M/S KEVAL ( INDIA ) LTD,INDORE vs. DCIT-R-1 (1) , INDORE

Briefly stated facts as culled out from the records are that the assessee is a company engaged in trading of grains and shares. A search u/s 132 of the I.T. Act was carried out at the assessee’s premises on 02.05.2008 followed by issuance of notice dated 17.09.2010 u/s 153 of the Act for the Assessment Year 2005-06 and 2007-08. In response to this assessee had filed its Income Tax Return declaring income at Rs.26,12,485/- and Rs.34,11,875/- on 30.09.2009 respectively for Assessment years 2005-06 and 2007-

In the instant two appeals the common issues raised relates to levy of penalty u/s 271(1)(c) of the Act by the Ld. A.O at Rs.6,43,300/- and Rs.3,85,530/- computed on the disallowance of loss on sale of wheat treating it to be speculative loss amounting to Rs. 17,58,000/- and Rs.11,30,500/- for Assessment Year 2005-06 and 2007-08 respectively.

Aggrieved with the penalty levied by Ld. A.O assessee preferred appeal before Ld. CIT(A) but failed to succeed as Ld. CIT(A) took a view that had the assessee’s case not been selected for scrutiny the appellant would have easily escaped by getting the alleged speculative loss adjusted against the business profit.

Ld. Counsel for the assessee prayed for deleting the penalty levied u/s 271(1)(c) of the Act by referring to the following common written submissions for both the years under appeal:-

We have heard rival contentions and perused the records placed before us and also gone through the judgments referred and relied by the Ld. Counsel for the assessee. The sole grievance raised in these two appeals revolves around the penalty u/s 271(1)(c) of the Act at Rs.6,43,300/- and Rs.3,80,530/- levied by the Ld. A.O and confirmed by the Ld. CIT(A). This penalty is levied by the Ld. A.O on coming to a finding that the assessee intentionally claimed the loss on sale of wheat as a business loss without establishing anything about the movement of goods which shows that the transaction of purchase and sales of wheat is speculative in nature and provisions of Section 45(3) of the Act applies thereon and the loss arising from which transaction without delivery of goods falls under the category of speculation loss and the same can be adjusted/carry forward to be adjusted against speculative profit only.

As regards the transaction of purchase and sale of wheat revenue authorities have not pointed out any mistake, error or 7 Keval (India) Ltd & 653/Ind/2017 anomaly in the genuineness of the transaction with regard to the quantity of goods, amount of purchase and sale, details of the party with whom the transaction has been carried out. In nutshell assessee has not concealed any particulars relating to the alleged transaction for both the assessment years.

Now in the given facts and circumstances of the case where assessee’s mensera is not proved and there is no furnishing of inaccurate particulars of transactions, whether the penalty is leviable u/s 271(1)(c) of the Act needs to be adjudicated.

