Jain Exports Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5625/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7309 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: O P MODY
• Keywords: Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. S. SYAL, AM AND SH. A. T. VARKEY, JM ITA NO. 5625/DEL/2011 : ASSTT. YEAR : 2006-07 JAIN EXPORTS PRIVATE LTD. FLAT NO. 111, COMPETENT HOUSE, F- 14, CONNAUGHT PLACE, NEW DELHI-110001 VS DEPUTY COMMISSIONER OF INCOME- TAX, CIRCLE-4(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACJ1215B ASSESSEE BY : SH. O. P. MODY, ADV. REVENUE BY : DR. B. R. R. KUMAR, SR. DR DATE OF HEARING : 02.09.2014 DATE OF PRONOUNCEMENT : 4.9.2014 ORDER PER R. S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE CONFIRMATION OF PENALTY OF RS. 14,90,000/- IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE ACT, IN RELATION TO THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE IN THE RETURN OF INCOME, INTER ALIA , DECLARED LOSS OF RS. 44,20,250/- ON SALE OF SHARE S OF M/S PASUPATI HARYANA WOOLEN MILLS (PHWL) UNDER THE HEADS CAPITAL GAINS. AS AGAINST THE COST/INDEXED COST OF ACQUISI TION OF THE SHARES PURCHASED IN EARLIER YEARS AT RS. 44,26,250/-, THE CONSIDERATION OF SUCH ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 2 SHARES SOLD DURING THE YEAR WAS SHOWN AT RS. 6000/ -, THEREBY GIVING NET LOSS OF RS. 44,20,250/-. ON BEING CALLED UPON TO EX PLAIN AS TO HOW THERE WAS SALE CONSIDERATION OF RS. 6000/- AGAINST THE CO ST OF ACQUISITION OF RS. 44.26 LAC, THE ASSESSEE STATED THAT THESE SHARE S WERE PURCHASED IN FINANCIAL YEARS 1989-90, 1990-91 AND 2004, 2005. SI NCE THE NET WORTH OF PHWL WAS COMPLETELY ERODED AND IT WAS REGISTERED WITH BIFR, THE MARKET VALUE OF THIS INVESTMENT CAME AT RS. NIL. DE SPITE THE BEST EFFORTS, THE COMPANY COULD MANAGE TO SELL THESE SHARES IN TH E INSTANT YEAR FOR A LUMP SUM OF RS. 6000/-. THE ASSESSING OFFICER DID N OT FIND ANY SUBSTANCE IN THE ASSESSEES EXPLANATION ABOUT PHWL GOING INTO LOSS IN THE YEARS OF PURCHASE OF SHARES. IT WAS FOUND THAT PHWL WAS REGISTERED WITH BIFR SINCE 1995 AND THERE WAS NO FRESH DEVELOP MENT IN THE STATUS OF THE COMPANY. IN THE LIGHT OF THE ABOVE FACTS, TH E ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF LOSS OF RS. 44.20 LAC. IT IS ON THE BASIS OF THIS DISALLOWANCE OF LOSS, THAT THE PENALTY WAS IMPOSED. IN THE MEAN TIME, THE ASSESSEE WAS SUCCESSFUL BEFORE THE LD. CIT(A) I N QUANTUM PROCEEDINGS AGAINST THE REVERSAL OF DISALLOWANCE O F LOSS OF RS. 44.20 LAC, BUT THE TRIBUNAL OVERTURNED THE CIT(A)S VIEW S AND RESTORED THE ACTION OF THE A.O. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE IMPOSITION OF PENALTY BY RELYING ON OBSERVATIONS MA DE BY THE TRIBUNAL IN THE ORDER PASSED IN QUANTUM PROCEEDINGS. THE ASS ESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF SUCH PENALTY. ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 3 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE PURCHASED THE SHARES OF PHWL IN EARLIER YEARS AS ME NTIONED ABOVE. THERE IS FURTHER NO DISPUTE THAT THE SALE OF SUCH S HARES TOOK PLACE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION FOR A SUM OF RS. 6000/-. UNDER SUCH CIRCUMSTANCES, THE QU ESTION ARISES AS TO WHETHER PENALTY CAN BE IMPOSED ON THE LOSS DISALLOW ED BY THE ASSESSING OFFICER CLAIMED IN RESPECT OF SALE OF SHARES. THE L D. DR VEHEMENTLY RELIED ON THE TRIBUNAL ORDER UPHOLDING THE SUSTENAN CE OF DISALLOWANCE OF LOSS ON SALE OF SHARES IN QUANTUM PROCEEDINGS, WHIC H FORMED THE FOUNDATION FOR THE IMPOSITION OF THE PENALTY. 4. WE ARE NOT FULLY CONVINCED WITH THE SUBMISS ION OF THE LD. DR, ON PRINCIPLE, THAT THE SUSTENANCE OF THE DISALLOWANCE OF LOSS FALSIFIES THE CLAIM OF THE GENUINENESS AND AS SUCH PENALTY IS EXI GIBLE. THE CRITERIA FOR SUSTENANCE OF AN ADDITION AND IMPOSITION OF PENALTY ARE NOT NECESSARILY SIMILAR. ONE NEEDS TO APPRECIATE THE LOGIC OF THE LEGISLATURE IN KEEPING THE ASSESSMENT PROCEEDINGS DISTINCT FROM THE PENALT Y PROCEEDINGS. THE REASON FOR KEEPING THESE TWO PROCEEDINGS SEPARATE F ROM EACH OTHER IS THAT IF THE ASSESSEE FAILS TO PERSUADE THE AUTHORIT IES BELOW IN QUANTUM PROCEEDINGS ABOUT THE GENUINENESS OF ITS CLAIM FROM THE ANGLE OF ALLOWABILITY IN THE QUANTUM PROCEEDINGS, WHICH FORM S THE BEDROCK FOR THE IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT, THE ASSESSEE GETS ANOTHER OPPORTUNITY OF EXPLAINING HIS POINT OF VIEW FOR NON-IMPOSITION ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 4 OF PENALTY BY DEMONSTRATING THAT THERE WAS NO CONCE ALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. IF THE ASSES SEE SUCCEEDS IN MAKING OUT A CASE IN PENALTY PROCEEDINGS THAT EITHER THE A DDITION WAS WRONGLY MADE OR EVEN IF IT WAS RIGHTLY MADE, BUT THE SAME CANNOT GIVE RISE TO PENALTY, THEN THERE CAN BE NO FETTERS ON THE POWERS OF THE AUTHORITIES IN NOT IMPOSING OR DELETING THE PENALTY. THERE IS NO D EARTH OF THE JUDGMENTS LAYING DOWN THAT THE UPHOLDING OF ADDITION IN QUANT UM PROCEEDINGS WOULD NOT AUTOMATICALLY AND PER SE LEAD TO THE IMPOSITION OF PENALTY. IF THE ASSESSEE SUCCEEDS IN PROVING HIS CASE DURING TH E PENALTY PROCEEDINGS, NOTWITHSTANDING THE FACT THAT THE ADDITION HAS BEEN CONFIRMED BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL C AN STILL ORDER FOR DELETION OF PENALTY, IF A CASE IS MADE OUT THAT TH E ASSESSEE WAS NOT CAUGHT WITHIN THE MISCHIEF OF SECTION 271(1)(C). TH E HONBLE BOMBAY HIGH COURT IN CIT VS BALRAJ SAHANI(1979) 119 ITR 36 (BOM.) HAS UPHELD THE DELETION OF PENALTY WHEN THE ADDITION WA S CONFIRMED IN QUANTUM PROCEEDINGS. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE ALLAHABAD HIGH COURT IN CIT VS DEVI DYAL ALUMINIUM INDUSTRIES (PVT.) LTD. (1988) 171 ITR 683 (ALL.). IN VIEW OF THE ABOVE CITED JUDGMENTS AND SEVERAL OTHER LAYING DOWN THE SIMILAR PROPOSIT ION, WE HOLD THAT THE MERE FACT ABOUT THE SUSTENANCE OF DISALLOWANCE OF L OSS BY THE TRIBUNAL IN QUANTUM PROCEEDINGS CANNOT BE A GROUND FOR AUTOM ATIC CONFIRMATION OF PENALTY U/S 271(1)(C). THIS CONTENTION OF THE LD . DR IS REJECTED. ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 5 5. NOW WE WILL EXAMINE AS TO WHETHER THE PARAMETE RS FOR THE IMPOSITION OF THE EXTANT PENALTY ARE SATISFIED IN T HIS CASE. IT IS NOTICED THAT THE ASSESSING OFFICER DISALLOWED THE LOSS BY N OTICING THAT : NO JUSTIFICATION OF TAKING SUCH A LOW PRICE OF SALES C ONSIDERATION WAS PROVIDED BY THE ASSESSEE COMPANY . FROM THE ABOVE OBSERVATIONS OF THE ASSESSING OFFICER, IT IS CLEAR THAT HE DISALLOWED THE LOSS BY CONSIDERING SALE CONSIDERATION OF SHARES OF PHWL AT RS. 6000/- AT A VERY LOW LEVEL. EXCEPT FOR THIS