ITO 4(2)(2), MUMBAI V. TRILOCHANA K. DOSHI, MUMBAI

ITA 4592/MUM/2009

• Counselvise Citation: 459219914 RSA 2009
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 10-03-2011
• Assessment Year: 1993-1994
• Appeal Filed On: 06-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K SINGH
• Keywords: Capital asset; Business income; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R.K. PANDA R.K. PANDA R.K. PANDA R.K. PANDA (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.4592/MUM/2009 ASSESSMENT YEAR- 1993-94 THE ITO - 4(2)(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. MS. TRILOCHANA K. DOSHI, 212, SARVODAYA NAGAR, G-15, 1 ST FLOOR, C.P. TANK, MUMBAI-400 004 PAN-AJIPD 2154K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIPUL JOSHI RESPONDENT BY: SHRI S.K. SINGH O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 5.5.2009 PASSED BY THE LD. CIT(A)-IV FOR THE ASSESSMENT YEAR 1993-94. 2. IN THIS CASE, THE ASSESSING OFFICER HAD LEVIED THE PE NALTY AGAINST THE ASSESSEE FOR THE FOLLOWING ITEMS OF ADDITIONS/ DISALLO WANCES MADE IN THE ASSESSMENT FRAMED U/S 143 (3) OF THE ACT. (I) TREATMENT OF SPECULATION LOSS AS CAPITAL LOSS / BUSINE SS LOSS (` 54,860/-) (II) DISALLOWANCE OF LOSS ON TRANSFER OF RIGHT WITH RESP ECT TO FLAT (` 4,40,002/-) (III) DISALLOWANCE OF LOSS ON SALE OF SHARES (` 1,48,875/ -) ITA NO. 4592/M/09 2 3. IN THE QUANTUM APPEAL AGAINST THE LAST TWO DISALLOW ANCES, THE ITAT IN ITA NO.4444/M/1997, CONFIRMED THE DISALLOWAN CES. AGAINST THE SAME, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE HONBL E BOMBAY HIGH COURT IN APPEAL NO. 740 OF 2008. VIDE ITS ORDE R DATED 24.9.2008, THE HONBLE COURT DID NOT ADMIT THE APPEAL AS, ACCOR DING TO THE HONBLE COURT, NO SUBSTANTIAL QUESTIONS OF LAW AROSE O UT OF THE ORDER OF THE ITAT. IN THE MEANWHILE, THE A.O. LEVIED PENALTY U/S. 271(1)(C) ON THE ABOVE ADDITIONS, WHICH ON APPEAL HAS BEEN DELET ED BY THE LD. CIT (A). 4. DURING THE COURSE OF THE PRESENT APPEAL, THE AUTHO RISED REPRESENTATIVE OF RESPONDENT ASSESSEE HAS FILED A COPY OF THE APPEAL MEMO FILED BEFORE THE HONBLE COURT, WHICH CONTAINS THE ORDERS, DOCUMENTS, ETC. CONCERNING THE QUANTUM PROCEEDINGS. THE AR OF THE ASSESSEE HAS ALSO FILED ANOTHER PAPER BOOK CONTAINING PAST INCOME TAX AND WEALTH TAX RETURNS FILED BY THE ASSESSEE. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH T HE LOSSES WERE DISALLOWED BY THE AO AND CONFIRMED BY THE TRIBU NAL, BY ADOPTING A VERY HYPER TECHNICAL VIEW OF THE MATTER. AS REGAR DS THE DISALLOWANCE OF LOSS ON SALE OF THE FLAT IS CONCERNED IT IS SUBMITTED THAT ASSESSEE HAD TRULY AND CORRECTLY DISCLOSED ALL THE FACTS AND CI RCUMSTANCES LEADING TO THE SALE. THE AO HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD INCONSISTENT WITH THE STATEMENT RECORDED BY THE ASSESSEE AND THE ASSESSEE IN ALL GOOD FAITH, HAD DISCLOSED ALL RELATED FACTS PERTAINING TO THE TRANSACTION ENTERED INTO BY HER WITH MS. SHEE LA SHAH. IN FACT, IN PAST, SIMILAR TRANSACTION WHERE THERE WAS EXCESS IT WAS AC CEPTED BY THE DEPARTMENT AS PROPER. HOWEVER, WHEN THE SAME FLA T IS SOLD AND THE ASSESSEE SUFFERED LOSS, THE LOSS HAS BEEN DISALLOWED. THE FACT OF INVESTMENT IN THE FLAT AS WELL AS SUBSEQUENT ACQUISITION OF THE BALANCE ITA NO. 4592/M/09 3 50% SHARE WAS REFLECTED AS CAPITAL GAIN IN THE INCOME TAX RETURN OF MS. SHEELA SHAH. IT IS SUBMITTED THAT AS SUCH, THERE IS A BSOLUTELY NO QUESTION OF ANY CONCEALMENT AND IT WAS PURELY A GENUI NE AND A BONAFIDE ACTION ON THE ASSESSEE. IT IS SUBMITTED THAT T HERE WAS NEITHER ANY INTENTION OF THE ASSESSEE TO CONCEAL ANY PARTICULAR S OF ITS INCOME FROM THE INCOME TAX DEPARTMENT NOR TO DEFRAUD THE R EVENUE OF ITS RIGHTFUL TAX. 6. AS REGARDS THE TRANSACTIONS WITH DLT, IT IS SUBMITT ED THAT THE TRANSACTIONS HAVE BEEN TERMED AS NON-GENUINE, ONLY BEC AUSE OF HER INABILITY TO PRODUCE CONCERNED BILLS, ESPECIALLY WHEN , ADMITTEDLY, THE OTHER PARTY HAD REFUSED TO CONFIRM THE TRANSACTIONS DU E TO DISPUTES WITH HER. IT IS SUBMITTED THAT THERE WERE OTHER SIMIL AR TRANSACTIONS WITH DLT, FOR WHICH ALSO BILLS WERE NOT AVAILABLE WHERE TH E ASSESSEE HAD PROFITS IN THE SAME ACCOUNT. THE AO HAS NOT ONLY ACC EPTED SUCH TRANSACTIONS AS GENUINE, EVEN IN ABSENCE OF BILLS, BUT A LSO CONSIDERED THE PROFITS ARISING OUT OF SUCH TRANSACTIONS FOR TAX PUR POSE. HENCE, IT IS SUBMITTED THAT EITHER THE AO SHOULD DISBELIEVE ALL THE TRANSACTIONS OR ACCEPT ALL THE TRANSACTIONS WITH DLT WHICH ARE WITHO UT BILLS, BUT THE AO CANNOT ADOPT PICK AND CHOOSE POLICY AND ACCEPT A PAR T OF THE TRANSACTIONS WHICH IS BENEFICIAL TO THE DEPARTMENT. 7. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS BEEN F ILING ITS RETURN OF INCOME FOR PAST 20 YEARS AND AT NO STAGE IN PAST THE ASSESSEE EITHER FILED ANY INACCURATE PARTICULARS OF INCOME. IN FACT, ALL ALONG, AND PARTICULARLY IN THIS ASSESSMENT PROCEEDING, THE ASSESSEE HA S CO- OPERATED WITH THE DEPARTMENT. THIS PROVES ASSESSEES BONA FIDE INTENTION. 