SAGAR TEX CREATION P.LTD, MUMBAI V. ITO WD 9(3)(1), MUMBAI

ITA 6771/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7979 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U JUSTIN
• Assessee Lawyers: AJAY R SINGH
• Keywords: Cost of acquisition
• Section: 131; 246

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO.6771/M/2014 ASSESSMENT YEAR: 2010-11 M/S. SAGAR TEX CREATION PVT. LTD., A/303, BHATTAD TOWER, OPP. KORA KENDRA GROUND, BORIVALI (WEST), MUMBAI 400 092 PAN: AAICS5893A VS. ITO WARD 9(3)(1), AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI AJAY R. SINGH, A.R. REVENUE BY : SHRI U. JUSTIN, D.R. DATE OF HEARING : 14.11.2017 DATE OF PRONOUNCEMENT : 20.12.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 22.08.2014 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE ONLY GROUND TAKEN BY THE ASSESSEE IS AGAINST LEVYING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 2 3. THE SHORT FACTS OF THE CASE ARE THAT ASSESSING O FFICER (HEREINAFTER REFERRED TO AS THE AO) HAS LEVIED THE PENALTY ON THE GROUND THAT ASSESSEE HAS WRONGLY SET OFF CAPITAL LO SS OF RS.60,00,000 AGAINST THE SHORT TERM CAPITAL GAIN OF RS.62,77,613 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE DIRECTOR OF TH E COMPANY, SHRI BIPIN SANKLECHA HAS ACCEPTED THAT COMPANY HAS WRONG LY SET OFF THE LOSS AGAINST THE SHORT TERM GAINS. THE BACKGROUND O F THE CASE IS THAT THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL LOSS OF R S.60,00,000/- ON SALE OF SHARES OF M/S. GANDHAR GAUTAM FABTEX PVT. L TD. THE SHARES OF GANDHAR WERE SOLD BY IT TO ONE M/S. NOZAKI FINAN CE AND INVESTMENT PVT. LTD. BOTH THE COMPANIES ARE NOT LI STED. ASSESSEE RECEIVED SHORT TERM CAPITAL GAIN OF RS.62,77,613/- ON SALE OF SHARES OF LISTED COMPANIES THUS, BY CLAIMING SHORT TERM CAPIT AL LOSS, THE SHORT TERM CAPITAL GAINS HAS BEEN REDUCED. WITH A VIEW TO KNOW THE FACT, SUMMON U/S.131 WAS ISSUED TO M/S. NOZAKI FINANCE AN D INVESTMENT PVT. LTD., HOWEVER, SUMMON WAS RECEIVED AND SERVED AS PARTY WAS NOT AVAILABLE ON THE GIVEN ADDRESS. WHEN DIRECTOR OF THE COMPANY WAS EXAMINED, HIS STATEMENT DATED 17.1.2013, HE REQ UESTED THAT SHORT TERM CAPITAL LOSS SHOWN BY COMPANY COULD NOT BE ADJ USTED AGAINST THE SHORT TERM CAPITAL GAIN AND ASSESSMENT WAS MADE . ACCORDING TO THE AO, ASSESSEE HAS FAILED TO PRODUCE BUYER HOWEVE R M/S. NOZAKI FINANCE AND INVESTMENT PVT. LTD, IS ONE OF THE SHAR EHOLDER OF THE COMPANY, HENCE THERE IS NO REASON OF ANY NON SERVIC E OF SUMMON. IN FACT, ASSESSEE HAS FAILED TO ESTABLISH THE GENUINEN ESS OF SHARE TRANSACTIONS SHOWN IN THE NAME OF M/S. NOZAKI FINAN CE AND INVESTMENT PVT. LTD. SUCH LOSS HAS BEEN ARRANGED O NLY WITH A VIEW ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 3 TO REDUCE THE TAXABLE SHORT TERM CAPITAL GAIN HENCE THIS IS THE CASE WHERE ASSESSEE HAS FILED INACCURATE PARTICULAR OF I NCOME AND THEREBY HAS SUPPRESSED THE TAXABLE INCOME, HENCE AO HAS CAL CULATED THE TAX SOUGHT TO BE EVADED OF RS.9,27,000/- AND HAS LEVIED THE PENALTY U/S.271(1)(C) ACCORDINGLY. 4. THE LD. CIT(A) HAS CONFIRMED THE SAME. 5. DURING THE COURSE OF HEARING, THE LD. A.R. SUBMI TTED THAT ASSESSEE IS A CLOSELY HELD COMPANY FILED ITS RETURN OF INCOME WHICH INCLUDE SHORT TERM CAPITAL GAIN ON SALE OF INVESTME NT OF RS.2,77,613/- AFTER ADJUSTING A SHORT TERM CAPITAL LOSS OF RS.60 LAKHS. THE SAID RETURN WAS SELECTED FOR SCRUTINY AND THE REQUIRED D ETAILS & INFORMATION INCLUDING THE DETAILS OF SHORT TERM CAP ITAL GAIN AS WELL AS SHORT TERM CAPITAL LOSS WERE FILED. WHILE SCRUTINI ZING THE DETAILS AO NOTICED THAT ASSESSEE HAS INCURRED LOSS OF RS.60 LA KHS ON SALE OF SHARES OF PRIVATE LIMITED COMPANY AND AS SUCH HE CA LLED FOR DETAILS. IN THIS CONNECTION, ASSESSEE HAS FURNISHED COMPLETE DETAILS OF BUYERS OF THE SHARES AND ALSO FILED COPY OF BANK STATEMENT IN SUPPORT OF TRANSACTION. THE AO HAD ALSO ISSUED SUMMONS TO M/S . NOZAKI BUT SAME WERE RETURNED UNSERVED AS M/S. NOZAKI WAS MERG ED WITH SOME OTHER COMPANY. THIS PROMPTED THE AO TO CALL THE DI RECTOR OF THE ASSESSEE COMPANY WHO, IN ORDER TO BUY THE PEACE AND AVOID LITIGATION, AGREED FOR NON ADJUSTMENT OF THE SHORT TERM CAPITAL LOSS ON SALE OF SHARES OF PRIVATE LIMITED COMPANIES AGAINST THE SHORT TERM CAPITAL GAINS. THE LD. A.R. HAS DRAWN OUR ATTENTIO N TO THE STATEMENT ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 4 RECORDED BY THE AO DURING THE ASSESSMENT PROCEEDING WHEREIN THE AO ASKED, WHY YOU HAVE SOLD THE SHARES OF SHORT TE RM CAPITAL GAINS BELOW THE COST OF ACQUISITION. THE ASSESSEE REPLIE D THAT GANDHAR GAUTAM FAB TEX PVT. LTD. (GGF) HAS NOT PERFORMED ON PAR OF THE EXPECTATIONS. THE INVESTMENT WAS A BAD DECISION. THEREFORE, SAGAR HAS SOLD THE SHARES OF GGF TO M/S. NOZAKI AT THE NA V THEREBY BOOKED THE LLOSS OF RS.60 LAKHS. WE HAVE TRIED TO L OCATE THE DIRECTORS OF M/S. NOZAKI AND GIVEN ITS LAST KNOWN ADDRESS. W E HAVE COME TO KNOW THAT THIS COMPANY IS MERGED WITH SOME OTHER CO MPANY. WE ARE UNABLE TO CONTACT THE CURRENT SHAREHOLDERS OF T HE COMPANY. UNDER THESE CIRCUMSTANCES, THE ASSESSEE REQUESTED T O ADJUST AGAINST LOSS AGAINST SHORT TERM CAPITAL GAINS FOR A.Y. 2010 -11. THE LD. A.R. SUBMITTED THAT THE AO HAS LEVIED THE PENALTY ON THE GROUND THAT ASSESSEE HAS SOLD THE SHARES OF GGF AND RECEIVED TH E SALE CONSIDERATION AND