CITIGROUP GLOBAL MARKETS INDIA P. LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 5352/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56334 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-12-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 18-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Bonafide belief; Additional evidence; Bad and doubtful debts; Bonafide mistake

Judgement Text

ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO.5352/MUM/2009 (ASSESSMENT YEAR: 2002-03) CITY GROUP GLOBAL MARKETS (P) LTD ACIT CIRCLE 4(2) BHAKTAWAR, 12 TH FLOOR, AAYAKAR BHAVAN NARIMAN POINT, MK ROAD MUMBAI 400021 VS MUMBAI 400020 PAN AABCS 7234 F APPELLANT RESPONDENT APPELLANT BY: SHRI ARVIND SONDE RESPONDENT BY: SHRI PARTHASARATHI NAIK, SR.DR DATE OF HEARING: 27/12/2011 DATE OF PRONOUNCEMENT: 30/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER UNDER SECTION 271(1)(C) PARTLY CONFIRMED BY THE CIT (A)-I V MUMBAI DATED 8.6.2009. THE ASSESSING OFFICER ORIGINALLY LEVIED P ENALTY OF 1,90,86,996/-AT 100% OF THE TAX SOUGHT TO BE EVADED ON VARIOUS DISALLOWANCES MADE IN ASSESSMENT. THE CIT (A) HAS E XCLUDED THE AMOUNTS PERTAINING BAD DEBTS OF 550.03 LAKHS AND DEPRECIATION ON BSE CARD OF RS. 59.06 LAKHS. HE CONFIRMED THE PENAL TY ON THE DISALLOWANCES UNDER SECTION 94(7) OF 12,45,342/-. THE REVENUE HAS NOT COME IN APPEAL ON THE DELETED PART OF PENAL TY, WHEREAS THE ASSESSEE IS CONTESTING THE CONFIRMATION OF PENALTY ON THE BASIS OF DISALLOWANCES. 2. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL THAT THE ASSESSEE IS IN THE BUSINESS OF STOCK BROKING, TRADING AND IN VESTMENT BANKING ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 2 OF 6 DECLARING A TOTAL INCOME OF RS. 8,47,91,121/-. IN T HE COURSE OF ITS PURCHASE AND SALE OF SHARES THE ASSESSEE HAS PURCHA SED SHARES OF VSNL AND INFOSYS LTD AND INCURRED LOSS ON THE TRANS ACTIONS TOTALING TO THE ABOVE AMOUNT OF RS.12,45,332/-. SINCE THESE TRANSACTIONS ARE PART OF THE BUSINESS ACTIVITY, THE ASSESSEE DID NOT NOTICE THAT DIVIDEND WAS DECLARED BY THE RESPECTIVE COMPANIES I N THE INTERIM PERIOD AND WAS HIT BY THE PROVISIONS OF SECTION 94( 7). IT WAS FURTHER SUBMITTED THAT THE ASSESSEE CONTESTED THE ISSUE IN THE QUANTUM APPEAL BUT WITHDREW THE CONTENTION BEFORE THE ITAT THEREBY THE LOSS ON THE ABOVE TWO TRANSACTIONS STOOD CONFIRMED UNDER SECTION 94(7). LD.COUNSEL THEN REFERRED TO THE PROVISIONS OF SECTI ON 94(7) INTRODUCED W.E.F. 1.4.2002 APPLICABLE TO THE AY 200 2-03 TO SUBMIT THAT BOTH THE ASSESSEE AND ITS PROFESSIONAL ADVISOR S HAVE MISSED THE ASPECTS OF APPLICATION OF PROVISIONS OF SECTION 94( 7) BEING THE FIRST YEAR OF OPERATION. IT WAS ALSO SUBMITTED THAT THE A SSESSEE TOOK PROFESSIONAL HELP IN FINALIZING THE RETURN AND PLA CED ON RECORD ADDITIONAL EVIDENCE IN THE FORM OF CORRESPONDENCE W ITH CA THROUGH EMAIL WITH THE PETITIONERS AUTHORIZED SIGNATORY. I T WAS FURTHER SUBMITTED THAT MANY OF THE ASPECTS BY WHICH NEW PRO VISIONS WERE INTRODUCED BY THE FINANCE ACT 2001, WERE CONSIDERED BUT APPLICATION OF SECTION 94(7) WAS MISSED. HE SUBMITT ED THAT THE