8. FURTHER IT IS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT MENS REA, WHICH IS AN IMPORTANT INGREDIENT OF A PE NAL (QUASI-CRIMINAL) ITA NO. 4592/M/09 4 PROVISION, WAS TOTALLY ABSENT IN THIS CASE. THE TERM C ONCEALMENT ITSELF PRESUPPOSES A DELIBERATE ACT ON THE PART OF THE ASSESSEE WHICH IS ALSO ABSENT IN ASSESSEES CASE. EVEN FOR THE PURPOSE OF PE NALTY, PROVISIONS UNDER THE I.T. ACT, 1961, THE COURTS HAVE T AKEN THE VIEW THAT MENS REA IS REQUIRED TO BE PROVED BY THE REVENUE BE FORE LEVYING PENALTY UNDER THE ACT. THE LD. COUNSEL RELIED ON T HE SUPREME COURT DECISION IN THE CASE OF K.C. BUILDERS VS ACIT (2004) 26 5 ITR 562 (SC) WHERE THE APEX COURT HAS HELD THAT THE TERM CONCEAL MENT INHERENTLY CARRIES WITH IT THE ELEMENT OF MENS REA. FURTHER THE LD. COUNSEL SUBMITTED THAT A MERE OMISSION FROM THE RETURN OF AN I TEM OF RECEIPT NEITHER AMOUNTS TO CONCEALMENT NOR TO DELIBERATE FUR NISHING OF INACCURATE PARTICULARS OF INCOME, UNLESS AND UNTIL THE RE IS SOME EVIDENCE TO SHOW OR CIRCUMSTANCES ARE FOUND FROM WHICH IT CAN BE GATHERED THAT THE OMISSION WAS ATTRIBUTABLE TO AN INTE NTION OR DESIRE ON THE PART OF THE ASSESSEE TO HIDE OR CONCEAL THE INCO ME SO AS TO AVOID IMPOSITION OF TAX THEREON. THE LD. COUNSEL SUBM ITTED THAT APPLYING THIS RATIO TO THE FACTS OF THE PRESENT CASE, IT IS EVIDENT FROM THE FACTS NARRATED HEREINABOVE THAT THE ELEMENT OF M ENS REA WAS TOTALLY ABSENT SINCE ALL THE FACTS AND FIGURES WERE ON RECORDS AND ONLY ON THE BASIS OF THOSE FACTS THAT THE ASSESSMENT WAS FRAMED. IT IS SUBMITTED THAT NO NEW FACT WAS UNEARTHED THAT WAS CON CEALED OR INTENDED TO BE CONCEALED AND ALL FACTS MATERIAL FOR THE ASSESSMENT WERE PLACED ON RECORD. AS SUCH, THERE IS NO QUESTION O F CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. IT IS SUBMITTED THAT IT IS A FUNDAMENTAL PRINCIPLE OF PENA LTY THAT NO PENALTY CAN BE LEVIED JUST BECAUSE A CLAIM PREFERRED BY THE A SSESSEE IS DISALLOWED. 9. THE LEARNED DEPARTMENT REPRESENTATIVE RELIED UPON THE ORDER OF THE TRIBUNAL PASSED IN THE QUANTUM APPEAL. . . . THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, STRONGLY RELIED UPON THE AVERMENTS AND THE POINTS ITA NO. 4592/M/09 5 OF OBJECTIONS AS DETAILED OUT IN THE HIGH COURT PAPE R BOOK, IN SO FAR AS MERITS OF THE ADDITION / DISALLOWANCES ARE CONCERNED. 10. BASED UPON THE ABOVE FACTUAL MATRIX AND THE SUBM ISSIONS ON MERITS OF THE ADDITION / DISALLOWANCES, THE LD. COUNSEL SUBMITTED THAT SINCE THE ADDITION / DISALLOWANCES WERE NOT SUSTAINABLE , ON FACT AND IN LAW, THERE COULD NOT HAVE BEEN ANY PRESUMPTION OF CO NCEALMENT OR FILING INACCURATE PARTICULAR IN RESPECT OF SUCH DISPUT ED, AND IN ANY CASE DEBATABLE, ISSUES. 11. IN SO FAR AS THE FIRST ITEM IS CONCERNED, THERE WA S MERELY A CHANGE IN THE NATURE OF INCOME, FROM SPECULATION IN COME TO BUSINESS INCOME AND THE INCOME WAS ALREADY OFFERED FOR TAXATI ON AND THE A.O. MERELY CHANGED THE NATURE OF THE INCOME. THE ASSESSEE W OULD NOT HAVE GAINED ANYTHING BY CLAIMING AS SUCH, AS EVEN FOR CAPITAL GAIN, THE LOSS WOULD HAVE BEEN SET OFF AS THE ASSESSEE HAD CAPITAL GA INS FOR THE YEAR. FURTHER LOOKING AT THE SMALLNESS OF AMOUNT INVOL VED, WE ACCEPT THE EXPLANATION OF THE ASSESSEE AND CONFIRM THE DELETIO N OF PENALTY BY THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 12. IN SO FAR AS THE ISSUE OF CAPITAL GAIN WITH RESPECT TO THE TENANCY RIGHTS IN THE FLAT IS CONCERNED, THE ASSESSEE ACQUIRED 5 0% RIGHTS IN A FLAT WHICH HAS BEEN CONSTRUCTED BY A TRUST. THE ASSESSEE ACQUIRED FURTHER 50% RIGHT IN THAT FROM HER FRIEND. SUBSEQU ENTLY, DUE TO VARIOUS DIFFICULTIES SHE COULD NOT OCCUPY THE FLAT. SHE SURRENDERED HER RIGHTS IN THE FLAT WHICH RESULTED IN A LOSS. THE ASSESSEE CLAIMED THIS LOSS OF `. 4,40,002/-. IN THE QUANTUM APPEAL IT WAS H ELD THAT THE LOSS DID NOT ARISE DUE TO GENUINE TRANSFER. WE FIND THAT THE FACT ABOUT THE ASSESSEE ACQUIRING THE RIGHT IN THE FLAT ORIGINALLY AS WELL AS ACQUISITION OF FURTHER RIGHTS FROM HER FRIEND WAS CLEARLY REFLEC TED IN HER INCOME ITA NO. 4592/M/09 6 TAX RETURNS RIGHT FROM THE BEGINNING AS SEEN FROM THE EARLIER YEARS INCOME TAX AND WEALTH TAX RETURNS FILED BY THE ASSESSE E. FURTHER, THE FACT OF ACQUISITION OF 50% INTEREST FROM HER FRIEND W AS NOT ONLY REFLECTED IN THE ASSESSEES RETURN OF INCOME BUT HER FRI END HAD ALSO OFFERED THE SALE PRICE AS CAPITAL GAIN IN HER RETURN OF INCOME FILED. IN THIS VERY YEAR, THE ASSESSEE, IN HER RETURN OF INCOME, H AD CLEARLY AND SEPARATELY PUT A NOTE IN THE COMPUTATION OF INCOME, DISTINCTIVELY NARRATING THIS ITEM OF CAPITAL LOSS. EVEN THE SALE TRA NSACTION AND THE SALE PRICE IS NOT DOUBTED BY THE A.O. THE ONLY LEGAL ISSUE THAT SURVIVED WAS WHETHER THE SALE CONSIDERATION WAS WITH RESPECT TO THE CAPITAL ASSET OR NOT. IN THE CIRCUMSTANCES, THERE CANNOT BE AN Y CONCEALMENT OR FILING INACCURATE PARTICULARS OF INCOME WITHIN TH E MEANING OF SECTION 271 (1) (C) OF THE ACT. WE AGREE WITH THE LD. CIT(A ) THAT PENALTY CANNOT BE LEVIED ON ACCOUNT OF DISALLOWANCE OF CAPITAL LOSS C LAIMED BY THE ASSESSEE AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 13. AS REGARDS THE DISALLOWANCE OF LOSS ON ACCOUNT OF SH ARES IN TRANSACTIONS WITH DLT, THE ASSESSEE WITH A VIEW TO SETTLE THE DUES TO DLT HAD DELIVERED CERTAIN SHARES TO DLT. THIS RESULTED IN ASSESSEE EARNING CAPITAL GAINS IN RESPECT OF CERTAIN SHARES WHIL E INCURRING LOSS IN RESPECT OF BALANCE SHARES. THERE WAS DISPUTE ON THE SAM E AND THE MATTER WAS BEFORE THE ARBITRATION COMMITTEE OF BOMBA Y STOCK EXCHANGE. DUE TO THE DISPUTE, ASSESSEE WAS NOT ABLE TO P RODUCE CONFIRMATION FROM DLT ABOUT SHARES DELIVERED. SUBSEQU ENTLY, THE ARBITRATION COMMITTEE OF THE BSE ALLOWED THE CLAIM OF THE ASSESSEE. BUT THE SAME WAS NOT ACCEPTED BY THE ITAT IN DECIDI NG THE QUANTUM APPEAL. FURTHER AS SUBMITTED BY THE ASSESSEE IF THE DEL IVERY SHARES TO DLT IS NOT ACCEPTED, THEN THE CAPITAL GAINS OFFERED B Y THE ASSESSEE ON TRANSFER OF SHARES TO DLT SHOULD ALSO BE DELETED. WE FI ND THAT THE EXPLANATION OF THE ASSESSEE IS CONFIRMED BY THE ORDER OF THE FULL ITA NO. 4592/M/09 7 BENCH OF ARBITRATION COMMITTEE OF THE BSE. FURTHER, THE ASSESSEE HAD MORE OF PROFIT TRANSACTIONS WITH DLT OF THE VERY SAME NATURE, WHICH WERE OFFERED FOR TAX. AS SUCH, HERE ALSO, THERE COULD NOT HAVE BEEN ANY MOTIVE OF CONCEALMENT OR FILING OF INACCURATE P ARTICULARS FOR LEVY OF PENALTY. ONCE AN EXPLANATION IS OFFERED BY THE ASSESSEE WHICH IS ACCEPTABLE, THEN PENALTY CANNOT BE LEVIED. HENCE W E CONCUR WITH THE LD. CIT(A) DELETING THE PENALTY ON THIS ISSUE. 14. EVEN ASSUMING THAT THE ADDITIONS WERE SUSTAINABLE I N LAW ON MERIT, STILL, THE CASE OF THE ASSESSEE SHOULD FALL SQUARE LY WITHIN THE FOUR CORNERS OF THE PROVISIONS OF SECTION 271 (1) (C) OF THE ACT, SO AS TO JUSTIFY THE LEVY OF PENALTY. THE LD. COUNSEL SUBMITTE D THAT IT IS A WELL SETTLED LEGAL POSITION THAT ADDITION / DISALLOWANCE MA DE IN THE ASSESSMENT ORDER CANNOT BE THE SOLE AND AUTOMATIC GROUND FOR LEVY OF CONCEALMENT PENALTY. 15. THE LD. COUNSEL SUBMITTED THAT THE BIGGEST FALLACY OF LAW COMMITTED BY THE A.O. WAS THAT HE RELIED SOLELY AND M ECHANICALLY ON THE ORDERS PASSED IN QUANTUM PROCEEDINGS AND DID NOT D ISCHARGE THE ONUS IN TERMS OF THE PROVISIONS OF SECTION 271 (1) (C) OF THE ACT. EVALUATING THE FACTUAL MATRIX IN THE BACKDROP OF TH E PROVISIONS OF SECTION 271 (1) (C), THE LD. COUNSEL SUBMITTED THAT T HERE WAS ABSOLUTELY NO CASE FOR LEVY OF PENALTY AND WHICH HAS B EEN RIGHTLY DELETED BY THE LD. CIT (A). 16. WE CONFIRM THE ORDER OF THE LD. CIT(A) DIRECTIN G THE AO NOT TO LEVY PENALTY UNDER 271(1)(C) ON ADDITION/DISALLOWAN CES MADE U/S. 143(3) ON THE FOLLOWING: ITA NO. 4592/M/09 8 (I) TREATMENT OF SPECULATION LOSS AS CAPITAL LOSS / BUSIN ESS LOSS (` 54,860/-) (II) DISALLOWANCE OF LOSS ON TRANSFER OF RIGHT WITH RESP ECT TO FLAT (` 4,40,002/-) (III) DISALLOWANCE OF LOSS ON SALE OF SHARES (` 1,48,875/ -) 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2011 SD/- SD/- (R.K. PANDA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 25 TH MAY, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4592/M/09 9 DATE INITIALS 1 DRAFT DICTATED ON: 5 .0 5 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 11 .0 5 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______