We observe that the Co-ordinate Bench, Indore in the case of Krishna Soya Product Pvt. Ltd vs. DCIT(supra) adjudicating the similar type of issue of levy of penalty u/s 271(1)(c) of the Act in respect of treating the loss on trading of commodity exchange treated as business loss but was held to be as speculative loss by the revenue authorities the penalty levied u/s 271(1)(c) of the Act was deleted by the Tribunal observing as follows; Keval (India) Ltd & 653/Ind/2017 “7. We have heard the rival submissions of both the parties and perused the material available on record. The perusal of the assessment order and the penalty order reveals that the AO has rejected the contention of the assessee that transactions entered into in respect of soya oil in the course of its business to guard against loss to future fluctuation in respect of its contract for actual delivery for holding of stock of goods manufactured by one more in the nature of speculative transaction. Therefore the business loss claimed was disallowed by the A.O and treating the same as speculative transaction u/s 43(5) of the Act. Thus, the perusal of the assessment order reveals that the AO has made disallowance of speculation loss on the basis of facts as disclosed by the assessee in the return of income and also during the assessment proceedings. We find that the assessee has furnished all relevant facts and merely because the AO has changed the head of loss from business loss to speculative los and allowed to carry forward of the same the penalty u/s 271(1)(c) could not be levied. Where the explanation is bonafide and all the facts relating to the same have been disclosed then there is no case of levy of penalty. The findings recorded in the assessment order is not conclusive for deciding the imposition of penalty as it has only a persuasive value and non filing of appeal against the said disallowance does not mean that the penalty has to be imposed automatically. It is trite law that penalty proceedings are distinct and separate proceedings from assessment proceedings. It is settled law that when the issue is debatable, then the provisions of penalty u/s 271 (l)(c) is not attracted, because mensera is not established against the assessee. The Ld. Counsel has placed reliance on the decision in the case of CIT V Navichandra & Co (2014) 42 Taxmann.com 28 (Guj) wherein while submitting the return of income, the assessee 9 Keval (India) Ltd & 653/Ind/2017 treated loss from derivative transaction as normal business loss, whereas the AO during the assessment proceedings treated the same as speculative nature and disallowed the same and consequently initiated penalty proceedings u/s 271(l)(c) and the same was deleted by the CIT(A)on the ground that it was a bonafide claim on the part of the assessee, considering these facts, the Hon'ble High Court has held that since all relevant particulars in respect of loss were correct and law in respect of said items was not very clear because there was divergent views of the Tribunals at relevant time and therefore no interference of impugned order was called for and the penalty is rightly deleted by the CIT(A) and confirmed by the ITAT. Since the facts of the present case are similar to that case, the ratio of the said decision is squarely applicable in the case of the. assessee. Further, the assessee has relied in the case of Jagdish R. Acharya v CIT 160/(Ahd)/2013, Co-ordinate Bench of Ahmadabad Tribunal, wherein the explanation offered regarding speculation loss was found to be only the change of income from one head to another head and where the assessee has disclosed all the material fact and the penalty u/s 271(l)(c) of the Act was not to be levied. Similarly decisions of Hon'ble Delhi High Court in the case of CIT V Aurica Investment & Securities Ltd (supra) and CIT V Oscar Udyog Ltd of Hon'ble Court of Karnataka' (supra) also supports the case of the assessee. The assessee has also relied in the case of CIT v SPIC Stech Pvt. Ltd (2004) 32 ITC 244 (MP) which also supports the case of the assessee. Therefore we are of the considered view that the penalty is not sustainable in the law in the light of ratio laid down by Supreme Court in the case of CIT V Reliance Petro Products Pvt. Ltd (2010) 322 ITR 158 (SC)/189 Taxmann 322 (SC) wherein it was held that merely because the assessee has claimed the expenditure, which claim was not 10 Keval (India) Ltd ITA No.652 & 653/Ind/2017 accepted by the revenue, the penalty u/s 271 (1) (c) of the Act cannot be attracted. Having considered the above facts and judicial pronouncements. the penalty levied at Rs.5,10,000/- u/s 271(1)(c) of [he Act is therefore deleted. The Ground No.l & 2 of the appeal are therefore allowed.”

As the facts of the instant appeals are same to the facts in the case of Krishna Soya Product Pvt. Ltd vs. DCIT(supra) referred above, we respectfully following the same are of the considered opinion that both the lower authorities erred in levying the penalty u/s 271(1)(c) of the Act on the alleged transaction of purchase and sale of wheat because the assessee has bonafidely treated the loss as business loss and disclosed all necessary details relevant to the transaction in the books of accounts and further for the alleged transaction two divergent views were possible thereby the alleged loss could be treated as a business loss or speculation loss. We therefore set aside the finding of lower authorities and allow the appeals of the assessee for Assessment Year 2005-06 & 2007-08 and delete the penalty levied u/s 271(1)(c) of the Act at Rs.6,43,300/- and Rs.3,80,530/- respectively.

In the result both the appeals of the assessee & 653/Ind/2017 are allowed.