ACIT, New Delhi V. M/s Shyam Basic Infrastructure Project (P) Ltd., New Delhi

ITA 79/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65683 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 31-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURJAN MOHANTY
• Assessee Lawyers: UPVAN GU PTA CAS
• Keywords: Depreciation; Bonafide belief; Wrong claim; Bad and doubtful debts; Bonafide mistake

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO. 79/DEL/2009 ASSESSMENT YEAR: 2004-2005 ACIT, CENTRAL CIRCLE-2, ROOM NO. 323, E-2, ARA CENTRE, JHANDEWALAN, NEW DELHI. VS. M/S SHYAM BASIC INFRASTRUCTURE PROJECT P. LTD., C-138, NARAINA INDUSTRIAL AREA, PHASE-1, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SURJAN MOHANTY, SR. DR RESPONDENT BY : SH. AJAY VOHRA, ADV. & SH. UPVAN GU PTA, CAS DATE OF HEARING : 31/07/2012 DATE OF PRONOUNCEMENT : 12/10/2012 O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE DEPARTMENT IS DIRECTED AG AINST THE ORDER OF LD. CIT(A) DATED 08/10/2008 FOR A.Y. 2004-05. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS INCORPORATED ON 14/02/1996. THE MAIN OBJECT OF THE COMPANY WAS TO INVEST IN THE BASIC TELEPHONY, TELECOMMUNICATION INDUSTRY AND OTHER RELATED SERVICES. IN THE YEAR UNDER CONSIDERATION, THE ASS ESSEE HAD RETURNED LOSS OF RS. 98,98,420/-. THE ASSESSING OFFICER OBSERVED FROM THE DETAILS FILED ITA NO. 79/D/2009 2 ALONG WITH THE RETURN THAT ASSESSEE HAD CLAIMED LOS S IN RESPECT OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT AMOUNTING TO RS. 98,82,000/-. HE FURTHER NOTICED THAT ASSESSEE COMPANY HAD REPORTED IN THE SCHEDULE H TO BALANCE SHEET - NOTES TO ACCOUNTS (NOTE 2), AS UNDE R: - THE MANAGEMENT HAS DECIDED TO PROVIDE FOR THE DIMINUTION IN THE VALUE OF INVESTMENTS IN THE SHARE S OF VANS INFORMATION & INVESTORS SERVICES LTD. WHICH SEEMS NOT OF TEMPORARY IN NATURE AND ACCORDINGLY PROVISION FOR DIMINUTION HAS BEEN MADE IN THE BOOKS OF ACCOUNTS. 3. THE ASSESSEE WAS REQUIRED TO EXPLAIN WHY THE LOS S SHOULD NOT BE DISALLOWED AS THIS WAS IN THE NATURE OF THE PROVISI ON. THE ASSESSEE GAVE FOLLOWING EXPLANATION: - REGARDING THE LOSS ON ACCOUNT OF DIMINUTION IN VALUE OF INVESTMENTS, IT IS SUBMITTED THAT THE SAME HAS BEEN ROUTED THROUGH THE P&L A/C AS THERE WAS A PERMANENT FALL IN THE VALUE OF SHARES OF THE COMPANY, WHICH WERE NOT BEING QUOTED ON THE EXCHANGE. HENCE, IT IS A CHARGE TO THE PROFIT AND LOSS ACCOUNT. THE TERM PROVISION HAS BEEN USED INADVERTENTLY AND THE DIMINUTION IN VALUE BEING PERMANENT IN NATURE NEEDS TO BE ALLOWED AS LOSS. 4. THE AO HELD THAT THE ASSESSEES CLAIM WAS NOT AL LOWABLE BECAUSE THE ASSESSEE COMPANY HAD NOT SOLD THE SHARES AND ON LY MADE A PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT WHICH WAS NOT ALLOWABLE AS BUSINESS LOSS UNDER THE INCOME TAX ACT. HE POINTED OUT THAT THE LOSS, IF ANY, ACCRUES AT THE TIME OF SALE OF SHARES WHICH CA N BE ALLOWED IN THE YEAR OF SALE. HE FURTHER DISALLOWED THE ASSESSEES CLAI M OF EXPENSES OF RS. 16,420/- ON ACCOUNT OF BANK CHARGES, AUDIT FEE, EXP ENSES AMORTIZE ETC. ON THE GROUND THAT COMPANY HAD NOT STARTED ANY BUSINES S ACTIVITY DURING THE YEAR. HE, ACCORDINGLY, INITIATED PENALTY PROCEEDIN GS U/S 271(1)(C), INTER- ALIA, OBSERVING THAT THE LOSS CLAIMED BY ASSESSEE W AS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT. THE ASSESSEE IN ITS REP LY SUBMITTED AS UNDER: - ITA NO. 79/D/2009 3 ON GOING THROUGH THE FACTS OF THE CASE IT IS CLEAR THAT THE ASSESSEE HAD MADE A COMPLETE DISCLOSURE OF THE FACTS NOT ONLY IN THE FINAL STATEMENT BY WAY OF NOTES TO ACCOUNTS, FILED WITH THE RETURN OF INCOME. THE SAME WAS RETRACTED DURING THE ASSESSMENT PROCEEDINGS BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WHO HAD AGREED TO THE ADDITION WITH REQUEST THAT PENALTY PROCEEDINGS MAY NOT BE INITIATED. IN FACT ALL THE FACTS HAVE BEEN PUT STRAIGHTWAY ON RECORD. THE ASSESSEE HAS ALSO CITED VARIOUS CASE LAWS. THE REPLY FILED BY THE ASSESSEE HAS BEEN CONSIDERED. 5. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND POINTED OUT THAT ASSESSEE DID NOT OFFER THE PROVISION DEBITED TO P&L A/C FOR ADDITION. IN THIS REGARD, HE HAS REPRODUCED THE EXPLANATION OFFERED B Y ASSESSEE DURING ASSESSMENT PROCEEDINGS NOTED EARLIER IN PARA 3. 6. THE AO CONCLUDED THAT DISCLOSURE MADE BY THE ASS ESSEE IN THE RETURN OF INCOME WAS INCORRECT OR FALSE TO THE KNOW LEDGE OF THE ASSESSEE AND, THEREFORE, HE LEVIED PENALTY U/S 271(1)(C), IN TER-ALIA, OBSERVING THAT HAD THE CASE NOT BEEN SUBJECTED TO SCRUTINY, THE ADDITI ON WOULD HAVE NOT BEEN MADE. HE, THEREFORE, IMPOSED PENALTY OF RS. 35,45, 168/- BEING 100% OF TAX SOUGHT TO BE EVADED. 7. BEFORE LD. CIT(A) THE ASSESSEE HAD, INTER-ALIA, MADE FOLLOWING SUBMISSIONS: - 1) ON THE FACE OF PROFIT AND LOSS ACCOUNT REFERENC E HAS BEEN MADE TO THE NOTES TO ACCOUNTS AND SIGNIFICANT ACCOUNTING PO LICIES THAT FORM PART OF BALANCE SHEET IN THE SCHEDULE H AND SIGNI FICANT ACCOUNTING POLICIES AND NOTES TO ACCOUNTS, IT HAD BEEN STATED AS UNDER: - INVESTMENTS ARE CLASSIFIED INTO CURRENT AND LONG TERM INVESTMENTS, CURRENT INVESTMENTS ARE STATED AT THE LOWER OF COST OF FAIR VALUE. LONG TERM INVESTMENTS ARE S TATED ITA NO. 79/D/2009 4 AT COST LESS ANY PROVISION FOR PERMANENT DIMINUTION IN VALUE. NOTES TO ACCOUNTS THE MANAGEMENT HAS DECIDED TO PROVIDE FOR THE DIMINUTION IN THE VALUE OF INVESTMENTS IN THE SHARE S OF VANS INFORMATION & INVESTORS SERVICES LTD. WHICH SEEMS NOT OF TEMPORARY IN NATURE AND ACCORDINGLY PROVISION FOR DIMINUTION HAS BEEN MADE IN THE BOOKS OF ACCOUNTS. 2) THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE SAID AMOUNT WAS OF REVENUE IN NATURE. THIS BELIEF WAS FORMED ON FO LLOWING BASIS: - THE APPELLANT IS A NON DEPOSIT TAKING NON BANKING FINANCE COMPANY. THE APPELLANT HAD MADE LONG TERM INVESTMENT IN THE SHARES OF A QUOTED COMPANY NAMED VANS INFORMATION & INVESTORS SERVICES LTD. IN THE YEAR 1999-2000. THE SAID SHARE WAS QUOTED IN STOCK EXCHANGE VERY RARELY. THE SAID SHARE WAS IN FACT NOT SALEABLE. THUS DIMINUTION IN THE VALUE OF INVESTMENTS WAS PERMANENT IN NATURE. AS PER ACCOUNTING STANDARD 13 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IT IS ESSENTIAL TO DEBIT THE PROFIT & LOSS ACCOUNT WITH THE DIMINUTION OF THE VALUE OF INVESTMENTS WHICH READS AS UNDER: - INVESTMENTS CLASSIFIED AS LONG-TERM INVESTMENTS SHOULD BE PROVISIONS FOR DIMINUTION SHALL BE MADE OF RECOGNIZE A DECLINE, OTHER THAN TEMPORARY, IN THE VALUE OF INVESTMENTS, SUCH REDUCTION BEING DETERMINED AND MADE FOR EACH INVESTMENT INDIVIDUALLY. COPY OF THE AS 13 IS ENCLOSED AS ANNEXURE-D. THERE WAS ONE TRANSACTION IN STOCK EXCHANGE THE SAID SHARE ON 25 TH MARCH, 2004 AND THE CLOSING RATE OF THE SHARE ON THAT DATE WAS RS. 1.18. THIS FORMED BASIS FOR CALCULATING THE RESIDUAL VALUE OF THE SHARE TO BE SHOWN IN THE BALANCE SHEET. COPY OF THE QUOTATION ON OF BOMBAY STOCK EXCHANGE IS ENCLOSED AS ANNEXURE-C. ITA NO. 79/D/2009 5 3) THE ASSESSEE HONESTLY AND BONAFIDELY BELIEVED T HAT SINCE IT WAS, A NON BANKING FINANCE COMPANY, AS PER GUIDANCE NOTE O F THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE PROVISION HAD T O BE MADE FOR THE PERMANENT LOSS IN THE VALUE OF SHARES, WHICH COULD NOT BE SOLD, WAS AN ALLOWABLE EXPENDITURE. IT WAS FURTHER CLASSIFIE D THAT THOUGH THE WORD PROVISION HAD BEEN USED BUT VIRTUALLY, UNDER T HE CIRCUMSTANCES, IT WAS A RIGHT OFF, OF THE INVESTMENTS. 4) WHEN IN COURSE OF ASSESSMENT PROCEEDINGS, THE A SSESSEE REALIZED THAT IT WAS NOT AN ALLOWABLE DEDUCTION, IT OFFERED TO WITHDRAW THE CLAIM WITH THE REQUEST THAT PENALTY U/S 271(1)(C) SHOULD NOT BE LEVIED. 5) THE ASSESSEE HAD NO REASON TO CLAIM ANY UN-GENU INE OR ILLEGAL DEDUCTION SINCE THE ASSESSEE WAS ALREADY HAVING HUG E UNABSORBED LOSSES/DEPRECIATION. 6) THE ASSESSEE WAS ASSESSED IN CENTRAL CIRCLE AND THE CASE HAD TO BE PICKED UP FOR SCRUTINY AND, THEREFORE, ASSESSEE HAD NO CHANCE TO ESCAPE SCRUTINY ASSESSMENT. 7) THE ASSESSEE HAD MADE A BONAFIDE MISTAKE UNDER SOME ERRONEOUS BELIEF AND, THEREFORE, PENALTY SHOULD NOT BE IMPOSED. 8. LD. CIT(A) ALLOWED THE ASSESSEES APPEAL. 9. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - ON THE FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CANCELLING THE ORDER OF PENALTY OF RS. 35,45,168/- LEVIED U/S 271(1)(C). 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ITA NO. 79/D/2009 6 ASSESSEE HAD NEITHER FURNISHED INACCURATE PARTICULARS OF INCOME NOR CONCEALED PARTICULARS OF INCOME. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE ASSESSEE HAD NOT CONCEALED THE PARTICULAR OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME DESPITE THE FACT THAT THE ASSESSEE HAD AGREED THAT THE CLAIM OF LOSS ON ACCOUNT OF PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT MAY NOT BE ALLOWED IN ASSESSMENT ORDER. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AS HE FAILED TO APPRECIATE THE FACT THAT THE COMPANY HAD NOT SOLD THE SHARES UNDER CONSIDERATION, BUT ONLY MADE A PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT WHICH IS NOT ALLOWABLE AS A BUSINESS LOSS UNDER ANY PROVISIONS ON THE INCOME TAX ACT, 1961. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE PENALTY U/S 271(1)(C) AS HIS RELIANCE ON THE DELHI HIGH COURT DECISION IN THE CASE OF HARI MACHINES LTD., 166 TAXMAN 84 IS MISPLACED SINCE THE CASE IS DISTINGUISHABLE ON FACTS. 6. THE ORDER OF THE CIT(A) IS ERRONEOUS AND NOT TENABLE INLAW AND ON FACTS. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 10. LD. DR RELIED ON THE PENALTY ORDER AND SUBMITTE D THAT ASSESSEE HAD CLAIMED LOSS IN RESPECT OF DIMINUTION IN THE VALUE OF INVESTMENT AMOUNTING TO RS. 98,82,000/- WHICH WAS NOT ALLOWABLE DEDUCTIO N. THUS, HE HAD MADE ITA NO. 79/D/2009 7 A WRONG CLAIM. LD. DR FURTHER SUBMITTED THAT ASSES SEE HAD NOT SOLD SHARES AND, THEREFORE, THERE WAS NO QUESTION OF LOSS BEING INCURRED. IN THIS REGARD LD. DR REFERRED TO PAGE 6 OF CIT(A)S ORDER AND REF ERRED TO THE SUBMISSIONS MADE BEFORE LD. CIT(A) TO DEMONSTRATE THAT THERE WA S NO SALE OF SHARES. HE THUS SUBMITTED THAT THERE WAS CLEAR INTENTION TO MAKE WRONG CLAIM. LD. DR FURTHER SUBMITTED THAT RELIANCE PLACED BY LD. CI T(A) ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. HARI MACHINES LTD., 166 TAXMAN 84 WAS NOT CORRECT BECAUSE THE SAID CASE DEALT WITH THE ISSUE REGARDING REDUCTION OF SHARE CAPITAL. 10.1 LD. DR RELIED ON THE DECISION OF ITAT MUMBAI B ENCH IN THE CASE OF MAHINDRA INTER TRADE LTD. VS. DCIT, ITA NO. 5178/MU M./2010 FOR AY 2000- 01 DATED 30/09/2011, WHEREIN TRIBUNAL CONSIDERED TH E ISSUE REGARDING PROVISIONS FOR DIMINUTION IN THE VALUE OF INVESTMEN TS AND OBSERVED IN PARA 28 AS UNDER: - 28. WE NOW TAKE UP THE ISSUE OF PROVISIONS FOR DIMINUTION IN THE VALUE OF INVESTMENTS. THE UNDISPUTED FACTS ARE THAT, THE ASSESSEE HAS NOT SOL D THE SHARES IN QUESTION AND HAS CLAIMED A NOTIONAL LOSS. THIS CLAIM OF LOSS IS MADE ON A MERE DIMINUTION IN THE VALUE OF INVESTMENTS. RELIANCE PLACED ON THE JUDGMENT IN THE CASE OF PATNAIK & CO. LTD. (SUPRA) AND INDIAN COMMERCE AND INDUSTRIES CO. P. LTD. (SUPRA), ARE DISTINGUISHABLE , AS IN THOSE CASES, THERE WAS ACTUAL SALE OF THE ASSETS. IN THE CASE OF HAND, THE LOSS WAS CLAIMED ON RE-VALUATION OF AN ASSET. THERE IS NO TRANSFER OF ANY ASSET. THIS IS PRIMA-FACIE NOT ALLOWABLE AND I S NOT MADE ON ANY PROVISION OF LAW. THIS IS THE REASON THAT THE ASSESSEE HAS CHOSEN NOT TO CARRY THE ISSUE IN FURTHER APPEAL. BY NO STRETCH OF IMAGINATION, THIS CAN BE CALLED AS A DEBATABLE ISSUE. THE ASSESSEE HAS ATTEMPTED TO MAKE OUT A CASE THAT THIS INVESTMENT WAS FOR OPERATIONAL REASONS. SUCH AN EXPLANATION IS DEVOID OF MERIT. HE POINTED OUT THAT TRIBUNAL HAD HELD AS UNDER: - 32. IN VIEW OF THE ABOVE DISCUSSION, WE HAVE NO HESITATION IN HOLDING THAT, IN THE CASE OF ALL ITA NO. 79/D/2009 8 THESE ADDITIONS/DISALLOWANCE, THE ISSUES CANNOT BE CONSIDERED AS DEBATABLE AND IT IS A CASE WHERE THE ASSESSEE HAS CONSCIOUSLY FURNISHED INACCURATE PARTICULARS OF INCOME. 33. THUS, THE CASE LAWS RELIED UPON BY THE ASSESSEE I.E., THE DECISION OF THE HONBLE SUPREME COURT IN RELIANCE PETROPRODUCTS P. LTD. (SUPRA) AND OTHER CASE LAWS DO NOT APPLY AS THE FACTS OF TH E CASE IS DIFFERENT. ON THE OTHER HAND, WE ARE OF TH E CONSIDERED OPINION THAT THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. ZOOM COMMUNICATION PVT. LTD., 327 ITR 510 (DELHI) IS APPLICABLE TO THE FACTS OF THE CASE. IN THIS CASE OF THE HONBLE DELHI HIGH COURT AFTER CONSIDERING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE UTILITIES (SUPRA), HAS HELD THAT, IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONAFIDE, IT WOULD BE DIFFICULT TO SAY THAT HE WOULD STILL NOT B E LIABLE TO PENALTY ORDER U/S 271(1)(C) OF THE ACT. 10.2 LD. DR FURTHER RELIED ON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES LTD. V S. ACIT VIDE ITA NO. 2078/AHD./2006 AND 2526/AHD./2006 DATED 31/05/2010, WHEREIN ONE OF THE ISSUE WAS REGARDING PENALTY APROPOS ASSESSEES CLAI M FOR DEDUCTION IN PROFIT AND LOSS ACCOUNT IN REGARD TO PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS. IN THIS CASE, THE ASSESSEE WAS A NON- BANKING FINANCE COMPANY AND IT WAS SUBMITTED THAT PROVISION FOR DIM INUTION IN VALUE OF INVESTMENTS WERE IN ACCORDANCE WITH THE PRUDENTIAL NORMS OF THE RBI AND WERE SHOWN ON THE FACE OF PROFIT AND LOSS ACCOUNT. IT WAS ARGUED THAT THE RBI ACT OVERRIDES THE PROVISIONS OF INCOME-TAX ACT AND, THEREFORE, THE PROVISIONS MADE IN THE PROFIT AND LOSS ACCOUNT WERE ALLOWABLE AS DEDUCTION U/S 28/37(1) OF THE ACT. AFTER CONSIDERING THE ASS ESSEES SUBMISSIONS, THE TRIBUNAL, INTER-ALIA, HELD IN PARA 5.4 THAT THERE W AS NOTHING TO SUGGEST THAT THE CLAIM REGARDING DIMINUTION IN VALUE OF INVESTME NTS WAS BONAFIDE OR ITA NO. 79/D/2009 9 SUPPORTED BY ANY PROVISIONS UNDER THE ACT. THEREFO RE, CONFIRMED THE PENALTY. 11. LD. DR FURTHER REFERRED TO THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION PVT. LTD., 3 27 ITR 510, WHEREIN IT WAS HELD THAT ADMITTEDLY, IN VIEW OF THE PROVISIONS CONTAINED IN SECTION 40(A)(II) OF THE ACT, THE AMOUNT OF INCOME-TAX COUL D NOT HAVE BEEN CLAIMED AS THE DEDUCTION WHILE COMPUTING INCOME OF THE ASSE SSEE. FURTHER THERE WAS NO JUSTIFICATION IN REGARD TO CLAIM OF RS. 13,2 4,539/- U/S 32(1)(I). UNDER SUCH CIRCUMSTANCES, THE HONBLE HIGH COURT RE VERSED THE DECISION OF TRIBUNAL IN DELETING THE PENALTY OBSERVING THAT ASS ESSEE WAS A COMPANY WHICH MUST BE HAVING PROFESSIONAL ASSISTANCE IN COM PUTATION OF ITS INCOME, AND ITS ACCOUNTS WERE COMPULSORILY SUBJECTED TO AUD IT. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIAN CE PETRO PRODUCTS PVT. LTD. WAS DISTINGUISHED. 12. LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAGE 5 1 OF PAPER BOOK, WHEREIN EXTRACTS FROM RBI ACT, 1934 ARE CONTAINED A ND REFERRED TO SECTION 45H TO DEMONSTRATE THAT SINCE ASSESSEE COMPANY DOES NOT COME UNDER ANY OF THE INSTITUTIONS MENTIONED IN SECTION 45H, T HEREFORE, CHAPTER IIIB OF RBI ACT, 1934 RELATING TO PROVISIONS RELATED TO NON -BANKING INSTITUTIONS RECEIVING DEPOSITS AND FINANCIAL INSTITUTIONS WAS A PPLICABLE TO ASSESSEES CASE. SECTION 45H READS AS UNDER: - 45H. CHAPTER IIIB NOT TO APPLY IN CERTAIN CASES. THE PROVISIONS OF THIS CHAPTER SHALL NOT APPLY TO THE STATE BANK OR A BANKING COMPANY AS DEFINED INSECTION 5 OF THE [BANKING REGULATION ACT,1949] OR [A CORRESPONDING NEW BANK AS DEFINED IN CLAUSE (DA) OF SECTION 5 OF THAT ACT OR A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959] OR [A REGIONAL RURAL BANK OR A CO-OPERATIVE ITA NO. 79/D/2009 10 BANK] OR A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CREDIT SOCIETY]: PROVIDED THAT FOR THE PURPOSES OF THIS CHAPTER, THE [TAMIL NADU INDUSTRIAL INVESTMENT CORPORATION LIMITED] SHALL NOT BE DEEMED TO BE A BANKING COMPANY. 13. HE FURTHER REFERRED TO SECTIONS 45J AND SECTION 45JA WHICH READS AS UNDER: - 45J. BANK TO REGULATE OR PROHIBIT ISSUE OF PROSPECTUS OR ADVERTISEMENT SOLICITING DEPOSITS OF MONEY. THE BANK MAY, IF IT CONSIDERS NECESSARY IN THE PUBLIC INTEREST SO TO DO, BY GENERAL OR SPECIAL ORDER,- (A) REGULATE OR PROHIBIT THE ISSUE BY ANY NON-BANKING INSTITUTION OF ANY PROSPECTUS OR ADVERTISEMENT SOLICITING DEPOSITS OF MONEY FROM THE PUBLIC; AND (B) SPECIFY THE CONDITIONS SUBJECT TO WHICH ANY SUCH PROSPECTUS OR ADVERTISEMENT, IF NOT PROHIBITED, MAY BE ISSUED. 45JA. POWER OF BANK TO DETERMINE POLICY AND ISSUE DIRECTIONS. (1) IF THE BANK IS SATISFIED THAT, IN THE PUBLIC INTEREST OR TO REGULATE THE FINANCIAL SYSTEM OF COUNTRY TO ITS ADVANTAGE OR TO PREVENT THE AFFAIRS OF ANY NON-BANKING FINANCIAL COMPANY BEING CONDUCTED IN A MANNER DETRIMENTAL TO THE INTEREST OF THE DEPOSITORS OR IN A MANNER PREJUDICIAL TO THE INTEREST OF THE NON-BANKING FINANCIAL COMPANY, IT IS NECESSARY OR EXPEDIENT SO TO DO, IT MAY DETERMINE THE POLICY AND GIVE DIRECTIONS TO ALL OR ANY OF THE NON-BANKING FINANCIAL COMPANIES RELATING TO INCOME RECOGNITION, ACCOUNTING STANDARDS, MAKING OF PROPER PROVISION FOR BAD AND DOUBTFUL DEBTS, CAPITAL ADEQUACY BASED ON RISK WEIGHTS FOR ASSETS AND CREDIT CONVERSION FACTORS FOR OFF-BALANCE-SHEET ITEMS AND ALSO RELATING TO DEPLOYMENT OF FUNDS BY A ITA NO. 79/D/2009 11 NON-BANKING FINANCIAL COMPANY OR A CLASS OF NON-BANKING FINANCIAL COMPANIES OR NON-BANKING FINANCIAL COMPANIES GENERALLY, AS THE CASE MAY BE, AND SUCH NON-BANKING FINANCIAL COMPANIES SHALL BE BOUND TO FOLLOW THE POLICY SO DETERMINED AND THE DIRECTIONS SO ISSUED. (2) WITHOUT PREJUDICE TO THE GENERALITY OF THE POWERS VESTED UNDER SUB-SECTION (1), THE BANK MAY GIVE DIRECTIONS TO NON- BANKING FINANCIAL COMPANIES GENERALLY OR TO A CLASS OF NON-BANKING FINANCIAL COMPANIES OR TO ANY NON-BANKING FINANCIAL COMPANY IN PARTICULAR AS TO-, (A) THE PURPOSE FOR WHICH ADVANCES OR OTHER FUND BASED OR NON-FUND BASED ACCOMMODATION MAY NOT BE MADE; AND (B) THE MAXIMUM AMOUNT OF ADVANCES OR OTHER FINANCIAL ACCOMMODATION OR INVESTMENT IN SHARES AND OTHER SECURITIES WHICH, HAVING REGARD TO THE PAID-UP CAPITAL, RESERVES AND DEPOSITS OF THE NON-BANKING FINANCIAL COMPANY AND OTHER RELEVANT CONSIDERATIONS, MAY BE MADE BY THAT NON-BANKING FINANCIAL COMPANY TO ANY PERSON OR A COMPANY OR TO A GROUP OF COMPANIES]. 14. LD. COUNSEL SUBMITTED THAT IN VIEW OF AFOREMENT IONED PROVISIONS RBI COULD ISSUE DIRECTIONS FOR ALL NON-BANKING FINANCIA L COMPANIES WHICH THEY WERE BOUND TO FOLLOW. LD. COUNSEL FURTHER REFERRED TO SECTION 45Q WHICH READS AS UNDER: - 45Q. CHAPTER IIIB TO OVERRIDE OTHER LAWS. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. 