The DCIT, Circle-1(1), Baroda V. Advance Fluid Control Pvt.Ltd., Baroda

ITA 469/AHD/2010

• Counselvise Citation: 46920514 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2002-2003
• Appeal Filed On: 12-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Keywords: Speculation loss; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.469/AHD/2010 ASSESSMENT YEAR:2002-03 DCIT, CIRCLE-1(1), BARODA V/S . M/S ADVANCE FLUID CONTROL PVT. LTD., 20, SHOBHNA NAGAR, VASNA ROAD, BARODA PAN NO.AABCA6596P (APPELLANT) .. (RESPONDENT) /BY APPELLANT SHRI B.L.YADAV, SR-DR /BY RESPONDENT SHRI MUKUND BAKSHI, AR /DATE OF HEARING 24-05-2012 /DATE OF PRONOUNCEMENT 07-06-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF REVENUE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-I, BARODA DATE D 31-10-2009 FOR THE ASSESSMENT YEAR 2002-03. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN DELETING THE PENALTY OF RS.2 1.00 LACS LEVIED U/S. 271(1)(C) OF THE ACT ON THE DISALLOWANCE OF ADJUST MENT/SET OFF OF SHORT TERM CAPITAL LOSS INCURRED IN SHAM TRANSACTION OF P URCHASE AND SALE OF SHARES. ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 2 2. THE FACTS IN BRIEF ARE THAT ASSESSING OFFICER NO TED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT ASSESSEE HAD ENTERED IN TO A NUMBER OF TRANSACTIONS OF PURCHASE AND SALES OF SHARES AS A R ESULT OF WHICH IT HAD INCURRED HEAVY LOSS OF RS.58,29,228/-. THE ASSESSEE IN ITS COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME CLAIMED SE T OFF OF THIS LOSS OF RS.58,29,228/- AGAINST THE LONG TERM CAPITAL GAINS (LTCG FOR SHORT) OF RS.1,04,51,949/-. IT WAS OBSERVED BY THE AO THAT AS SESSEE HAD SUFFERED CONTINUOUS LOSS AND THERE WAS NOT A SINGLE INSTANCE OF GAIN IN THE TRANSACTIONS ENTERED DURING THE FINANCIAL YEAR. THE ONLY CAPITAL GAIN RELATED TO MADE IN SHARES IN EARLIER YEARS. IT WAS NOTED BY AO THAT TH E TRANSACTIONS WERE CARRIED OUT THROUGH BROKERS. IT WAS ALSO OBSERVED THAT PAYM ENTS FOR THE PURCHASES OF SHARE WAS NOT MADE BY THE ASSESSEE BUT BY THE BROKE R. IT WAS CONCLUDED BY THE AO THAT SHORT TERM CAPITAL GAINS (STCG FOR SHOR T) OF RS.58,29,228/- WAS NOT GENUINE AND THIS AMOUNT WAS DISALLOWED AND ADDE D BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE AO ALSO INITIATED PENAL TY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE ASSESSEE FILED AN APPEAL AGAINST THE ASSESSMENT ORDER BEFORE LD. CIT(A). WHO VIDE HIS ORDER DATED 04-12-2007 CONFIRMED THE A DDITION AS MADE BY ASSESSING OFFICER. AFTER RECEIPT OF THE ORDER OF LD . CIT(A), A LETTER DATED 01-04- 2008 WAS ISSUED TO THE ASSESSEE CALLING UPON HIM TO SUBMIT HIS WRITTEN EXPLANATION IN RESPECT OF LEVY OF PENALTY U/S. 271( 1)(C) OF THE ACT OF IN RESPECT OF THE AFORESAID ISSUE. AO AFTER CONSIDERING THE SU BMISSION OF THE ASSESSEE AND ALSO THE CASE LAWS AS RELIED BY HIM LEVIED PENA LTY OF RS.21 LAKH. 3. THE ASSESSEE FEELING AGGRIEVED BY THIS ORDER FIL ED APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS AND TH E JUDICIAL PRONOUNCEMENTS AS WELL AS PROVISIONS OF LAW DELETED PENALTY AS LEVIED BY ASSESSING OFFICER. 4. NOW THE REVENUE IS IN APPEAL BEFORE US AGAINST T HE ORDER OF LD. CIT(A) WHEREBY THE PENALTY WAS DEDUCTED TO BE DELETED. ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 3 5. LD. SR-DR SHRI B.L. YADAV FOR THE REVENUE SUBMIT TED THAT ORDER OF LD. CIT(A) IS ERRONEOUS AS THE ASSESSING OFFICER HAS RI GHTLY CAME TO THE CONCLUSION THAT ASSESSEE HAD FURNISHED INACCURATE P ARTICULARS OF INCOME BY MAKING A SHARE CAPITAL LOSS AND CLAIMING OF SET OFF AGAINST THE LTCG RECEIVED ON THE INVESTMENT MADE IN EARLIER YEARS. HE VEHEMEN TLY ARGUED THAT ORDER OF AO MAY BE CONFIRMED AND ORDER OF LD. CIT(A) BE REVE RSED. 6. ON THE CONTRARY, LD. AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE, SHRI MUKUND BAKSHI SUPPORTED THE ORDER PASSED BY LD. CIT (A). HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF CIT V. RELIANCE PETROPRODUCT PVT. LTD. (2010) 322 ITR 174 (SC). HE FURTHER POINTED OUT TH AT IN QUANTUM APPEAL IN ITA NO.861/AHD/2008 ORDER DATED 07-02-2012 THE HONBLE CO-ORDINATE BENCH HAS PARTLY ALLOWED THE APPEAL OF ASSESSEE. 7. WE HAVES HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIALS AVAILABLE ON RECORD AND CASE LAWS CITED BY THE PARTIES. WE FI ND THAT LD. CIT(A) HAS DISCUSSED THIS ISSUE IN DETAIL AND DEALT WITH IN PA RA-7.1 TO 7.4 OF HIS ORDER, SAME ARE REPRODUCED HEREINBELOW FOR THE SAKE OF CLA RITY:- 7.1 IT IS A WELL SETTLED PROPOSITION THAT PENALTY PROCEEDINGS AND ASSESSMENT PROCEEDINGS ARE DISTINCT. JUDICIAL OPINI ON IS UNANIMOUS THAT WHERE ALL THE FACTS RELATING TO THE ADDITION HAVE B EEN DISCLOSED BY THE ASSESSEE, IT WOULD NOT BE A FIT CASE FOR PENALTY. M ERE DIFFERENCE OF OPINION REGARDING THE MEANING AND SCOPE OF A PROVIS ION OF LAW MAY RESULT IN YIELD OF ADDITIONAL QUANTUM OF TAX ON ASS ESSMENT, BUT MAY NOT JUSTIFY OR WARRANT THE IMPOSITION OF PENALTY. 7.2 RECENTLY THE DECISION OF THE SUPREME COURT IN T HE CASE OF DHARMENDRA TEXTILES PROCESSORS (SUPRA) HAS GENERATED SOME CONTROVERSY. THE ASSESSING AUTHORITIES HAVE INTERPR ETED THE DECISION TO MEAN THAT THERE IS NOW NO PLACE FOR MENS REA IN PENALTY PROCEEDINGS, AND THAT EVERY ADDITION OR DISALLOWANCE WOULD HAVE THE CONSEQUENCE OF MANDATORY IMPOSITION OF PENALTY. HOWEVER, IN RAJASTHAN SPINNING AND WEAVING MILLS, 23 DTR 158, THE SUPREME COURT HAS REVISITED ITS DECISION IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS AND CLARIFIED THAT IT MERELY REITERATES THE EARLIER EXISTING POSI TION, I.E., PENALTY CAN BE LEVIED ONLY IN A CASE WHERE THERE HAS BEEN EITHER C ONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. WHETHER THERE ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 4 HAS BEEN CONCEALMENT OR FURNISHING OF INACCURATE PA RTICULARS WOULD BE DECIDED ONLY AFTER ANY OF THE THREE FOLLOWING CONDI TIONS ARE SATISFIED:- (I) WHERE NO EXPLANATION IS OFFERED, (II) WHERE THE EXPLANATION OFFERED IS FOUND TO BE F ALSE, OR (III) WHERE THE EXPLANATION IS UNSUBSTANTIATED. 7.3 IN THE INSTANT CASE, IT APPEARS THAT THE PENALT Y HAS BEEN LEVIED CONSIDERING THE LOSS SUFFERED BY THE ASSESSEE TO BE A SHAM TRANSACTION. THIS CONCLUSION SEEMS TO HAVE BEEN ARRIVED AT BASED ON THE FACT THAT THE ASSESSEE SUFFERED CONTINUOUS LOSSES IN ITS TRAN SACTIONS, AND THE FACT THAT THE TRANSACTIONS WERE NOT CARRIED ON ONLINE BU T THE SERVICES OF A BROKER WERE UTILIZED. THE PAYMENTS WERE INITIALLY M ADE BY THE BROKER AND SUBSEQUENTLY REIMBURSED BY THE ASSESSEE. THE DI SALLOWANCE HAD BEEN CONFIRMED ON THE GROUND THAT THE TRANSACTIONS AMOUNTED TO A SPECULATIVE LOSS AND ALSO THAT THE ACTIVITY OF TRAD ING IN SHARES WERE NOT PERMITTED BY THE ARTICLES OF ASSOCIATION. HOWEVER, I FIND, ON GOING THROUGH THE ARTICLES OF ASSOCIATION THAT, IN THE AN CILLARY OBJECTS, AT SR. NO.22 , THE ACTIVITY OF TRADING IN SHARES HAS BEEN DULY P ERMITTED. MOREOVER, EVEN THOUGH THE DISALLOWANCE MAY OR MAY N OT BE JUSTIFIED BY HAVING RECOURSE TO THE PROVISIONS CONTAINED IN THE EXPLANATION BELOW SECTION 73, SUCH DISALLOWANCE WOULD BE THE RESULT O F A LONG DRAWN-OUT PROCESS OF REASONING. THIS IS A HIGHLY DEBATABLE IS SUE ON WHICH MORE THAN ONE VIEW IS POSSIBLE. THE LEVY OF PENALTY BASE D ON THE DISALLOWANCE WHICH IS HIGHLY CONTENTIOUS WOULD NOT BE JUSTIFIABLE. MOREOVER, I FIND THAT THE BASIC ASSUMPTION THAT THE TRANSACTIONS WERE CARRIED OUT BY THE BROKER AND NOT BY THE ASSESSEE I S NOT BORNE OUT BY FACTS, SINCE PERIODIC SETTLEMENTS OF THE OUTSTANDIN G AMOUNTS WERE MADE AND ALL THE DUES HAVE BEEN REIMBURSED BY THE AS SUB SEQUENTLY. 7.4 PENALTY PROCEEDINGS ARE DISTINCT AND SEPARATE F ROM ASSESSMENT PROCEEDINGS. WHERE THE ASSESSEE HAS NOT CONCEALED A NY FACT MATERIAL TO THE COMPUTATION OF ITS INCOME AND HAS OFFERED A SATISFACTORY EXPLANATION WITH REGARD TO THE FACTS DOUBTED BY THE AO, AND SUCH EXPLANATION HAS NOT BEEN FOUND TO BE FALSE OR UNSUB STANTIATED, THE ONUS CAST UPON THE ASSESSEE WOULD STAND DISCHARGED. ACCO RDINGLY, I AM OF THE OPINION, ON THE ABOVE FACTS, THAT THE PENALTY I N RESPECT OF RS.21,00,000/-WAS NOT JUSTIFIED AND IS ACCORDINGLY CANCELLED. IT IS CONTENDED BY LD. AUTHORIZED REPRESENTATIVE TH AT IN QUANTUM PROCEEDINGS SO FAR AS THE TRANSACTION CONDUCTED BY THAKKAR SHAR E BROKERS PVT. LTD IS CONCERNED. IT HAS BEEN HELD TO BE GENUINE AND THE H ONBLE ITAT HAS SET ASIDE THE ORDERS OF AUTHORITIES BELOW AS REGARDS TO THE T RANSACTIONS CONDUCTED BY ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 5 THAKKAR SHARE BROKERS PVT. LTD. ON BEHALF OF THE AS SESSEE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSES SEE FOR SET OFF OF STCG AGAINST THE GAINS. IT IS SUBMITTED BY LD. AR THAT M OST OF THE TRANSACTIONS HAVE BEEN CONDUCTED THROUGH THAKKAR SHARE BROKERS PVT. L TD. WE ALSO FIND THAT THIS FACT HAS BEEN NOTED BY HONBLE ITAT AT PAGE-15 OF ITS ORDER IN QUANTUM APPEAL OF ASSESSEES OWN CASE IN ITA NO.861/AHD/2008 (SUPRA), SAME IS REPRODUCED HEREINBELOW:- II) THE TRANSACTIONS BETWEEN APPELLANT AND THAKKAR SHARE BROKERS WERE IN RESPECT OF FOLLOWING SCRIPTS. 1. SOFT SOLUTION 4. PSI DATA 2. SILVER IINES 5. HIMACHAL FUTURISTIC 3. SHYAM TELI 6. GLOBAL TELE III) OUT OF TOTAL PURCHASE OF RS.3.194 CRORES. RS.2 .69 CRORES RELATE TO THE AFORESAID SHARES. UNIFORMLY, ALL THE PURCHASE AND S ALE TRANSACTIONS LED TO LOSS. THE PURCHASE AND SALE OF SHARES SHOW A TYP ICAL PATTERN EG. NAME OF SHARE NO. OF SHARES PURCHASED PURCHASE DATE NO. OF SHARES SOLD SALE DATE SOFT SOLUTION 7939 @ 130.93 13.9.01 5027 @ 100.24 17.9.01 SOFT SOLUTION 3711 @ 102.52 25.9.01 3521 @ 91.74 26.9.01 3102 @ 90.73 8.10.01 THE SAME PATTERN IS IN RESPECT OF OTHER SCRIPTS BET WEEN THE APPELLANT AND THAKKAR SHARE BROKERS PVT. LTD. IS ALSO SEEN. T HERE WAS REGULARITY AND CONTINUITY IN PURCHASE OF SUCH SHARES BUT THE T IME AND TYPE OF SCRIPT APPEARS TO BE SO DECIDED THAT IT WOULD RESULT ONLY IN LOSS TO THE APPELLANT. ADMITTEDLY, ALL THE TRANSACTIONS WERE DULY DISCLOSE D BY THE ASSESSEE HAD CARRIED OUT SUBSTANTIAL TRANSACTIONS WITH THAKKAR S HARE BROKERS PVT. LTD. AS NOTED BY HONBLE ITAT IN APPELLATE QUANTUM PROCEEDI NGS AND ADDITION MADE ON ACCOUNT OF TRANSACTION THROUGH THAKKAR SHARE BRO KERS PVT. LTD. HAS BEEN DELETED BY HONBLE CO-ORDINATE BENCH IN ITA NO.861/ AHD/2008 (SUPRA). FURTHER, WE FIND MERIT IN THE CONTENTION OF LD. AR THAT THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCT PVT. LTD. (SUPRA) IS APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE PR ESENT CASE. AS THE ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 6 ASSESSEE HAD MADE CLAIM OF SHORT TERM LOSS, AND MER ELY CLAIM OF THE ASSESSEE HAS BEEN REJECTED BY THE ASSESSING OFFICER WOULD NOT BE SUFFICIENT TO LEVY OF THE PENALTY. THE PENALTY PROVISIONS U/S. 271(1)(C) OF THE ACT CAN NOT BE INVOKED SOLELY ON THE GROUND THAT A CLAIM MADE I N TERMS OF INCOME IS REJECTED BY THE AO. THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDENT. IT IS UNDISPUTED FACT THAT THE TRAMS CARRIED OUT THROUGH THAKKAR SHARE BROKER PVT. LTD. HAS BEEN DEC IDED AS GENUINE TRANSACTIONS BY THE HONBLKE CO-ORDINATE BENCH AND SETTING OFF OF SHORT TERM LOSS OUT OF SUCH TRANSACTION IS ALSO ALLOWED. IN VI EW OF THIS MATTER, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCT PVT. LTD. (SUPRA), WE DO NOT FIND ANY INFIRMITY INTO THE ORD ER PASSED BY LD. CIT(A). THIS GROUND OF REVENUES APPE AL IS DISMISSED. 8. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 07/06/2012 ()* + ,- ,- ,- ,- ../ ../ ../ ../ 0/ 0/ 0/ 0/ / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. *.3 , ,4 / CONCERNED CIT 4. , ,4- / CIT (A) 5. /78 ...3, , .3 , ()* / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. BY ORDER/ ,- , /TRUE COPY/ >/ ( ? , .3 , ()* + ITA NO.469/AHD/2010 A.Y. 2002-03 DCIT CIR-1(1) BRD V. M/S./ ADVANCE FLUID CONTROL PVT. LTD. PA GE 7 STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 04/06 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO. 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 05/06 4) DATE OF CORRECTION 05/06 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 06/06 7) ORDER UPLOADED ON 07/06 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 07/06