ITO 4(2)(1), MUMBAI V. PARSOLI CORPOPRATION LTD, MUMBAI

ITA 5696/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84357 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 09-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMANAND J
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 5696/MUM/2011 ASSESSMENT YEAR: 2005-06 ITO 4(2)(1) AAYAKAR BHAVAN, R.NO. 647, 6 TH FLOOR, M.K. ROAD MUMBAI 400 020 VS. PARSOLI CORPORATION LTD. 121/122 ASHOKA SHOPPING CENTRE, 2 ND FLOOR, L.T. MARG MUMBAI 400 023 PAN: AABCP 9030 F (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI PARMANAND J. DATE OF HEARING : 17 . 11 . 2014 DATE OF ORDER : 26 . 1 1 .2014 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGA INST ORDER DATED 29.06.2011, PASSED BY THE LD.CIT(A) -8, MUMBAI, IN RELATION TO THE PENALTY PROCEEDINGS U/S 271(1)(C) F OR THE A.Y. 2005-06. THE REVENUE IS AGGRIEVED BY THE DELETION OF PENALTY MADE ON ACCOUNT OF UNACCOUNTED SALES OF RS.49,71,805/- THE GROUNDS OF APPEAL READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE PENALTY U/S 271(1)( C) OF THE I.T. ACT, 1961 ON ADDITION MADE ON ACCOUNT OF UNACCOUNTE D SALES OF RS.49,71,805/-. ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) ERRED IN IGNORING THE FACT THAT THE PENAL TY WAS IMPOSED BECAUSE THE BUSINESS WAS NOT CONDUCTED WITHIN THE F RAMEWORK OF LAW. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE IMPUGNED ORDER OF THE LD.CIT(A) IS CONTRARY TO LAW TO BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE BRIEF FACTS AS CULLED OUT FROM THE ASSESSMEN T ORDER AS WELL AS THE APPELLATE ORDER ARE THAT THE ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS OF TRADING IN SHARES, SHARE BROKING, TRAVE L AGENCY, AUTHORIZED FOREX DEALER ETC. THE PENALTY HAS BEEN LEVIED BY TH E ASSESSING OFFICER IN RESPECT OF ADDITIONS MADE ON ACCOUNT OF, PROVISION OF TAX OF RS.3,22,554/-; DISALLOWANCE OF DEPRECIATION OF RS.1 ,10,445/- AND PROFIT ON ACCOUNT OF UNACCOUNTED SALE OF SHARES OF RS.49,7 1,805/-. ON THESE ADDITIONS THE ASSESSING OFFICER HAS LEVIED THE PENA LTY U/S 271(1)(C) @ 150% OF THE TAX. SO FAR AS THE PENALTY IN RELATION TO ADDITIONS ON ACCOUNT OF, PROVISION OF TAX AND DEPRECIATION ARE C ONCERNED, THE LD.CIT(A), HAS CONFIRMED THE PENALTY, THOUGH HE HAS DIRECTED THE AO TO RESTRICT THE PENALTY @100% OF THE AMOUNT OF TAX SOU GHT TO BE EVADED. NOW SO FAR AS THE ADDITION ON UNACCOUNTED SALE OF S HARES, RELEVANT FACTS ARE THAT THE ASSESSING OFFICER HAD INITIALLY MADE THE ADDITION OF RS.3,31,45,370/-, ON THE GROUND THAT THERE WAS A DI FFERENCE BETWEEN SALE RECORDED IN THE BOOKS OF THE ACCOUNT AND THE FIGURES OF SALES SUBMITTED BY THE ASSESSEE. IN THE FIRST APPEAL, IN QUANTUM PROCEEDINGS, THE LD.CIT(A) HELD THAT THE ENTIRE UNACCOUNTED SALE S CANNOT BE CONSIDERED AS INCOME AND ACCORDINGLY HE ESTIMATED 1 5% OF SUCH SALES AS ASSESSEES INCOME AND RESTRICTED THE ADDITION AT RS.49,21,805/-. ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 3 3. IN THE COURSE OF THE PENALTY PROCEEDINGS, THE AS SESSEE SUBMITTED THAT THE ADDITION ON ACCOUNT OF SALES HAVE BEEN FIN ALLY CONFIRMED ON ESTIMATE BASIS AND THERE IS NO EVIDENCE ON RECORD T O SHOW THAT ASSESSEE HAS CONCEALED ITS INCOME. RELIANCE WAS PLACED ON SE VERAL DECISIONS WHICH HAS BEEN INCORPORATED BY THE AO IN THE PENALT Y ORDER. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTE NTION AND HELD THAT THE LD.CIT(A) HAD ACCEPTED THE FACT THAT THE ASSESS EE HAS NOT INCLUDED THE SALE AMOUNT OF RS.3,31,45,370/- IN THE P/L ACCO UNT AND THEREFORE, TO THIS EXTENT THERE WAS A CONCEALMENT BY THE ASSESSEE . EVEN THOUGH THE ADDITION HAS BEEN MADE AFTER TAKING INTO ACCOUNT T HE INCOME ELEMENT OF UNACCOUNTED SALE @ 15%, BUT IT CANNOT BE SAID TH AT THE ADDITION ITSELF WAS BASED ON ESTIMATE. ACCORDINGLY HE HELD THAT ASS ESSEE HAS CONCEALED THE PARTICULARS OF INCOME BY FURNISHING INACCURATE PARTICULAR OF INCOME. 4. BEFORE THE LD.CIT(A), THE ASSESSEE SUBMITTED THA T THE ACTUAL SALE OF SHARES WAS RS.5,15,92,613/- AND COST OF SHARE SO LD WAS RS.5,05,36,723/- WHICH WAS REFLECTED IN SCHEDULED X OF THE BALANCE SHEET, IN THE FOLLOWING MANNER. (RS.) OPENING STOCK OF SHARES 33,80,370 ADD: PURCHASES 6,45,47,698 6,79,28,076 LESS: CLOSING STOCK 1,73,91,353 COST OF SECURITY SOLD 5,05,36,723 THIS DOES NOT LEAD TO ANY INTERFERENCE THAT THE ASS ESSEE HAS CONCEALED ANY PARTICULARS OF ITS INCOME OR HAS FILED INACCURA TE PARTICULARS OF INCOME. THE ASSESSEE HAS NOT CLAIMED ANY EXCESS PRO FIT TO DEFLATE THE PROFIT AS ASSESSEE HAS ALREADY OFFERED THE SURPLUS ON ACCOUNT OF SALE ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 4 TRANSACTION AMOUNTING TO RS.10,55,890/-. IN ANY CAS E THE INCOME HAS BEEN ASSESSED BY THE CIT(A) ON ESTIMATE BASIS, ON W HICH NO PENALTY SHOULD BE LEVIED. 5. THE LD.CIT(A) ON A PERUSAL OF RECORD AND SUBMISS IONS OF THE ASSESSEE OBSERVED THAT IN THE QUANTUM PROCEEDINGS T HE FIRST APPELLATE AUTHORITY HAS ADMITTED THE FACT THAT, IN SHARE MARK ET, PROFIT OF ONE YEAR MAY BE DIFFERENT FROM THE PROFIT OF OTHER YEAR AND TOTAL SALES CANNOT BE CONSIDERED TO BE AN INCOME. THE INCOME WAS DETERMIN ED WHILE TAKING PROFIT @ 15% OF TOTAL SHARES. THE INCOME WHICH HAS BEEN DETERMINED IS NOT THE ACTUAL INCOME BUT ESTIMATED INCOME ON THE B ASIS OF CHANGE IN BSE INDEX DURING THE RELEVANT PERIOD AND HENCE PENA LTY CANNOT BE JUSTIFIED ON SUCH ON ESTIMATED INCOME. THE RELEVANT OBSERVATION AND THE FINDINGS OF THE LD.CIT(A) ARE AS UNDER: 1.6..FROM THE ORDER OF THE CIT(A), I FIND THAT IT HAS BEEN OBSERVED THAT IT IS AN ADMITTED FACT THAT THE SHARE MARKET PROFIT OF ONE YEAR MAY BE DRAMATICALLY DIFFE RENT FROM THE PROFIT OF ANOTHER YEAR AND THAT THE TOTAL SALES CAN NOT BE CONSIDERED TO BE THE INCOME. THEREAFTER, THE AMOUNT OF RS.49,71,805/- WAS DETERMINED AT 15% OF THE TOTAL S ALES ON THE BASIS OF CHANGE IN BSE INDEX DURING THE F. YR. 2004 -05. IT IS OBVIOUS, THEREFORE, THAT THE AMOUNT OF RS.49,71,805 /- IS NOT THE ACTUAL INCOME BUT ESTIMATED INCOME ON THE BASIS OF CHANGE IN BSE INDEX DURING THE RELEVANT PERIOD. AN INCOME EST IMATED ON THE BASIS OF CHANGE IN BSE INDEX CANNOT WITH ANY CE RTAINTY BE THE ACTUAL INCOME EARNED BY THE ASSESSEE AS IN SHARE MA RKET, TRANSACTIONS IN DIFFERENCE SHARES OF DIFFERENT COMP ANIES ARE DRAMATICALLY DIFFERENT. THE IN BSE INDEX IS ONLY A N AVERAGE OF THE CHANGES IN THE PRICE OF DIFFERENT SHARES FORMING PA RT OF BSE INDEX. THE PROFIT FROM TRADING IN DIFFERENT SHARES INCLUDED IN BSE INDEX BE SAME OR IDENTICAL TO CHANGE IN BSE INDEX. THE ESTIMATED PROFIT ON THE BASIS OF CHANGES IN BSE IND EX, THEREFORE, CANNOT BE TREATED AS REAL INCOME AND HENCE, LEVY OF PENALTY IS NOT JUSTIFIED WHEN INCOME HAS BEEN ESTIMATED ON THE BASIS OF CHANGE IN BSE INDEX. IN THE INSTANT CASE, THE ADDIT ION HAS NOT BEEN MADE OF THE AMOUNT OF SALE OF SHARES REMAINING ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 5 UNACCOUNTED BUT OF ESTIMATED PROFIT ON SUCH UNACCOU NTED SALE. THE BASIS ON WHICH THE ESTIMATE HAS BEEN MADE BEING CHANGE IN SSE INDEX DURING THE RELEVANT PERIOD CANNOT BE ESTA BLISH WITH ANY CERTAINTY THAT SUCH ESTIMATED INCOME WAS THE REAL P ROFIT OF THE ASSESSEE WHICH HAD ACTUALLY BEEN EARNED. IT CANNOT BE REASONABLY ASSUMED THAT TRANSACTIONS IN DIFFERENT S HARES RESULT IN PROFIT SIMILAR OR IDENTICAL TO CHANGE IN BSE INDEX AS PROFIT ON DIFFERENT SHARES AT DIFFERENT TIMES VARY DRAMATICAL LY. THE LEVY OF PENALTY U/S 271 (1 )(C), THEREFORE UNDER SUCH CIRCU MSTANCES IS NOT JUSTIFIED. IT HAS BEEN POINTED OUT BY THE APPELLANT PLACING RELIANCE UPON VARIOUS JUDICIAL PRONOUNCEMENTS THAT INCOME DE RIVED FROM ESTIMATED BASIS CAN NEITHER BE TREATED AS CONCEALME NT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THE CASE OF DCIT -VS- INDIAHIT COM. PVT. LTD. [105 TTJ DEL. 501 ], IT HAS BEEN HELD THAT IN ORDER TO JUSTIFY THE LEVY OF PENALTY, THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADING TO REASONABL E CONCLUSION THAT THE AMOUNT IN QUESTION REPRESENTS ASSESSEE'S I NCOME. IN THE INSTANT CASE, FOR THE REASON THAT THE AMOUNT OF RS. 49,71,805/- HAS BEEN ESTIMATED ON THE BASIS OF CHANGE IN BSE IN DEX WHICH CANNOT LEAD TO A CONCLUSION WITH ANY CERTAINTY THAT THE ASSESSEE HAD ACTUALLY EARNED PROFIT ON THE SHARES TRANSACTED BY IT TO THE SAME EXTENT AS THAT OF CHANGE IN THE BSE INDEX, THE AMOUNT IN QUESTION CANNOT BE REASONABLY HELD TO REPRESENT THE ASSESSEE'S INCOME. THUS, UNDER THE RELEVANT FACTS AND CIRCUMST ANCES OF THE INSTANT CASE AS THE RELEVANT MATERIAL AND CIRCUMSTA NCES LEAD TO REASONABLE CONCLUSION THAT THE AMOUNT OF RS.49,71,8 05/- HAVING BEEN DETERMINED ON THE BASIS OF CHANGE IN BSE INDEX CANNOT BE REASONABLY TREATED AS ASSESSEES INCOME, LEVY OF PE NALTY IS NOT JUSTIFIED. THE LEVY OF PENALTY U/S 271(1)(C) IS, TH EREFORE, NOT JUSTIFIED, WHICH IS DELETED. 6. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE, THEREFORE, THE APPEAL WAS HEARD ON MERITS AND ON TH E BASIS OF SUBMISSIONS MADE BY THE LD. DR. 7. BEFORE US THE LD. DR SUBMITTED THAT THE ADDITION HAS BEEN MADE IN THE CASE OF THE ASSESSEE ON THE GROUND THAT IT C OULD NOT SATISFACTORILY EXPLAIN THE DISCREPANCIES NOTICED IN THE PROFIT AND LOSS ACCOUNT AND THE SCHEDULES ATTACHED TO IT BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS NOT MADE ANY ESTIMATION, BUT HAS ARRIVED AT A FIGURE WH ICH CAN BE ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 6 REASONABLY ATTRIBUTED, AS ASSESSEES INCOME IN THE EVENT OF ASSESSEE NOT DISCLOSING ALL THE FACTS AND BASED ON THE CIRCUMSTA NCES. THE LD.CIT(A) HAS ARRIVED AT A REASONABLE FIGURE OF 15% OF THE BS E INDEX APPRECIATION FOR TWO YEARS. THUS, THE ADDITION CONFIRMED TO THE EXTENT OF 15% OF THE ADDITION MADE BY THE AO CANNOT BE EQUATED TO THE CA SE OF ANY GP ADDITION ON WHICH GENERALLY PENALTY LEVIED DOES NOT SUSTAIN AT APPELLATE STAGES. THE ADDITION MADE BY THE AO AND PARTLY CONF IRMED BY THE LD.CIT(A) WAS ON BEST JUDGMENT BASIS PARTICULARLY W HEN THE ASSESSEE WAS NOT FORTHCOMING FOR THE DISCLOSURE OF TRUE FACT S AND FIGURES. WHEN THE ASSESSEE IS NOT WILLING TO BRING FORWARD THE CO RRECT EVIDENCE TO SUBSTANTIATE HIS CLAIM OF INCOME, THEN THE PRESUMPT ION IN LAW IS THAT THE SAID EVIDENCE WILL GO AGAINST THE PERSON WHO DELIBE RATELY WITHHOLDS IT (SECTION 114(G) OF THE INDIAN EVIDENCE ACT). COURTS HAVE TIME AND AGAIN HELD THAT PENALTY CAN BE LEVIED IN CASES WHERE INCO ME HAVE BEEN ESTIMATED BASED ON THE FACTS AND CIRCUMSTANCES LEAD ING TO SUCH ESTIMATION. HE REFERRED TO FOLLOWING JUDGMENTS:- (A) COMMISSIONER OF INCOME-TAX VS. S. KRISHNASWAMY & SONS (1996) 219 ITR 157 (MAD) (B) A.M. SHAH & CO VS. COMMISSIONER OF INCOME-TAX ( 1998) 238 ITR 415 (GUJARAT) (C) COMMISSIONER OF INCOME TAX VS. MD. WARSAT HUSS AIN (1998) 171 ITR 405 (D) COMMISSIONER OF INCOME-TAX VS. SMT. CHANDRAKANT A (1992) 205 ITR 607 (MADHYA PRADESH) ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 7 8. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE LD . DR AND ALSO IN THE PERUSAL OF THE RELEVANT FINDING GIVEN BY THE AO AS WELL BY THE LD. CIT(A), WE FIND THAT THE ASSESSEE HAD SHOWN PROFIT OF RS.10,55,890/- FROM ITS SHARE TRADING. IN THE P/L ACCOUNT, THE ASS ESSEE HAD SHOWN THE FIGURE OF SALES AT RS.1,84,47,243/- AND THE COST OF SHARES AT RS.1,73,91,353/-. IN THE BALANCE SHEET IN SCHEDULE- (X) THE ASSESSEE HAD SHOWN THE COST OF SHARE SOLD IN THE FOLLOWING MANNE R: (RS.) OPENING STOCK OF SHARES 33,80,370 ADD: PURCHASES 6,45,47,698 6,79,28,076 LESS: CLOSING STOCK 1,73,91,353 COST OF SECURITY SOLD 5,05,36,723 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSEE SUBMITTED THAT THE SALE VOLUME OF SHARES IN NSE TRA NSACTION INCLUDES WAS RS.5,15,92,613/-, WHICH INCLUDED SHARE TRANSACT ION OF RS.8,80,879/- WHICH WERE CHANNELIZED THROUGH ITS OWN ACCOUNT AND RS.5,05,11,734/- ON BEHALF OF THE CLIENTS, WHOSE ACCOUNT WERE MAINTA INED BY THE ASSESSEE AS PART OF PORTFOLIO ADVISORY SERVICES. SI MILARLY, THE PURCHASE OF SHARES AMOUNTED TO RS.6,45,47,968/- WHICH CONSISTED SHARE PURCHASE OF RS.10,06,458/- CHANNELIZED THOUGH ITS OWN ACCOUNT A ND RS.6,35,41,240/- ON BEHALF OF ITS CLIENT. THE ASSES SEE SUBMITTED THAT DUE TO CLERICAL MISTAKE, THE MISTAKE HAD OCCURRED WHILE TAKING THE SALES AND PURCHASE FIGURE IN THE P/L ACCOUNT, HOWEVER, THERE WOULD BE NOT MUCH DIFFERENCE, SO FAR AS INCOME/PROFIT ELEMENT WHILE T AKING THE CORRECT FIGURES. HOWEVER, ASSESSING OFFICER HELD THAT THE E NTIRE DIFFERENCE OF ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 8 SALES IS TO BE TAXED AS INCOME WHICH HAS BEEN REDUC ED BY THE LD.CIT(A) BY HOLDING THAT THE 15% OF SUCH SALES SHOULD BE TAK EN AS INCOME WHICH WAS ON ESTIMATE BASIS, BASED ON AVERAGE CHANGE IN B SE INDEX. ON THESE FACTS IT CANNOT BE HELD THAT ANY INCOME HAD BEEN EA RNED, WHICH HAD NOT BEEN OFFERED TO TAX. THE DIFFERENT SET OF FIGURES I N THE ASSESSEES BALANCE SHEET AND IN THE P/L ACCOUNT, WHICH HAS LED TO ADDITION IN THE QUANTUM PROCEEDINGS, DO NOT DISCLOSE ANY ELEMENT OF PROFIT. THE REVENUES CASE RESTS ON THE PREMISE THAT ENHANCED S ALES ON THE BASIS OF BALANCE SHEET WOULD HAVE YIELDED MORE PROFIT. THE I NCOME TAX AFTER ALL COULD BE ON THE REAL INCOME AND NOT ON THE HYPOTHET ICAL INCOME. WHAT IS THE CONCEALED INCOME HAS NOT BEEN BROUGHT ON RECORD . ULTIMATELY THE INCOME WHICH STANDS ASSESSED AFTER THE FIRST APPELL ATE ORDER IN THE QUANTUM PROCEEDINGS IS BASED ON ESTIMATE WHICH CANN OT BE TREATED AS REAL INCOME OR ACTUAL INCOME OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES THE LEVY OF PENALTY WOULD BE BASED ON PRESUMPTION WHICH DO NOT WARRANT LEVY OF PENALTY FOR CONCEALMENT OF I NCOME. THUS WE ARE OF THE OPINION THAT THE PENALTY HAS RIGHTLY BEEN DE LETED ON THESE FACTS. ACCORDINGLY GROUND RAISED BY REVENUE STANDS DISMISS ED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF NOVEMBER, 2014. SD/- SD/- (SANJAY ARORA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 26.11.2014 *SRIVASTAVA ITA NO. 5696/MUM/2011 PARSOLI CORPORATION LTD ASSESSMENT YEAR: 2005-06 9 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.