15. WITH REFERENCE TO THIS SECTION, LD. COUNSEL SUB MITTED THAT DIRECTIONS ISSUED BY RBI HAD PRECEDENCE OVER THE PROVISIONS OF THE INCOME-TAX ACT. ITA NO. 79/D/2009 12 LD. COUNSEL REFERRED TO PAGE 1 TO 23 OF PAPER BOOK, WHEREIN IN EXERCISE OF THE POWERS CONFERRED BY SEC. 45JA OF THE RBI ACT, 1 934, NOTIFICATION NO. DFC.119/DG(SPT)-98 DATED JANUARY 31, 1998 WAS ISSUE D TITLED AS NON- BANKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESER VE BANK) DIRECTIONS, 1998. LD. COUNSEL REFERRED TO THE FOLLOWING CLAUS ES OF THIS NOTIFICATION: - (II) CARRYING COST MEANS BOOK VALUE OF THE ASSETS AND INTEREST ACCRUED THEREON BUT NOT RECEIVED; (III) CURRENT INVESTMENT MEANS AN INVESTMENT WHICH IS BY ITS NATURE READILY REALIZABLE AND IS INTENDED TO BE HELD FOR NOT MORE THAN ONE YEAR FROM THE DATE ON WHICH SUCH INVESTMENT IS MADE; (V) ACCOUNTING STANDARDS AND GUIDANCE NOTES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (REFERRED TO IN THESE DIRECTIONS AS ICAI) SHALL BE FOLLOWED INSOFAR AS THEY ARE NOT INCONSISTENT WITH ANY OF THESE DIRECTIONS. (VI)(B) THE CRITERIA TO CLASSIFY THE INVESTMENTS INTO CURRENT AND LONG TERM INVESTMENTS SHALL BE SPELT OUT BY THE BOARD OF THE COMPANY IN THE INVESTMENT POLICY; (C) INVESTMENTS IN SECURITIES SHALL BE CLASSIFIED INTO CURRENT AND LONG TERM, AT THE TIME OF MAKING EACH INVESTMENT; 6(2) QUOTED CURRENT INVESTMENTS SHALL, FOR THE PURPOSES OF VALUATION, BE GROUPED INTO THE FOLLOWING CATEGORIES, VIZ., (A) EQUITY SHARES, (B) PREFERENCE SHARES, (C) DEBENTURES AND BONDS, (D) GOVERNMENT SECURITIES INCLUDING TREASURY BILLS, (E)UNITS OF MUTUAL FUND, AND (F) OTHERS. (8) A LONG TERM INVESTMENT SHALL BE VALUED IN ACCORDANCE WITH THE ACCOUNTING STANDARD ISSUED BY ICAI. 16. LD. COUNSEL FURTHER REFERRED TO PAGES 24 TO 35 OF PAPER BOOK, WHEREIN THE ACCOUNTING STANDARDS-13, WITH REGARD TO ACCOUNT ING FOR INVESTMENT, IS ITA NO. 79/D/2009 13 CONTAINED AND REFERRED TO PARAGRAPH 17 & 19 OF THE SAID ACCOUNTING STANDARD WHICH READS AS UNDER: - 17. LONG-TERM INVESTMENTS ARE USUALLY CARRIED AT COST. HOWEVER, WHEN THERE IS A DECLINE, OTHER THAN TEMPORARY, IN THE VALUE OF A LONG TERM INVESTMENT, THE CARRYING AMOUNT IS REDUCED TO RECOGNIZE THE DECLINE. INDICATORS OF THE VALUE OF AN INVESTMENT ARE OBTAINED BY REFERENCE TO ITS MARKET VALUE, THE INVETEES ASSETS AND RESULTS AND THE EXPECTED CASH FLOWS FROM THE INVESTMENT. THE TYPE AND EXTENT OF THE INVESTORS STAKE IN THE INVESTEE ARE ALSO TAKEN INTO ACCOUNT. RESTRICTIONS ON DISTRIBUTIONS BY THE INVESTOR OR ON DISPOSAL BY THE INVESTOR MAY AFFECT THE VALUE ATTRIBUTED TO THE INVESTMENT. 19. WHERE THERE IS A DECLINE, OTHER THAN TEMPORARY, IN THE CARRYING AMOUNTS OF LONG TERM INVESTMENTS, THE RESULTANT REDUCTION IN THE CARRYIN G AMOUNT IS CHARGED TO THE PROFIT AND LOSS STATEMENT. THE REDUCTION IN CARRYING AMOUNT IS REVERSED WHEN THERE IS A RISE IN THE VALUE OF THE INVESTMENT, OR IF THE REASONS FOR THE REDUCTION NO LONGER EXIST. 17. WITH REFERENCE TO AFOREMENTIONED DIRECTIONS IN REGARD TO THE NON- BANKING FINANCIAL COMPANIES, LD. COUNSEL SUBMITTED THAT ASSESSEE HAD CHARGED THE PROVISION IN PROFIT AND LOSS ACCOUNT IN REGARD TO DIMINUTION IN VALUE OF INVESTMENTS. HE REFERRED TO PAGE 7 OF THE FIRST PAPER BOOK DATED 18.11.2009, WHEREIN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31/03/2004, IS CONTAINED, IN WHICH ON THE EXPENDITU RE SIDE FOLLOWING NARRATION WAS GIVEN: PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT RS . 9,882,000 (REFER NOTE NO. II OF SCHEDULE H) 18. LD. COUNSEL FURTHER REFERRED TO PAGE 8 OF PAPER BOOK, WHEREIN SCHEDULE C FORMING PART OF THE BALANCE SHEET AS O N 31/3/2004, IS CONTAINED, WHEREIN THE ASSESSEE HAD GIVEN FOLLOWING DETAILS: - SCHEDULE C INVESTMENT LONG TERM NON TRADE ITA NO. 79/D/2009 14 QUOTED FULLY PAID-UP 100000 EQUITY SHARES RS. 10 EACH OF VANS INFORMATION & INVESTOR SERVICES LTD. 10,000,00 0 LESS: PROVISION FOR DIMINUTION 9,882,000 19. LD. COUNSEL FURTHER REFERRED TO PAGE 10 OF PAPE R BOOK, WHEREIN THE SCHEDULE H RELATING TO SIGNIFICANT ACCOUNTING POL ICIES AND NOTES TO ACCOUNTS, IS CONTAINED, IN WHICH, AS REGARDS INVEST MENT, IT HAS BEEN STATED AS UNDER: (C) INVESTMENTS INVESTMENTS ARE CLASSIFIED INTO CURRENT AND LONG TERM INVESTMENTS, CURRENT INVESTMENTS ARE STATED AT THE LOWER OF COST OR FAIR VALUE. LONG TERM INVESTMENTS ARE STATED AT COST LESS ANY, PROVISION FOR PERMANENT DIMINUTION IN VALUE. 20. LD. COUNSEL FURTHER REFERRED TO PAGE 11 OF PAPE R BOOK, WHEREIN NOTES TO ACCOUNTS, ARE CONTAINED, IN WHICH, NOTE 2, WHICH WAS AS PER ACCOUNTING STANDARD 13, READS AS UNDER: (II) THE MANAGEMENT HAS DECIDED TO PROVIDE FOR TH E DIMINUTION IN THE VALUE OF INVESTMENTS IN THE SHARE S OF VANS INFORMATION & INVESTORS SERVICES LTD. WHICH SE EMS NOT OF TEMPORARY IN NATURE AND ACCORDINGLY PROVISIO N FOR DIMINUTION HAS BEEN MADE IN THE BOOKS OF ACCOUNTS. 21. LD. COUNSEL SUBMITTED THAT AT THE TIME WHEN ASS ESSEE FILED ITS RETURN, IT WAS HIGHLY DEBATABLE WHETHER THE ASSESSEES CLAI M WAS ALLOWABLE DEDUCTION OR NOT PARTICULAR IN VIEW OF THE FACT THA T THE PROVISIONS OF CHAPTER IIIB OF RESERVE BANK OF INDIA ACT HAD PRECEDENCE OV ER ALL OTHER ACTS AS PER SECTION 45Q OF THE RBI ACT, 1934. LD. COUNSEL FURT HER REFERRED TO THE DECISION IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. & TED CO. INVESTMENT & FINANCIAL SERVICES (P) LTD., (DEL.) (H C) [2011], 330 ITR 440AND SUBMITTED THAT THERE WAS LIVE DEBATE ON THE PRECEDENCE OF RBI ACT VIS--VIS OTHER ACTS AND ASSESSEE WAS MANDATORILY B OUND TO FOLLOW THE RBI ITA NO. 79/D/2009 15 ACT AS ON THE DATE OF FILING OF RETURN. HE SUBMITTE D THAT UNDER THESE CIRCUMSTANCES, THE ASSESSEE HAD BONAFIDELY CLAIMED THE DEDUCTION. LD. COUNSEL REFERRED TO THE DECISION IN THE CASE OF EAS T INDIA HOTELS LTD. & ANOTHER VS. CBDT & ANOTHER (MUM.) (HC) [2010], 320 ITR PG. 527AND POINTED OUT THAT THE SAID DECISION WAS RENDERED AGA INST THE ASSESSEE BECAUSE PROVISIONS OF CHAPTER III OF RBI ACT WERE U NDER CONSIDERATION WHICH COULD NOT OVERRIDE THE PROVISIONS OF INCOME T AX ACT. HE FURTHER POINTED OUT THAT THIS DECISION WAS RENDERED ON 11/1 1/2010 MUCH AFTER THE ASSESSEE HAD MADE THE CLAIM. LD. COUNSEL REFERRED TO PAGE 17 & 18 OF PAPER BOOK, WHEREIN THE ASSESSEE HAD SUBMITTED HIS EXPLANATION BEFORE THE AO REGARDING ITS CLAIM ON LOSS ON ACCOUNT OF DI MINUTION IN VALUE OF INVESTMENT WHICH READS AS UNDER: - 3. REGARDING THE LOSS ON ACCOUNT OF DIMINUTION IN VAL UE OF INVESTMENTS, IT IS SUBMITTED THAT THE SAME HAS B EEN ROUTED THROUGH THE P/L ACCOUNT AS THERE WAS A PERMA NENT FALL IN THE VALUE OF SHARES OF THE COMPANY, WHICH W ERE NOT BEING QUOTED ON THE EXCHANGE. THE TERM PROVISION H AS BEEN USED INADVERTENTLY AND THE DIMINUTION IN VALUE BEING PERMANENT IN NATURE NEEDS TO BE ALLOWED AS A LOSS. HOWEVER, THE SAME HAS INADVERTENTLY BEEN CLAIMED AS A REVENUE LOSS, WHILE IT IS OF A CAPITAL NATURE. THE COMPUTATION OF INCOME WHICH HAS BEEN PREPARED BY TH E ACCOUNTANT, INADVERTENTLY SHOWS THE AMOUNT AS BUSIN ESS LOSS AND IT IS REQUESTED THAT THE ASSESSEE MAY PLEA SE BE ALLOWED TO CORRECT THE SAME IN THEN AFORESAID ASSES SMENT PROCEEDINGS WITH THE REQUEST THAT PENALTY PROCEEDIN GS MAY NOT BE INITIATED AS THE AFORESAID MISTAKE IS INADVE RTENT AND NOTHING HAS BEEN CONCEALED EITHER IN THE BALANCE SH EET OR IN THE COMPUTATION. THUS, IN SUM AND SUBSTANCE, LD. COUNSEL SUBMITTED T HAT ASSESSEE FULLY DISCLOSED ALL MATERIAL FACTS IN RESPECT OF CLAIM MA DE BY ASSESSEE. THE CLAIM WAS BONAFIDE, ASSESSEE HAD FULLY DISCHARGED I TS BURDEN IN VIEW OF EXPLANATION 1 TO SECTION 271(1)(C). 22. LD. COUNSEL REFERRED TO THE DECISION IN THE CAS E OF CIT VS. GANESHAN BUILDERS PVT. LTD., 299 ITR 403, HONBLE MADRAS HIG H COURT, WHEREIN IT WAS HELD THAT LEVY OF PENALTY WAS NOT WARRANTED IN A CA SE WHERE ASSESSEE HAD ITA NO. 79/D/2009 16 CLAIMED DIMINUTION IN VALUE OF SHARES AS REVENUE LO SS AS AGAINST THE CAPITAL LOSS BECAUSE ASSESSEE HAD FULLY DISCLOSED THE FACT OF WRITING OFF OF INVESTMENTS IN AUDIT STATEMENTS. THEREFORE, IT WAS NOT A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME. 23. LD. COUNSEL FURTHER REFERRED TO THE DECISION IN THE CASE OF CIT VS. HARI MACHINES LTD. OF HONBLE HIGH COURT 311 ITR 28 (DEL .), WHEREIN ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF REDUCTION OF SHARE C APITAL WHICH WAS NOT ALLOWED AND IT WAS HELD THAT IN THE CIRCUMSTANCES N O FRAUD COULD BE IMPUTED ON ASSESSEE AND, THEREFORE, PENALTY WAS NOT LEVIABLE. LD. COUNSEL FURTHER REFERRED TO THE DECISION OF ITAT IN THE CAS E OF M/S SHYAM ENTINA ELECTRONICS LTD. VIDE ITA NO. 3568/D/08 FOR AY 2003 -04, WHEREIN ASSESSEE HAD CLAIMED LOSS ON ACCOUNT OF FORFEITURE OF SHARE APPLICATION MONEY IN PROFIT AND LOSS ACCOUNT WHICH WAS DISALLOWED BEING CAPITAL IN NATURE. THUS, HEAD OF LOSS WAS CHANGED FROM CAPITAL TO REVENUE. IT WAS HELD THAT UNDER SUCH CIRCUMSTANCES PENALTY WAS NOT LEVIABLE. LD. C OUNSEL ALSO RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. IFCI LTD. 328 ITR 611, WHEREIN INVESTMENTS WRITTEN OFF IN THE BOOKS O F ACCOUNT WERE CLAIMED AS DEDUCTION, ON ACCOUNT OF LOSS OCCURRED TO THE AS SESSEE, IN THE COMPUTATION OF TOTAL INCOME, WHICH WAS DISALLOWED. IT WAS HELD THAT PENALTY UNDER SUCH CIRCUMSTANCES WAS NOT LEVIABLE AS FULL P ARTICULARS OF INCOME WERE FURNISHED BY THE ASSESSEE AND NO INACCURACY HA D BEEN POINTED OUT IN THE PARTICULARS FURNISHED BY THE ASSESSEE. LD. COU NSEL ALSO RELIED ON THE DECISION IN THE CASE OF CIT VS. RELIANCE PETROPRODU CTS PVT. LTD. [2010] (SC), 322 ITR 158,WHEREIN IT HAS BEEN HELD THAT MER E ADVANCING OF CLAIM DOES NOT TANTAMOUNT TO FURNISHING INACCURATE PARTIC ULARS OF INCOME OR CONCEALMENT OF PENALTY. LD. COUNSEL FURTHER RELIED ON THE FOLLOWING DECISIONS, WHEREIN SIMILAR VIEW HAS BEEN TAKEN: - ITA NO. 79/D/2009 17 CIT VS. MAHAVIR IRRIGATION P. LTD. (ITA NO. 1266/09) (DEL.) (HC) CIT (LTU) VS. MTNL LTD. (ITA NO. 626/11) (DEL.) (HC) CIT VS. BRAHMAPUTRA CONSORTIUM LTD. (ITA NO. 1582/D/10) (DEL.) (HC) CIT VS. M/S AURIC INVESTMENT & SECURITIES LTD., 310 ITR 121 ACIT VS. SHRIRAM TRANSPORT FINANCE CO. LTD.,9 ITR (TRIB.) 543 ACIT VS. M/S SHAHARA INDIA INVESTMENT CORPN. LTD. (ITA NO. 1651/D/08) DCIT VS. ARETIC INVESTMENT P. LTD., 190 TAXMAN 157 24. LD. COUNSEL SPECIFICALLY REFERRED TO THE DECISI ON IN THE CASE OF M/S SAHARA CORPORATION LTD. (SUPRA), WHEREIN THE ASSESS EE, INTER-ALIA, CLAIMED DEDUCTION IN RESPECT OF PROVISION MADE FOR NON PERF ORMING ASSET AMOUNTING TO RS. 27,04,048/- ON THE BASIS OF RBI GUIDELINES A S APPLICABLE TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE WITHDREW ITS CLAIM AND PAID TAXES AND INTEREST THER EON. IT WAS HELD THAT UNDER SUCH CIRCUMSTANCES, PENALTY WAS NOT LEVIED. LD. COUNSEL SUBMITTED THAT THE DECISION IN THE CASE OF CIT VS. ZOOM COMMU NICATION P. LTD. [2010] (DEL.) (HC), 327 ITR 510 RELIED UPON BY LD. DR IS D ISTINGUISHABLE ON FACTS IN-AS-MUCH AS IN THE SAID CASE THE ASSESSEE HAD CL AIMED INCOME-TAX PAYMENT AND EQUIPMENT WRITTEN OFF (TERMINAL DEPRECI ATION) AS EXPENDITURE WHICH WAS PRIMA-FACIE INADMISSIBLE. HE SUBMITTED T HAT BECAUSE OF SPECIFIC STATUTORY PROVISIONS, ASSESSEES CLAIM WAS NOT ALLO WABLE AND UNDER SUCH CIRCUMSTANCES, IT WAS HELD THAT PENALTY WAS LEVIABL E. LD. COUNSEL FURTHER SUBMITTED THAT SINCE ASSESSEE WAS IN CENTRAL CIRCLE THEREFORE, THE ASSESSMENT WAS TO BE COMPULSORILY DONE U/S 143(3). HE SUBMITTED THAT, IN ANY VIEW OF THE MATTER, IT CANNOT BE A CRITERIA FOR DECIDING WHETHER THE ASSESSEES CLAIM WAS BONAFIDE OR NOT. ITA NO. 79/D/2009 18 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. 26. THE FACTS ARE NOT DISPUTED. THE ASSESSEE HAD F ILED ITS RETURN OF INCOME DECLARING A LOSS OF RS. 98,98,420/-. THE LO SS WAS AS PER PROFIT AND LOSS ACCOUNT AND NO ADJUSTMENT WAS MADE. THIS LOSS WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT IN SHARES. THE ASSESSEES EXPLANATION W AS THAT DIMINUTION IN THE VALUE OF INVESTMENT IN SHARES OF WARM INFORMATI ON AND INVESTOR SERVICES LTD. WAS ON ACCOUNT OF PERMANENT FALL IN T HE VALUE OF ITS SHARES. THEREFORE, THE SAID LOSS WAS ROUTED THROUGH PROFIT AND LOSS ACCOUNT WHICH WAS A CHARGE TO PROFIT AND LOSS ACCOUNT AS PER GUID ELINES ISSUED BY RBI. 27. THE AO HAD DISALLOWED THE PROVISION FOR DIMINUT ION IN VALUE OF INVESTMENT AMOUNTING TO RS. 98,82,000/- OBSERVING T HAT THE LOSS, IF ANY, COULD OCCUR AT THE TIME OF SALE OF SHARES ONLY. IN THE BACKDROP, ALL THESE FACTS, THE AO HAD LEVIED PENALTY. IT IS, NOW WELL SETTLED LAW THAT MERE ADVANCING OF AN INCORRECT CLAIM DOES NOT IPSO-FACTO ATTRACTS PENALTY PROCEEDINGS UNLESS IT IS ESTABLISHED THAT THE ASSES SEES CLAIM WAS NOT BONA-FIDE AND ASSESSEE HAD CONCEALED THE PARTICULAR S OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THEREF ORE, THE MAIN ISSUE TO BE CONSIDERED IS WHETHER THE ASSESSEES CLAIM WAS BONA -FIDE OR MALA-FIDE. THIS DEPENDS ON FACTS AND CIRCUMSTANCES OF EACH CAS E. THE EXPRESSION HAS CONCEALED THE PARTICULARS OF INCOME AND HAS FURNISHED INACCURATE PARTICULARS OF INCOME HAVE NOT BEEN DEFINED EITHER IN SECTION 271(1)(C) OR ELSE WHERE IN THE ACT. THE EFFECT OF BOTH THE PHRA SES IS SAME WHICH IS DELIBERATELY KEEPING OFF A CERTAIN PORTION OF INCOM E FROM BEING BROUGHT TO THE AMBIT OF TAXATION. THE WORD CONCEALMENT INHE RENTLY CARRIES WITH IT THE ELEMENT OF MENSREA . THUS, THE OFFENCE OF CONCEALMENT IS THERE WHEN T HERE IS A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOME OR A PORTION THEREOF FROM THE ITA NO. 79/D/2009 19 KNOWLEDGE OF THE INCOME-TAX AUTHORITIES. THEREFORE , IF ASSESSEE HAS FULLY AND TRULY DISCLOSED ALL FACTS IN REGARD TO A PARTIC ULAR RECEIPT/EXPENDITURE THEN MERELY BECAUSE THE CLAIM IS NOT ALLOWED IN THE FINAL ASSESSMENT, IT CANNOT BE INFERRED THAT ASSESSEE HAD CONCEALED THE PARTICULARS OF INCOME. AS FAR AS FURNISHING OF INACCURATE PARTICULARS OF I NCOME IS CONCERNED, THE PARTICULARS FURNISHED BY ASSESEE HAVE TO BE SHOWN T O BE INACCURATE. THIS IS PRIMARILY IN REGARD TO THE DECLARATION OF FACTUA L ASPECTS IN RESPECT OF A PARTICULAR ITEM. IF THE FACTS IN REGARD TO A PARTI CULAR ITEM HAVE BEEN CORRECTLY DISCLOSED BY THE ASSESSEE THEN MERELY BEC AUSE ITS CLAIM HAS BEEN DISALLOWED, WOULD NOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE CANNOT FORESEE THAT INFERE NCES WHICH AO WOULD DRAW FROM THOSE FACTS. IN THE PRESENT CASE, ON THE FACE OF THE PROFIT AND LOSS ACCOUNT, REFERENCE HAD BEEN MADE TO THE NOTES AND SIGNIFICANT ACCOUNTING POLICIES CONTAINED IN SCHEDULE H FORMI NG PART OF BALANCE SHEET WHICH READS AS UNDER: - SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS INVESTMENTS ARE CLASSIFIED INTO CURRENT AND LONG TE RM INVESTMENTS, CURRENT INVESTMENTS ARE STATED AT THE LOWER OF COST OF FAIR VALUE. LONG TERM INVESTMENTS ARE STATED AT THE LOWER OF COST OF FAIR VALUE. LON G TERM INVESTMENTS ARE STATED AT COST LESS ANY PROVISION FOR PERMANENT DIMINUTION IN VALUE. NOTES TO ACCOUNTS THE MANAGEMENT HAS DECIDED TO PROVIDE FOR THE DIMINUTION IN THE VALUE OF INVESTMENTS IN THE SHARE S OF VANS INFORMATION & INVESTORS SERVICES LTD. WHICH SEEMS NOT OF TEMPORARY IN NATURE AND ACCORDINGLY PROVISION FOR DIMINUTION HAS BEEN MADE IN THE BOOKS OF ACCOUNTS. THUS, THE ASSESSEE HAD CLEARLY DISCLOSED ALL THE RE LEVANT FACTS IN REGARD TO DIMINUTION IN THE VALUE OF INVESTMENTS IN THE SHARE S OF VANS INFORMATION AND INVESTORS SERVICES LTD. THE ASSESSEES BELIEF THAT DIMINUTION IN THE VALUE OF INVESTMENT WAS PERMANENT IN NATURE WAS DER IVED FROM THE FACT THAT THERE WAS ONLY ONE TRANSACTION IN STOCK EXCHANGE IN THIS SHARE ON 25/3/04 AND THE CLOSING RATE OF THE SHARE ON THAT DATE WAS RS. 1.18. THE ASSESSEE ITA NO. 79/D/2009 20 HAD DEBITED THE DIMINUTION OF THE VALUE OF INVESTME NT IN PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE GUIDELINES LAID DOWN IN ACCOUNTING STANDARD-13 ISSUED BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA. 28. LD. COUNSEL HAS CLEARLY DEMONSTRATED THAT THE A SSESSEES CLAIM WAS IN ACCORDANCE WITH RBI ACT, 1934 READ WITH NON-BANK ING FINANCIAL COMPANIES (RESERVE BANK DIRECTIONS), 1998. AS PER SECTION 45Q OF RBI ACT CHAPTER IIIB HAS AN OVERRIDING EFFECT OVER OTHE R LAWS AND, THEREFORE, THE ASSESSEES CLAIM COULD NOT BE BRANDED AS A MALA-FID E CLAIM. 29. WE FIND THAT IN ALL THE DECISIONS RELIED UPON B Y THE LD. COUNSEL FOR THE ASSESSEE, IT HAS BEEN HELD THAT UNDER SUCH CIRCUMST ANCES, PENALTY IS NOT LEVIABLE. 30. LD. DR HAS RELIED ON THE DECISION OF GUJARAT ST ATE FINANCIAL SERVICES LTD. (SUPRA), WHEREIN ON ACCOUNT OF CLAIM OF PROVIS ION FOR DIMINUTION IN VALUE OF INVESTMENT PENALTY WAS SUSTAINED BY TRIBUN AL. IN THIS CASE IT WAS FOUND THAT ASSESSEE DID NOT ADD BACK THE PROVISIONS MADE FOR BAD DEBTS AND FOR DIMINUTION IN VALUE OF INVESTMENTS IN THE P ROFIT AND LOSS ACCOUNT. IN THE SAID DECISION THE TRIBUNAL IN PARA 5.1.1 HAS OB SERVED THAT THE PROVISIONS WERE CLAIMED IN VIEW OF SECTION 45Q OF T HE RBI ACT. IT WAS FURTHER OBSERVED THAT THERE WAS NO MENTION AS TO TH E RELIANCE ON ANY OF THE JUDICIAL PRONOUNCEMENTS THAT THE SAID PROVISIONS WE RE CLAIMED AS DEDUCTION U/S 26 OR U/S 37. IT WAS FURTHER OBSERVED THAT THE RE WAS NO MENTION IN THE COMPUTATION STATEMENT AS TO THE CLAIM U/S 36(1)(VII ) OR AS REGARDS PROVISION FOR BAD AND DOUBTFUL DEBTS OR AS REGARDS DIMINUTION IN VALUE OF INVESTMENTS. THUS, TRIBUNAL HAD REACHED THE CONCLUSION THAT ASSE SSEE HAD NOT DISCLOSED ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. BUT I N THE PRESENT CASE, THE ASSESSEE HAS CLEARLY DISCLOSED ALL MATERIAL FACTS W HICH WERE NECESSARY FOR ASSESSMENT. THE PROCESS OF ASSESSMENT STARTS WITH THE FILING OF RETURN. ITA NO. 79/D/2009 21 THE ASSESSEES PRIMARY OBLIGATION IS TO DISCLOSE AL L MATERIAL FACTS IN REGARD TO ITS VARIOUS AFFAIRS. BUT WHAT CONCLUSION IS TO BE DRAWN FROM THOSE FACTS IS FOR AO TO DECIDE. THE ASSESSEE MAY ADVANCE VARIOUS CLAIMS IN ITS RETURN. BUT IT IS NOT NECESSARY THAT ALL CLAIMS HAVE TO BE NECESSARILY ALLOWABLE. IT IS FOR THE AO TO DECIDE WHICH CLAIM IS ALLOWABLE AND W HICH IS NOT. IF A CLAIM IS SPECIFICALLY FORBIDDEN BY LAW AND IN SPITE OF ASSES SEE BEING PROVIDED WITH NECESSARY LEGAL ADVICES, HE ADVANCES A CLAIM THEN D EPENDING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE, PENALTY MAY BE LEVIABLE. HOWEVER, WHERE ON INTERPRETATION OF VARIOUS FACTS FURNISHED BY ASSESSEE, THE AO REACHES A CONCLUSION CONTRARY TO THAT OF ASSESSEES CONCLUSION THEN IT CANNOT BE SAID THAT THE CLAIM ADVANCED BY ASSESSEE WAS NOT BONAFIDE. 31. IN THE PRESENT CASE THE ASSESSEE HAD PLACED BEF ORE THE AO/CIT(A) THE BASIS OF CLAIM MADE BY IT, THE PARTICULARS OF W HICH HAVE NOT BEEN FOUND TO BE INACCURATE, IN ANY MANNER, BY THE AO. 32. LD. DR HAS ALSO RELIED ON THE DECISION IN THE C ASE OF MAHINDRA INTER- TRADE LTD., WHEREIN THE ASSESSEE HAD CLAIMED DIMINU TION IN VALUE OF ITS TRADE INVESTMENT ON THE BASIS OF PRUDENCE AND NOT O N THE BASIS OF ANY STATUTORY GUIDELINES. THEREFORE, THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. AS FAR AS THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION PVT. LTD. (SUPRA) IS CON CERNED, THE PENALTY WAS CONFIRMED BECAUSE ASSESSEES CLAIM WAS FOUND TO BE AGAINST THE SPECIFIC PROVISIONS OF THE ACT. HERE IN THE PRESEN T CASE, THE FACTS ARE CLEARLY DISTINGUISHABLE. WE, THEREFORE, FIND OURSE LVES FORTIFIED BY VARIOUS DECISIONS AS DISCUSSED IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE PARTICULARLY THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF HARI MACHINES LTD. (SUPRA) AND IFCI LTD. (SUPRA). IN VI EW OF ABOVE DISCUSSION, WE CONFIRM THE ORDER OF LD. CIT(A). ITA NO. 79/D/2009 22 33. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 12/10/2012 SD/- SD/- (U.B.S. BEDI) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR