E-CAP PARTNERS, MUMBAI V. DCIT 15(1), MUMBAI

ITA 7194/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92955 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2004-2005
• Appeal Filed On: 09-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Question of law; Speculation loss; Difference of opinion; Change of opinion
• Section: 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI VIJAY PAL RAO ( JM ) AND D. KARUNAKAR RAO, (AM) , . , ./ I.T.A.NO . 7194 / MUM/20 1 3 ( / ASSESSMENT YE A R : 200 4 - 05 ) M/S E - CAP PARTNERS, EDELWEISS HOUSE, OFF CST ROAD, KALINA, SANTACRUZ (E), MUMBAI - 400098 / VS. THE DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 15(1), MUMBAI ( / A PPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AA BEF3734E / APPELLANT BY SHRI VIJAY MEHTA / RESPONDENT BY S HRI NEIL PHILIP / DATE OF HEARING : 7 .5.2015 / DATE OF PRONOUNCEMENT : 22.6 . 2015 / O R D E R PER VIJAY PAL RAO ( JM ) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 2.9.2013 ARISING FROM THE PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. IN THIS CA S E THE PENALTY HAS BEEN LEVIED UNDER SECTION 271 ( 1)( C ) AGAINST THE DISALLOWANCE OF CLAIM OF LOSS OF RS.22 , 04 , 485/ - BEING HELD AS SPECULATIVE LOSS BY THE AO. THE DISALLOWANCE MADE BY THE AO WAS UPHELD BY THE LD.CIT(A) BUT THE TRIBUNAL HAS REVERSED THE ORDERS OF THE AUTHORITIES BELOW AND ALLOWED THE CLAIM OF THE ASSESSEE. ON FURTHER APPEAL BY THE REVENUE BEFORE THE HIGH COURT, THE ORDER OF TH IS TRIBUNAL WAS REVERSED AND THE ORDER OF THE AO AND LD. CIT(A) HAVE BEEN UPHELD. THE AO LEVIED THE PENALTY IN RESPECT OF DISALLOWANCE OF LOSS ITA NO .7194 /M/201 3 2 OF RS.22,04,485/ - BY TREATING THE SAME AS SPECULATIVE LOSS AS PER THE PROVISIONS OF SECTION 73 R.W.S.43(5) OF THE ACT. THE ASSESSEE CHALLENGE D THE ACTION OF THE AO BEFORE THE LD. CIT(A) AGAINST THE LEVY OF PENALTY UNDER SECTION 271(1)( C ) BUT WITHOUT SUCCESS. 3. BEFORE US, THE LD . AR OF THE ASSESSEE HAS SUBMITTED THAT THIS IS A DEBATABLE ISSUE AND THE CLAIM OF THE ASSESSEE IS BONAFI D E. THE AO HAS DISALLO WED THE CLAIM OF THE LOSS BY TREATING THE SAME AS SPECULATIVE LOSS AND THEREFORE THE DISALLOWANCE MADE BY THE AO IS BASED ON CHANGE OF OPINION. THE CLAIM OF THE ASSESSEE IS A POSSIBLE VIEW AND THIS TRIBUNAL IN THE QUANTUM APPEAL DECIDED THE ISSUE IN F AVOUR OF THE ASSES SEE , THEREFORE, THE CLAIM OF LOSS BY TREATING THE SAME AS SPECULATIVE LOSS DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING IN ACCURATE PARTICULARS OF INCOME, WHEN THE ASSESSEE HAS FURNISHED THE RELEVANT RECORD AND DETAILS IN RESP ECT OF TRANSACTIONS FROM WHICH THE ASSESSEE HAS INCURRED THE LOSS IN QUESTION. HE HAS RELIED UPON THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RADHE KRISHNA FISCAL PVT LTD V/S DCIT IN ITA NO.6256/MUM/2011 (AY - 2005 - 06) DATED 14.12.20 12 AND SUBMITTED ON IDENTICAL FACTS, THE TRIBUNAL HAS DELETED THE PENALTY LEVIED IN RESPECT OF DISA LLOWANCE OF LOSS ARISING FROM THE TRADING IN SHARES AND DERIVATIVES. 4 . ON THE OTHER HAND, THE LD.DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUB MITTED THAT IN THE QUANTUM APPEAL, THE ISSUE HAS BEEN DECIDED BY THE HON BLE JURISDICTIONAL HIGH COURT AGAINST THE ASSESSEE AND THEREFORE THE PENALTY IS JUSTIFIED. 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS CONSIDERED THE RELEVANT RECORD AVA ILABLE BEFORE US. IN THE CASE IN HAND, THE ASSESSEE HAS INCURRED LOSS IN THE BUSINESS OF TRADING IN SHARES AND DERIVATIVES AN D CLAIMED THE SAME AGAINST THE OTHER INCOME. THE AO DISALLOWED THE CLAIM OF LOSS BY TREATING THE SAME AS SPECULATIVE LOSS AS PE R THE EXPLANATION TO PROVISIONS OF SECTION 73 OF THE ACT READ WITH SECTION 43(5) O F THE ACT. THERE IS NO DISPUTE THAT THE LOSSES AROSE FROM THE ACTIVI TI ES OF SHARE TRADING AND DERIVATIVES WAS EXPLAINED BY THE ASSESSEE AND DISCLOSED BEFORE THE AO. HOWEV ER, THE ASSESSEE ITA NO .7194 /M/201 3 3 CLAIMED THE SAID LOSS AS BUSINESS LOSS. THUS, IT IS CLEAR THAT AS FAR AS THE TRANSACTION OF TRADING IN SHARES AND DERIVATIVES GIVING RISE TO THE LOSS IN QUESTION IS CONCERNED , T HERE IS NO DISPUTE BETWEEN THE PARTIES AND THEREFORE THE ASSE SSEE HAS NOT REPRESENTED ANY WRONG FACT REGARDING TRADING ACTIVITIES RESULTED IN LOSS IN QUESTION. THE BASIS FOR TREATING THE LOSS AS SPECULATIVE LOSS BY THE AO IS BY APPLYING THE DEEMING PROVISION OF SECTION 73 OF THE ACT AND THEREFORE, IT WAS A CASE O F INTERPRETATION OF PROVISIONS OF LAW . W HEN THE ASSESSEE HAS NOT SUPPRESSED ANY FACT OR NATURE OF TRANSACTION AND SOURCE OF LOSS THEN THE CLAIM OF THE ASSESSEE CANNOT BE SAID TO BE AN ABSOLUTE, BOGUS OR INCORRECT CLAIM. EVEN OTHERWISE, THE ISSUE OF TREAT ING THE LOSS AS SPECULATION UNDER EXPLANATION TO SECTION 73 OF THE ACT IS A SUBJECT MATTER OF INTERPRETATION OF LAW AND THEREFORE, THE R E WAS A SCOPE OF POSSIBLE TWO VIEWS ON THIS POINT. THE TRIBUNAL IN THE QUANTUM APPEAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH SUPPORT THE VIEW OF THE ASSESSEE BEING A POSSIBLE VIEW AND THEREFORE, THE CLAIM OF THE ASSESSEE WAS BONAFIDE CLAIM. IN A SIMILAR SITUATION, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RADHE KRISHNA FISCAL PVT LTD(SUPRA) HAS H ELD AS UNDER: 7. AT THE OUTSET, THE LD.AR HAS POINTED OUT THAT THE ASSESSEES CASE IS COVERED IN ITS FAVOUR BY THE DECISION OF THE ITAT IN THE CASE OF RADHE KRISHNA FISCAL PVT. LTD. VS. DCIT IN ITA NO. 6256/MUM/2011, THE ORDER IN WHICH THE PRESENT AM IS A LSO A PARTY AND THE RELEVANT FINDINGS OF THE ITAT IN THE SAID CASE IS EXTRACTED HEREUNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE ISSUE RELATING TOE ASSESSEES CLAIM FOR LOSS ON ACCOUNT OF T RADING IN DERIVATIVES BEING A NORMAL BUSINESS LOSS OR SPECULATION LOSS HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN 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 THE STAND OF THE ASSESSEE THAT LOSS ON ACCOUNT OF DERIVATIVE TRADING WAS NOT A SPECULATION LOSS BUT WAS ALLOWABLE AS A BUSINESS LOSS. KEEPING IN VIEW THE SAID DECISIONS OF 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 CLAIM SO MADE BY ADOPTING A POSSIBLE VIEW WAS BONA FIDE. MOREOVER, THE SLP FILED BY THE ASSESSEE AGAINST THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHRI BHARAT R. RUIA (HUF) (SUPRA) HAS ALREADY BEEN ADMITTED BY THE HONBLE SUPREME COURT VIDE ITS ORDER DATED 05.09.2011 WHICH SHOWS THAT THE ISSUE RELATING TO ASSESSEES CLA IM FOR LOSS ON ACCOUNT OF DERIVATIVE TRADING BEING A NORMAL BUSINESS 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 PENALTY U/S 271(1)(C) CAN BE IMPOSED IN ITA NO .7194 /M/201 3 4 RESPECT OF DISALLOWANCE ON THE ISSUE WHICH INVOLVES A SUBSTANTIAL QUESTION OF LAW. IT IS ALSO OBSERVED THAT IN THE CASE OF HONGKONG & SJHANGHAI BANKING CORPN. LTD. (SUPRA) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE PENALTY IMPOSED U/S 271(1)(C) IN RESPECT OF DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR LOSS RESULTING FROM READY FORWARD TRANSACTION TREATING THE SAME AS SPECULATIVE LOSS WAS CANCELLED BY THE TRIBUNAL HOLDING 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 PRONOUNCEMENTS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHICH ARE DISCUSSED ABOVE ARE CLEARLY APPLICABLE TO THE FACTS OF THE PRE SENT CASE AND KEEPING IN VIEW THE RATIO LAID DOWN THEREIN, WE ARE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE ON ACCOUNT OF LOSS IN DERIVATIVE TRADING WAS A BONA FIDE CLAIM BASED ON A POSSIBLE VIEW AND ALL THE MATERIAL FACTS RELEVANT TO THE SAID CLAIM HAVING BEEN FULLY AND TRULY 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. 5 . IN VIEW O F THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, WE ARE OF THE OPINION THAT MERE DISALLOWANCE OF THE CLAIM OF LOSS BY TREATING THE SAME AS SPECULATIVE LOSS WOULD NOT AMOUNT TO CONCEALMENT OF INC OME OR FURNISHING INACCURATE PARTICULAR S OF INCOME LEADING TO LEVY OF PENALTY U/S 271(1)( C ) OF THE ACT. MERE DISALLOWANCE OF CLAIM A S IT IS NOT ALLOWABLE UNDER THE PROVISIONS OF ACT WOULD NOT IPSO FACTO LEAD TO A CONCLUSION THAT THE ASSESSEE HAS FURNI SHED INACCURATE PARTICULARS OF INCOME WHEN THE PRIMARY FACTS OF THE CLAIM ARE DISCLOSED AND FURNISHED BY THE ASSESSEE. ACCORDINGLY , WE DELETE THE PENALTY LEVIED BY THE AO U/S 271(1)( C ) OF THE ACT., 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE , 201 5 . 22 ND JUNE , 2015 SD SD ( . / D. KARUNAKAR RAO) ( / VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 22 ND JUNE , 2015 . . . ./ SRL , SR. PS ITA NO .7194 /M/201 3 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI