RADHE KRISHNA FISCAL P.LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 6256/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9101 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 04-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Business income; Question of law; Speculation loss
• Section: 143(3); 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER & SHRI P.M.JAGTAP, ACCOUNTANT MEMBER. I.T.A. NO.6256/MUM/2011 ASSESSMENT YEAR : 2005-06. RADHE KRISHNA FISCAL PVT. LTD., DY. COMMISSIONER OF 423/24, D-WING, GARDEN COURT, VS. INCOME-TAX- 10(1), LBS MARG, OPP. CHIRAG NAGAR\ MUMBAI. POLICE STATION, GHATKOPAR (WEST), MUMBAI 400 086. PAN AAACR 4672E APPELLANT RESPONDENT . APPELLANT BY : SHRI MEHUL SH AH RESPONDENT BY : SHRI A.B. KOLI. DATE OF HEARING : 04-12-2012 DATE OF PRONOUNCEMENT : 14-12-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-22, MUMBAI DATED 12-08-2011 WHEREBY HE CONFIRMED THE PENALTY OF RS.35,35,309/- IMPOSED BY THE AO U/S 271(1)(C). 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES/DERIVATIVES. THE RETU RN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30-06-2005 DECLARI NG A LOSS OF RS.97,26,132/- WHICH, INTER ALIA, COMPRISED OF LOSS OF RS.96,61,29 7/- ON ACCOUNT OF TRADING IN DERIVATIVES. IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 28-09- 2 ITA NO.6256/MUM/2011. 2007, THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED BY THE AO AT RS.8,35,500/- AFTER MAKING DISALLOWANCE, INTER ALIA, ON ACCOUNT O F ASSESSEES CLAIM FOR LOSS OF RS.96,61,291 ON ACCOUNT OF TRADING IN DERIVATIVES A S NORMAL BUSINESS LOSS. THE AO HELD THAT THE NATURE OF DERIVATIVE TRANSACTION ITSE LF WAS NOTHING BUT PURELY SPECULATIVE TRANSACTION AND THE LOSS ARISING FROM S UCH TRANSACTION WAS SPECULATION LOSS WHICH COULD BE CARRIED FORWARD AND SET OFF ONL Y AGAINST SPECULATION INCOME. HE REJECTED THE CONTENTION RAISED BY THE ASSESSEE T HAT THE AMENDMENT MADE IN SECTION 43(5) OF THE ACT BY INSERTING CLAUSE (D) BY THE FINANCE ACT, 2005 TO EXCLUDE DERIVATIVE TRANSACTION FROM THE AMBIT OF SPECULATIV E TRANSACTION IS APPLICABLE RETROSPECTIVELY HOLDING THAT THE SAID AMENDMENT BEI NG SUBSTANTIVE IN NATURE IS APPLICABLE WITH EFFECT FROM 1 ST APRIL, 2006. 3. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF AS SESSEES CLAIM FOR LOSS ON ACCOUNT OF TRADING IN DERIVATIVES BY TREATING THE S AME AS SPECULATION LOSS WAS CONFIRMED BY THE LEARNED CIT(APPEALS) VIDE HIS APPE LLATE ORDER DATED 07-08-2009 DISMISSING THE APPEAL FILED BY THE ASSESSEE IN THE QUANTUM PROCEEDINGS. THEREAFTER, A NOTICE WAS ISSUED BY THE AO REQUIRING THE ASSESSE E TO SHOW CAUSE WHY PENALTY U/S 271(1)(C) SHOULD NOT BE IMPOSED IN RESPECT OF T HE SAID DISALLOWANCE. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE, INTER ALIA , THAT MERELY BECAUSE A CLAIM WAS NOT ACCEPTED BY THE AO IN THE ASSESSMENT, THAT ITSE LF COULD NOT LEAD TO IMPOSITION OF PENALTY U/S 271(1)(C). THE ASSESSEE, THEREFORE, URGED THAT THE PENALTY PROCEEDINGS INITIATED IN ITS CASE MAY BE DROPPED. T HE AO DID NOT FIND THIS CONTENTION OF THE ASSESSEE TO BE ACCEPTABLE AND IMP OSED A PENALTY OF RS.35,35,309/- U/S 271(1)(C) BEING 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE IN RESPECT OF ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF ITS CLAIM FOR LOSS ARISING FROM DERIVATIVE TRANSACTIONS HOLDING T HAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME TO THAT EXTENT . 3 ITA NO.6256/MUM/2011. 4. THE PENALTY IMPOSED BY THE AO U/S 271(1)(C) WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT( APPEALS). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(APPEAL S), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT THE LOSS ON ACCOUNT OF TRADING IN DERIVATIVES WAS ACTUALLY INCURRED BY THE ASSESSEE AND WHETHER THE S AME WAS ALLOWED AS BUSINESS LOSS OR SPECULATIVE LOSS WOULD NOT MAKE ANY DIFFERE NCE FOR THE PURPOSE OF PENALTY U/S 271(1)(C). IT WAS ALSO SUBMITTED ON BEHALF OF T HE ASSESSEE THAT THE ISSUE RELATING TO THE ASSESSEES CLAIM FOR THE SAID LOSS AS BUSINE SS LOSS WAS HIGHLY DEBATABLE AND SINCE ALL THE MATERIAL FACTS RELEVANT TO THE SAID C LAIM WERE FULLY AND TRULY DISCLOSED BY THE ASSESSEE, THERE WAS NO JUSTIFICATION IN THE ACTION OF THE AO IN IMPOSING PENALTY U/S 271(1)(C). THE SUBMISSIONS MADE BY THE ASSESSEE AS ABOVE WERE NOT FOUND ACCEPTABLE BY THE LEARNED CIT(APPEALS) AND HE CONFIRMED THE PENALTY IMPOSED BY THE AO U/S 271(1)(C) FOR THE FOLLOWING R EASONS GIVEN IN PARAGRAPH NO. 4 OF HIS IMPUGNED ORDER : I HAVE GONE THROUGH THE PENALTY ORDER, PERUSED TH E SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSED THE CASE WITH T HE A.R. OF THE APPELLANT. THE APPELLANT SUBMITS THAT ITS CLAIM OF LOSS FROM D ERIVATIVES BEING THE BUSINESS LOSS WAS BASED ON THE DECISIONS OF HON. IT AT. HOWEVER, IT IS FACTUALLY INCORRECT SINCE THE DECISIONS RELIED UPON BY THE APPELLANT ARE DELIVERED SUBSEQUENTLY TO FILING OF APPEAL BY ASSES SEE ON 30.06.2005. THE APPELLANT FAILED TO PRODUCE BEFORE ME ANY JUDGEMENT OF ANY COURT SUPPORTING ITS CONTENTION THAT FOR A.Y. 2005-06 THE LOSS FROM DERIVATIVES WAS TO BE TREATED AS BUSINESS LOSS. HENCE ON DATE OF FI LING OF THE RETURN, THE ISSUE WAS NEITHER DEBATABLE NOR WAS BASED ON ANY SOUND FO OTING. THIS FACT HAS SUBSEQUENTLY BEEN CONFIRMED BY THE DECISION OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT VS. BHARAT S. RUIA (HUF) THAT THE A MENDMENT WAS NOT RETROSPECTIVE. THE CLAIM OF THE APPELLANT FURTHER I S, WHERE HON. HIGH COURT HAVE ADMITTED APPEAL, PENALTY U/S. 271(1)(C) CANNOT BE IMPOSED. THIS ARGUMENT BECOMES IRRELEVANT SINCE THE ISSUE HAS BEE N ALREADY DECIDED BY HON. JURISDICTIONAL HIGH COURT AGAINST THE APPELLAN T. THE APPELLANT ALSO CLAIMS THAT IT WAS ADVISED BY THE CHARTERED ACCOUNT ANT TO MAKE THE CLAIM AS BUSINESS LOSS. HOWEVER, FROM THE COPY OF SO CALLED ADVISE FILED BEFORE ME IT 4 ITA NO.6256/MUM/2011. IS NOTED THAT THE SAME IS DATED 17.06.2011 WHEREIN THERE IS A REFERENCE TO THE AMENDED PROVISIONS OF SECTION 43(5) AND HENCE THIS CANNOT BE AN OPINION OF THE CHARTERED ACCOUNTANT AS ON THE DATE OF FILING O F THE RETURN. NONE OF THE CASE LAWS RELIED UPON BY THE APPELLANT ARE HAVING F ACTS IDENTICAL TO THE FACTS OF THE APPELLANTS CASE. FURTHER, BY MAKING CLAIM O F BUSINESS LOSS THERE WAS AN INTENTION ON THE PART OF THE APPELLANT TO GET A SET OFF OF THE SAME AGAINST BUSINESS INCOME IN FUTURE AND HENCE THE ACTION OF T HE APPELLANT WAS NOT BONAFIDE. THUS, IN MY OPINION THE APPELLANTS CASE IS DIRECTLY COVERED BY EXPLANATION (1) TO SECTION 271(1)(C) SINCE THE APPE LLANT HAS FAILED TO PROVE ITS ACTION TO BE BONAFIDE. IN VIEW OF THESE FACTS AND LEGAL POSITION AS DISCUSSED ABOVE, I AM OF THE CONSIDERED OPINION THAT THE A.O. HAS RIGHTLY IMPOSED PENALTY U/S. 271(1)(C) FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME, WHICH IS UPHELD. 5. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED ON RECORD BEFORE US TWO DECISIONS OF THE MUMBAI BENCH OF ITAT IN THE CASE O F SSKI INVESTOR SERVICES PVT. LTD. 113 TTJ 511 AND IN THE CASE OF RBK SECURITIES P. LTD. 118 TTJ 465 WHEREIN IT WAS HELD THAT THE LOSS ON ACCOUNT OF TRADING IN DER IVATIVES COULD NOT BE TREATED AS A SPECULATION LOSS AND THE SAME WAS TO BE ALLOWED AS A BUSINESS LOSS. HE SUBMITTED THAT ALTHOUGH THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHRI BHARAT R. RUIA (HUF) 199 TAXMAN 87 HAS TAKEN A DIFFERENT V IEW ON THIS ISSUE WHICH IS AGAINST THE ASSESSEE, THE DECISIONS RENDERED BY THE TRIBUNAL EARLIER IN THE CASES OF SSKI INVESTOR SERVICES PVT. LTD. 113 TTJ 511 AND R BK SECURITIES P. LTD. 118 TTJ 465 ARE SUFFICIENT TO SHOW THAT THE VIEW TAKEN BY THE ASSESSEE WHILE CLAIMING THE LOSS ON ACCOUNT OF TRADING IN DERIVATIVES AS A NORM AL BUSINESS LOSS WAS A POSSIBLE VIEW AND THE DISALLOWANCE OF SUCH CLAIM BASED ON A POSSIBLE VIEW SHOULD NOT ATTRACT PENALTY U/S 271(1)(C). HE ALSO SUBMITTED TH AT THE SPECIAL LEAVE PETITION FILED BY THE ASSESSEE AGAINST THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SHRI BHARAT R. RUIA (HUF) (SUPRA) HAS BEEN ADMIT TED BY THE HONBLE SUPREME COURT VIDE ITS ORDER 05-09-2011 WHICH SHOWS THAT TH E ISSUE RELATING TO ASSESSEES CLAIM FOR LOSS ON ACCOUNT OF TRADING IN DERIVATIVES AS NORMAL BUSINESS LOSS INVOLVES A SUBSTANTIAL QUESTION OF LAW. IN THIS CONTEXT, HE RELIED ON THE DECISION OF MUMBAI 5 ITA NO.6256/MUM/2011. BENCH OF ITAT IN THE CASE OF M/S NAYAN BUILDERS & D EVELOPERS PVT. LTD. (ITA NO. 2379/MUM/2009 DATED 18 TH MARCH, 2011) WHEREIN IT WAS HELD THAT SINCE THE ADDITIONS IN RESPECT OF WHICH PENALTY WAS IMPOSED H AVE BEEN HELD TO BE INVOLVING A SUBSTANTIAL QUESTION OF LAW BY THE HONBLE HIGH C OURT, THE PENALTY IN RESPECT OF SUCH ADDITION WAS NOT EXIGIBLE. HE ALSO RELIED ON T HE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF HONGKONG & SHANGHAI BANKING COR PN. LTD. (2012) 22 TAXMANN.COM 38 (MUM.) WHEREIN THE PENALTY IMPOSED U /S 271(1)(C) IN RESPECT OF DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FO R LOSS IN RESPECT OF READY FORWARD TRANSACTIONS TREATING THE SAME AS SPECULATI VE LOSS WAS CANCELLED BY THE TRIBUNAL HOLDING THAT SUCH DISALLOWANCE DID NOT CON STITUTE CONCEALMENT OF INCOME SO AS TO LEVY PENALTY U/S 271(1)(C). 6. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELI ED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE THAT THE PRESENT CASE IS A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C). HE SUBMITTED THAT THE AMENDMENT MADE IN SECTION 43(5) BY THE FINANCE ACT, 2005 ARTIFICIALLY ALTERIN G THE NATURE AND CHARACTER OF THE DERIVATIVE TRANSACTION IS APPLICABLE ONLY FROM ASSE SSMENT YEAR 2006-07 AND NOT TO THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2 005-06. HE SUBMITTED THAT THERE WAS NOTHING AVAILABLE WITH THE ASSESSEE AT THE TIME OF FILING OF THE RETURN FOR THE YEAR UNDER CONSIDERATION TO SUPPORT ITS CLAIM FOR L OSS ON ACCOUNT OF TRADING IN DERIVATIVES AS NORMAL BUSINESS LOSS AND IN THE ABSE NCE OF THE SAME, THE SAID CLAIM MADE BY IT WAS PATENTLY WRONG WHICH CLEARLY CONSTIT UTED FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME BY THE ASSESSEE ATTRACTIN G IMPOSITION OF PENALTY U/S 271(1)(C). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE ISSUE RELATING TO ASSESSEES CLAIM FOR LOSS ON ACCOUNT OF TRADING IN DERIVATIVES BEING A NORMAL BU SINESS LOSS OR SPECULATION LOSS 6 ITA NO.6256/MUM/2011. HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT I N THE CASE OF SHRI BHARAT R. RUIA (HUF) (SUPRA) AGAINST THE ASSESSEE ON APRIL 18 , 2011, THERE WERE DECISIONS RENDERED BY THE TRIBUNAL PRIOR THERETO ACCEPTING TH E STAND OF THE ASSESSEE THAT LOSS ON ACCOUNT OF DERIVATIVE TRADING WAS NOT A SPECULAT ION LOSS BUT WAS ALLOWABLE AS A BUSINESS LOSS. KEEPING IN VIEW THE SAID DECISIONS O F THE TRIBUNAL CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE AGREE WITH HIS CONTENTION THAT THE VIEW TAKEN BY THE ASSESSEE WHILE CLAIMING THE LOSS ON ACCOUNT OF DERIVATIVE TRADING AS A NORMAL BUSINESS LOSS WAS A POSSIBLE VIEW AND THE CL AIM SO MADE BY ADOPTING A POSSIBLE VIEW WAS BONAFIDE. MOREOVER, THE SLP FILED BY THE ASSESSEE AGAINST THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SHRI BHARAT R. RUIA (HUF) (SUPRA) HAS ALREADY BEEN ADMITTED BY THE HONBLE SU PREME COURT VIDE ITS ORDER DATED 05-09-2011 WHICH SHOWS THAT THE ISSUE RELATIN G TO ASSESSEES CLAIM FOR LOSS ON ACCOUNT OF DERIVATIVE TRADING BEING A NORMAL BUS INESS LOSS INVOLVE A SUBSTANTIAL QUESTION OF LAW AND AS HELD BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF NAYAN BUILDERS & DEVELOPERS PVT. LTD. (SUPRA), NO P ENALTY U/S 271(1)(C) CAN BE IMPOSED IN RESPECT OF DISALLOWANCE ON THE ISSUE WHI CH INVOLVES A SUBSTANTIAL QUESTION OF LAW. IT IS ALSO OBSERVED THAT IN THE CA SE OF HONGKONG & SJHANGHAI BANKING CORPN. LTD. (SUPRA) CITED BY THE LEARNED CO UNSEL FOR THE ASSESSEE, THE PENALTY IMPOSED U/S 271(1)(C) IN RESPECT OF DISALLO WANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR LOSS RESULTING FROM READY FORW ARD TRANSACTION TREATING THE SAME AS SPECULATIVE LOSS WAS CANCELLED BY THE TRIBUNAL H OLDING THAT THE ASSESSEE IN MAKING SUCH CLAIM WAS NOT GUILTY OF CONCEALMENT AS ENVISAGED IN SECTION 271(1)(C) JUSTIFYING IMPOSITION OF PENALTY. 8. IN OUR OPINION, THE VARIOUS JUDICIAL PRONOUNCEME NTS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHICH ARE DISCUSSED ABOVE ARE CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND KEEPING IN VIEW THE R ATIO LAID DOWN THEREIN, WE ARE OF 7 ITA NO.6256/MUM/2011. THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE ON ACC OUNT OF LOSS IN DERIVATIVE TRADING WAS A BONAFIDE CLAIM BASED ON A POSSIBLE VI EW AND ALL THE MATERIAL FACTS RELEVANT TO THE SAID CLAIM HAVING BEEN FULLY AND TR ULY FURNISHED BY THE ASSESSEE, IT IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C). WE, THEREFORE, CANCEL THE PENALTY IMPOSED BY THE AO AND CONFIRMED BY THE LEARNED CIT( APPEALS) AND ALLOW THIS APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 14 TH DAY OF DEC., 2012. SD/- SD/- (D.K.AGARWAL) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: DEC., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, D-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENCHES, MUMB AI. WAKODE