PRESUMPTION THAT THE SALE PRICE WAS LOW, THERE IS NOTHING IN THE ASSESSMENT ORDER TO INDICATE THAT THE ASSESS EE, IN FACT, GOT SOME HIGHER PRICE FROM THE SALE OF SHARES AND DECLARED I T AT A LOWER LEVEL. THE ASSESSEE CATEGORICALLY STATED THE FACTS ABOUT THE A TTRITION OF THE NET WORTH OF PHWL AND IT BEING REGISTERED WITH BIFR. IT IS FU RTHER RELEVANT TO NOTE THAT WHAT THE AO FOUND WAS THAT PHWL WAS REGISTERED WITH BIFR EVEN PRIOR TO THE DATE STATED BY THE ASSESSEE. DESPITE T HESE FACTS AND THE ASSESSEE MAKING IT CLEAR THAT THE SHARES BECAME WOR THLESS AND THE ASSESSEE COULD MANAGE TO SELL THESE SHARES FOR A PA LTRY SUM OF RS.6000, THE AO CARRIED OUT NO INVESTIGATION WORTH THE NAME TO BRING ON RECORD SOME MATERIAL TO DISPROVE THE FACTS STATED BY THE A SSESSEE. IT GOES WITHOUT SAYING THAT APPARENT IS TO BE TAKEN AS REAL UNLESS PROVED OTHERWISE AND THE BURDEN TO PROVE THAT APPARENT IS NOT REAL IS ON THE ONE WHO CLAIMS SO. WHEN WE EXAMINE THE FACTS, IT IS FO UND THAT THE AO HAS NOT DISCHARGED ONUS ON HIM TO PROVE THAT APPARENT W AS NOT REAL. EXCEPT FOR THE IPSE DIXIT , THERE IS NO SUBSTANTIATION OF HIS STAND THAT THE SALE PRICE ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 6 WAS MANIPULATED. WHAT TO TALK OF PROVING SUCH A TH ING, THE AO HAS NOT EVEN TAKEN PAINS IN EXPLAINING THAT THE MARKET PRIC E OF THE SHARES WAS MORE THAN THAT REALIZED BY THE ASSESSEE. THE LD. C IT(A) HAS PROCEEDED TO CONFIRM THE PENALTY BY HOLDING THAT THE PURCHAS E PRICE OF SUCH SHARES WAS DOCTORED. WE FAIL TO COMPREHEND AS TO HOW SUCH A VIEW CAN BE CANVASSED GIVEN THE SITUATION THAT SUCH SHARES WERE PURCHASED IN EARLIER YEARS AND THE FIGURE OF INVESTMENT IN SHARES IS ONL Y A BROUGHT FORWARD BALANCE. WHEN THE PURCHASE PRICE OF THE SHARES HAS NOT BEEN DISPUTED BY THE AO IN ANY OF THE EARLIER ASSESSMENTS, HOW THE A UTHORITIES CAN CANVASS A VIEW IN THE INSTANT YEAR THAT SUCH PURCHASE PRICE WAS INFLATED IN EARLIER YEARS. IT IS TRITE THAT THE TRANSACTIONS WHICH HAVE NOT BEEN DISPUTED IN THE EARLIER YEARS CANNOT BE REVIEWED IN THE ASSESSMENT OF THE SUBSEQUENT YEARS. THIS TYPE OF STAND WOULD HAVE BEEN ADMISSIBL E IF THE AO HAD NOT ACCEPTED THE PURCHASE PRICE OF SHARES AS GENUINE IN THE ASSESSMENTS OF SUCH YEARS WHEN THESE SHARES WERE PURCHASED. ONCE T HESE TRANSACTIONS HAVE BEEN ACCEPTED, THEN IT IS NOT POSSIBLE TO TAK E UP SUCH ISSUES FOR EXAMINATION IN THE ASSESSMENT OF THE SUBSEQUENT YE AR. THE ONLY TRANSACTION WHICH TOOK PLACE IN THE INSTANT YEAR IS THE SALE OF SUCH SHARES. SINCE THERE IS NOTHING TO SHOW THAT THE SALE PRICE OF SHARES WAS NOT PROPERLY SHOWN, THERE CAN BE NO QUESTION OF IMPOSIN G OR CONFIRMING ANY PENALTY BY PRESUMING THAT EITHER THE SALE CONSIDERA TION DECLARED BY THE ASSESSEE WAS LESS OR THE PURCHASE PRICE OF THE SHAR ES IN THE EARLIER YEARS ITA NO. 5625/DEL/2011 JAIN E XPORTS PRIVATE LTD. 7 WAS INFLATED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DIRECT THE DELETION OF PENALTY. 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4/9/2014. SD/- SD/- (A. T. VARKEY) ( R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4/9/2014 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 02.09.2014 PS 2. DRAFT PLACED BEFORE AUTHOR 02.09.2014 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 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *