL LOWER RATE OF TAXATION AND, THEREFORE, IT IS A CASE MERITING PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 4 ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. OSTENSIBLY, THE ENTIRE CONSPECTUS OF FACTS AND CIRCUMSTANCES OF THE CASE DOES NOT SHOW THAT ANY OF THE PARTICULARS FILED BY THE ASSESSEE I N THE RETURN OF INCOME WERE FOUND TO BE INCORRECT OR FALSE. IT IS A CASE WHERE ONLY THE NATURE OF INCOME IS IN DISPUTE. THE ASSESSEE DECLARED INC OME FROM DERIVATIVE TRADING AS CAPITAL GAINS, WHEREAS THE ASSESSING OFF ICER HAS TREATED IT AS BUSINESS INCOME. NO DOUBT, THE TREATMENT OF SUCH I NCOME AS CAPITAL GAIN WOULD HAVE RESULTED IN A LOWER TAX LIABILITY I N THE HANDS OF THE ASSESSEE BUT AT THE SAME TIME THERE IS NOTHING TO S UGGEST THAT ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS CAN BE ATTRIBUTED TO THE ASSESSEE. A CLAIM MADE BY THE ASSESSEE IN THE RETURN OF INCOME FOR BEING TAXED AT A LOWER RATE DOES NOT AUTOMATICALLY WARRANT INFERENCE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. AT TH E TIME OF HEARING LD. REPRESENTATIVE FOR THE ASSESSEE HAD REFERRED TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AU RIC INVESTMENT & SECURITIES LIMITED, 310 ITR 121(DEL), WHEREIN PENAL TY LEVIED UNDER SECTION 271(1)(C) OF THE ACT WAS FOUND TO BE UNTENA BLE IN A CASE, WHERE THE BUSINESS LOSS RETURNED BY THE ASSESSEE WAS FOUN D TO BE ASSESSABLE AS SPECULATION LOSS. THE HONBLE DELHI HIGH COURT NOTED THAT REQUISITE INFORMATION AS REQUIRED BY THE INCOME TAX AUTHORITI ES WAS FURNISHED BY THE ASSESSEE AND NONE OF IT WAS FOUND TO BE REFLECT ING CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN MY VIEW, IN THE PRESENT CASE TOO, THERE IS NO JUSTIFICATION FOR LEV Y OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT AS THERE IS NOTHING ON RECORD TO SHOW THAT 5 ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) WHILE FURNISHING HER RETURN OF INCOME ASSESSEE HAD EITHER CONCEALED HER INCOME OR HAD FURNISHED ANY INACCURATE PARTICUL ARS OF INCOME. 7.1 APART THEREFROM, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAD ALSO RELIED UPON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BENNETT COLEMAN & CO. LTD., 259 CTR 383 (BOM) TO CANVASS THAT WHERE THERE WAS ONLY A CHANGE OF HEAD OF INCOM E AND IN THE ABSENCE OF ANY CLAIM BEING FOUND TO BE NON-BONAFIDE , PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT MAINTAINABLE. THE SAID JUDGMENT OF THE HONBLE HIGH COURT ALSO SUPPORT THE STAND OF TH E ASSESSEE THAT IN THE PRESENT CASE, PENALTY UNDER SECTION 271(1)(C) O F THE ACT IS NOT MERITED . QUITE CLEARLY, THE ASSESSMENT HAS RESULT ED IN ONLY A CHANGE OF HEAD OF INCOME AND THERE IS NO MATERIAL TO SUGGEST THAT THE CLAIM OF THE ASSESSEE IN THE RETURN WAS LACKING IN BONAFIDES. F OR ALL THE ABOVE REASONS, I SET-ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO DELETE THE PENALTY OF RS.2,01,425/- IMPO SED UNDER SECTION 271(1)(C) OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THE ABOVE DECISION WAS PRONOUNCED IN THE OPEN COUR T AT THE CONCLUSION OF HEARING IN THE PRESENCE OF BOTH THE P ARTIES ON 30/06/2016. SD/- (G.S. PANNU) ACCOU NTANT MEMBER MUMBAI, DATED 30/06/2016 6 ITA NO. 442/MUM/2015 (ASSESSMENT YEAR : 2007-08) VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI