NUSLI N WADIA, MUMBAI V. CIT(A) (4), MUMBAI

ITA 7730/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2911 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 26-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Assessee Lawyers: DILIP S DAMLE
• Keywords: Business income; Business expenditure; Bonafide belief; Wrong claim; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH , MUMBAI BEFORE SHRI SHAILEND RA K UMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER . ITA. NO. 7730 / M UM /20 1 4 (ASSESSMENT YEAR: 2 0 0 8 - 0 9 ) MR. NUSLI N. WADIA NEVILLE HOUS E, J. N. HEREDIA MARG, BALLARD ESTATE, MUMBAI 400001 APPELLANT VS. DY. COMMISSIONER OF INCOME TAX , CIRCLE - 2( 1), MUMBAI RESPONDENT PAN: AA APW0990M / BY APPELLANT : M R. DILIP S. DAMLE , A.R. / BY RESPONDENT : MR. S. K. BEPARI , D .R. / DATE OF HEARING : 2 4 . 0 8 .201 6 / DATE OF PRONOUNCEMENT : 14.9. 201 6 ORDER PER SHAILENDRA KUMAR YADAV, J . M: THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME - TAX (APPEALS) - 4 , MUMBAI , DATED 08 . 1 0 . 20 1 4 FOR A.Y. 20 0 8 - 0 9 ON FOLLOWING GROUND S : I T A NO . 7730 / M UM / 1 4 A.Y. 0 8 - 0 9 [ MR. NUSLI N. WADIA VS. DC IT) PAGE 2 1. ON THE FACTS AND IN THE CIRCUMSTANCE OF T HE CASE AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) - 4 ('THE CIT(A)') ERRED IN UPHOLDING THE ORDER OF THE DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), MUMBAI ('DCIT.') U/S 271(L)(C) OF THE INCOME TAX ACT AND CONFIRMING PENALTY OF RS. 19,44,222/ - . 2. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) - 4 ('THE CIT(A)') ERRED IN HOLDING THAT THE APPELLANT HAD CONCEALED THE PARTICULARS OF HIS INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCE OF TH E CASE AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) - 4 ('THE CIT(A)') ERRED IN DISREGARDING THE APPELLANT'S SUBMISSION THAT THE DISALLOWANCE OF PMS EXPENSES WAS ON ACCOUNT OF DIFFERENCE OF OPINION WHICH CANNOT BE REGARDED AS A FALSE CLAIM OR FURNIS HING INACCURATE PARTICULARS OR CONCEALING PARTICULARS OF INCOME. 2. ASSESSING OFFICER HAS LEVIED PENALTY OF RS.19,44,222/ - UNDER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT, WHICH WAS CONFIRMED BY CIT(A). 2.1 THE STAND OF ASSESSEE HAS BEEN THAT REVEN UE AUTHORITIES ERRED IN DISREGARDING THE ASSESSEES SUBMISSION THAT DISALLOWANCE OF PMS EXPENSES WAS ON ACCOUNT OF DIFFERENCE OF OPINION WHICH CANNOT BE REGARDED AS A FALSE CLAIM OR FURNISHING INACCURATE PARTICULARS OR CONCEALING PARTICULARS OF INCOME. TH E BACKGROUND OF CASE IS THAT ASSESSEE, AN INDIVIDUAL, FURNISHED HIS RETURN OF INCOME FOR A.Y.2008 - 09 ON 31.07.2008 DISCLOSING TOTAL INCOME OF RS.6,55,82,315/ - . ASSESSING OFFICER COMPLETED ASSESSMENT U/S.143(3) OF THE ACT ASSESSING TOTAL INCOME AT RS.12,70 ,91,550/ - AFTER MAKING ADDITION ON ACCOUNT OF CAPITAL GAINS TREATED AS BUSINESS I T A NO . 7730 / M UM / 1 4 A.Y. 0 8 - 0 9 [ MR. NUSLI N. WADIA VS. DC IT) PAGE 3 INCOME AMOUNTING TO RS.10,50,01,390/ - AND NOT ALLOWING PMS FEES WHILE CALCULATING SHORT TERM CAPITAL GAIN. DURING COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED TH AT ASSESSEE HAD EARNED CAPITAL GAINS FROM UNITS, SHARES, UNITS - PMS ACCOUNT IN ALL TOTALING TO RS.11,60,98,763/ - . ASSESSEE HAS UNDERTAKEN THIS TRANSACTION OF PURCHASE AND SALE IN SHARES AND SECURITIES AND MUTUAL FUNDS. 2.2 ASSESSEE WAS ASKED TO EXPLAIN WHY INCOME EARNED FROM THESE TRANSACTIONS SHOULD NOT BE TREATED AS BUSINESS INCOME. SECONDLY, HE ALSO CONFRONTED ASSESSEE AS TO WHY PORTFOLIO MANAGEMENT SCHEME (IN SHORT PMS) FEES OF RS.57,19,984/ - SHOULD NOT BE DISALLOWED WHILE COMPUTING SHORT TERM CAP ITAL GAIN. HE OBTAINED EXPLANATION OF ASSESSEE AND DECIDED BOTH ISSUES AGAINST ASSESSEE IN QUANTUM ASSESSMENT PROCEEDINGS AND HE ALSO LEVIED PENALTY U/S.271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME VIDE NOTICE DATED 13.12.2012. AS SESSEE PREFERRED APPEAL BEFORE CIT(A) WHO CONFIRMED THE ACTION OF ASSESSING OFFICER IN NOT ALLOWING PMS FEES WHILE COMPUTING SHORT TERM CAPITAL GAIN. ASSESSEE ACCEPTED THE APPELLATE ORDER OF CIT(A) AND NO SECOND APPEAL WAS FILED BEFORE ITAT. AS A MATTER OF RECORD, THE SAID ISSUE HAS EARLIER BEEN DECIDED AGAINST THE SAME ASSESSEE IN QUANTUM. 2. 3 REGARDING PENALTY U/S. 271(1)(C) OF THE ACT, THE STAND OF ASSESSEE HAS BEEN THAT INVESTMENT AS ADJUSTED BY SHORT TERM LOSSES IN DERIVATIVES HAVE BEEN OFFERED FOR TAX AS CAPITAL GAIN. THESE INVESTMENTS WERE HELD DIRECTLY AND THROUGH PMS AND I T A NO . 7730 / M UM / 1 4 A.Y. 0 8 - 0 9 [ MR. NUSLI N. WADIA VS. DC IT) PAGE 4 ASSESSEE WAS UNDER BONAFIDE BELIEF THAT SUCH PROFIT IS LIABLE TO TAX ONLY UNDER CAPITAL GAINS. HE FURNISHED ALL THE PARTICULARS TO ESTABLISH THAT THERE WAS NO CONCEALMENT OF IN COME. HOWEVER, ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND LEVIED PENALTY U/S.271(1)(C) OF THE ACT, WHICH WAS CONFIRMED BY CIT(A). 2.4 S TAND OF ASSESSEE HAS BEEN THAT PMS FEES AND EXPENSES OF RS.57,19,984/ - CLAIMED AS DEDUCTION BY A SSESSEE U/S.48 OF THE ACT. ASSESSEE FILED RETURN OF INCOME IN WHICH HE CLAIMED NOT TAXABLE CAPITAL GAINS OF RS.4,92,12,137/ - AFTER CLAIMING DEDUCTION OF PMS FEES AND EXPENSES OF RS.57,19,984/ - . ASSESSING OFFICER ASSESSED THE CAPITAL GAINS INCLUDING EXEMP T LONG TERM CAPITAL GAINS UNDER THE HEAD BUSINESS INCOME AND ALLOWED PMS FEES AND EXPENSES AS BUSINESS EXPENDITURE. HOWEVER IN HIS ORDER, ON A PROTECTIVE BASIS, HE RECORDED THAT PMS EXPENDITURE CANNOT BE ALLOWED AS A DEDUCTION U/S.48 OF THE ACT. IN APP EAL, CIT(A) UPHELD THE ASSESSEES TREATMENT OF INCOME FROM INVESTMENTS AS BEING IN THE NATURE OF CAPITAL GAINS AS AGAINST BUSINESS INCOME ASSESSED BY ASSESSING OFFICER BUT DISALLOWED PMS FEES AND EXPENSES AS A DEDUCTION FROM CAPITAL GAINS. IN COMPUTATION OF INCOME, ASSESSEE HAD DISCLOSED FULL PARTICULARS OF CAPITAL GAINS AND PMS EXPENSES CLAIMED AS A DEDUCTION. IN COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE SUBMITTED THE STATEMENT OF ALL PMS ACCOUNTS WITH AUDITED BALANCE SHEETS. ASSESSEE HAD ALSO GIVEN EXP LANATIONS IN RESPECT OF DEDUCTION CLAIMED FOR PMS FEES AND EXPENSES IN COURSE OF ASSESSMENT PROCEEDINGS. ASSESSING OFFICER I T A NO . 7730 / M UM / 1 4 A.Y. 0 8 - 0 9 [ MR. NUSLI N. WADIA VS. DC IT) PAGE 5 DISALLOWED PMS FEES AND EXPENSES INTER ALIA STATED IN HIS ORDER THAT THE SAID EXPENSES WERE IN NO WAY RELATED TO TRANSFER OF SHARES, PURCHASE OF ANY SHARES OR UNITS AND THAT THESE EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF TRANSFER OF SHARES/UNITS. CIT(A) CONSIDERED THE ORDER OF ITAT, MUMBAI IN CASE OF DAVENDRA KOTHARI 136 TTJ 188 DISALLOWING PMS FEE AND THAT OF THE ITAT PUNE IN CASE OF KRA HOLDING & TRADING PVT. LTD. IN ITA NO.500/PN/08, WHERE IT WAS HELD THAT SUCH A PMS FEE IS ALLOWABLE EXPENDITURE. CIT(A), HOWEVER, FOLLOWED THE DECISION OF ITAT MUMBAI. 2.5 PENALTY U/S.271(1)(C) OF THE ACT CAN BE LEVIED ONLY IN CASE WHERE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE EXPRESSION HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME HAS NOT BEEN DEFINED IN SECTI ON 271(1)(C) OR ANY OTHER PROVISION OF INCOME TAX ACT. THE STAND OF ASSESSEE HAS BEEN THAT HE HAS FURNISHED ALL PARTICULARS OF INCOME FROM CAPITAL GAIN INCLUDING ALL PARTICULARS OF DEDUCTION CLAIMED FOR PMS FEES AND EXPENSES FROM CAPITAL GAIN AS REFLECTED IN COMPUTATION OF TOTAL INCOME ENCLOSED VIDE HIS LETTER DATED 22 ND JULY 2010. HENCE, ASSESSEE HAS NOT CONCEALED ANY PARTICULARS OF INCOME. THE AFORESAID PARTICULARS FURNISHED WERE NOT INACCURATE OR FOUND TO BE SO BY ASSESSING OFFICER DURING ASSESSMENT P ROCEEDINGS , NOTWITHSTANDING THAT HE DID NOT AGREE WITH THE CLAIM MADE BY ASSESSEE BASED ON A DIFFERENCE OF OPINION. AS STATED ABOVE, CONFLICTING OPINIONS WERE THERE ON THE ISSUE AT RELEVANT POINT OF TIME WHICH IS I T A NO . 7730 / M UM / 1 4 A.Y. 0 8 - 0 9 [ MR. NUSLI N. WADIA VS. DC IT) PAGE 6 EVIDENT FROM THE DECISION OF MUMBAI BENCH IN CASE OF DAVENDRA KOTHARI (SUPRA) AND THAT OF THE ITAT PUNE IN CASE OF KRA HOLDING & TRADING PVT. LTD. (SUPRA) . I T IS NOT IN DISPUTE THAT QUANTUM HAS BEEN ACHIEVED FINALITY AGAINST ASSESSEE, BUT PENALTY IS NOT AUTOMATIC ON THE BASIS OF ADDITION IN QUEST ION. MOREOVER, AT THE RELEVANT POINT OF TIME, IT WAS A DEBATABLE ISSUE BECAUSE OF CONFLICTING OPINIONS OF JUDICIAL FORMS . ONCE THERE IS A CONFLICT OF OPINION ON THE ISSUE AT RELEVANT POINT OF TIME, THE LEVY OF PENALTY U/S.271(1)(C) OF THE ACT IS NOT JUST IFIED. SO, SAME IS DIRECTED TO BE DELETED. 3. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 14 TH DAY OF SEPT , 201 6 . S D SD ( RAJESH KUMAR ) (SHAILENDRA KUMAR YADAV) ACCOU NTANT MEMBER JUDICIAL MEMBER MUMBAI : DATED 14.9. 201 6 S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1 . / REVENUE 2 . / ASSESSEE 3 . / CONCERNED CIT 4. - / CIT (A) 5 . , , / DR, ITAT, MUMBAI 6 . / GUARD FILE. BY ORDER / , T RUE COPY / , ,