DDIT (IT) 1(1), MUMBAI V. ASIA PACIFIC PERFORMANCE SICAV, MUMBAI

ITA 7106/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71996 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Capital asset; Depreciation; Earning of tax free income; Capital expenditure
• Section: 142(1); 115JB; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI . . , , BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 7106/MUM/2010 ( / ASSESSMENT YEAR: 2007-08) DY. DIT (IT)-1(1), 117, 1 ST FLOOR, SCINDIA HOUSE, N. M. ROAD, BALLARD PIER, MUMBAI-400 038 / VS. ASIA PACIFIC PERFORMANCE SICAV C/O. B.S.R. & CO., KPMG HOUSE, KAMLA MILLS COMPOUND, LOWER PAREL, MUMBAI-400 013 ! ./' ./PAN/GIR NO. AAECA 3960 G ( !# /APPELLANT ) : ( $!# / RESPONDENT ) !# % / APPELLANT BY : SHRI SURENDRA KUMAR $!# & % / RESPONDENT BY : SHRI NIRAJ SHETH ' ()* & + / DATE OF HEARING : 13.12.2013 ,-. & + / DATE OF PRONOUNCEMENT : 27.12.2013 / / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORDE R BY THE COMMISSIONER OF INCOME TAX (APPEALS)-10, MUMBAI (CIT(A) FOR SHORT ) DATED 29.07.2010, CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE ASSESSING OFFICER (A.O.) FOR THE ASSESSMENT YEA R (A.Y.) 2007-08 VIDE ORDER DATED 18.03.2010. 2 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV 2.1 IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND FACTS OF THE CASE. THE ASSESSEE, A NON-RESIDENT, IS A COMPANY INCORPORATED IN AND A TA X RESIDENT OF LUXEMBOURG, REGISTERED WITH SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) AS A SUB ACCOUNT OF FII OF BANQUE DEGROOF LUXEMBOURG SA, CARRYING ON INVESTMENT ACTIV ITY IN INDIAN SECURITIES MARKET IN ACCORDANCE WITH THE SEBI (FOREIGN INSTITUTIONAL INV ESTORS) REGULATIONS, 1995. IT RETURNED ITS INCOME FOR THE YEAR AT A SHORT TERM CAPITAL GAI N (STCG) OF RS.6,77,58,785/- AND LONG TERM CAPITAL GAIN (LTCG) AT RS.82,60,519/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFIC ER (A.O.) THAT THE STCG WAS ON SECURITY TRANSACTION TAX (STT) PAID TRANSACTIONS, A ND ON WHICH TAX AT A CONCESSIONAL RATE OF 10% (U/S.115AD R.W.S. 111A) HAD BEEN PAID. THE C ORRESPONDING LTCG, I.E., STT PAID AND, THUS, TAX EXEMPT U/S. 10(38), AND CLAIMED SO, WAS AT RS.16,60,41,174/- . THE NON STT PAID LTCG, AND WHICH WAS THUS LIABLE TO TAX @ 10%, WAS AT RS.1,95,61,230/- . THE ASSESSEE HAD, HOWEVER, CLAIMED SET OFF OF RS.1,06,4 8,694/- THERE-AGAINST, BEING LOSS ON THE STT PAID LTCG. IN HIS VIEW, THE SAME COULD NOT BE INASMUCH AS THE SAID LOSS, WHICH IS ONLY NEGATIVE INCOME, IS ALSO TAX EXEMPT U/S.10( 38) AND, THUS, HAD TO BE IGNORED, IMPLYING THAT THE TAX EXEMPT INCOME U/S.10(38), CLA IMED AT RS.1856.02 LACS, WOULD STAND REDUCED TO THAT EXTENT (RS. 106.49 LACS). THE ASSES SMENT WAS MADE DENYING THE SAID SET OFF/ADJUSTMENT. THE ASSESSEE DID NOT PREFER ANY APP EAL. 2.2 IN THE PENALTY PROCEEDINGS, INITIATED SIMULTANE OUS WITH THE CONCLUSION OF THE ASSESSMENT PROCEEDINGS (ON 11/9/2009), THE ASSESSEE CONTESTED ITS CASE BOTH ON MERITS, I.E., TOWARD FURNISHING A PLAUSIBLE EXPLANATION QUA THE LEGAL CLAIM MADE BY IT, AS WELL AS ON THE GROUND OF TRUE AND FULL DISCLOSURE OF FACTS MATERIAL TO THE COMPUTATION OF THE INCOME, SO THAT NO FACTS MATERIAL TO THE COMPUTATIO N OF THE INCOME FOR THE YEAR HAD BEEN NOT DISCLOSED. THE SAME DID NOT FIND FAVOUR WITH TH E A.O. THE ASSESSEE BEING SUCCESSFUL IN APPEAL, THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE LD. CIT(A) HAS FOUND THE ASSESSEES CASE AS VALID ON BOTH THE ASPE CTS OF ITS CASE. THE ASSESSEES LEGAL PLEA RAISES A DEBATABLE ISSUE, SO THAT THE PENALTY COULD NOT BE LEVIED INASMUCH AS TWO 3 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV VIEWS ARE REASONABLY POSSIBLE. TWO, FULL DISCLOSURE IN ANY CASE STANDS MADE, SO THAT THE CLAIM BEING LEGAL, WITH ALL THE MATERIAL FACTS BEIN G TRULY AND FULLY DISCLOSED, ITS UNSUSTAINABILITY IN LAW WOULD NOT ATTRACT PENALTY U /S.271(1)(C) INASMUCH AS THERE IS NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE ASSESSEES CASE, WHICH FOUND FAVOUR WITH THE F IRST APPELLATE AUTHORITY, BEING BASED ON ITS FINDINGS, WE SHALL EXAMINE THE SAME FO R THE VALIDITY OR OTHERWISE THEREOF, AND ON WHICH, THEREFORE, WOULD REST OUR DECISION WITH R EGARD TO HIS DECISION IN SETTING ASIDE THE IMPUGNED PENALTY. WE SHALL FIRST DISCUSS THE ASSESSEES EXPLANATION O N MERITS. THE ISSUE, AS WOULD BE APPARENT FROM THE FOREGOING, IS THE VALIDITY IN LAW OF THE SET OFF OF LOSS ON TRANSACTIONS (OF TRANSFER) OF LTCAS SPECIFIED U/S. 10(38), ON WHICH STT IS PAID, AGAINST THE INCOME UNDER THE HEAD LTCG, ON WHICH THOUGH STT BEING PAID IN ITS RESPECT. THE ASSESSEES CASE IS ALONG THE FOLLOWING LINES: A) THE ONLY CONDITION IN LAW (PER SECTION 70(3)) IS THAT LONG TERM CAPITAL LOSS (LTCL) IS TO BE SET OFF AGAINST THE LTCG AND N OT STCG; B) THERE HAS BEEN A NO AMENDMENT IN LAW, I.E., POST SECTION 10(38), ACCORDING EXEMPTION TO INCOME ARISING ON TRANSFER O F LONG TERM CAPITAL ASSETS (LTCAS), BEING EQUITY SHARES, ETC. ON OR AFT ER 01.10.2004, ON WHICH STT IS CHARGEABLE IN LAW, EITHER UNDER SECTION 70 O R UNDER ANY OTHER SECTION. THAT IS, THE EXEMPTION PROVIDED BY SECTION 10(38) I S ABSOLUTE . ACCORDINGLY, LTCL COULD BE SET OFF AGAINST THE LTCG , IRRESPECTIVE OF WHETHER STT IN ITS RESPECT HAS PAID OR NOT, SO THAT THE ASSESSEE CAN AT ITS OPTION CHOOSE THE COURSE WHICH IS MORE BENEFICIAL T O IT. IN FACT, THE BOARD HAS ALSO VIDE ITS CIRCULAR NO. 26 (LXXVI-3) [F. NO. 4(53)-IT/54] DATED 07.07.1955 RECOGNIZED THE ASSESSEES RIGHT IN CHOOS ING THE METHOD FOR SETTING OFF WHICH IS MORE BENEFICIAL TO THE ASSESSE E; C) THE EXEMPTION U/S. SECTION 10(38) RELATES TO A C LASS OF TRANSACTIONS, AND NOT THE SOURCE OR THE HEAD OF INCOME ITSELF. A DISTINCTION IS TO BE MADE WITH REFERENCE TO THE SOURCE WHICH DOES NOT ENTER T HE COMPUTATION OF INCOME AT ALL, AND A SOURCE, INCOME FROM WHICH IS E XCLUDED IN THE COMPUTATION OF INCOME. RELIANCE IN THIS CONTEXT IS PLACED ON THE DECISION IN THE CASE OF ROYAL CALCUTTA TURF CLUB VS. CIT [1983] 144 ITR 709 (CAL); AND D) IN ANY CASE, ANY AMBIGUITY IN LAW IS TO BE INTER PRETED IN FAVOUR OF THE SUBJECT (REFER: CIT VS. NAGA HILLS TEA CO. LTD. [1973] 89 ITR 236 (SC)) 4 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV 3.1 WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. WE FIND THE ASSESSEES CASE IS WHOLLY UNMAINTAINABLE IN VIEW OF THE LAW AS EXPL AINED BY THE HONBLE APEX COURT OVER A SERIES OF DECISIONS, VIZ. CIT VS. GOLD COIN HEALTH FOOD (P.) LTD . [2008] 304 ITR 308 (SC); CIT VS. J. H. GOTLA [1985] 156 ITR 323 (SC); AND CIT VS. HARPRASAD & CO. (P.) LTD . [1975] 99 ITR 118 (SC), TO CITE SOME. WE BEGIN BY REPRODUCING/ENLISTING THE OBSERVATIONS BY THE APEX COURT FROM THE SAID DECISI ONS. IN HARPRASAD & CO. (P.) LTD . (SUPRA), ALSO RELIED UPON BY THE A.O., WHICH DECI SION WAS ALSO IN CONTEXT OF CAPITAL GAINS, AND UNDER THE INCOME TAX ACT, 1922 (PGS. 124, 125): FROM THE CHARGING PROVISIONS OF THE ACT, IT IS DI SCERNIBLE THAT THE WORDS INCOME OR PROFITS AND GAINS SHOULD BE UNDERSTOO D AS INCLUDING LOSSES ALSO, SO THAT, IN ONE SENSE PROFITS AND GAINS REP RESENT PLUS INCOME WHEREAS LOSSES REPRESENT MINUS INCOME. IN OTHER WORDS, LOSS IS NEGATIVE PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH MUST ENTER INTO COMPUTATION, WHEREVER IT BECOMES MA TERIAL, IN THE SAME MODE OF THE TAXABLE INCOME OF THE ASSESSEE. ALTHOUG H SECTION 6 (OF THE 1922 ACT) CLASSIFIES INCOME UNDER SIX HEADS, THE MA IN CHARGING PROVISION IS SECTION 3 WHICH LEVIES INCOME-TAX, AS ONLY ONE TAX, ON THE TOTAL INCOME OF THE ASSESSEE AS DEFINED IN SECTION 2(15). AN INCOME IN ORDER TO COME WITHIN THE PURVIEW OF THAT DEFINITION MUST SATISFY TWO CON DITIONS. FIRSTLY , IT MUST COMPRISE THE 'TOTAL AMOUNT OF INCOME, PROFITS AND G AINS REFERRED TO IN SECTION 4(1)'. SECONDLY , IT MUST BE 'COMPUTED IN THE MANNER LAID DOWN IN THE ACT'. IF EITHER OF THESE CONDITIONS FAILS, THE INCOME WILL NOT BE A PART OF THE TOTAL INCOME THAT CAN BE BROUGHT TO CHARGE. [EMPHASIS, BY UNDERLINI NG, OURS] IN J.H. GOTLA (SUPRA), THE APEX COURT, AFTER EXAMINING THE SCHEM E OF THE ACT, INCLUDING AS TO THE CARRY FORWARD OF LOSS, HELD THA T IN COMPUTING THE ASSESSEES INCOME, THE INCOME OF HIS WIFE OR MINOR CHILDREN, WHICH IS LIABLE TO BE ADDED U/S. 16(3) (OF THE 1922 ACT), WOULD INCLUDE PROFIT OR LOSS FROM THE BU SINESS OF THE ASSESSEES SPOUSE OR MINOR CHILDREN AND, ACCORDINGLY, UPHELD THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS FROM SUCH BUSINESS. THE PREMISE ON WHICH THE SAID DECISI ON RESTS IS AGAIN THAT INCOME INCLUDES LOSS. IN GOLD COIN HEALTH FOOD (P.) LTD . (SUPRA), THE ISSUE BEFORE THE HONBLE APEX COURT WAS WHETHER THE PENALTY U/S. 271(1)(C) COULD BE LEVIED IF THE RETURN OF INCOME IS AT A 5 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV LOSS, I.E., IN VIEW OF THE AMENDMENT BY FINANCE ACT , 2002 W.E.F. 01.04.2003 IN EXPLANATION 4 TO THE SECTION. IN DECIDING THE MATTER, THE HONB LE COURT REFERRED TO VARIOUS PRECEDENTS. THE FOLLOWING SECTION OF THE JUDGMENT I S RELEVANT FOR OUR PURPOSES WHEREIN