HON'BLE ITT IN THE CASE OF INCOME TAX OFFICER VS. C HIRAG FAMILY TRUST 58 ITD 382 HELD THAT WHERE THERE IS A NEW PRO VISION WHICH WAS INSERTED AND MADE APPLICABLE FROM THE AY, THERE COULD BE IGNORANCE ABOUT PROVISIONS WHICH CANNOT BE CONSIDER ED AS MALAFIDE SO AS TO LEVY PENALTY UNDER SECTION 271(C). HE ALSO FURTHER RELIED ON THE DECISIONS OF ITAT IN KAMAL KISHORE SWAMY VS. I NCOME TAX OFFICER 85 TTJ (JD) 206, L&T JOHN DEERE (P) LTD VS. ACIT 120 TTJ( PUNE) 535 AND JUDGMENTS OF HONBLE PUNJAB & HARYANA IN CASES OF CIT VS. DEEPAK KUMAR 232 CTR 78 (P&H) AND CIT VS. S INDHU ENTERPRISES 322 ITR 80 (P&H) FOR THE PROPOSITION TH AT WHEREVER INCOME TAX RETURNS ARE FILED THROUGH EXPERTS IN I.T . LAWS AND ON ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 3 OF 6 THEIR ADVISE THE ASSESSEE ACTED ON BONAFIDE BELIEF, AND WHERE THERE IS NO FINDING OF INTENTIONAL OR MOTIVATIONAL MISTAK E PENALTY IS NOT ATTRACTED. IT WAS HIS SUBMISSION THAT THESE TWO TRA NSACTIONS ALONE ON WHICH DIVIDENDS WERE RECEIVED ATTRACTED THE PROV ISIONS OF SECTION 94(7) WHICH ASPECT WAS NOT NOTICED AT THE TIME OF F ILING OF RETURN SO THERE IS NO MALAFIDE INTENTION ON THE PART OF ASSES SEE TO FURNISH INACCURATE PARTICULARS OR TO CONCEAL THE INCOME. HE FURTHER SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T. ASHOK VS. CIT 292 ITR 11, WILL ALSO APPL Y EVEN THOUGH IN ASSESSEES CASE, THERE IS NO ADVISE GIVEN BY THE CO UNSEL, BUT THERE IS LACK OF ADVISE ON THE APPLICATION OF THE PROVISIONS AND ACCORDINGLY THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COU RT WILL EQUALLY APPLY. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVE R SUBMITTED THAT THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THE ASSESSEE HAS PURCHASED THE SHARES IMMEDIATELY BEFORE THE DEC LARATION OF DIVIDEND AND SOLD THEM IMMEDIATELY LATER ON SO AS T O CLAIM LOSS IN THE TRANSACTIONS AND THIS LOSS WAS CLAIMED AND WOUL D HAVE GONE UNNOTICED BUT FOR THE VERIFICATION BY THE ASSESSING OFFICER. IN VIEW OF THIS, HE SUPPORTED THE ORDERS OF THE ASSESSING OFFI CER AND CIT (A). 4. WE HAVE EXAMINED THE ISSUE AND CONSIDERED THE R IVAL CONTENTIONS. AS SEEN FROM THE RECORD, THE ASSESSEE IS IN THE BUSINESS OF PURCHASE OF SHARES AND HAS UNDERTAKEN L ARGE NUMBER OF TRANSACTIONS AND EARNED SUBSTANTIAL PROFITS. IN THE COURSE OF ASSESSEES PURCHASE AND SALE, THE ASSESSEE PURCHASE D SHARES OF VSNL ON 30THJULY, 2001 AND SOLD ON 6 TH & 7 TH SEPTEMBER, 2001. LIKEWISE THE ASSESSEE ALSO PURCHASED SHARES OF INFO SYS TECHNOLOGIES FROM 12-17 OCTOBER, 2001 AND SOLD THEM ON 19 TH TO 30 TH OCTOBER, 2001. THERE IS SUBSTANTIAL LOSS IN THE CASE OF VSNL WHICH WAS PARTLY OFFSET BY THE GAIN IN INFOSYS TECHNOLOGIES. HOWEVER, THESE TWO TRANSACTIONS YIELDED A LOSS OF 12,45,342/- WHICH WERE ADJUSTED ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 4 OF 6 IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE C IT (A). ONLY IN THESE TWO TRANSACTIONS THE ASSESSEE RECEIVED DIVIDE ND WHICH WERE DECLARED IN THE MEANTIME, THEREBY ATTRACTING THE PR OVISIONS OF SECTION 94(7). AS PER THE PROVISIONS THE LOSS ARISI NG IN PURCHASE AND SALE OF TRANSACTIONS FALLING WITHIN 3 MONTHS OF DEC LARATION OF DIVIDEND IS NOT ALLOWED. IT WAS INITIALLY CONTENDED THAT THE LOSS IS BUSINESS LOSS NOT COVERED BY THE PROVISIONS OF SECT ION 94(7) BUT IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE ITAT THE GROUND WAS WITHDRAWN THEREBY LOSS STOOD DISALLOWED. THE ISSUE IS WHETHER THE CLAIM OF THE LOSS DISALLOWED BY VIRTUE OF PROVISION S OF SECTION 94(7) ATTRACTS PENALTY UNDER SECTION 271(1)(C). 5. IN OUR VIEW THIS DOES NOT ATTRACT PENALTY U NDER SECTION 271(C). FIRST OF ALL THE ASSESSEE IS REGULARLY PURCHASING A ND SELLING SHARES AS PART OF BUSINESS ACTIVITY IN LARGE VOLUMES AND O NLY IN THESE TWO CASES THERE IS A DECLARATION OF DIVIDEND AND SALE O F SHARES IMMEDIATELY THEREAFTER, WHICH ATTRACTED THE PROVISI ONS OF SECTION 94(7). BUT FOR THE DECLARATION OF DIVIDEND, THE LOS S WOULD HAVE BECOME BUSINESS LOSS ALLOWABLE OTHERWISE IN THE COU RSE OF ITS BUSINESS ACTIVITY OF PURCHASE AND SALE OF TRANSACTI ONS. EVEN THE PROFESSIONAL AUDITORS/ADVISORS WHO EXAMINED LARGE N UMBER OF TRANSACTIONS BEFORE FILING THE RETURNS COULD NOT AD VISE THE ASSESSEE ON THE APPLICATION OF THIS PARTICULAR PROVISION INT RODUCED FROM THIS ASSESSMENT YEAR. EVEN THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT WAS CONSIDERED ONLY THE LOSS ON VSNL SHA RES ALONE OF 13,21,084/- AS ATTRACTED BY SECTION 94(7) AND DISAL LOWED LOSS. AS ASSESSEE ALSO UNDERTOOK TRANSACTIONS IN INFOSYS SHA RES, IN WHICH THERE WAS GAIN AND ALSO LOSS ON 5 TRANSACTIONS, THE CIT (A) ALLOWED SETOFF AND RESTRICTED TO NET AMOUNT OF 12,45,342/-. IN OUR VIEW, THIS IS A BONAFIDE MISTAKE HAPPENED AT THE LEVEL OF COMPILING THE DATA. THE APPLICATION OF PROVISIONS OF SECTION 94(7 ) WERE NOT EXAMINED NOR INVOKED. SINCE THE ASSESSEE HAS DECLAR ED LARGE ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 5 OF 6 AMOUNT OF PROFITS IN TRANSACTIONS ON PURCHASE AND S ALE OF SHARES, THIS ASPECT COULD HAVE GENUINELY MISSED THE ATTENTI ON OF PERSONS CONCERNED. SINCE NO MALAFIDE INTENTION CAN BE ATTRI BUTED TO ASSESSEE IN CLAIMING LOSS IN THESE TRANSACTIONS, WE ARE OF THE VIEW THAT PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANT ED. VARIOUS CASE LAW RELIED UPON BY THE ASSESSEE ALSO SUPPORTS THE C ONTENTIONS MADE. HOWEVER, WITHOUT GETTING INTO THE LEGAL PARAM ETERS, ON FACTS OF THE CASE WE ARE OF THE VIEW THAT THERE OCCURRED A BONAFIDE MISTAKE IN NOT EXAMINING THE PROVISIONS OF SECTION 94(7) ON THESE TRANSACTIONS. MOREOVER, THOUGH THERE ARE DISALLOWAN CES IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, MERE DISALLOW ANCE DOES NOT ATTRACT PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) . ACCORDINGLY THE ASSESSEES GROUND IS ALLOWED. THE PENALTY LEVIED ON THIS DISALLOWANCE OF LOSS IS HEREBY CANCELLED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2011. SD/- SD/- ( V.DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH DECEMBER, 2011. VNODAN/SPS COPY TO: 1. THE APPELLANT ITA NO.5352 OF 2009 CITY GROUP GLOBAL MARKETS INDIA PVT LTD MUMBAI PAGE 6 OF 6 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI