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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA&
आदेश / O R D E R
PER PRADIP KUMAR KEDIA, AM: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad [CIT(A) in short] dated 02/05/2012 in the matter of assessment order under s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 17/11/2011 relevant to Assessment Year (AY) 2009-10.
The solitary ground of appeal raised by the Revenue read as under:-
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 2 - Whether the Ld. CIT(A) ios right in law and on facts in deleting the penalty levied of Rs.73,62,856/- u/s.271(1)(c) of the IT Act.
Briefly stated, the assessee filed its return of income for the AY 2009-10 in question declaring total loss at Rs.1,23,79,101/-. The Assessing Officer inter alia noticed in the quantum proceedings that assessee has claimed business loss of Rs.2,45,42,853/- on account of purchase and sales of shares. The Assessing Officer invoked Explanation to section 73 and treated the aforesaid loss from purchase and sales of shares as speculative loss. The Assessing Officer consequentially denied set off of such loss against non-speculative income in terms of Explanation to section 73 of the Act. The Assessing Officer also alleged furnishing of inaccurate particulars of income to the extent of Rs.2,45,42,853/- towards wrong claim in breach of Explanation to section 73 and accordingly imposed penalty u/s.271(1)(c) of the Act at the rate of 100% on tax sought to be evaded owing to wrong set off of losses. The penalty was quantified at Rs.73,62,856/- under s.271(1)(c) of the Act
Aggrieved by the imposition of penalty, the assessee preferred appeal before the CIT(A). The CIT(A) after taking note of various submissions made on behalf of the assessee found merit in the plea for non-applicability of section 271(1)(c) of the Act in the facts and circumstances of the case. The operative para of the order of the CIT(A) adjudicating the issue in favour of assessee reads as under:
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 3 - “I have carefully considered the penalty order along with the assessment order u/s, 143(3). ClT(A)'s order and the submission filed by the appellant. It is noticed that the AC) has not questioned the details of-sale and purchase of shares. In the audited accounts for AY 2008-09 relevant to AY 2009-10, the appellant company has disclosed all the details of purchase and sale of shares. Further during the course of assessment proceedings, the appellant company has furnished all the details with supporting evidences in respect of purchase and sale of shares from which it has suffered loss of Rs, (-) 2.45.42.853/-. In view of the above facts and submission, it is clear that the-loss of Rs. (-) 2.45.42,853/- incurred-on purchase and sale of shares has been treated by the AO as speculative business loss as per the deeming provisions of Explanation to Section 73 of the Act and not because of furnishing of inaccurate particulars of income.
The AR of the appellant is contended that no penalty is warranted on additions / disallowances made solely in view of deeming provisions of the law. He also relied on the judicial pronouncements in case of Arctic Investment Pvt. Ltd. (Delhi HC) (ITA No. 264/2009). CIT Vs. Auric Investment & Securities Ltd. 163 Taxman 533 7310 ITR 121 (Delhi HC) and CIT Vs. S.P.K. Steels Pvt. Ltd. 270 ITR 156 (MP HC).
Hon'ble ITAT Mumbai also decided on the same lines in the case of Lenient Finvest P. Ltd. Mumbai vs Assessee in its order dated 22 June. 2016 in ITA~'isIo.l017/Mum/20l3 (A.Y.:2001 -02. The Tribunal decided that merely treating the business loss as speculation loss by the ao docs not automatically warrant inference of concealment of income or furnishing of inaccurate particulars of income. It concluded as under:
" 6. We find from the above facts that the AO did not agree with the claim of the assessee that the loss claimed by the assessee as trading loss is actually speculation loss in view of application of Explanation to Section 73 of the Act and this loss of Rs. 50,12.977/- is allowed to be carried forward for set off of speculation profits in any subsequent year. We find that all the facts and figures are available on record and the disallowance of loss is due to wrong interpretation of Explanation to Section 73 of the Act by virtue of which the same is treated as speculation loss. We are of the view that merely treating the business loss as speculation loss by the AO does not automatically warrant inference of concealment of income or furnishing of inaccurate
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 4 - particulars of income, particularly when the assessee has furnished full details of purchase and sales of shares. Even otherwise, we are of the view that the AO himself is not sure of the charge for levy of penalty whether the same is for concealment of income or for furnishing of inaccurate particulars of income. In view of the above, we set aside the orders of the authorities below and delete the penalty imposed on the assessee."
Hence, it is the settled legal position that merely treating the business loss as speculation loss by the AO docs not automatically warrant inference of concealment of income or furnishing of inaccurate particulars of income, particularly when the assessee has furnished full details of purchase and sales of shares. In view of this discussion and facts of the appellant's case the AO is directed to delete the penalty. Accordingly, the appeal is allowed.”
Aggrieved buy the reversal of penalty by the CIT(A), the Revenue is in appeal before the Tribunal.
The Ld.DR for the Revenue relied upon the order of the Assessing Officer and contended that where the transaction of purchase and sales of shares clearly attract the provisions of Explanation to Section 73 of the Act, the Action of the assessee in treating the same as regular and non- speculative business loss and thereby seeking set off by wrong application of law would clearly attract penalty under s.271(1)(c) of the Act. It was contended that the action of the assessee is opposed to the provisions of law whereby the returned income was shown lower to the extent of speculative loss arising from purchase and sales of shares. The Ld.DR also pointed out that the assessee himself has also readily admitted the fact when confronted that the loss resulted from trading of
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 5 - shares is speculation loss and, therefore, the action of the assessee cannot be treated as bonafide.
The Ld.AR for the assessee, on the other hand, pointed out that the assessee has suffered loss from purchase and sales of shares which are delivery based. It is also claimed that the assessee has also supported every transaction of purchase and sales by corroborative evidences. It was further pointed out that the assessee has earned income under the head ‘Capital Gains’ and, therefore, Explanation to section 73 is strictly not applicable. The Ld.AR strongly contended that it is by virtue of fiction created by Explanation to section 73 that the loss arising from purchase and sales of shares is deemed to be speculative loss under s.73 for the purposes of set off. It is not the case of the revenue that the loss has not been incurred or a non-existent loss has been dubiously claimed. The character of loss has only been modified by the revenue on account of deeming fiction for which no penalty cannot be imposed, more so, where all particulars of income/loss arising from purchase and sales of shares have been disclosed fully and truly without any suppression. The Ld.AR also pointed out that the assessee has readily agreed for alteration of character of income without any demur to co-operate with the department and to avoid protracted litigation and, therefore in the circumstances penalty under s.271(1)(c) of the Act is not warranted.
We have carefully considered the rival submissions. The imposition of penalty under s.271(1)(c) of the Act is in controversy where the loss from purchase and sales of shares have been treated as
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 6 - ‘speculative loss’ by the Assessing Officer and accordingly the claim of set off has been denied to the assessee in view of the Explanation to section 73 of the Act. We straight away notice that there is not dispute that the assessee has furnished all details with supporting evidences in respect of purchase and sales of shares from which it has suffered the impugned loss of Rs.2,45,42,853/-. Therefore, there is no furnishing of inaccurate particulars of income per se. The Assessing Officer has not found any falsity in the claim of loss. What has been disputed by the Assessing Officer is the true characterisation of income in view of deeming fiction. In view of the legal fiction created by Explanation 73 of the Act, loss arising from purchase and sales of shares in the hands of company are to be treated as speculative loss for the purposes of set off in specified circumstances. Thus, there is no concealment or inaccuracy per se in particulars of income. Needless to say, consequence in the form of penalty under s.271(1)(c) of the Act it is not automatic solely owing to increase in the assessed income. The incorrect claim of the assessee owing to deemed or artificial characterisation of income could not, in our view, invite stringent penalty, inconsistency with the legal provision notwithstanding. It is on account of deeming provision of law in contrast to a substantive provision that a loss has been treated as non- adjustable speculative loss by an unnatural concept. The exercise of assessee deserves statutory discretion to be exercised in its favour in such circumstances. The CIT(A), in our view, has rightly appreciated the facts an circumstances of the case in perspective and has applied position of law correctly in this regard.
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10 - 7 - 9. Conjointly, we also take a note of a pertinent fact that the assessee has declared short term capital loss of Rs.175.50 lakhs and long term capital gain of Rs.297.13 lakhs which exceeds the aforesaid speculative loss of Rs.245.42 in question and, therefore a debate may also arise about the applicability of Explanation to section 73 itself in the given facts having regard to the decision of Special Bench in ACIT vs. Concord Commercials (P.) Ltd. [2005] 95 ITD 117 (Mum.)[SB]. Thus, in the totality of circumstances, the action of the assessee cannot be regarded as malafide to fall within the mischief of section 271(1)(c) of the Act. Therefore, we concur with the conclusion drawn by the CIT(A). We thus decline to interfere. Hence, the ground raised by the Revenue contesting reversal of penalty by CIT(A) is without merit.
In the result, the appeal of the Revenue is dismissed. This Order pronounced in Open Court on 14/05/2019
Sd/- Sd/- (Ms.MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 14/05/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.1052/Ahd/2017 DCIT vs. M/s.Suraj Limited Asst.Year - 2009-10
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-XIV, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation ..6.5.19 (dictation pad 17-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 6.5.19 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….14.5.19 7. Date on which the file goes to the Bench Clerk…………………14.5.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………