ALASKA MERCANTILE CO, PVT. LTD., MUMBAI V. A.C.I.T.9(1), MUMBAI

ITA 6487/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3404 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 16-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-10-2012
• Court: TRIBUNAL
• Department Lawyers: A RAMCHANDRAN
• Keywords: Bonafide belief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI SANJAY GARG (JM) I.T.A. NO. 6487 /MUM/ 20 1 2 (ASSESSMENT YEAR 200 8 - 0 9 ) ALASKA MERCANTILE COMPANY PRIVATE LIMITED 002, GULMOHAR COMPLEX STATION ROAD, GOREGAON(E) MM BAI - 400 063. VS. ACIT 9(1) AAYAKAR BHAVAN ROOM NO. 223 M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAFCA3446A ASSESSEE BY SHRI VIJAY MEHTA DEPARTMENT BY SHRI A. RAMCHANDRAN DATE OF HEARING 16.8 . 201 6 DATE OF PRONOUNCEMENT 16 .8 . 201 6 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1.8.2012 PASSED BY LEARNED CIT(A) - 19, MUMBAI CONFIRMING THE PENALTY OF ` 21,03,893/ - LEVIED BY THE ASSESSING OFFICER U/S. 271(1)(C) OF THE ACT. 2. FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PURCHASED UNITS OF MUTUAL FUND AND RECEIVED DIVIDEND INCOME OF ` 15.86 CRORES. THE METHOD OF VALU ATION OF CLOSING STOCK OF MUTUAL FUND UNITS FOLLOWED BY THE ASSESSEE WAS COST AT MARKET RATE WHI CHEVER IS LESS . ACCORDINGLY THE ASSESSEE VALUED ITS UNITS OF MUTUAL FUND AT MARKET VALUE AND THE SAME HAS RESULTED IN LOSS OF ` 64.05 LAKHS. 3. THE ASSESSING OFFICER NOTICED THAT THE PROVISIONS OF SE CTION 94(7) OF THE ACT, WHICH PROVIDES FOR REDUCTION OF LOSS TO THE EXTENT OF DIVIDEND INCOME, SHALL BE APPLICABLE TO THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED DISALLOWANCE MADE U/S. 94(7) OF THE ACT AT ` 61,89,745/ - . THE ASSESSEE ALSO ACCE PTED THE SAME. SUBSEQUENTLY, THE ASSESSING OFFICER LEVIED PENALTY OF ` A LASKA MERCANTILE COMPANY PRIVATE LIMITED 2 21,03,893/ - ON THE AMOUNT OF LOSS SO DISALLOWED BY HIM. LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. LEARNED AR DID NOT DISPUTE TH E FACT THAT THE PROVISIONS OF SECTION 94(7) OF THE ACT SHALL BE APPLICABLE TO THE ASSESSEE , SINCE IT HAD SOLD THE UNITS OF MUTUAL FUND ON 21.7.2008 I.E. WITHIN THE PERIOD OF NINE MONTHS FROM THE RECORD DATE FOR DECLARING THE DIVIDEND. LEARNED AR SUBMITTED THAT THE PROVISIONS OF SE CTION 94(7) SHOULD, HOWEVER, BE APPLIED O NLY AT THE TIME OF SALE OF MUTUAL FUND UNITS. ACCORDINGLY, LEARNED AR SUBMITTED TH AT THE DISALLOWANCE, IF ANY, REQUIRED TO BE MADE U/S. 94(7) OF THE ACT SHOULD HAVE BEEN MADE IN THE SUCCEEDI NG YEAR, I.E., IN A.Y. 2009 - 10 SINCE THE MUTUAL FUND UNITS WERE SOLD ON 21.7.2008. LEARNED AR SUBMITTED THAT THE VIEW TAKEN BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 94(7) OF THE ACT SHOULD BE APPLIED ONLY IN THE YEAR OF SALE OF MUTUAL FUND UNITS IS SUPPORTED BY THE DECISION RENDERED BY THE COORDINATE BENCH IN THE CASE OF ASHOK KUMAR DAMANI VS. ADDL. CIT (2011) 138 TTJ (MUM) 45 AND ALSO BY THE DECISION RENDERED IN THE CASE OF ACIT VS. M/S. FOUR DIMENSIONS SECURITIES (INDIA) LTD. (ITA NO. 7951/MUM/201 0 DATED 16.9.2015). ACCORDINGLY THE LD A.R SUBMITTED THAT THE ASSESSEES ACTION OF NOT APPLYING THE PROVISIONS OF SEC. 94(7) DURING THE YEAR UNDER CONSIDERATION IS SUPPORTED BY THE ABOVE SAID DECISIONS. HENCE THE QUESTION OF DISALLOWANCE MADE BY THE AO D URING THE YEAR UNDER CONSIDERATION SHALL BECOME A DEBATABLE ONE. 5. LEARNED AR SUBMITTED THAT THE ASSESSEE, IN THE INSTANT CASE, WAS CONSTRAINED TO BOO K LOSS , SINCE THE ASSESSEE WAS FOLLOWING A PARTICULAR METHOD OF VALUATION OF THE CLOSING STOCK, I. E., THE COST OF MARKET VALUE WHICHEVER IS LESS. HENCE THE LOSS SHOWN BY THE ASSESSEE WAS NOT ON ACCOUNT OF SALE OF MUTUAL FUND UNITS , BUT ON ACCOUNT OF VALUATION. ACCORDINGLY, LEARNED AR SUBMITTED THAT THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT PROVISION S OF SECTION 94(7) OF THE ACT ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION , SINCE THE MUTUAL FUND UNITS WERE S OLD DURING THE SUCCEEDING YEAR . A LASKA MERCANTILE COMPANY PRIVATE LIMITED 3 6. THE LEARNED AR FURTHER SUBMITTED THAT THE DISALLOWANCE PRESCRIBED U/S 94(7) OF THE ACT IS A STATUTORY DISALLOWANCE AND THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULL PARTICULARS RELATING TO THE INCOME. HE SUBMITTED THAT THIS BENCH OF THE TRIBUNAL , IN THE CASE OF RAMESH M. DAMANI (ITA NO.1625/MUM/2012 DATED 22.08.2014) , HAS TAKEN THE VIE W THAT PENALTY U/S. 271(1)(C) OF THE ACT IS NOT EXIGIBLE IN RESPECT OF DISALLOWANCE MADE U/S. 94(7) OF THE ACT AS THE SAME IS STATUTORY DISALLOWANCE AND FURTHER THERE WAS NO CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOM E. ACCORDINGLY HE CONTENDED THAT THE IMPUGNED PENALTY IS NOT SUSTAINABLE. 7 . ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS REQUIRED TO MAKE DISALLOWANCE UNDER PROVISIONS OF SECTION 94(7) OF TH E ACT WHICH THE ASSESSEE HAS FAI LED TO DO. HE FURTHER SUBMITTED THAT HON'BLE PUNJAB & HARYANA HIGH COURT HAS CONFIRMED THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT FOR NOT MAKING DISALLOWANCE U/S. 94(7) OF THE ACT IN THE CASE OF VSB INVESTMENT (P) LTD. REPORTED IN 212 TAXMAN 162 . ACCORDINGLY, HE SUBMITTED THAT LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE PENALTY U/S. 271(1)(C) OF THE ACT. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FACT, WHICH IS NOT IN DISPUTE, REMAINS THAT THE ASSESSE E DID NOT SELL THE UNITS OF MUTUAL FUND DURING THE YEAR UNDER CONSIDERATION. THE LOSS BOOKED BY THE ASSESSEE RELATES TO THE VALUATION LOSS AND NOT REAL LOSS ARISING ON ACCOUNT OF SALE OF MUTUAL FUND UNITS. IN THE CASE OF ASHOK KUMAR DAMANI (SUPRA) AND M/ S FOUR DIMENSIONS SECURITIES (INDIA) LTD (SUPRA), THE CO - ORDINATE BENCHES OF THE TRIBUNAL HAS TAKEN THE VIEW THAT THE PROVISIONS OF SEC. 94(7) ARE REQUIRED TO BE APPLIED ONLY AT THE TIME OF SALE OF MUTUAL FUND UNITS. EVEN THOUGH THE ASSESSEE HAS ACCEPTED THE DISALLOWANCE MADE BY THE AO U/S 94(7) OF THE ACT, YET THE FACT REMAINS THAT THE SAID DISALLOWANCE IS NOT REQUIRED TO BE MADE DURING THE YEAR UNDER CONSIDERATION, MEANING THEREBY, THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IT DID NOT APPLY T HE PROVISIONS OF SEC. 94(7) OF A LASKA MERCANTILE COMPANY PRIVATE LIMITED 4 THE ACT DURING THE YEAR UNDER CONSIDERATION, AS IT WAS UNDER BONAFIDE BELIEF THAT THE SAME IS REQUIRED TO BE APPLIED IN THE YEAR OF SALE OF MUTUAL FUND UNITS. HENCE THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT IMPU GNED ISSUE RELATING TO THE YEAR OF APPLYING THE PROVISIONS OF SEC. 94(7) IS A DE BATABLE ONE AND THE ASSESSEE HAD ENTERTAINED A BONAFIDE BELIEF IN THIS REGARD AND THE SAME WAS ALSO GETTING SUPPORT FROM THE DECISIONS RENDERED BY THE CO - ORDINATE BENCHES OF TR IBUNAL, REFERRED SUPRA. 9 . FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS CONCEALED ANY PARTICULARS RELATING TO THE PURCHASE AND SALE OF MUTUAL FUND UNITS . THOUGH THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE HAS FILE D INACCURATE PART ICULARS OF INCOME , YET WE ARE OF THE VIEW THAT THE FACTS PREVAILING IN THE INSTANT CASE DO NOT LEAD TO SUCH A CONCLUSION . THE DISPUTE WAS WITH REGARD TO THE YEAR IN WHICH THE PROVISIONS OF SEC. 94(7) OF THE ACT SHOULD BE APPLIED. WE HAVE NOTICED THAT THE VIEW TAKEN BY THE ASSESSEE IS SUPPORTED BY THE TWO DECISIONS RENDERED BY THE TRIBUNAL. 10 . WE NOTICE THAT T HE IMPUGNED DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF STATUTORY LEGAL FICTION PRESCRIBED IN SEC. 94(7) OF THE ACT. UNDER IDENTICAL SET OF FACTS , THIS BENCH OF THE TRIBUNAL HAS TAKEN THE VIEW IN THE CASE OF RAMESH M DAMANI (SUPRA) THAT THE PENALTY U/S 271(1)(C) OF THE ACT IS NOT LEVIABLE . 11 . IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIR MING THE PENALTY LEVIED BY THE AO ON THE ABOVE SAID DISALLOWANCE MADE U/S 94(7) OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO DELETE THE IMPUGNED PENALTY. 1 2 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 16. 8 .2016 SD/ - SD/ - (SANJAY GARG ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 16 / 8 / 20 1 6 A LASKA MERCANTILE COMPANY PRIVATE LIMITED 5 COP Y OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS