JAYESH D PAREKH, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 6694/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3572 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 17-06-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SHARMA
• Keywords: Business income; Salary income; Transactions in derivatives; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6694/MUM/2011 ASSESSMENT YEAR : 2004-05 JAYESH D. PAREKH 22, RAJA BAHADUR MANSION MUMBAI SAMACHAR MARG, FORT MUMBAI-400 001. PAN :AACPP 9859 N VS. INCOME TAX OFFICER-4(2)(3) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HIRO RAI RESPONDENT BY : SHRI O.P. SHARMA DATE OF HEARING : 17.06.2013 DATE OF PRONOUNCEMENT : 21.06.2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F CIT(A)-8, MUMBAI DATED 03.08.2011 CONFIRMING THE ACTION OF AO IN LEVYING PENALTY OF RS.12,25,147/- UNDER SECTION 271(1)(C). THE ASSESSING OFFICER LEVIED PENALTY IN RESPECT OF AMOUNT OF RS. 37,12,565/- CLAIMED AS LOSS IN THE ASSESSEES TRADING ACCOUNT ON PURCHA SE AND SALE OF SHARES, DISALLOWED ON THE REASON THAT THESE ARE SP ECULATIVE LOSSES ON ACCOUNT OF FUTURE & OPTIONS (F&O). 2. THE ASSESSEE IS A DIRECTOR IN M/S. SUNIDHI CONSU LTANCY SERVICES PVT. LTD. AND DERIVES INCOME FROM SALARY, HOUSE PRO PERTY, BUSINESS INCOME, CAPITAL GAINS AND OTHER SOURCES. AS A PART OF BUSINESS INCOME THE ASSESSEE HAS OFFERED SHARE TRADING INCOME, THE DETAILS OF WHICH ARE AS UNDER :- ITA NO.6694/M/11 A Y .04-05 2 S.NO. NAME OF THE ENTITY TRADING PROFIT(RS.) LOSS ON F & O (RS.) NET PROFIT (RS.) 1. JAYESH D. PAREKH 2,32,928 2,22,651 10,276 2. RISHABH J. PAREKH( SON) 35,53,257 32,66,410 2,86,847 3. JAYVEER J. PAREKH(SON) 3,17,169 2,23,502 93,667 TOTAL (ROUNDED OFF) 41,03,356 37,12,565 3,90,792 2.1 RISHAB J. PAREKH AND JAYVEER J. PAREKH ARE ASS ESSEES MINOR SONS WHOSE INCOMES ARE ALSO OFFERED BY ASSESSEE AS HIS INCOME UNDER THE PROVISIONS OF THE IT ACT. ON VERIFYING THE DETA ILS FILED BY THE ASSESSEE, ASSESSING OFFICER ASKED ASSESSEE WHY THE LOSS ON F&O BUSINESS SHOULD NOT BE TREATED AS SPECULATION BUSIN ESS LOSS AND DISALLOWED ACCORDINGLY. THE ASSESSEE VIDE HIS LETTE R DATED 03.11.2006 EXPLAINED THAT IN HIS TRADING ACCOUNT HE HAD PHYSIC ALLY ACQUIRED SHARES OF 1200 NOS. AND ON THE SAME DAY SOLD 1200 S HARES IN F&O MARKET WITH A VIEW TO HEDGE THE FUTURE LOSS. WHEN T HE SHARES BECAME EX-BONUS THE PHYSICAL SHARES BECAME 1200 TO 2400 AN D SALE POSITION IN F&O ALSO BECAME 2400. WHEN THESE WERE SOLD THE ASSESSEE EARNED PROFIT OF RS.2,38,380/- IN THE PHYSICAL SEGMENT AND INCURRED HEDGING LOSS OF RS.2,22,606/- IN F&O MARKET RESULTING IN NE T PROFIT OF RS.15,774/-. IT WAS ASSESSEES SUBMISSION THAT THE HEDGING LOSS CAN NOT BE TREATED AS SPECULATION LOSS UNDER THE PROVIS O TO SECTION 43(5)(B). THE ASSESSING OFFICER HOWEVER DID NOT ACC EPT AND RELYING ON THE SUBMISSION OF AMENDMENT BROUGHT TO THE FINANCE ACT W.E.F. 1.4.2006 W.R.T. DERIVATIVE TRANSACTIONS ON STOCK EX CHANGE HELD THAT LOSS INCURRED ON F&O HAS TO BE TREATED AS SPECULATI ON LOSS. HE ALSO ANALYSED THE SPECULATION LOSS IN CASE OF RISHAB J. PAREKH WITH REFERENCE TO DERIVATIVE SEGMENT OF STOCK EXCHANGE I N WHICH HE INCURRED LOSS ( IN THE SHARES OF DR REDDY LABS) AND CAME TO THE CONCLUSION THAT THE LOSS OF RS.37,12,265/- IS IN TH E NATURE OF ITA NO.6694/M/11 A Y .04-05 3 SPECULATION LOSS AND CAN NOT BE SET OFF AGAINST TRA DING INCOME OF THE ASSESSEE. THE SAME WAS CONFIRMED BY THE LD. CIT(A) AND ULTIMATELY BY THE ITAT. RELYING ON THE DECISION OF SHREE CAPITAL SERVICES LTD. VS. ACIT [(2009)121 ITD 498(SB)(KOL.)]. THE ASSESSING OFFICER FINALIZED THE PROCEEDINGS UNDER SECTION 271(1)(C) AND LEVIED PENA LTY ON THE ABOVE CLAIM OF LOSS AGAINST TRADING INCOME. 3. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THA T ASSESSEE INDULGED IN HEDGING TRANSACTIONS IN F&O AND THERE A RE PHYSICAL SHARES AVAILABLE. WHEN THERE ARE TWO OPINIONS WHETH ER LOSS CAN BE SPECULATIVE LOSS OR NOT, THERE CAN NOT BE ANY PENAL TY UNDER SECTION 271(1)(C). IT WAS ALSO CONTENDED THAT THE ORDER OF ITAT WAS EXPARTE ON LEGAL CONSIDERATIONS WITHOUT EXAMINATION OF FACTS. THE LD. CIT(A) HOWEVER REJECTED THE ABOVE CONTENTIONS AND UPHELD T HE PENALTY. ASSESSEE IS AGGRIEVED. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E EXPLANATION GIVEN BEFORE THE ASSESSING OFFICER AND DETAILS FURN ISHED WITH THE ASSESSING OFFICER, SUBMITTED THAT THE ASSESSEE EARN ED PROFITS IN TRADING SECTION WHEREAS CORRESPONDING LOSSES WERE I NCURRED IN F&O AND THESE TRANSACTIONS WERE HEDGING TRANSACTIONS. T HE ASSESSEE ACCORDINGLY OFFERED NET PROFIT OF RS.3,90,792/- AS BUSINESS INCOME. IT WAS THE SUBMISSION THAT THERE IS NO CASE TO CONSIDE R EITHER FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. THE ASSESSEE HAD CLAIMED LOSS IN F&O SECTION AGAINST PROFITS IN REGU LAR TRADING ON THE REASON OF HEDGING AND THIS CLAIM EVEN THOUGH DISALL OWED, DOES NOT LEAD TO LEVY OF PENALTY. HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. (322 ITR 158) AND HOST OF SEVERAL CASES ON THE PRINCIPLE THAT WH EN CLAIM WAS REJECTED IT DOES NOT LEAD TO LEVY OF PENA LTY. THE LD. DR HOWEVER, RELIED ON THE ORDERS OF ASSESSING OFFICER AND CIT(A) TO AFFIRM THAT FACTS LEAD TO LEVY OF PENALTY. 5. WE HAVE EXAMINED THE RIVAL CONTENTIONS AND EXAMI NED THE MATERIAL PLACED ON RECORD BEFORE US. THERE IS NO DI SPUTE TO THE FACT ITA NO.6694/M/11 A Y .04-05 4 THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS. T HERE IS ALSO NO DISPUTE THAT AS FAR AS ASSESSEES BUSINESS TRANSACT IONS ARE CONCERNED THE ASSESSEE DID OWN THE SHARES IN PHYSICAL QUANTIT Y AND TO THE SAME EXTENT ONLY F&O TRANSACTION WERE ENTERED AND HIS BE LIEF THAT THE LOSS IN HEDGING TRANSACTIONS, WHICH CAME UNDER SECTION 4 3(5)(B), CAN NOT BE REJECTED. AS SEEN FROM THE DETAILS ASESSEE HAS S HARES OF 1200 NOS. IN I-FLEX SOLUTIONS LTD, WHICH WERE HEDGED IN STOCK MARKET IN F&O SECTION. EVEN THOUGH THE ASSESSING OFFICER STATED T HAT IN THE CASE OF MINORS RISHABH JAYESH PAREKH, HE HAD 12800 SHARES B UT THE TRANSACTION WAS OF 19200 SHARES IN F&O DERIVATIVES, THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE DID HAVE SHARES 12800 AND MAY BE IT COULD BE TWO OR THREE TRANSACTION OF HEDGING. BE TH AT AS IT MAY, MOST OF THE LOSS AS ADMITTED BY THE ASSESSING OFFICER CA ME ON ACCOUNT OF MINOR SONS INCOME WHICH ARE OFFERED UNDER SECTION 64. ON FACTS, WE CAN NOT SAY THAT THE ASSESSEE EITHER CONCEALED PART ICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THER E IS ALSO MERIT IN ASSESSEES CONTENTION THAT THERE CAN BE TWO OPINION S OF CLAIMING LOSS AS HEDGING LOSS NEED NOT BE CONSIDERED AS SPECULAT IVE LOSS UNDER SECTION 43(5)(B) OF IT ACT. THERE IS ALSO MERIT IN ASSESSEES CONTENTION THAT ITAT DID NOT EXAMINE THE ISSUE ON MERITS. AS C AN BE SEEN FROM THE ORDER OF ITAT, IT IS A REVENUE APPEAL WHICH IND ICATES THAT THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW SPECULATIVE LOSS. THEREFORE, ASSESSEES CONTENTION THAT THERE CAN BE TWO OPINIONS HAS TO BE ACCEPTED. FURTHER THE ISSUE IN SHREE CAPITAL SERVICES LTD. VS. ACIT (SUPRA), IS WITH REFERENCE TO THE APPLICATION OF TH E PROVISION AMENDING SECTION 43(5). SINCE NOTIFICATION WAS ISSUED ON 25. 01.2006, IT WAS CONTENDED THAT THE PROVISIONS WOULD APPLY FOR THE T RANSACTIONS SUBSEQUENT TO THAT DATE. THE REVENUE GROUND IS ALSO ON THE SAME ISSUE. ITAT, FOLLOWING THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH IN CASE OF SHREE CAPITAL SERVICES LTD. VS. ACIT (SUPRA), UPHELD THE CONTENTIONS THAT IS APPLICABLE FROM 1 ST APRIL OF THE YEAR. THEREFORE, AS CONTENDED, THE ISSUE WAS NOT DECIDED ON MERITS WHET HER TRANSACTIONS CAN BE CONSIDERED AS SPECULATIVE OR NOT. CONSIDERIN G THE ABOVE FACTORS, WE ARE OF THE OPINION THAT THERE IS NO CAS E FOR LEVY OF PENALTY ITA NO.6694/M/11 A Y .04-05 5 EITHER AS CONCEALMENT OF INCOME OR AS FURNISHING OF INACCURATE PARTICULARS IN THE GIVEN FACTS OF THE CASE. 6. THE ASSESSEES CONTENTION THAT MERE DISALL OWANCE OF THE CLAIM DOES NOT LEAD TO LEVY OF PENALTY UNDER SECTION 271( 1)(C) ALSO HAS MERIT. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD.(SUPRA) HELD THEREIN AS A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF TH E PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY , THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS' USED IN SECTION 271(1)(C) WOULD EMBRA CE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPO SE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTL Y COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THA T EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY TH E ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. ITA NO.6694/M/11 A Y .04-05 6 WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTIO N OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MER E MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. CONSIDERING THE ABOVE PRINCIPLES LAID DOWN BY THE H ONBLE SUPREME COURT, WHICH EQUALLY APPLY TO THESE FACTS, WE DELET E THE PENALTY LEVIED UNDER SECTION 271(1)(C). 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 21.6.2013. SD/ - SD/ - ( AMIT SHUKLA ) JUDICIAL MEMBER ( B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 21.6. 2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.