B.S.V. Enterprises, New Delhi V. DCIT, New Delhi

ITA 586/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65256 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY
• Assessee Lawyers: VENKETESH MOHAN
• Keywords: Capital asset; Business income; Period of limitation; Question of law; Speculation loss; Time period of passing order

Judgement Text

ITA 586/DEL/11 B.S. ENTERPRISES IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 586/DEL/11 A.YR. 2004-05 B.S. ENTERPRISES, VS. DCIT CIR. 39(1), 4842, BARA TOOTI CHOWK, NEW DELHI. SADAR BAZAR, DELHI-06. PAN: AALFV2791D ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI VED JAIN FCA & SHRI VENKETESH MOHAN CA RESPONDENT BY : SHRI SANJAY PANDEY SR. DR O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER D ATED 8-11-2010, CHALLENGING THE SUSTENANCE OF PENALTY OF RS. 23,47, 760/- LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961, RELATING TO A.YR. 2004 -05. 2. BRIEF FACTS ARE: THE ASSESSEE IS A PARTNERSHIP F IRM, WHICH CAME INTO EXISTENCE VIDE PARTNERSHIP DEED DATED 16-8-1999. TH E ASSESSEE FIRM HAD NOT ENTERED INTO BUSINESS ACTIVITY, EXCEPT THE PURCHASE OF A DISPUTED PLOT AUCTIONED BY RECOVERY OFFICER, DRT, WHICH WAS CLAIM ED TO BE HELD AS CAPITAL ASSET BY THE FIRM FOR ITS OWN USE FOR CONST RUCTION OF OFFICE. CLAUSE 4 OF THE PARTNERSHIP DEED READS AS UNDER: THAT THE BUSINESS OF THE PARTNERSHIP SHALL BE OF S ALE PURCHASE OF PROPERTY CONSTRUCTION AND FABRICATION ETC. OR TO DO ANY OTHER BUSINESS WHICH THE PARTNERS MAY HEREAFTER DECIDE. 2 2.1. ON 24-3-2000 THE ASSESSEE PURCHASED IMPUGNED P LOT/ PROPERTY BY WAY OF ACTION HELD BY RECOVERY OFFICER-I, DEBTS RE COVERY TRIBUNAL, DELHI. ACCORDING TO ASSESSEE, THE PROPERTY WAS PURCHASED B Y THE PARTNERS TO CONSTRUCT THE OFFICE PREMISES OF THE ASSESSEE FIRM AS ITS CAPITAL ASSET. . AS THE DISPUTES ENSUED BETWEEN THE PARTNERS, IT WAS D ECIDED THAT THE FIRM BE DISSOLVED AFTER PAYING ALL THE LIABILITIES. FOR THI S PURPOSE THE PROPERTY IN QUESTION WAS SOLD TO M/S APRA AUTO (INDIA )PVT. LTD . FOR A CONSIDERATION OF RS. 2,20,00,000/-, THE REGISTRATION OF THIS PROPER TY WAS MADE THROUGH SALE DEED DATED 10-9-2003. THE SALE PROCEEDS DERIVED FRO M THE PROPERTY WERE DEPOSITED IN THE BANK. ALL THE OUTSTANDING LOANS AN D LIABILITIES WERE PAID AND THE BALANCE WAS DISTRIBUTED AMONG THE PARTNERS OF T HE FIRM AND THEREAFTER THE FIRM WAS DISSOLVED. 2.2. NO BOOKS OF A/CS ARE MAINTAINED BY THE FIRM AS THERE WAS NO BUSINESS. IN THE RETURN OF INCOME, THE INCOME FROM SALE OF TH IS PROPERTY WAS DECLARED BY THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GA INS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTI CED THAT THE ASSESSEE FIRM WAS CONSTITUTED FOR CARRYING OUT BUSINESS OF SALE A ND PURCHASE OF PROPERTY AND FABRICATION ETC., THEREFORE, IT WAS PROPOSED TH AT THIS SALE SHOULD BE TREATED AS STOCK IN TRADE AND SURPLUS BE TREATED AS BUSINESS INCOME. 2.3. THE ASSESSEE FILED A DETAILED REPLY, ITS SUMMA RY IS AS UNDER: THAT REGARDING THE CAPITAL GAIN, IT IS SUBMITTED T HAT AS PER PARTNERSHIP DEED, THE NATURE OF BUSINESS IS SALE P URCHASE OF PROPERTY CONSTRUCTION AND FABRICATION ETC. OR DO AN Y OTHER BUSINESS BUT THE FIRM HAD NOT CONDUCTED ANY BUSINE SS ACTIVITY, THE ONLY PURPOSE WHICH WAS PURCHASED WAS 3 IOC MEHR AULI ROAD, GURGAON AND THE SAME WAS PURCHASED FOR THE ESTABLISHMENT OF THE OFFICE OF THE FIRM ITSELF BUT DUE TO THE DIFFERENCES BETWEEN THE PARTNERS THE SAME HAS TO BE SOLD OUT AND THE SALE RECEIPT WAS DULY DEPOSITED IN THE BANK AND AFTER PAYING BACK THE LOANS THE BALANCE WAS DISTRIBUTED AMONG TH E PARTNERS 3 AND FIRM WAS DISSOLVED. SO THE INCOME WAS CLAIMED A S CAPITAL GAINS AND THE DUE TAX WAS DEPOSITED ON THE SAME. IT IS NOT THE INCOME FROM THE BUSINESS AS NO BUSINESS ACTIVITIES WAS DONE BY THE FIRM.. 2.4. ASSESSING OFFICER, HOWEVER, REJECTED THE ASSES SEES CLAIM OF LONG TERM CAPITAL GAINS AND TREATED THE DIFFERENCE AS BUSINES S INCOME. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL. VIDE ORDER DATED 1 3-12-2007 THE CIT(A) DISMISSED THE SAME. SECOND APPEAL WAS PREFERRED TO ITAT. VIDE ORDER DATED 5-8-09 THE ITA T CONFIRMED THE ORDER OF ASSESSING O FFICER AND CIT(A). AGGRIEVED, THE ASSESSEE IS BEFORE HONBLE DELHI HI GH COURT AND VIDE ORDER DATED 19-5-2011 SUBSTANTIAL QUESTION OF LAW HAS BEE N ADMITTED IN THIS BEHALF AS UNDER: (I) WHETHER THE TRIBUNAL ERRED IN HOLDING THAT NOT ICE UNDER SECTION 143(2) WAS VALIDLY SERVED BY WAY OF AFFIXTU RE IN ACCORDANCE WITH LAW AND THAT TOO WITHIN LIMITATION PERIOD? (II) WHETHER THE TRIBUNAL ERRED IN HOLDING THAT PRO FIT ON SALE OF PROPERTY WAS ASSESSABLE UNDER THE HEAD BUSINESS AND NOT UNDER THE HEAD CAPITAL GAIN? 2.5. ASSESSING OFFICER INITIATED PENALTY PROCEEDIN GS U/S 271(1)(C) WHERE ASSESSEE REITERATED ITS STAND AND CLAIMED THAT ALL THE RELEVANT PARTICULARS WERE FURNISHED ALONG WITH THE RETURN OF INCOME AND IT IS ONLY ON THE BASIS OF INFORMATION FILED IN THE RETURN, THE ASSESSING OFFI CER WAS OF THE VIEW THAT THE HEAD OF INCOME IS TO BE CHANGED. THUS, THE ASSE SSEE FURNISHED ALL THE DETAILS AND IT WAS A QUESTION ABOUT ASSESSABILITY O F INCOME IN A PARTICULAR HEAD OF INCOME. 2.7. ASSESSEE HELD AN OPINION AND ASSESSING OFFICE R HELD A DIFFERENT OPINION ON THE SAME SET OF FACTS. THIS EVENTUALITY ALONE CANNOT BECOME AN 4 OCCASION FOR CONCEALMENT PENALTY. THE ASSESSING OFF ICER HELD THAT THOUGH MENS REA WAS NOT APPLICABLE TO INCOME-TAX PROCEEDIN GS, HOWEVER, IT WAS HELD THAT IT WAS A DELIBERATE AND CONSCIOUS ATTEMPT ON THE PART OF THE ASSESSEE TO REDUCE ITS TAX LIABILITY. THE PENALTY WAS IMPOSE D. 2.78. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL. CIT(A) CONFIRMED THE PENALTY BY FOLLOWING OBSERVATIONS: THE ABOVE DISCUSSION SHOWS THAT THIS IS NOT A CASE WHERE THE EXPLANATION GIVEN WAS BONA FIDE AND THERE WAS FULL DISCLOSURE OF FACTS. THE PROVISIONS OF EXPLANATION 1(B) TO SEC TION 271(1)(C) ARE APPLICABLE BECAUSE THE ASSESSEE HAS OFFERED AN EXPLANATION BEFORE THE ASSESSING OFFICER , WHICH HE IS NOT ABLE TO SUBSTANTIATE AND HAS ALSO FAILED TO PROVE THAT S UCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM. THE PENALTY U/S 271(1)(C) IM POSED IS THE MINIMUM IMPOSSIBLE IN THIS CASE. CONSIDERING THE FA CTS, THE PENALTY U/S 271(1)(C) IS JUSTIFIED AND IS UPHELD. 2.9. AGGRIEVED, ASSESSEE IS BEFORE US. 3. LEARNED COUNSEL FOR THE ASSESSEE RELIES ON HON BLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. RELIANCE PETROPRODU CTS PVT. LTD. 322 ITR 158 (SC) FOR THE PROPOSITION THAT CONCEALMENT PENAL TY IS INTRINSICALLY LINKED WITH THE DISCLOSURE OF PARTICULARS IN THE RETURN OF INCOME. IT IS NOT THE CASE OF THE DEPARTMENT THAT ANY DOCUMENT OR INFORMATION WAS NOT FILED ALONG WITH THE RETURN. 3.1. THE PENALTY HAS BEEN IMPOSED ONLY FOR THE REAS ON THAT CLAUSE 4 OF THE PARTNERSHIP DEED CLAIMED TO BE BUSINESS OF THE ASSE SSEE AS SALE AND PURCHASE OF PROPERTY. IT IS VEHEMENTLY ARGUED THAT EVEN IN T HE CASE OF ASSESSEE DEALING IN PROPERTY BUSINESS, THEY ARE ALLOWED TO HOLD BUS INESS PREMISES AS CAPITAL ASSETS. ASSESSEE ALSO HELD THE PLOT FOR CONSTRUCTI ON OF ITS OFFICE PREMISES AS 5 CAPITAL ASSET. THE ASSESSEE FIRM CLAIMED THAT DISPU TED PROPERTY WAS PURCHASED THROUGH RECOVERY OFFICER, DEBT RECOVERY T RIBUNAL TO CONSTRUCT ITS OWN OFFICE BUILDING. WHILE CARRYING OUT PROPERT Y BUSINESS IT IS DIFFICULT TO SELL A DISPUTED PROPERTY TO ANOTHER PERSON. THE FAC T THAT THE PROPERTY WAS PURCHASED THROUGH RECOVERY OFFICER, DEBT RECOVERY T RIBUNAL IMPLIES THAT IT WAS NOT HELD AS STOCK IN TRADE. THE ASSESSEES CONT ENTION IS THUS CORRECT THAT THE PLOT WAS PURCHASED FOR THE CONSTRUCTION OF PROP ERTY. 3.2. IT HAS BEEN ADMITTED BY ASSESSING OFFICER THA T EXCEPT THIS PROPERTY TRANSACTION NO OTHER BUSINESS WHAT-SO-EVER HAS BEEN CARRIED OUT BY THE ASSESSEE. THUS, THOUGH THERE WAS A PARTNERSHIP DEED FOR ALL PRACTICAL PURPOSES, THE FIRM WAS NON-FUNCTIONAL WHICH IS NOT DISPUTED BY THE DEPARTMENT. THE FACT THAT THERE WERE SEVERE DISPUTE S AMONG THE PARTNERS AND THE PLOT WHICH WAS HELD BY THE FIRM AS CAPITAL ASSE T WAS SOLD TO MEET OUT THE LIABILITIES OF THE PARTNERSHIP FIRM AND DISSOLUTION LEADS TO A BELIEF THAT IT WAS HELD AS CAPITAL ASSET. THE CONTENTION OF THE ASSESS EE IS MANIFESTED BY THE FACT THAT THE SALE PROCEEDS WERE DEPOSITED IN THE BANK A /C, OUT OF WHICH ALL THE LOANS AND LIABILITIES WERE PAID AND THE BALANCE WAS DISTRIBUTED AMONG THE PARTNERS. ALL THESE FACTS PUT TOGETHER LEAD TO A BO NA FIDE BELIEF THAT THE PROPERTY WAS HELD BY THE ASSESSEE AS ITS CAPITAL AS SET AND ITS SALE AFTER THREE YEARS OF SUCH CAPITAL ASSET IS ALLOWABLE TO BE TAXE D AS LONG TERM CAPITAL GAIN. 3.3. ASSESSEES BELIEF CAN NEITHER BE CALLED AS MAL A FIDE NOR FALSE. IF THE INTENTION WAS TO CARRY ON THE BUSINESS, THE ASSESSE E WOULD HAVE DONE SOME BUSINESS ACTIVITY OF PROPERTIES. THE FACT THAT THE PROPERTY WAS A DISPUTED PROPERTY FOR OWN USE AND SOLD UNDER COMPULSION AND AFTER PAYMENT OF LIABILITIES THE SURPLUS AMOUNT WAS DISTRIBUTED AMON G PARTNERS. ALL THESE FACTS AND CIRCUMSTANCES MAKE IT IS A CLEAR CASE OF HOLDI NG THE BONA FIDE BELIEF THAT IT WAS A CAPITAL ASSET. 6 3.4. IT HAS BEEN ADMITTED BY ASSESSING OFFICER THA T NO BOOKS OF A/CS ARE MAINTAINED AND NO BUSINESS ACTIVITY HAS BEEN CARRIE D OUT. THIS ADMITTED FACT ALSO SPEAK VOLUMINOUSLY THAT THERE WAS NO BUSINESS ACTIVITY AND THIS PLOT WAS NOT STOCK IN TRADE. 3.5. THERE IS NO LAW WHICH PROHIBITS A PROPERTY DEA LING FIRM IN OWNING A CAPITAL ASSET FOR ITS OWN USE WITH AN INTENTION FO R CONSTRUCTION OF OWN OFFICE PREMISES. IT IS A TRITE LAW THAT A FIRM DEALING IN PROPERTY CAN OWN A CAPITAL ASSET FOR ITS UTILIZATION WHICH ON SALE CAN BE CLAI MED AS LONG TERM CAPITAL GAIN. 3.6. IN CASE OF SHARE DEALER WHERE INCOME FROM TRAD ING IN SHARES IS TAXED UNDER THE HEAD BUSINESS INCOME, HOWEVER, IF THE S HARE BROKER HELD CERTAIN SHARES BY WAY OF INVESTMENT, AND ARE SOLD, SURPLUS IS TO BE TAXED AS CAPITAL GAINS. THE SOLE BASIS ADOPTED BY THE ASSESSING OFFI CER FOR HOLDING IT WAS STOCK IN TRADE RESTS ON CLAUSE 4 OF THE PARTNERSHI P DEED AND NO OTHER FACT. ALL THE ATTENDING FACTS AND CIRCUMSTANCES EXPLAINED BY ASSESSEE HAVE BEEN IGNORED BY ASSESSING OFFICER WITHOUT ASCRIBING COG ENT REASONS FOR DISBELIEVING THE EXPLANATION. THE SAME. 3.7. CIT(A) ON THE OTHER HAND HAS HELD THAT THE AS SESSEES EXPLANATION WAS NOT BONA FIDE AND THERE WAS NO FULL DISCLOSURE OF F ACTS. THE FACT OF THE MATTER IS THAT ASSESSING OFFICER HAS NOT MADE ANY ALLEGAT ION THAT THERE WAS NO FULL DISCLOSURE OF THE FACT. THEREFORE, THE CIT(A)S FI NDING IS NOT BORNE OUT FROM THE RECORD. SIMILARLY, NO REASON OR LOGIC HAS BEEN GIVEN AS TO WHY THE ASSESSEES EXPLANATION WAS NOT BONA FIDE. 3.8. HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA) HAS CLEARLY HELD THAT WHEN ALL THE PAR TICULARS ARE FURNISHED ALONG WITH THE RETURN OF INCOME, MERELY A CHANGE OF OPINI ON ON THE ASSESSABILITY AS AN EXPENDITURE OR UNDER A HEAD OF THE ACT CANNOT TA NTAMOUNT TO CONCEALMENT. 7 THE IMPORTANCE OF FURNISHING OF DETAILS ALONG WITH THE RETURN HAS BEEN EMPHASIZED BY THE HONBLE SUPREME COURT. FROM THE F ACTS OF THE CASE IT CLEARLY EMERGES THAT ASSESSEE HAD DISCLOSED ALL THE RELEVANT PARTICULARS IN THE RETURN OF INCOME. 3.9. THE TAX AND PENALTY HAVE BEEN HELD TO BE CIVIL LIABILITY. HOWEVER, IN THE CASE OF PENALTY IT HAS BEEN HELD THAT IF THE AS SESSEE HAS A BONA FIDE EXPLANATION AND RELEVANT PARTICULARS ARE FILED ALON G WITH THE RETURN OF INCOME, THE PENALTY SHOULD NOT BE IMPOSED MERELY BE CAUSE IT IS LAWFUL TO DO SO AS HELD IN THE CASE OF HINDUSTAN STEELS LTD. VS. STATE OF ORISSA 83 ITR 26. FURTHER RELIANCE IS PLACED ON THE JUDGMENT OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. ARETIC INVESTMENT (P) LTD. (201 0) 190 TAXMAN 155 WHEREIN THE HONBLE HIGH COURT REFERRING TO THE DEC ISION IN THE CASE OF CIT VS. AURIC INVESTMENT & SECURITIES LTD. (2007) 163 T AXMAN 533 (DEL) HAS OBSERVED AS UNDER: 3. AFTER REFERRING TO THE SAID DECISIONS, THE TRIB UNAL WAS OF THE VIEW THAT THE MERE CHANGE OF NATURE OF THE LOSS FROM BUSINESS LOSS TO SPECULATIVE LOSS WAS NOT ENOUGH TO IMPOSE PENALTY ON THE ASSESSEE. THE TRIBUNAL HELD THAT T H E ASSESSEE HAD CLAIMED THE LOSS AS BUSINESS LOSS UNDER A BONA FIDE BELIEF THAT HE WAS ENTITLED TO DO SO. 4. IT IS WELL SETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDENT OF EACH OT HER. NO DOUBT, THE FINDINGS IN THE ASSESSMENT PROCEEDINGS WOULD HAVE SIGNIFICANCE IN THE PENALTY PROCEEDINGS IN THE PENA LTY PROCEEDINGS ALSO BUT THEY ARE NOT DECISIVE OR DETER MINATIVE. THIS POSITION HAS BEEN ESTABLISHED IN SEVERAL DECIS IONS WHICH INCLUDE CIT VS. KHODAY ESWARSA & SONS 1972 CTR (SC) 295; (1972) 83 ITR 369(SC) AND CIT VS. J.K. SYNTHETICS L TD (1996) 135 CTR (DEL) 4; (1996) 219 ITR 267(DEL). 5. WITH RESPECT TO THE FACT THAT THE ASSESSEE HAD A CCEPTED THE VIEW TAKEN BY THE AO THAT THE LOSS DUE TO TRADING I N SHARES WAS 8 IN NATURE OF A SPECULATIVE LOSS, THE ASSESSEE CONTE NDED THAT IN THE PENALTY PROCEEDINGS, IT CAN TAKE UP THE PLEA TH AT THE CLAIM MADE IN THE RETURN WAS BONA FIDE. 3.10. VARIOUS CASE LAWS HAVE BEEN RELIED AS MENTION ED IN THE SHORT NOTE FILED BY THE ASSESSEE, WHICH IS PLACED ON RECORD. 4. LD. D.R. SUPPORTS THE ORDER OF LOWER AUTHORITIES . IT IS PLEADED THAT: (I) THE FIRM WAS CONSTITUTED FOR PROPERTY BUSINESS AND THE PROPERTY IN QUESTION WAS PURCHASED AS STOCK IN TRAD E AND IRRESPECTIVE OF THE CIRCUMSTANCES, WHEN SUCH PROPER TY IS SOLD THE INCOME IS LIABLE TO BE CHARGED UNDER THE HEAD BUSINESS INCOME (II) THE ASSESSEE CLAIMED IT TO BE LONG TERM CAPITA L GAINS DELIBERATELY WITH INTENTION TO REDUCE ITS TAX LIABI LITY. PENALTY IS A CIVIL LIABILITY; MENS REA IS NOT APPLICABLE TO THE PENALTY PROCEEDINGS AND IT IS NOT FOR THE ASSESSING OFFICER TO PROVE THAT THERE WAS ANY MENS REA. (III) ASSESSMENTS CAN BE FRAMED U/S 143(1) OR 143 (3). ASSESSEE TOOK A CALCULATED CHANCE WITH A HOPE THAT ITS RETUR N WOULD BE ACCEPTED U/S 143(1). THEREFORE, IT IS ONLY BECAUSE OF THE SCRUTINY AND INQUIRIES BY ASSESSING OFFICER THAT T HE VERACITY OF ASSESSEES CLAIM AND ACTUAL FACTS SURFACED. THE HEAD OF INCOME IS CHOSEN BY ASSESSEE WITH AN INTENTION TO R EDUCE ITS TAX LIABILITY. RELIANCE IS PLACED ON HONBLE SUPREM E COURT JUDGMENT IN THE CASE OF DHARMENDRA TEXTILE 306 ITR 277 (SC). 4.1. LD. DR THUS PLEADS THAT PENALTY WAS RIGHTLY I MPOSED AND SHOULD BE UPHELD. 9 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. ON THE ISSUE OF IMPOS ITION OF PENALTY HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCT S P. LTD. (SUPRA), HAS HELD THAT WHEN ASSESSEE HAD FURNISHED ALL THE DETAI LS AND PARTICULARS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS IN THEMSELVES WERE NOT FOUND TO BE INACCURATE OR TO BE USED FOR CONCE ALING INCOME ON ITS PART, IT IS UP TO THE AUTHORITIES TO ACCEPT THE ASSESSEES C LAIM MADE IN THE RETURN OR NOT. IF THE RELEVANT PARTICULARS ARE FILED MERELY B ECAUSE ASSESSEE CLAIMED THE EXPENDITURE WHICH HAS NOT BEEN ACCEPTED BY THE REVE NUE, BY ITSELF WILL NOT BE SUFFICIENT TO ATTRACT THE PENALTY. SIMILARLY, IT IS TRITE LAW THAT PENALTY SHOULD NOT BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO AS HELD BY HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN STEELS (SUPR A).. 5.1. ON THE ISSUE OF CHANGE OF HEAD OF INCOME OR NO N ALLOWANCE OF ANY LOSS OR CLAIM, HONBLE DELHI HIGH COURT IN THE CASE OF ARETIC INVESTMENT (P) LTD. (SUPRA) HAS HELD THAT THE FINDING IN THE ASSES SMENT ORDER MAY BE SIGNIFICANT BUT THEY ALONE ARE NOT DECISIVE OR DET ERMINATIVE. 5.2. CONSIDERING ALL THESE CASE LAWS IT BECOMES IMP ERATIVE TO APPRECIATE THE EXPLANATION OF THE ASSESSEE WHILE MAKING A CLA IM UNDER A PARTICULAR HEAD OF INCOME. IT IS CLEAR THAT THE ASSESSEE FIRM COULD NEVER START ITS BUSINESS IN EFFECTIVE TERMS. THEREFORE, NO BOOKS OF A/CS ARE MA INTAINED. THE QUESTION TO BE CONSIDERED IS WHETHER THE ASSESSEE HELD IT AS ST OCK IN TRADE OR AS A CAPITAL ASSET. IN THE ABSENCE OF ANY OTHER BUSINESS TRANSAC TION OR MAINTENANCE OF BOOKS OF A/CS, THE ISSUE BECOMES VEXED ONE TO BE DE CIDED ON CIRCUMSTANTIAL EVIDENCE. IT HAS NOT BEEN QUESTIONED THAT THERE WER E DISPUTES AMONG THE PARTNERS AND THE FIRM WAS TO BE DISSOLVED AND THE L IABILITIES WERE TO BE PAID WHICH IS CORROBORATED BY THE FACT THAT THE ASSESSEE FIRM SOLD THIS PROPERTY, PAID OUT THE LIABILITIES AND DISTRIBUTED THE REMAI NDER AMONG PARTNERS. THE 10 PROPERTY PURCHASED WAS ALSO DISPUTED PROPERTY ATTA CHED BY THE DRT AND THEREAFTER AUCTIONED THROUGH RECOVERY OFFICER. 5.3. THE ASSESSEE HAS FILED AN EXPLANATION THAT IT PURCHASED THE PROPERTY TO CONSTRUCT ITS OWN OFFICE IMPLYING THEREBY THAT THE PLOT WAS INTENDED TO BE HELD AS CAPITAL ASSET FOR THE FIRMS OWN USE. IN SU PPORT OF THIS CONTENTION ASSESSEE HAS GIVEN ABOVE REASONS AND EXPLANATION. IN OUR CONSIDERED VIEW UNLESS THE REASONS GIVEN BY THE ASSESSEE ARE REFUTE D IN EFFECTIVE TERMS, THE ASSESSEES EXPLANATION DESERVES TO BE ACCEPTED. IT IS AGAIN A TRITE LAW THAT WHAT IS STATED TO BE TRUE UNLESS THE CONTRARY IS PR OVED. 5.4. THOUGH THE ELEMENT OF MENS REA ARE NOT RELEVAN T IN PENALTY PROCEEDINGS, NEVERTHELESS AS HELD BY HONBLE SUPREM E COURT IN DHARMENDRA TEXTILES, CONSIDERATION OF REASONABLE BELIEF IS STI LL RELEVANT. IF THE ASSESSEE HAS GIVEN AN EXPLANATION, WITHOUT REBUTTING THE SAM E IT CANNOT BE HELD THAT THE ASSESSEES EXPLANATION IS NOT BONA FIDE OR FALS E. IN THE INSTANT CASE THERE IS NO REBUTTAL TO THE ASSESSEES CONTENTION EXCEPT GIVING CERTAIN ASSUMPTIONS AND PRESUMPTIONS. LD. CIT(A) HAS GIVEN TWO FINDING S (I) THAT FULL DISCLOSURE OF FACTS WAS NOT THERE. IN OUR VIEW THIS IS NOT THE CASE. ASSESSING OFFICER HAS NEVER ALLEGED THAT FULL FACTS WERE NOT DISCLOSED. (II) THE EXPLANATION IS NOT BONA FIDE. COMING TO THE ISSUE O F BONA FIDES OF THE ASSESSEES EXPLANATION, WHAT HAS BEEN STATED, DOES NOT REFLECT OUT RIGHT TO BE UNTRUE OR FALSE. THE CIRCUMSTANCES AND FACTS MENTIO NED DO INDICATE POSSIBILITY OF A REASONABLE BELIEF THAT THE PROPERT Y WAS INTENDED TO BE HELD AS CAPITAL ASSET OF THE FIRM. IN THE ABSENCE OF ANY RE BUTTAL OR DEMOLITION OF THIS EXPLANATION, IT CANNOT BE HELD THAT ASSESSEES EXPL ANATION WAS NOT BONA FIDE OR FALSE. THUS IT CAN NEITHER BE HELD THAT PARTICUL ARS WERE NOT FILED ALONG WITH THE RETURN NOR THE EXPLANATION CAN BE TERMED AS UNB ONAFIDE OR FALSE. 11 5.5. IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT ASSESSEE HAVING DISCLOSED ALL THE PARTICULARS IN THE RETURN OF INCO ME RELYING ON HONBLE SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETR OPRODUCTS P. LTD. (SUPRA) AND THE EXPLANATION BEING NOT FALSE , PENAL TY U/S 271(1)(C) ARE NOT ATTRACTED IN THE PRESENT CASE. SIMILARLY, HONBLE D ELHI HIGH COURT HAS ALSO TAKEN A VIEW THAT CHANGE OF HEAD OF INCOME OR ITS A LLOWANCE IS NOT LIABLE FOR PENALTY. RESPECTFULLY FOLLOWING THE ABOVE AUTHORITI ES WE ARE OF THE VIEW THAT THE ASSESSEES CASE DO NOT DESERVE PENALTY U/S 271( 1)(C) OF THE ACT WHICH IS DELETED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 09-08-2012. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 12