SUPPORT THE LOSS. THE ASSESSEE F AILED TO PRODUCE THE BUYER BEFORE THE AO DURING THE ASSESSMENT PROCE EDINGS. SINCE THE ASSESSEE WAS NOT ABLE TO PRODUCE THE BUYER BEFO RE THE AO THE GENUINENESS OF THE TRANSACTION COULD NOT BE PROVED. THEREFORE, AO WAS OF A VIEW THAT ASSESSEE HAS FILED INACCURATE PA RTICULARS OF INCOME AND LEVIED THE PENALTY. THE LD. A.R. SUBMITTED THA T THE ASSESSEE HAS REPLIED TO SHOW CAUSE NOTICE THAT M/S. NOZAKI COMPA NY IS IN EXISTENCE AND THAT COMPANY IS MERGED WITH ANOTHER C OMPANY, THEREFORE, ASSESSEE WAS NOT ABLE TO COLLECT THE INF ORMATION REGARDING THIS COMPANY. FOR EXISTENCE OF THIS COMPANY THE AS SESSEE HAS PRODUCED THE COPY OF HIGH COURT ORDER WHEREIN IT HA S BEEN MENTIONED THAT THE NOZAKI FINANCE AND INVESTMENT PV T. LTD. WAS ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 5 MERGED WITH ANOTHER COMPANY. THEREFORE, ASSESSEE W AS NOT ABLE TO PRODUCE THIS PARTY. THEREFORE, ASSESSEE DID NOT PR OVE THE CLAIM OF LOSS BUT NO PENALTY CAN BE LEVIED. BECAUSE, THE PA RTY IS IN EXISTENCE AND ASSESSEE HAS NOT FILED ANY INACCURATE PARTICULA RS OF INCOME. THEREFORE, NO PENALTY CAN BE LEVIED. THE LD. A.R. RELIED UPON THE FOLLOWING CASES: 1. VIRTUAL SOFT SYSTEM LIMITED VS. CIT 289 ITR 83 2. CIT VS. RAM COMMERCIAL ENTERPRISES LTD. (2000) 246 ITR 568 3. S. SUNDARAM PILLAI VS. V.R. PATTABIRAMAN AIR (19 85) SC 582 4. CIT VS. S. SANKARAN (2000) 241 ITR 825 6. ON THE OTHER HAND, THE LD. D.R. RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE AO HAS LEVIED THE PENALTY ON THE GROUND THAT ASSESS EE HAS SOLD SHARES OF M/S. GANDHAR GAUTAM FABTEX PVT. LTD. AND RECEIVE D THE SALE CONSIDERATION. THE ASSESSEE FAILED TO PRODUCE THE BUYERS BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE SUMMONS ISSUED UNDER SECTION 131 OF THE ACT TO M/S. NOZAKI FINANCE AND I NVESTMENT PVT. LTD. AT GIVEN ADDRESS BUT WERE NOT SERVED. M/S. NO ZAKI FINANCE AND INVESTMENT PVT. LTD. IS ONE OF THE SHAREHOLDERS OF THE ASSESSEE. THEREFORE, ASSESSEE WAS NOT IN A POSITION TO PRODUC E THE BUYERS BEFORE THE AO. ASSESSEE FAILED TO ESTABLISH THE GE NUINENESS OF SALE OF TRANSACTION OF M/S. GANDHAR GAUTAM FABTEX PVT. L TD. TO M/S. ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 6 NOZAKI FINANCE AND INVESTMENT PVT. LTD. THEREFORE, AO HAS COME TO A CONCLUSION THAT ASSESSEE HAS ENTERED INTO TRANSAC TION OF SHARES OF M/S. GANDHAR GAUTAM FABTEX PVT. LTD. AND SHOWN LOSS TO ADJUST THE SHORT TERM CAPITAL GAIN ACCRUED IT ON THE SALE OF Q UOTED SHARES. THE AO HAS IMPOSED THE PENALTY ON THE GROUND THAT ASSES SEE HAS SHOWN THE LOSS OF RS.60 LAKHS BY FILING INACCURATE PARTIC ULARS OF INCOME AND AVOIDED THE TAX. WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEES STATEMENT WAS RECORDED BY QUESTION NO.23 AND THE ANSWER WHICH READS AS UNDER: Q.NO.23. PLEASE INFORM AS TO WHY YOU HAVE SOLD THE SHARES OF GGF BELOW THE COST OF ACQUISITION. ANS. THE GGF HAS NOT PERFORMED ON PAR OF THE EXPECT ATIONS. THE INVESTMENT WAS A BAD DECISION. THEREFORE, SAGAR HAS SOLD THE SHARES OF GGF TO M/S. NOZAKI AT THE NAV THEREBY BOOKED THE LLOSS OF RS.60 LAKHS. WE HA VE TRIED TO LOCATE THE DIRECTORS OF M/S. NOZAKI AND GIVEN ITS LAST KNOWN ADDRESS. W E HAVE COME TO KNOW THAT THIS COMPANY IS MERGED WITH SOME OTHER COMPANY. WE ARE UNABLE TO CONTACT THE CURRENT SHAREHOLDERS OF THE COMPANY. UNDER THESE C IRCUMSTANCES, THE ASSESSEE REQUESTED TO ADJUST AGAINST LOSS AGAINST SHORT TERM CAPITAL GAINS FOR A.Y. 2010-11. 8. FROM THE ABOVE QUESTION AND ANSWER IT CAN BE GAT HERED THAT ASSESSEE HAD COME TO KNOW THAT M/S. NOZAKI FINANCE AND INVESTMENT PVT. LTD. IS MERGED WITH ANOTHER COMPANY. IN SUPPO RT OF THIS CLAIM ASSESSEE HAS PRODUCED THE COPY OF DECISION OF HONB LE BOMBAY HIGH COURT WHEREIN THE M/S. NOZAKI FINANCE AND INVESTMEN T PVT. LTD. IS ONE OF THE PARTIES. FROM THESE ABOVE FACTS, IT CAN BE SHOWN THAT ASSESSEE WAS NOT ABLE TO PRODUCE THE PARTY. THEREF ORE, THE AO WAS OF A VIEW THAT TRANSACTION WITH M/S. NOZAKI FINANCE AND INVESTMENT PVT. LTD. WAS NON GENUINE TRANSACTION. THEREFORE, PENALTY WAS LEVIED. WE FIND THAT IN THIS CASE THE ASSESSEE HAS GIVEN ALL THE FACTS BEFORE ASSESSMENT PROCEEDING. ASSESSEE COULD NOT P RODUCE THE PARTY ITA NO.6771/M/2014 M/S. SAGAR TEX CREATION PVT. LTD. 7 ON THE GROUND THAT LAST ADDRESS OF THE PARTY WAS NO T KNOWN TO THE ASSESSEE. WE FIND THAT THE ASSESSEE COMPANY HAS FU RNISHED COMPLETE DETAILS OF INCOME WHICH WAS NOT FOUND TO BE INCORRE CT. THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT FOUND T O BE FALSE. HENCE, UNDER THESE CIRCUMSTANCES NO PRESUMPTION OF FURNISHING OF INACCURATE PARTICULARS OF INCOME CAN BE DRAWN. WE FIND THAT PENALTY PROCEEDING IS CRIMINAL IN NATURE SINCE THE BURDEN O F PROOF IN PENALTY PROCEEDING VARIES FROM THAT OF ASSESSMENT PROCEEDIN G, IF FINDING IN THE ASSESSMENT PROCEEDING CANNOT BE AUTOMATICALLY A DOPTED THOUGH THE FINDING IN ASSESSMENT PROCEEDING CONSTITUTE GOO D EVIDENCE IN THE PENALTY PROCEEDING. WE FIND THAT THE ASSESSEE HAS F URNISHED ALL THE DETAILS AND ONLY ON THE BASIS OF NON PRODUCTION OF PARTY AUTOMATICALLY DOES NOT ATTRACT THE PENALTY. THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.2017. SD/- SD/- (N.K. PRADHAN) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20.12.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.