MARVE BEACH REALTORS P. LTD., MUMBAI V. M/s. ITO Rg. - 3(2)(2), MUMBAI

ITA 5590/MUM/2008

• Counselvise Citation: 559019914 RSA 2008
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 04-09-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: NARAYAN ATAL
• Keywords: Business income; Bonafide belief; Speculation loss; Wrong claim; Difference of opinion; Speculative transactions; Capital Gains
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B: MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 5590/MUM/2008 ASSESSMENT YEAR 2000-2001 M/S. MARVE BEACH REALTORS P. LTD. MUMBAI-400 021. PAN AAACM6031E VS. ITO, WARD 3(2) MUMBAI. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI NARAYAN ATAL FOR RESPONDENT : SHRI SHRAVAN KUMAR (DR) ORDER PER D. MANMOHAN, V.P. 1. PENALTY OF RS.2,94,542/-, LEVIED BY THE ASSESSI NG OFFICER UNDER SECTION 271 (1) (C) OF THE ACT AND CONFIRMED BY THE CIT(A), IS THE SUBJECT MATTER OF DISPUTE BEFORE US. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY, WAS ENGAGED IN THE BUSINESS OF REAL ESTATE AND DURI NG THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1995-96 THE ASSESSE E-COMPANY HAD ACQUIRED 50,000 SHARES OF SAV INDIA LTD. FROM PUBLI C ISSUE AT THE PRICE OF RS.40/- PER SHARE OUT OF PROMOTERS QUOTA. SHARES WE RE THEN CONVERTED INTO STOCK-IN-TRADE IN THE SUBSEQUENT YEAR AND THE MARKE T VALUE OF THE SHARES AT THAT POINT OF TIME WAS RS.100/- PER SHARE. OUT OF T HESE SHARES IT SOLD 19,650 SHARES @ RS.2.10PS PER SHARE. COMPANY, THUS, INCURR ED LOSS ON THE SAID TRANSACTION. IN THE RETURN OF INCOME THIS WAS CLAIM ED AS BUSINESS LOSS AND REQUESTED FOR SET OFF AGAINST THE BUSINESS INCOME. THE ASSESSING OFFICER WAS, HOWEVER, OF THE OPINION THAT EXPLANATION TO SECTION 73 OF THE I.T. ACT SQUARELY APPLIES TO THE FACTS OF THE CASE IN WHICH EVENT IT SHOULD BE TREATED AS SPECULATION LOSS WHICH CANNOT BE PERMITTED TO BE SET OFF AGAINST OTHER INCOME. CIT(A) AS WELL AS ITAT, E BENCH, MUMBAI AFFIRMED THE ORDER OF THE ASSESSING OFFICER. 3. THE CASE OF THE ASSESSEE WAS THAT THESE SHARES HAVING BEEN ACQUIRED BY SUBSCRIPTION AND NOT BY PURCHASE, EXPLA NATION TO SECTION 73 IS NOT ATTRACTED, IN VIEW OF THE FACT THAT THE PROVISI ON USES THE EXPRESSION PURCHASE AND SALE OF SHARES AND DOES NOT COVER TH E CASE OF ACQUISITION OF 2 SHARES BY SUBSCRIPTION. IT WAS ALSO CONTENDED THAT THE INCOME FROM CAPITAL GAINS AND OTHER SOURCES EXCEEDED BUSINESS L OSS AND HENCE, EXPLANATION TO SECTION 73 IS NOT APPLICABLE. ASSESS EE PLACED RELIANCE UPON THE DECISION OF THE APEX COURT IN THE CASE OF SHRI GOPAL JALAN & CO. VS. CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. AIR 1964 ( SC) 250 AND ALSO THE DECISION OF THE ITAT IN THE CASE OF DCIT VS. MODELL A WOOLLENS LTD. 101 TTJ (MUM.) 1109. 4. THE TRIBUNAL OBSERVED THAT EXPLANATION TO SECTI ON 73 IS APPLICABLE EVEN WITH REGARD TO THE SHARES ALLOTTED IN PUBLIC ISSUE, IN THE LIGHT OF DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF AMP SPINNING AND WEAVING MILLS LTD. VS. ITO 100 ITD 142 (AHD.) (SB). THE BENCH FURTHER HELD THAT THOUGH THE DECISION IN THE CASE OF GOPAL JALAN (SUPRA) WAS NOT CONSIDERED BY THE SPECIAL BENCH IN DETAIL, SINCE TH E SAME WAS NOTED BY THE SPECIAL BENCH IT IS NOT OPEN TO THE DIVISION BENCH TO DIFFER FROM THE VIEW TAKEN BY THE SPECIAL BENCH. THE BENCH ALSO NOTED TH AT THE DECISION OF THE ITAT IN THE CASE OF MODELLA WOOLLENS LTD. (SUPRA) C ANNOT BE APPLIED IN PREFERENCE TO THE DECISION OF THE SPECIAL BENCH SIN CE THE DECISION OF THE SPECIAL BENCH IS PRIOR TO THE DATE OF JUDGMENT OF T HE DIVISION BENCH. UNDER THE CIRCUMSTANCES, TRANSACTIONS OF SALE OF SHARES W ERE TREATED AS SPECULATIVE TRANSACTIONS. 5. THEREUPON, THE ASSESSING OFFICER INITIATED PENA LTY PROCEEDINGS AND AFTER CONSIDERING THE EXPLANATION OF THE ASSESS EE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DELIBERATELY CONCEAL ED THE PARTICULARS OF INCOME. IT MAY BE NOTICED THAT DECISION OF THE ASSE SSING OFFICER IN QUANTUM PROCEEDINGS, THAT IT WAS A SPECULATION LOSS, WAS BA SED UPON A PLAIN READING OF THE PROVISIONS OF SECTION 73 OF THE ACT ; ASSESS EE WAS WELL AWARE OF THE FACT THAT, BEING A COMPANY, ITS CASE IS COVERED BY EXPL ANATION TO SECTION 73. ASSESSING OFFICER THUS CONCLUDED THAT ASSESSEE HAD FURNISHED INACCURATE PARTICULARS WHICH LEAD TO SUPPRESSION OF TRUE AND C ORRECT TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, HE LEVIED A MINIMUM PENALTY AT RS.3,33,428/-. 6. ON AN APPEAL FILED BY THE ASSESSEE, LEARNED CIT (A) UPHELD PENALTY LEVIED BY THE ASSESSING OFFICER WITH REFERE NCE TO THE INCOME EARNED FROM SALE OF SHARES AND ACCORDINGLY RESTRICTED THE PENALTY TO RS.2,94,542/-. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 3 7. LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASS ESSEE, SUBMITTED THAT THE ASSESSEE HAD FURNISHED BASIC PAR TICULARS BEFORE THE ASSESSING OFFICER. IT WAS A BONAFIDE DIFFERENCE OF OPINION BETWEEN THE ASSESSING OFFICER AND THE ASSESSEE SINCE THE ASSESS EE WAS UNDER THE IMPRESSION THAT THE SHARES HAVING NOT BEEN PURCHASE D AT ALL BUT MERELY ACQUIRED IN THE FORM OF PUBLIC ISSUE, IN PROMOTERS QUOTA WITH A LOCK-IN PERIOD OF THREE YEARS, IT CANNOT BE SAID TO BE PURC HASE OF SHARES WITHIN THE MEANING OF EXPLANATION TO SECTION 73 OF THE ACT. SI MILARLY, ASSESSEE HAD RETAINED THE SHARES FOR A VERY LONG PERIOD AND THUS IT CANNOT BE TREATED AS A SPECULATION TRANSACTION. IN THE SUBSEQUENT ASSESSME NT YEAR IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL WHEREIN QUANTUM APP EAL WAS ALLOWED ON THE GROUND THAT TOTAL INCOME OF THE ASSESSEE FROM N ON-BUSINESS SOURCE WAS MORE THAN THE TOTAL OF THE BUSINESS LOSS AND HENCE, EXPLANATION TO SECTION 73 WAS NOT APPLICABLE. ONLY ON A TECHNICAL ISSUE TH E IMPUGNED LOSS WAS TREATED AS SPECULATION LOSS. SINCE THE ASSESSEE HAD DISCLOSED ALL THE DETAILS AT THE TIME OF FILING OF THE RETURN, IT CANNOT BE S AID TO BE A CASE OF CONCEALMENT OF INCOME. THERE WAS NO MENSREA SINCE T HE ASSESSEE HAD FILED THE RETURN OF INCOME UNDER THE BONAFIDE BELIEF THAT LOSS ON SALE OF SHARES WOULD BE ALLOWED AS BUSINESS LOSS. RELIANCE WAS ALS O PLACED UPON THE DECISION OF THE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS 322 ITR 148 WHEREIN THE COURT OBSERVED THAT MERE MAKING OF A WRONG CLAIM WHICH IS NOT SUSTAINABLE IN LAW IS NOT SUFFICIENT TO INVOKE THE PROVISIONS OF SECTION 271 (1) (C) OF THE ACT. RELIANCE WAS ALSO PLACED UP ON THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CIT VS. ARETIC IN VESTMENT (P.) LTD. (2010) 190 TAXMAN 157 (DEL.) WHEREIN UNDER IDENTICAL FACTS AND CIRCUMSTANCES THE HONBLE DELHI HIGH COURT OBSERVED THAT MERE CHANGE IN NATURE OF LOSS FROM BUSINESS LOSS TO SPECULATION LOSS WAS NOT ENOUGH TO IMPOSE PENALTY ON ASSESSEE. 8. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT TH E ADDITION MADE BY THE ASSESSING OFFICER WAS UPHELD BY THE ITA T AND THERE CANNOT BE ANY TWO VIEWS ON THE ISSUE OF APPLICABILITY OF EXPL ANATION TO SECTION 73 IN THE INSTANT CASE AND HENCE, THE ASSESSEE WAS DUTY BOUND TO FOLLOW THE LEGAL PROVISIONS IN THE ABSENCE OF WHICH PENALTY IS LEVIA BLE IN THE LIGHT OF DECISION OF THE APEX COURT IN THE CASE OF DHARMENDRA TEXTILE S 295 ITR 294. HE THUS SUPPORTED THE ORDERS PASSED BY THE TAX AUTHORITIES. 4 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. WE ARE CONCERNED WITH THE ASSES SMENT YEAR 2000-2001. THE VERY FACT THAT A SPECIAL BENCH WAS FORMED AND A N ORDER WAS PASSED ON 24-3-2006 ON THE SPECIFIC ISSUE WITH WHICH WE ARE C ONCERNED INDICATES THAT THE LEGAL PROVISION IS NOT FREE FROM DOUBT AT THAT POINT OF TIME WHEN THE ASSESSEE FILED ITS RETURN OF INCOME. UNDER IDENTICA L CIRCUMSTANCES, THE HONBLE DELHI HIGH COURT CANCELLED THE LEVY OF PENA LTY UNDER SECTION 271 (1) (C) OF THE ACT ON THE GROUND THAT MERE CHANGE IN NA TURE OF LOSS FROM BUSINESS LOSS TO SPECULATION LOSS WAS NOT ENOUGH TO IMPOSE P ENALTY. IN THE LIGHT OF DECISION OF THE HONBLE DELHI HIGH COURT AS WELL AS THE DECISION OF THE APEX COURT IN THE CASE OF RELIANCE PETRO (SUPRA) WE ARE OF THE CONSIDERED OPINION THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY AND A CCORDINGLY ALLOW THE APPEAL FILED BY THE ASSESSEE. IN OTHERWORDS, WE DIRECT THE ASSESSING OFFICER TO CANCEL THE PENALTY LEVIED UNDER SECTION 271 (1) (C) OF THE ACT. BEFORE PARTING WE MAY OBSERVE THAT THE DECISION IN THE CASE OF DHARMENDRA TEXTILES 295 ITR 242 IS DISTINGUISHABLE ON FACTS. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF APRIL, 2011. SD/- SD/- (B.RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 27 TH APRIL, 2011 VBP/- COPY TO 1. M/S. MARVE BEACH REALTORS P. LTD., 161-CIT(A), M ITTAL TOWER, C-WING, NARIMAN POINT, MUMBAI-400 021.PAN AAACM6031E 2. THE INCOME TAX OFFICER, WARD 3 (2)-2, AAYAKAR BH AVAN, M.K. ROAD, MUMBAI 400 020. 3. CIT(A)-III, MUMBAI 4. CIT-III, MUMBAI 5. DR B BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.