VARREN FINANCIAL SERVICES LTD. vs. COMMISSIONER OF INCOME TAX, PATIALA

ITA/94/2012HC Punjab & HaryanaPHHC01099463201224 January 2013Author: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI3 pages
AI SummaryDismissed

What were the facts?

The assessee, Varren Financial Services Limited, is in appeal before the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (ITAT) dated October 31, 2011. The ITAT had dismissed the assessee's appeal against a penalty imposed under Section 271(1)(c)(iii) of the Income Tax Act, 1961. The dispute arises from the sale of majority of the assessee's shares to a closely connected firm at a rate lower than the stock exchange rate on the relevant date. The Commissioner of Income Tax (CIT) held this to be a 'false loss', a finding affirmed by the ITAT.

What did the High Court hold?

The High Court held that the appeal had no merit. It found that the assessee transferred majority shares to a connected firm at a lower rate than the stock exchange rate. The CIT had concluded this was a 'false loss', and the Tribunal affirmed this finding. The Tribunal's reasoning, stating the assessee provided a 'false and spurious explanation' and intentionally sold shares at a lower rate to a connected concern to claim 'false excessive loss', was accepted. The High Court considered this a finding of fact that the loss was deliberate and not a mere innocent or bonafide claim. It concluded that this finding of fact did not give rise to a substantial question of law. The Court also found that the tests specified in CIT Vs. Sangrur Vanspati Mills Limited (303 ITR 53) were satisfied, as it was proved the appellant concealed particulars of income by giving inflated losses. The appeal was dismissed.

What were the issues?

1. Whether, in the facts and circumstances, the Tribunal was justified in upholding the penalty without appreciating that the addition was made on a notional basis, presuming sale at the rate quoted on the date of sale, ignoring the actual sale consideration, and that penalty proceedings are distinct from quantum proceedings, with quantum additions not being a basis for penalty, as held in Anantharam Veerasinghaiah & Co. Vs. CIT (1980) 123 ITR 457 (SC)? (Question of law turning on Section 271(1)(c)) 2. Whether the impugned order of the ITAT upholding the orders of the Assessing Officer (AO) and CIT(A) confirming the penalty is perverse, based on no evidence, and influenced by extraneous considerations? (Question of mixed law and fact turning on Section 271(1)(c)) Assessee's Contention: The penalty was upheld without appreciating that the addition was notional and based on a presumption, not actual consideration, and that penalty cannot be levied on quantum additions, citing Anantharam Veerasinghaiah & Co. Vs. CIT. The order is also alleged to be perverse. Revenue's Contention: The revenue did not record specific contentions in the judgment, but the High Court's reasoning implies that the transaction was deliberately made at a lower rate to claim a false loss.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 260-A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

**** I.T.A. No.94 of 2012 (O&M) Date of Decision:24.01.2013 CORAM:- HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI Present:- Mr. Ravi Shankar, Advocate for the appellant. Ms. Savita Saxena, Advocate for the respondent. HEMANT GUPTA, J.(Oral) The present appeal under Section 260-A of the Income Tax Act, 1961 arises out of an order passed by the Income Tax Appellate Tribunal, Chandigarh Bench `B', Chandigarh (for short “the Tribunal”) on 31.10.2011, whereby an appeal of the assessee imposing penalty under Section 271(1) (C)(iii) was dismissed. The assessee has raised the following substantial questions of law:- “A. Whether in the facts and circumstances of the case, the Tribunal was justified in upholding the penalty without appreciating the fact that addition had been made on notional basis by presuming the sale as per rate quoted on the date of sale ignoring the actual sale consideration received by the assessee and paid by the purchase

The order continues below.

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