THE APEX COURT, ADVERTING TO THE DECISION IN THE CA SE OF HARPRASAD & CO. (P.) LTD . (SUPRA), CLARIFIES THAT INCOME BY DEFINITION ALSO INCLUDES L OSSES: (PGS. 312, 313) 7. IN RELIANCE JUTE & INDUSTRIES LTD. V. CIT [1979] 120 ITR 921 IT WAS OBSERVED BY THIS COURT THAT THE LAW TO BE APPLIED I N INCOME-TAX ASSESSMENTS IS THE LAW IN FORCE IN THE ASSESSMENT YEAR UNLESS O THERWISE PROVIDED EXPRESSLY OR BY NECESSARY IMPLICATION. BEFORE PROCE EDING FURTHER, IT WILL BE NECESSARY TO FOCUS ON THE DEFINITION OF THE EXPRESS ION INCOME IN THE STATUTE. SECTION 2( 24 ) DEFINES INCOME WHICH IS AN INCLUSIVE DEFINITION , AND INCLUDES LOSSES I.E., NEGATIVE PROFIT . THE POSITION HAS BEEN ELABORATELY DEALT WITH BY THIS COURT IN CIT V. HARPRASAD & CO. (P.) LTD. [1975] 99 ITR 118. THIS COURT HELD WITH REFERENCE TO THE CHARGING PROV ISIONS OF THE STATUTE THAT THE EXPRESSION INCOME SHOULD BE UNDERSTOOD TO INC LUDE LOSSES. THE EXPRESSION PROFITS AND GAINS REFERS TO POSITIVE I NCOME WHEREAS LOSSES REPRESENT NEGATIVE PROFIT OR IN OTHER WORDS MINUS INCOME. THIS ASPECT DOES NOT APPEAR TO HAVE BEEN NOTICED BY THE BENCH IN VIRTUAL SOFT SYSTEMS LTD.S CASE (SUPRA). REFERENCE TO THE ORDER BY THIS COURT DISMISSING THE REVENUES CIVIL APPEAL NO. 7961 OF 1996 IN CIT V. PRITHIPAL SINGH & CO. IS ALSO NOT VERY IMPORTANT BECAUSE THAT WAS IN RELATIO N TO THE ASSESSMENT YEAR 1970-71 WHEN EXPLANATION 4 TO SECTION 271(1)( C ) WAS NOT IN EXISTENCE. THE VIEW OF THIS COURT IN HARPRASAD & CO. (P.) LTD.S CASE ( SUPRA ) LEADS TO THE IRRESISTIBLE CONCLUSION THAT INCOME ALSO INCLUDES L OSSES . [EMPHASIS, BY UNDERLINING, OURS] IN SUM AND SUBSTANCE; ALL THESE DECISIONS HAVING B EEN RENDERED IN DIFFERENT CONTEXTS AND FACT-SETTINGS, IS THAT LOSS IS ONLY NE GATIVE INCOME, AND THAT THE DEFINITION OF INCOME UNDER SECTION 2(24) OF THE ACT INCLUDES LOSS. IN OTHER WORDS, IT BEARS THE SAME CHARACTER AND QUALITY AS DOES THE POSITIVE INCOME. ACCORDINGLY, IF A PARTICULAR INCOME IS EXEMPT FROM TAX, SO THAT IT DOES NOT ENTER THE COMP UTATION PROCESS (FOR AND TOWARD DETERMINATION OF TOTAL INCOME U/S. 2(45)), IT WOULD BE SO FOR SUCH INCOME WHETHER POSITIVE OR NEGATIVE, I.E., LOSS. IN FACT, IN THE CASE OF HARPRASAD & CO. (P.) LTD. (SUPRA), THE APEX COURT CLARIFIED THAT THE ASSESSEE IS NOT OBLIGED TO DISCLOSE LOSS FROM A SOU RCE OF INCOME IN 6 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV ITS RETURN WHERE THE INCOME FROM THAT SOURCE IS TAX EXEMPT, NOR THE ITO UNDER AN OBLIGATION TO COMPUTE OR ASSESS THE SAME . EVEN IGNORING FOR A MOMENT THE DEFINING OR MACHINER Y PROVISIONS OF THE ACT, AND LOOKING FAIRLY AT THE CONCEPT OR NOTION OF INCOME FROM A COMMON PERCEPTION/STANDPOINT, WHAT, ONE MAY ASK, IS LOSS, IF NOT NEGATIVE INCOME ? HOW COULD IT (LOSS) HAVE A CHARACTER OTHER THAN THAT OF INCOME, BEING ONLY THE RESULT OF THE SAME COMPUTATION PROCESS WHICH YIELDS A POSITIVE INCOME ? FURTHER, IF CONSTRUED TO BEAR A CHARACTER OR NATURE DIFFERENT FROM INCOME, HOW COULD THE SAME BE ADJUSTED OR SET OFF AGAINST INCOME ? IN FACT, IT IS ONLY ITS COMPUTATION THAT YIELDS OR REVEALS A LOSS. IN F ACT, AS WE HAVE SEEN THE SAME (COMPUTATION) BECOMES APPLICABLE OR WOULD NEED TO B E APPLIED ONLY FOR COMPUTING INCOME WHICH FORMS PART OF THE TOTAL (OR TAXABLE) I NCOME. THAT IS, AN INCOME EXEMPT UNDER CHAPTER III OF THE ACT, NOT FORMING PART OF T HE TOTAL INCOME, WOULD NOT ENTER THE COMPUTATION PROCESS TO DETERMINE THE QUANTUM OF INC OME (WHICH ONLY DETERMINES EITHER POSITIVE OR NEGATIVE INCOME) UNDER THE RELEVANT HEA D OF INCOME, EACH OF WHICH HAS ITS OWN COMPUTATION PROVISIONS. NEEDLESS TO ADD, THE AS SESSEE DID NOT PREFER ANY APPEAL AGAINST THE NON-ACCEPTANCE OF ITS SO CALLED LEGAL C LAIM. RATHER, AS AFORE-NOTED, THE APEX COURT HAS CLARIFIED THAT THE ASSESSEE IS NOT OBLIGED TO DISCLOSE LOSS FROM A SOU RCE OF INCOME IN ITS RETURN WHERE THE INCOME FROM THAT SOU RCE IS TAX EXEMPT, NOR THE ITO UNDER AN OBLIGATION TO COMPUTE OR ASSESS THE SAME . THE FALLACY, TO OUR MIND, LIES IN READING THE WORD INCOME OCCURRING IN S. 10(38) TO MEAN ONLY P OSITIVE INCOME, AND FOR WHICH THERE IS NO WARRANT IN LAW OR IN ANY PROVISION OF THE ACT . THAT WOULD BE READING THE SAID PROVISION DE HORS THE SCHEME OF THE ACT AS WELL AS THE LAW AS EXPLAI NED AND SETTLED BY THE APEX COURT. SEC. 2(24), WHICH DEFINES THE TERM INC OME UNDER THE ACT INCLUSIVELY, PER SUB CLAUSE (VI) DEFINES INCOME TO INCLUDE CAPITAL G AINS CHARGEABLE U/S. 45 OF THE ACT. INASMUCH AS THEREFORE CAPITAL GAINS IS NOT CHARGE ABLE U/S. 45, THE SAME STAND EXCLUDED AT THE VERY THRESHOLD, I.E., IS NOT INCOME BY DEFIN ITION . 3.2 COMING TO THE FACTS OF THE CASE PROPER, WE BEGI N BY REPRODUCING S. 10(38) OF THE ACT, WHICH READS AS UNDER: 7 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME INCOMES NOT INCLUDED IN TOTAL INCOME. 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED (1) (2) (38) ANY INCOME ARISING FROM THE TRANSFER OF A LON G-TERM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND WHERE - ( A ) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF T HE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND ( B ) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRA NSACTION TAX UNDER THAT CHAPTER : PROVIDED THAT THE INCOME BY WAY OF LONG-TERM CAPITAL GAIN O F A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTING TH E BOOK PROFIT AND INCOME-TAX PAYABLE UNDER SECTION 115JB . EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'EQUITY ORIENTED FUND' MEANS A FUND .. NOW, IF STT PAID LTCG IS EXEMPT U/S.10(38), SO IS T HE LOSS FROM THE SAME CLASS OF ASSETS, I.E., LONG TERM CAPITAL ASSETS, BEING EQUIT Y SHARES, ETC. SPECIFIED U/S.10(38), WHERE STT PAID. THE SAME, AS CLARIFIED DURING THE HEARING ITSELF, IS THUS CONSIDERED AS A SEPARATE SOURCE OF INCOME, AND THE QUANTUM OF INCOME THEREFR OM BEING EXEMPT BECOMES IRRELEVANT FOR THE PURPOSES OF THE ACT. IN FACT, ON E ONLY NEEDS TO CONSIDER THE PROPOSITION AS TO THE EXACT STATUS OF INCOME, IF SO, ARISING ON THE ON MARKET TRANSACTIONS, I.E., INSTEAD OF LOSS. IF THE INCOME, WERE IT TO BE SO, FALLS U/S . 10(38), HOW COULD THE LOSS, WHICH IS DISTINGUISHABLE ONLY BY THE ARITHMETICAL RESULT, BE OF A DIFFERENT NATURE. THE SAME IS, THEREFORE, TO BE IGNORED. RATHER, THE ASSESSEE HAVI NG INCOME FROM THE SAID SOURCE, I.E., THE ASSETS SPECIFIED IN SECTION 10(38) (AT RS.1660.41 L ACS), THE LOSS (RS.106.49 LACS) WOULD STAND TO BE REDUCED THEREFROM, TO ARRIVE AT THE INC OME U/S.10(38). THE TWO CANNOT BE TREATED DIFFERENTLY, AS HAS BEEN DONE BY THE ASSESS EE. THE CONTROVERSY UNDER REFERENCE DISSOLVES IMMEDIATELY UPON THE WORD INCOME OCCURR ING IN SECTION 10(38) BEING, AS IS 8 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV REQUIRED TO BE, AND AS CLARIFIED TIME AND AGAIN BY THE APEX COURT, CONSTRUED AS INCLUSIVE OF LOSS . ONE IS IN FACT NOT REQUIRED TO GO INTO THE MECHAN ICS OF SECTION 70 (INTRA-HEAD ADJUSTMENT FOR AGGREGATION OF INCOME TOWARD DETERMI NING THE INCOME UNDER EACH HEAD OF INCOME FOR THE CURRENT YEAR) FOR THE PURPOSE; THE I NCOME BEING EXEMPT, SO THAT IT WOULD NOT ENTER THE COMPUTATION PROCESS FOR DETERMINATION OF THE TOTAL INCOME U/S. 2(45). THAT IS, THE MOMENT THERE IS A TRANSFER OF AN ASSET SPEC IFIED IN SECTION 10(38), ANY INCOME OR LOSS ARISING THERE-FROM IS IRRELEVANT FOR THE PURPO SE OF COMPUTATION OF TOTAL INCOME, WHERE THE TRANSACTION ATTRACTS STT, BEING A PRECONDITION FOR THE APPLICATION OF THE SAID PROVISION. THE ASSESSEES CASE, THEREFORE, ONLY NEEDS TO BE ST ATED TO BE REJECTED . 3.3 COMING TO THE DECISION IN THE CASE OF ROYAL CALCUTTA TURF CLUB (SUPRA), THE ASSESSEES RELIANCE ON THE SAME IS WHOLLY MISPLACED . THE SAID DECISION IS PREMISED ON THE ARGUMENT THAT A SOURCE OF INCOME IS DIFFERENT FROM THE INCOME THERE-FROM. WHAT WOULD, THEREFORE, BE REQUIRED TO BE SEEN IS WHETHER THE IN COME FROM A CERTAIN SOURCE THAT IS EXEMPT, SO THAT IT WOULD ENTER THE COMPUTATION OF T HE TAXABLE INCOME, OR IT IS THE SOURCE OF INCOME ITSELF THAT STANDS EXCLUDED. REPRODUCING THE OBSERVATIONS BY THE APEX COURT IN T HE CASE OF HARPRASAD & CO. (P.) LTD . (SUPRA) AS EXTRACTED HEREINABOVE (AT PARA 3.1 OF THIS ORDER), THE HONBLE COURT DISTINGUISHED THE SAID DECISION BY THE APEX COURT B Y OBSERVING THAT IN THAT CASE THE CAPITAL GAINS WERE NEITHER INTRINSICALLY NOR CONGENITALLY O F INCOME CHARACTER (PARA 14 OF THE DECISION). SECTION 2(24) OF THE ACT WHICH DEFINES INCOME UNDER THE ACT INCLUSIVELY, IN ITS RELEVANT PART, READS AS UNDER: DEFINITIONS. 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES ,- (24) 'INCOME' INCLUDES - (I) . (II) . (VI) ANY CAPITAL GAINS CHARGEABLE UNDER SECTION 4 5 ; (VII) . [EMPHASIS, BY UNDERLINING, OURS] 9 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV CLEARLY, THEREFORE, ANY CAPITAL GAIN, I.E., ANY PRO FIT OR GAIN ARISING ON THE TRANSFER OF A CAPITAL ASSET, IS INCOME UNDER THE ACT ONLY IF AN D TO THE EXTENT IT IS CHARGEABLE U/S.45 OF THE ACT. AS SUCH, THE ACT CLASSIFIES ALL CAPITAL GAINS ARISI NG AS FROM TWO SOURCES, ONE WHICH BEARS THE CHARACTER OF THE INCOME FOR THE PUR POSES OF THE ACT AND THE OTHER WHICH DOES NOT . SECTION 2(45), WHICH DEFINES THE TERM TOTAL INCOME UNDER THE ACT, READS AS UNDER: DEFINITIONS. 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES ,- (1)..; (2)..; (45) 'TOTAL INCOME' MEANS THE TOTAL AMOUNT OF INC OME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN T HIS ACT; THE INCOME BY WAY OF CAPITAL GAINS IN THE INSTANT C ASE IS, BY VIRTUE OF BEING EXEMPT U/S. 10(38), NOT CHARGEABLE U/S.45 AND, CONSEQUENTLY, OU TSIDE THE SCOPE OF THE TOTAL INCOME. ACCORDINGLY, IT MAY BE SEEN THAT, FIRSTLY, THE RELE VANT CAPITAL ASSETS, INCOME FROM WHICH IS NOT CHARGEABLE U/S.45, CONSTITUTES A SEPARATE SOURC E OF INCOME AND, TWO, BEING SO, I.E., TAX EXEMPT U/S. 10(38), WOULD THUS NOT GO TO FORM PART OF THE TOTAL INCOME. BOTH THE CONDITIONS AS STATED BY THE APEX COURT IN HARPRASAD & CO. (P.) LTD . (SUPRA) FAIL. THE OBSERVATIONS MADE BY THE HONBLE HIGH COURT QUA CAPITAL GAINS WHILE DISTINGUISHING THE SAID DECISION BY THE APEX COURT, I.E., OF THE INCOM E UNDER REFERENCE BEING INTRINSICALLY NOT INCOME, WOULD THUS APPLY WITH EQUAL FORCE IN THE IN STANT CASE, AS IT DID IN THE CASE OF HARPRASAD & CO. (P.) LTD . (SUPRA). IT IS THIS THAT LED US TO STATE OF THE R ELIANCE BY THE ASSESSEE ON THE DECISION IN THE CASE OF ROYAL CALCUTTA TURF CLUB (SUPRA) AS COMPLETELY MISPLACED. 3.4 WE NEXT CONSIDER THE ASSESSEES ARGUMENT, MA DE WITH REFERENCE TO THE DECISIONS IN THE CASE OF NAGA HILLS TEA CO. LTD . (SUPRA) AND NAVNITLAL AMBALAL AND OTHERS V. CIT [1976] 105 ITR 735 (BOM) OF THE BENEFIT OF DOUBT BE ING AVAILABLE TO IT, INASMUCH AS IF TWO VIEWS ARE REASONABLE POSSIBLE, ONE IN FAVOUR OF THE SUBJECT OUGHT TO BE ADOPTED. 10 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV TOWARD THIS, AS AFORE-NOTED, IT STANDS ABUNDANTLY CLARIFIED BY THE APEX COURT TIME AND AGAIN THAT BOTH THE POSITIVE AND NEGATIVE INCOM ES HAVE THE SAME CHARACTER. BOTH MUST, THEREFORE, EITHER ENTER THE COMPUTATION (OF I NCOME) OR NOT. IT CANNOT BUT BE OTHERWISE, UNLESS OF COURSE SPECIFICALLY PROVIDED O THERWISE. THE SAME ALSO ACCORDS WITH THE COMMON NOTION OF THE TERM AS WELL AS EQUITY. IN THE INSTANT CASE, WHILE THE POSITIVE INCOME FROM SPECIFIED ASSETS IS ADMITTEDLY EXEMPT U /S.10(38), THE NEGATIVE INCOME THERE- FROM IS TAKEN TO FORM PART OF THE TOTAL INCOME UNDE R CHAPTER IV(E), I.E., CHARGEABLE UNDER THE HEAD CAPITAL GAINS. WHAT COULD BE A MORE PATE NT AND BLATANT MISREADING OR, RATHER, MISAPPLICATION OF THE LAW, WHICH STANDS EXPLAINED B Y THE APEX COURT OVER A SERIES OF DECISIONS, SO AS TO BE CONSIDERED AS A PART OF THE SETTLED LAW IN THE MATTER, IN VIEW WHEREOF, THE SAID ARGUMENT IS CONSIDER FALSE AND, I N ANY CASE, FAILS. 3.5 WE MAY NEXT PROCEED TO DISCUSS THE OTHER ASPECT S OF THE ASSESSEES CASE, I.E., QUA TRUE AND FULL DISCLOSURE OF ALL FACTS MATERIAL TO T HE COMPUTATION OF THE INCOME, SO THAT NO PENALTY U/S.271(1)(C) COULD BE LEVIED. IT SHALL BE NECESSARY TO CONSIDER THIS ASPECT AS, AS AFORE-NOTED, THIS FORMS A GROUND ON WHICH RELIEF HA S BEEN ALLOWED BY THE LD. CIT(A). TOWARD THIS, WE MAY FIRSTLY STATE THAT TRUE AND FUL L DISCLOSURE, I.E., ASSUMING SO, IS BY ITSELF NOT SUFFICIENT TO ESCAPE PENALTY U/S.271(1)( C). THIS IS AS THE REQUIREMENT OF LAW, PER EXPLANATION 1(B) TO THE PROVISION, COUPLES THE SAID REQUIREMENT WIT H A CONDITION THAT THE ASSESSEE IS ABLE TO SUBSTANTIATE ITS EXPLANATION AN D PROVES IT TO BE BONA FIDE . THE ASSESSEE HAS ABYSMALLY FAILED, GIVEN THE CLEAR POSITION OF T HE LAW IN THE MATTER, TO SUBSTANTIATE ITS EXPLANATION. WE HAVE ALREADY SEEN THAT THE RELIANCE ON THE DECISION IN THE CASE OF ROYAL CALCUTTA TURF CLUB (SUPRA), ON WHICH GREAT EMPHASIS WAS PLACED BY THE LD. AR DURING HEARING, AS COMPLETELY MISPLACED. AS SUCH, THE ASSE SSEE, IN FACT, OFFERS NO EXPLANATION, SO THAT ITS CASE FALLS UNDER EXPLANATION 1 (A) TO THE PROVISION. WE HAVE, WHILE DISCUSSING THE ASSESSEES CASE ON MERITS, FOUND ITS EXPLANATION TO BE INCONSISTENT WITH THE LIKE INHERENT NATURE OR QUALITY OF THE RECEIPT, IRRESPECTIVE OF W HETHER IT RESULTS IN A POSITIVE OR NEGATIVE INCOME, WITH THE DIFFERENCE LYING ONLY IN THE QUANT UM, AND NOT IN ITS QUALITY, SO THAT IT MILITATES AGAINST THE COMMON UNDERSTANDING OR NOTIO N OF INCOME; THE SCHEME OF THE ACT 11 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV WHEREBY A SET OFF, SUBJECT TO CERTAIN RESTRICTIONS AND/OR CONDITIONS, THEREFORE, OF THE POSITIVE AND NEGATIVE INCOME IS ALLOWED; AND, FINAL LY, THE CLEAR PRONOUNCEMENTS OF THE APEX COURT IN THE MATTER, CITING THREE OF ITS CELEB RATED JUDGMENTS, EACH OF WHICH IS BY A BENCH CONSISTING OF THREE JUDGES. THE SAME HAVE BEE N FOLLOWED AND APPLIED, ON SEVERAL OCCASIONS, BY HONBLE HIGH COURTS ACROSS INDIA, INC LUDING BY THE JURISDICTIONAL HIGH COURT, AS IN HINDUSTAN UNILEVER LTD. VS. DY.CIT [2010] 325 ITR 102 (BOM); CIT VS. SMT. RADHADEVI D. DAGA [1987] 167 ITR 888 (BOM); AND R. M. GOCULDAS VS. CIT [1985] 151 ITR 67 (BOM), BESIDES BY THE APEX COURT ITSELF. MER ELY RAISING A LEGAL PLEA, WITHOUT ANY BASIS IN LAW OR IN FACTS, WOULD NOT BY ITSELF CONST ITUTE EITHER A VALID BASIS, MUCH LESS A DEBATABLE ISSUE OR A SUBSTANTIATION OF ITS EXPLANAT ION. IN THIS REGARD, WE MAY DRAW FROM THE DECISION BY THE APEX COURT IN THE CASE OF ESCORTS LTD. VS. UNION OF INDIA [1993] 199 ITR 43 (SC). REJECTING A CLAIM OF DOUBLE DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, I.E., U/S.35(1)(IV) AS WELL AS OF DEPRECIATION U/S.32(1)(II) QUA THE RELEVANT CAPITAL ASSETS, THE HONBLE COURT HELD THA T ALL MISCONCEPTIONS SHALL VANISH AND ALL THE PROVISIONS WILL FALL INTO PLACE, IF THE FUNDAME NTAL, THROUGH UNWRITTEN, AXIOM THAT NO LEGISLATURE COULD HAVE AT ALL INTENDED A DOUBLE DED UCTION IN REGARD TO THE SAME BUSINESS OUTGOING, IS BORNE IN MIND AND, FURTHER, THAT IF SO INTENDED IT WILL BE CLEARLY EXPRESSED (PG.57 E & F). WITH REGARD TO THE MERITS OF THE CLA IM MADE, IN ITS WORDS: (PAGE 60-B) THE MERE FACT THAT A BASELESS CLAIM WAS RAISED BY SOME OVER-ENTHUSIASTIC ASSESSEES WHO SOUGHT A DOUBLE ALLOWANCE OR THAT SUC H CLAIM MAY PERHAPS HAVE BEEN ACCEPTED BY SOME AUTHORITIES IS NOT SUFFI CIENT TO ATTRIBUTE ANY AMBIGUITY OR DOUBT AS TO THE TRUE SCOPE OF THE PROV ISIONS AS THEY STOOD EARLIER. ACCORDINGLY, IN OUR CLEAR VIEW, EXPLANATION 1(A) AND, IN ANY CASE, EXPLANATION 1(B) OF THE SECTION IS, THUS, CLEARLY ATTRACTED IN THE INSTANT CASE. REFERENCE IN THIS REGARD IS MADE TO THE RECENT DECISION BY THE HONBLE SUPREME COURT IN THE CASE OF MAK DATA (P.) LTD. V. CIT DATED 30/10/2013 (IN CIVIL APPEAL NO. 9772 OF 2013 /COPY ON RECORD). THOUGH, THEREFORE, NOTHING TURNS ON THE D ISCLOSURE OF ALL MATERIAL FACTS, I.E., PER THE COMPUTATION OF INCOME AS RETURNED FOR THE YEAR, AS CONTENDED, AS WE SHALL PRESENTLY SEE, THE SAME IS ALSO NOT SO. THERE BEING NO MATERIAL ON RECORD TO SUPPORT THE FINDING BY THE LD. 12 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV CIT(A) TO THIS EFFECT, THE PARTIES WERE SPECIFICALL Y QUESTIONED ON THIS ASPECT OF THE MATTER. IT WAS CONCEDED BY THE LD. AR, FURNISHING A PAPER-B OOK, THAT THE RETURN BEING AN E-RETURN (AT PB PGS.1-26), THE SAME, FILED ON 31.10.2007, WA S NOT ACCOMPANIED BY ANY DISCLOSURE; THERE BEING NO AVENUE FOR DOING SO. THE BOARD HAS V IDE ITS CIRCULAR NO.9 OF 2006 DATED 10.10.2006 (PB PGS.27-29) CLARIFIED (VIDE PARA 6 TH EREOF) THAT THE ASSESSEES MAY IN SUCH CIRCUMSTANCES AVAIL OF OPPORTUNITY TO FILE DOCUMENT S, FURNISHING REASONS AND MAKE DISCLOSURES IN SUPPORT OF VARIOUS CLAIMS, IN RESPO NSE TO THE FIRST NOTICE ISSUED U/S.143(2) (PARA 6(V) OF THE SAID CIRCULAR). CONTINUING FURTHE R, HE SUBMITTED THAT THE FIRST NOTICE U/S. 143(2) WAS ISSUED ON 22.09.2008 FOR 29.09.2008 (PB PG.30). AS THE SAME WAS ONLY A FORMAL NOTICE, THE MATTER WAS ADJOURNED SINE DIE . HOWEVER, TO CLARIFY THE MATTERS, A LETTER WAS WRITTEN BY THE ASSESSEE ON 29.09.2008 (FILED ON 01.10.2008), BRINGING THE STATUS TO THE FORE, AND ALSO COMMUNICATING THAT ANY CLARIFICA TION, IF REQUIRED, MAY BE SOUGHT (PB PG.31). THE PROCEEDINGS WERE REVIVED BY ISSUE OF NO TICE U/S. 142(1) ON 24.07.2009, REQUIRING GENERAL INFORMATION BY WAY OF ANNEXURE TH ERETO (PB PGS.32-34). THE SAME WAS RESPONDED VIDE REPLY DATED 13.08.2009 (PB PGS.35-39 ). THIS WAS FOLLOWED BY A REPLY DATED 28.08.2009 (PB PGS.40-51), CLARIFYING THE ASS ESSEES STAND. ON THIS BASIS, IT WAS SUBMITTED THAT THERE HAS BEEN TRUE AND FULL DISCLOS URE AS CONTEMPLATED IN EXPLANATION 1(B) TO SECTION 271(1)(C). WE ARE COMPLETELY UNABLE TO PERSUADE OUR SELVES TO AGREE WITH AND, RATHER, AT A LOSS TO UNDERSTAND THE ASSESSEES CLAIM/S IN THE MATTER. THE PAPER RETURN IN THIS CASE, WHICH WAS REQUIRED TO FOLLOW THE E-RETURN AS PER THE NEW PROCEDURE, WAS FILED ON 13.11.2007, I.E., WITHIN THE PRESCRIBED PERIOD OF 15 DAYS OF TH E FILING OF THE E-RETURN (PARA 6(VI) READ WITH PARA 2 OF THE BOARD CIRCULAR DATED 10.10.2006 SUPRA). THE FIRST NOTICE U/S. 143(2) WAS SERVED ON THE ASSESSEE ON 25.09.2008 FOR 29.09.2008. THE ASSESSEE WAS, THEREFORE, AS PER THE BOARD CIRCULAR BEING RELIED UPON BY IT, AS IT IS ENTITLED TO, TO FURNISH ALL THE REASONS AND DISCLOSURES IN SUPPORT OF ITS CLAIM PER THE RET URN OF INCOME FOR THE YEAR, ON 29.09.2008 . THIS WAS ADMITTEDLY NOT DONE . SO MUCH SO, EVEN THE COMPUTATION OF THE TOTAL INCOME WAS NOT FILED. THE ASSESSEE, THEREFORE, IN O UR CLEAR VIEW CANNOT SAY THAT IT HAD 13 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV AVAILED OF THE FIRST OPPORTUNITY TO MAKE FULL DISCL OSURE IN TERMS OF THE BOARD CIRCULAR AND, THUS, THE SAME MUST BE DEEMED TO BE PER ITS RETURN OF INCOME FOR THE YEAR. FURTHER ON, THE ASSESSEE WAS FURNISHED A DETAILED REQUISITION VIDE ANNEXURE TO NOTICE DATED 24.07.2009; POINTS 7 & 8 WHEREOF, EVEN AS POINTED OUT BY THE LD. DR DURING HEARING, BEING IN RELATION TO THE COMPUTATION OF CA PITAL GAINS (PB PG.34). THE REPLY THERETO (DATED 13.08.2009) MAKES NO MENTION OF THE IMPUGNED LOSS; THE FACT THAT IT IS STT PAID, AS WELL AS OF THE BASIS AND/OR THE REASON FOR ITS CLAIM AGAINST TAXABLE (NON-EXEMPT) CAPITAL GAINS. THE FIRST INSTANCE ON WHICH PROPER D ISCLOSURE, SPELLING OUT THE FACT DETAILS, WAS MADE ONLY VIDE THE ASSESSEES LETTER DATED 28.0 8.2009 (PB PGS.40-51), WHICH IS ADMITTEDLY IN RESPONSE TO THE REQUISITION DATED 13. 08.2009, AND UPON HEARING ON 17.08.2009 (PB PG. 40). THE FACTUAL DETAILS OF THE IMPUGNED CLAIM, THUS, ONLY EMERGE DURING AND IN THE COURSE OF THE ASSESSMENT PROCEEDI NGS AND, FURTHER, IN VERIFICATION THEREOF BY THE A.O. TO STATE THAT, THEREFORE, THE M ATERIAL PARTICULARS OF INCOME WERE FURNISHED (OR BE DEEMED TO BE SO) PER THE RETURN OF INCOME, AS THE LAW REQUIRES, OR EVEN VOLUNTARILY (AS WHERE THE ASSESSEE DETECTS A MISTAK E IN HIS RETURN SUBSEQUENTLY), IS COMPLETELY INCORRECT; THE SAME BEING ONLY IN RESPON SE TO SPECIFIC QUERIES. IN FACT, THE COMPUTATION OF INCOME WAS ITSELF FURNISHED VIDE REP LY DATED 28.08.2009 (PER ANNEXURE B THERETO/PB PGS.50-51), AND WHICH AGAIN DOES NOT SPE CIFY THE IMPUGNED LOSS TO BE ON ON MARKET SHARES, AND FURTHER OF BEING STT PAID. THE SAID INFORMATION IS ONLY BORNE OUT BY THE ACCOMPANYING REPLY, OF WHICH IT IS A PART. THER E IS, ACCORDINGLY, NO FACTUAL OR LEGAL BASIS FOR THE LD. CIT(A) TO STATE THAT THE ASSESSEE HAS MADE TRUE AND FULL DISCLOSURES OF ALL FACTS MATERIAL TO THE COMPUTATION OF THE INCOME RET URNED; WE RATHER FIND IT TO BE CONTRARY TO AND DE HORS ANY MATERIAL ON RECORD. 3.6 WE MAY NEXT DISCUSS THE ASSESSEES RE LIANCE ON THE DECISION IN THE CASE OF NALIN P. SHAH (IN ITA NOS.4780, 4781 & 4783/MUM/2010 DATED 18.07. 2012), WHEREIN THE TRIBUNAL DELETED THE PENALTY LEVIED U/S. 271(1)(C) IN RESPECT OF SET OFF OF LOSSES INCURRED ON SALE OF UNITS OF US 64 (INCOME FROM WHICH WAS EXEMP T U/S.10(33) OF THE ACT), AGAINST THE TAXABLE INCOME ASSESSABLE UNDER THE HEAD CAPITAL G AINS. THE HONBLE JURISDICTIONAL HIGH 14 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV COURT, ON SAME BEING CHALLENGED BEFORE IT, DECLINED INTERFERENCE PER ITS ORDER DATED 04.03.2013 (IN ITA (LOD) 49 TO 51 OF 2013), THEREBY UPHOLDING THE TRIBUNALS ORDER. THERE IS, WITH RESPECT, NO DISCUSSION OF THE LAW IN THE MATTER THEREIN, I.E., EITHER QUA THE MAINTAINABILITY IN LAW OF THE ASSESSEES CLAIM ON MERITS OR IN RELATION TO THE LEVY OF PENALTY, BY THE TRIBUNAL IN ITS SAID ORDER. HOW DID THE TRIBUNAL ARRIVE AT A CONCLUSION THAT ALL THAT CAN BE SAID AT THE HIGHEST, EVEN AS N OTED BY THE HONBLE COURT AT PARA 6 OF ITS ORDER (SUPRA), THAT THE ASSESSEE-APPELLANTS CLAIM IN THAT CASE (WHICH APPEARS TO BE IN A SIMILAR SITUATION), ONE WHICH IS NOT SUSTAINABLE IN LAW, IS NOT CLEAR. RATHER, WE OBSERVE NO CONSIDERATION OF THE ASSESSEES EXPLANATION ON MERI TS, WHICH WE HAVE FOUND IN THE INSTANT CASE AS WITHOUT BASIS IN LAW AND FACTS AND, RATHER, CONTRARY TO THE CLEAR LAW LAID DOWN BY THE APEX COURT OVER A SERIES OF DECISIONS, IN THE S AID CASE. NOT A SINGLE PROVISION OF LAW STANDS CITED BEFORE US IN SUPPORT OF THIS HYPOTHESI S, WITH WE RATHER FINDING REFERENCE TO SECTION 70 OF THE ACT AS UNWARRANTED AND IRRELEVANT INASMUCH AS THERE IS NO OCCASION TO COMPUTE INCOME AS THE CAPITAL GAINS UNDER REFERENCE IS NOT CHARGEABLE U/S.45 AND, THUS, IS BY DEFINITION NOT INCOME AND, IN ANY CASE OF THE MA TTER, BEING EXEMPT IN CHAPTER III OF THE ACT, DOES NOT FORM PART OF THE TOTAL INCOME, SO AS TO REQUIRE ITS COMPUTATION UNDER CHAPTER IV-E OR ANY OTHER HEAD OF INCOME FOR THAT M ATTER. IN FACT, THE ASSESSEE ALSO HAD INCOME FROM THE SAID ASSETS FOR THE CURRENT YEAR, AND WHICH STOOD CLAIMED TAX-E XEMPT U/S.10(38), I.E., WITHOUT ADJUSTING THE IMPUGNED LO SS ARISING LIKEWISE. FURNISHING AN EXPLANATION FOR ITS CLAIM (PER THE RETURN OF INCOME ) AND, FURTHER, WHICH MAY BE REGARDED AS REASONABLE OR PLAUSIBLE, SUBSTANTIATING THE RELE VANT FACTS ON WHICH IT (EXPLANATION) IS BASED, IS VITAL AND INTEGRAL TO THE ASSESSEES CASE IN PENALTY PROCEEDINGS. THIS MAY BE REGARDED AS FUNDAMENTAL INASMUCH AS THE LAW, PER EXPLANATION 1(A) AND 1(B) TO SECTION 271(1)(C), PLACES THE ONUS TO FURNISH AN EXPLANATIO N ONLY ON THE ASSESSEE, SO THAT IN ITS ABSENCE, OR ITS SUBSTANTIATION, AS THE CASE MAY BE, THE ASSESSEE IS DEEMED TO HAVE CONCEALED THE PARTICULARS IN RESPECT OF SUCH INCOME . THE LAW IN THE MATTER IS TRITE AND WELL EXPOUNDED BY THE APEX COURT OVER A SERIES OF DECISI ONS, VIZ. CIT V. ATUL MOHAN BINDAL [2009] 317 ITR 1 (SC); UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC); GULJAG INDUSTRIES V. CTO [2007] 293 ITR 584 (SC); K.P. MADHUSUDHANAN 15 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS V. CIT (1999) 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITR 244 (SC); CIT VS. K. R. SADAYAPPAN [1990] 185 ITR 49 (SC); AND CIT VS. MUSSADILAL RAM BHAROSE [1987] 165 ITR 14 (SC). THE HONBLE APEX COURT IN CIT V. RELIANCE PETROPRODUCTS (P.) LTD . [2010] 322 ITR 158 (SC) HAS NOT LAID DOWN ANY NEW LAW OR MODIFIED THE EXISTING LAW, ARTICULATED OVER A FEW DECADES, BUT EXPRESSED THAT MERE UNSUSTANABILIT Y OF A CLAIM IN LAW CANNOT BY ITSELF LEAD TO A LEVY OF PENALTY, WHERE THE CLAIM IS MADE BONA FIDE AND ACCOMPANIED BY A FULL DISCLOSURE. THERE WAS, IS AND CANNOT BE ANY QUARREL WITH THE SAID PREPOSITION AND WHICH IN FACT IS CONSISTENT WITH THE SETTLED LAW, WHICH STAN DS CLARIFIED ONCE AGAIN LATELY BY THE APEX COURT IN MAK DATA (P.) LTD. (SUPRA) VIDE ITS DECISION DATED 30/10/2013. THERE C OULD WELL BE A CASE OF ASSESSEE HAVING AN ARGUABLE CASE, OR O F A RANK, INADVERTENT MISTAKE, AS WAS FOUND BY THE APEX COURT IN PRICE WATERHOUSE COOPERS (P.) LTD. V. CIT [2012] 348 ITR 306 (SC). THE QUESTION, THUS, TURNS ESSENTIALLY ON FACTS. WE HAVE FOUND IN THE INSTANT CASE THAT THE ASSESSEE CANNOT BE SAID TO HAVE FURNISHED ANY EXPLANATION INASMUCH AS RAISING A PLEA, WITHOUT ANY BASIS IN LAW OR FACTS AND, RATHER , CONTRARY TO IT, CANNOT BE CONSIDERED AS AN EXPLANATION IN LAW, AND THAT IN ANY CASE THE ASS ESSEE CAN ONLY BE CONSIDERED AS HAVING FAILED TO SUBSTANTIATE ITS EXPLANATION. THE HONBLE DELHI HIGH COURT HAS ALSO CONSIDERED AND EXPLAINED THE LAW PER ITS DECISIONS IN THE CASE S OF CIT VS. ZOOM COMMUNICATION (P.) LTD. [2010] 327 ITR 510 (DEL.); CIT VS. ESCORTS FINANCE LTD. [2010] 328 ITR 44 (DEL); AND CIT VS. USHA INTERNATIONAL LIMITED [2013] 212 TAXMAN 519 (DEL), RENDERED IN LIGHT OF THE DECISION BY THE APEX COURT IN RELIANCE PETROPRODUCTS (P.) LTD . (SUPRA), UPHOLDING THE PENALTY IN EACH CASE ON A FINDING OF APPLICABIL ITY OF E XPLANATION 1(A) OR 1(B) OF THE PROVISION. FURTHER, WHILE WE FIND NO DISCLOSURE OF FACTS, MUCH LESS MATERIAL FACTS, THE TRIBUNAL FOUND AS SO IN THE CITED CASE; THE DISCLOS URE BEING MADE ONLY ON 28/8/2009, I.E., THE LAST DATE OF HEARING IN THE ASSESSMENT PROCEEDI NGS (REFER PARA 3.5 OF THIS ORDER). THE HONBLE COURT ENDORSED THE TRIBUNALS ORDER ON THE PRELIMINARY GROUND OF THERE BEING DISCLOSURE PER THE RETURN OF INCOME AND, TWO, OF TH E ASSESSEE HAVING FURNISHED A PLAUSIBLE EXPLANATION INASMUCH AS ALL THAT COULD BE SAID AT T HE HIGHEST IS THAT THE ASSESSEES CLAIM 16 ITA NO. 7106/MUM/2010 (A.Y. 2007-08) DY. DIT(IT) VS. ASIA PACIFIC PERFORMANCE SICAV WAS NOT SUSTAINABLE IN LAW, DECLINING ADMISSION OF THE QUESTIONS OF LAW RAISED BEFORE IT BY THE REVENUE. THE CONCLUSION BY THE HONBLE COURT AS WELL AS ITS BASIS IS, THUS, NOT APPLICABLE IN THE FACTS OF THE INSTANT CASE, SO THA T THE RELIANCE THEREON WOULD BE OF LITTLE ASSISTANCE TO THE ASSESSEES CASE, WHICH HAS BEEN E XAMINED BY US IN ALL ITS FACETS. 4. IN VIEW OF THE FOREGOING, WE, FINDING LITTLE MER IT IN THE ASSESSEES CASE, SET ASIDE THE IMPUGNED ORDER AND DIRECT RESTORATION OF PENALT Y, WHICH HAS BEEN LEVIED AT THE MINIMUM RATE APPLICABLE. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED. 0. 1 ) & ) 2 & 34 ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 27, 2013 SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' * MUMBAI; 5( DATED : 27.12.2013 ).(../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. ' 6 ( ) / THE CIT(A) 4. ' 6 / CIT CONCERNED 5. 9):; $ (<= , + <= . , ' * / DR, ITAT, MUMBAI 6. ;>? @* / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' * / ITAT, MUMBAI