DDIT (IT) 1(2), MUMBAI V. CITI CORP INVESTMENT BANK (SINGAPORE) LTD, MUMBAI

ITA 7592/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3930 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Difference of opinion

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , BEFORE SHRI B.R. MITTAL, JM AND SHRI RAJENDRA, AM ./I.T.A. NO.7592/MUM/2010 ( / ASSESSMENT YEAR: 2005-06) ASSISTANT DIRECTOR OF INCOME TAX (IT)-1(2), 119, SCINDIA HOUSE, BALLARD PIER, MUMBAI-400038 / VS. CITICORP INVESTMENT BANK (SINGAPORE) LTD., C/O CITIBANK NA, 3 RD FLOOR, TRENT HOUSE, G-BLOCK, PLOT NO.60, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-400051. ./ ./PAN/GIR NO. : AAACC5806F ( ' /APPELLANT ) .. ( # ' / RESPONDENT ) ' / APPELLANT BY : SHRI MOHIT JAIN # ' % /RESPONDENT BY : SHRI NITESH JOSHI % ) / DATE OF HEARING : 18.07.2013 % ) /DATE OF PRONOUNCEMENT : 18.07.2013 / O R D E R PER B.R.MITTAL JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSM ENT YEAR 2005-06 AGAINST THE ORDER OF LD. CIT(A) DATED 31.08.2010 DELETING THE P ENALTY IMPOSED U/S 271 (1)( C ) OF THE INCOME TAX ACT, 1961. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE IS AN INVESTMENT BANK AND IS A TAX RESIDENT OF SINGAPOR E , HAD BEEN REGISTERED AS FOREIGN INSTITUTIONAL INVESTOR (FII) WITH SEBI. THE ASSESS EE HAD TAKEN FORWARD CONTRACT IN FOREIGN EXCHANGE TO SAFEGUARD ITS INTEREST AGAINST THE RISK OF FLUCTUATION IN THE FOREIGN CURRENCY LIABILITY USED BY IT FOR PURCHASE OF DEBEN TURES. ON SALE OF DEBENTURES THE SAID FOREIGN COVER WAS PRE-TERMINATED WHICH RESULTED IN TO PROFIT OF RS.2,21,69,806/- WHICH I.T.A. NO.7592/MUM/2010 2 THE ASSESSEE CLAIMED AS CAPITAL GAINS AND ALSO STAT ED THAT THE SAID GAINS WERE ARISEN ON CANCELLATION OF FORWARD CONTRACT COVER ON DEBT I NSTRUMENTS WHICH IS EXEMPT UNDER ARTICLE 13(6) OF INDO-SINGAPORE TREATY. AO DID NO T AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND INCLUDED THE SAID PROFIT OF RS.2,21, 69,806/- UNDER THE HEAD INCOME FROM OTHER SOURCES AND INITIATED PENALTY PROCEEDINGS U/ S 271 (1)( C ) OF THE ACT. HE ACCORDINGLY LEVIED PENALTY OF RS.92,71,410/- WHICH IS EQUIVALENT TO 100 % OF THE TAX SOUGHT TO EVADED ON THE ABOVE AMOUNT. BEING AGGRIEV ED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. L.D CIT(A) HAS CANCELLED THE SAID PENALTY LEVIED BY AO CONSIDERING THAT THE ASSESSMENT HAS BEEN MADE ON THE BASIS OF DIFFERENCE OF OPINION REGARDING INTERPRETATION OF LAW ON THE QUESTION OF CHARACTER IZATION OF GAINS FROM CANCELLATION OF FORWARD CONTRACT FOR FOREIGN CURRENCY AS INCOME FRO M OTHER SOURCES INSTEAD OF TREATING IT AS CAPITAL GAINS. LD. CIT(A) HAS STATED THAT THER E IS A BONAFIDE BELIEF IN RESPECT OF BOTH THE VIEWS AND HENCE LEVY OF PENALTY IS NOT JUSTIFI ED. HENCE, DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, IT WAS POINTED OUT THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEE, CITICORP INVESTMENT BANK ( SINGAPORE) LTD. V.S DY.DIRECTOR OF INCOME TAX (IT) IN ITA NO.910/MUM/2009 (AY-2005-0 6) IN THE QUANTUM APPEAL FILED BY ASSESSEE BY ITS ORDER DATED 8.6.2011 HELD THAT GAINS ARISEN FROM EARLY SETTLEMENT OF FORWARD FOREIGN EXCHANGE CONTRACT HAS TO BE TAKE N AS CAPITAL GAIN. LD. AR FILED A COPY OF THE SAID TRIBUNAL ORDER TO SUBSTANTIATE HIS SUBMISSIONS AND AS SUCH THE ADDITION MADE BY AO HAS BEEN DELETED BY THE TRIBUNAL. L.D D R HAS NOT DISPUTED THE ABOVE FACTS. 5. THERE IS NO DISPUTE THAT WHEN THE VERY ADDITION FOR WHICH THE PENALTY HAS BEEN LEVIED HAS BEEN DELETED IN THE QUANTUM APPEAL, THER E IS NO REASON SURVIVAL OR SUSTENANCE OF PENALTY U/S 271 (1)( C ) OF THE ACT. IN THIS REGARD, WE ARE SUPPORTED BY THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S COSMOPOLITAN TRADING CORPORATION (2005) 274 ITR 640(RAJ) AND DUR GA KAMAL RICE MILLS V/S CIT (2004) 265 ITR 25 (CAL). 6. IN VIEW OF ABOVE, WE UPHOLD THE ORDER OF LD.CIT( A) WITHOUT GOING INTO THE OTHER ASPECTS AS TO WHETHER THE CLAIM OF THE ASSESSEE WAS BONAFIDE OR ISSUE WAS DEBATABLE OR NOT BECAUSE THE ADDITION HAS ALREADY BEEN DELET ED BY THE TRIBUNAL IN THE QUANTUM APPEAL. GROUND OF APPEAL TAKEN BY THE DEPARTMENT R EJECTED. I.T.A. NO.7592/MUM/2010 3 7. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED AFTER HEARING LD. REPRESENTATIVE OF THE PARTIES IN THE OPEN COURT ON 18TH JULY, 2013 % / 0 18TH JULY, 2013 % SD/- SD /- (RAJENDRA) (B.R. MITTAL) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0 DATED 18 /07/2013 . . ./ SRL , SR. PS !' #' / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. # ' / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 5 #7 , ) 7 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI