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Income Tax Appellate Tribunal, DELHI BENCH, ‘G’: NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
ORDER PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 09.06.2016 of the learned CIT(A), Faridabad, relating to Assessment Year 2009-10. The Revenue in its only effective ground of appeal has challenged the order of the learned CIT(A) in cancelling the penalty of Rs.9,39,26,270/- levied by the Assessing Officer u/s 271(1)(c) of the Act.
Facts of the case, in brief, are that the assessee is a company and engaged in the business of trading in shares & securities and works contract assignments, it filed its return of income on 21.09.2009 declaring loss of Rs.(-)25,94,45,470/-. The Assessing Officer completed the assessment u/s 143(3) of the Act on 29.12.2011, determining the total income of the assessee at Rs.1,59,42,600/- wherein he made addition of Rs.27,63,30,230/- by invoking the explanation to provisions of section 73 of the Act being speculative loss on derivative transactions which cannot be set off against the business income. He also made addition of Rs.4798/- u/s 14A r.w.r.8D and Rs.33,000/- being expenses incurred at ROC for increasing authorized share capital. The Assessing Officer, thereafter, initiated penalty proceedings u/s 271(1)(c) of the Income Tax Act. Rejecting the various explanation given by the assessee and observing that the assessee has furnished inaccurate particulars of income to the extent of Rs.27,63,35,028/-(27,63,30,230 + 4798), the Assessing Officer levied penalty of Rs. 9,39,26,270/- u/s 271(1)(c) of the Act being penalty @ 100% of the tax sought to be evaded.
In appeal, the learned CIT(A) canceled the penalty so levied by the Assessing Officer by observing as under:-
I have carefully gone through the facts of the case. I have also carefully perused the submissions and arguments of the assessee and its counsel during assessment and penalty stage. The undisputed facts of the case are that the assessee had incurred a loss of Rs. 27,63,30,230/- in share trading business carried on at NSE and BSE and most of it was on account of trading in derivatives. The impugned transactions/ losses have been separately disclosed in the audited P & L A/c filed by the assessee and accepted by the assessing officer. There is no dispute about the facts or figures of the case or manner of their disclosure. In the computation, the assessee had set off a part of this loss against the other business income and had carried forward the balance net loss of Rs. 25,94,45,470/-. During the assessment proceedings, the assessing officer applied provisions of explanation to section 73 and held these losses as speculative and denied the setoff. Accordingly, the assessing officer computed net income of Rs. 1,59,42,600/- for the year and increased the carry forward loss to Rs. 27,63,30,230/- against the claim of Rs. 25,94,45,470/-. In penalty order the assessing officer had reiterated the facts mentioned in assessment order. It is stated therein that by claiming set off, the assessee had tried to avoid due taxes on positive non-speculative income. The penalty u/s 271(l)(c) of the Act was, thus, levied for furnishing inaccurate particulars of income on the complete loss of Rs. 27,63,30,230/-, i.e., including both, the amount of loss setoff against income as well as the loss which is not setoff.
It is pertinent to mention here that the appeal of the assessee in the quantum proceedings had been dismissed by my predecessor by order dated 12/06/2013, holding the impugned transactions to be speculative. Therefore, determination of nature of transactions is not in issue before me. The only question to be decided here is whether in these circumstances penalty can be levied on the assessee for furnishing inaccurate particulars of income. The question can be answered only after considering various issues involved in the matter.
At the outset it is necessary to determine whether the claim of the assessee was due to any mis-appreciation of the facts and law or misrepresentation thereof. I have gone through the Balance Sheet, P & L A/c and their annexures filed by the appellant in the Paper book. It was found that the assessee has duly disclosed all the transaction therein. From the records, it is observed that all the information called for in the assessment in this regard was duly furnished and were verified from the relevant documents. The genuineness of the transactions and the loss incurred had been accepted in the assessment proceedings. At the penalty stage also no doubts have been expressed by the assessing officer regarding genuineness of the transactions or the loss. It was also found that the assessee has been treating derivatives separately from the other share transactions. No fault had been observed by the auditors also in accounting and tax treatment given by the assessee to these transactions. Even during assessment proceedings and later appellate proceedings, the assessee had taken consistent stand that derivative were different from shares. Further, there is no allegation of any mis-representation of any fact at any stage by any authority.
Considering these facts and circumstances, it can be safely concluded that the assessee has disclosed and explained its transaction with full degree of openness and transparency. It is possible to hold a different view of the facts, but the facts themselves had remained undisputedly clear in this case. The assessee had disclosed its transactions transparently in the audited financial statements and before income tax authorities.
The next and main issue in the case is regarding claim of setoff of the share losses against the business income. In this context the claim of the assessee is that there was multiplicity of provisions on the matter and therefore, in its understanding there was ambiguity surrounding the interpretation of impugned provisions of law. It was also mentioned that derivatives and shares are different and the assessee had always believed so. It has also been argued that the explanation was introduced to curb the malpractice of creating artificial losses in shares of group companies to reap benefit of setoff against taxable income. Therefore, the assessee had always believed that explanation to section 73 can be used only where the loss in shares has been found as bogus.
I have gone through the relevant provisions on the statute in form of section 43(5)(d) and explanation to section 73 of the Act. Indeed section 43(5)(d) exempts the impugned derivative transactions from the gamut of being speculative. On the other hand, explanation to section 73 takes away such exemption in certain cases. I have also taken note of the fact that neither provision overrides the other.
The issues concerning interpretation of the law are often enmeshed in hyper legal arguments and require very fine legal understanding. A normal assessee can-not be faulted if it does not possess those skills or takes a legal view which is favorable to him. In the case of DCIT vs. Madan Lai Ltd. (51 SOT 188)(Kolkata), relied by the assessee, it was held that derivatives are different from shares. Reliance was also placed on another decision in the case of Asian Financial Services Ltd. Vs. Cit - 3 (Kolkata) in this regard. Though different view is taken by Hon'ble Delhi High Court on the matter, it goes on to show the complexity of the issue involved. There are certainly some judicial interpretations which support the view adopted by the assessee. This makes the view taken by the assessee as a plausible view. Therefore, in view of these facts and legal propositions, it is clear that the matter involved complex legal issues. In this situation, the assessee can-not be faulted for taking a view which favors it. Certainly it should not be penalized merely for taking such a view.
Further, the disallowance in the case was all about denial of a claim based on a specific deeming fiction of law. In the assessment there was merely a change in nature of otherwise genuine loss. It is now very well settled that no penalty can be levied merely for denial of claim made by the assessee. In CIT vs. Reliance Petro products Pvt. Ltd. 322 ITR 158 (SC) the Hon’ble Apex Court held that where information given is not found to be incorrect, assessee cannot be held guilty of furnishing inaccurate particulars of income for the purpose of levying penalty u/s 271(l)©. Further, it was held that mere making a claim does not amount to furnishing inaccurate particulars. In the absence of finding that any details supplied by assessee is incorrect or false, penalty cannot be levied. Similarly, it is now a well settled proposition that no penalty can be levied merely for change in head of income. In this regard Hon’ble Bombay High Court in case of CIT vs. Bennett Coleman & Co. Ltd has held that penalty u/s 271(1) © cannot be imposed when there was no desire on part of assessee to hide or conceal the income but it was an inadvertent mistake on part of assessee and when there is only change of head of income no penalty could be imposed.
Having resolved the relevant issues arising in the matter, I now come to contemporary exposition directly covering the matter. The issue of levy of penalty, on the facts identical to the facts of this case, had already been dealt in various decisions. In the case of CIT vs. Jubilant Enpro Pvt. Ltd. wherein Hon'ble Delhi High Court has held as under:
..the assessee had made full disclosure and there was neither any concealment of income nor furnishing of inaccurate particulars. In fact, the Tribunal has found that the justification furnished by the respondent assessee was bonafide. Consequently, keeping in view the conclusion of facts arrived at by the Tribunal, the explanation offered by the respondent assessee is bonafide and the respondent assessee's case would fall within ambit of explanation 1 to section 271 of Act
It is pertinent to mention here that it was also a case wherein the assessee was in the business of dealing in shares and had treated the losses from share trading as non- speculative. Similarly, in the case of CIT vs. Auric Investments & Securities Ltd. (310 ITR 121)(Del), it was held that "..The mere treatment of business loss as speculation loss by the assessing officer does not automatically warrant inference of concealment of income. ”.
Identical view on these facts had been taken in the case of CIT vs Bhartesh Jain (323 ITR 358)(Del) . Thus in my considered opinion, when the transactions of the assessee are undisputedly genuine, then merely claim of setoff of loss arising out of these transactions can-not be the sole reason to levy penalty in view of the complexity of the issues involved, and the true and full disclosures made by it in the financial statements and during the course of assessment proceeding. In view of the above discussion, and very humbly following the decisions cited above having identical facts and covering the issue, the penalty levied in the case deserves to be deleted on this matter, and is thus deleted.
Regarding disallowance of Rs. 4,798/- u/s 14A, it is observed that the assessee had itself submitted the computation during assessment proceedings and had not pressed the ground in quantum appeal on account of amount being petty. No particulars of income had been suppressed by the assessee in this regard and complete and full disclosures had been made. No adverse opinion has been expressed by the assessing officer regarding genuineness of claim of expenses otherwise. Considering all these facts and in view of decisions cited by the assessee and its counsel which cover the matter, the penalty on this disallowance is also deleted.
In the result, appeal of the assessee is allowed and penalty levied u/s 271(1)(c) is deleted.”
Aggrieved with such order of the learned CIT(A), the Revenue is in appeal before the Tribunal.
The learned DR strongly challenged the order of the learned CIT(A) in deleting the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act.
He submitted that the quantum addition was upheld by the learned CIT(A).
Further, a perusal of the order clearly shows that levy of penalty u/s 271(1)(c) of the Act in the instant case is fully justified. He submitted that learned CIT(A) without giving any valid reason has deleted the penalty which is not justified under the facts and circumstances of the case. He accordingly submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer be restored. He also relied on various decisions.
The learned counsel for the assessee, on the other hands, heavily relied on the order of learned CIT(A) in cancelling the penalty levied by the Assessing Officer. Referring to page-4 of the assessment order, he drew the attention of the Bench to losses suffered during the year which are as under:-
a. Loss on Trading in shares through BSE/NSE, amounting to Rs.10,1,0,75,192/- b. Loss on Intraday trading on BSE/NSE in shares Rs.25,38,407/- c. Loss on derivatives trading on NSE and BSE Rs.17,27,16,630/- 7. The learned counsel for the assessee submitted that all details were filed before the Assessing Officer and there was neither any concealment of any income nor furnishing of any inaccurate particulars of income. Referring to page-80 of the paper book, the learned counsel for the assessee drew the attention of the Bench to a copy of the penalty notice which is as under:-
He submitted that the inappropriate words in the penalty notice has not been struck off and it is only a printed form and therefore, it is not understood as to under which limb of the provision, the Assessing Officer has initiated penalty proceedings. Referring to the decision of Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Ltd. vide order dated 02.08.2019 he drew the attention of the Bench to para 21 of the order, which reads as under:-
21. “The Respondent had challenged the upholding of the penalty imposed under Section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA ’s Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No.l 1485 of 2016 by order dated 5th August, 2016.”
He submitted that since the inappropriate words in said notice has not been struck off, therefore it is not understood as to under which limb of section 271(1)(c) of the Act, the penalty proceedings have been initiated i.e. whether for concealment of income or for furnishing of inaccurate particulars of income. Therefore, on this count itself, the penalty proceedings initiated by the Assessing Officer being not in accordance with law has to be quashed.
The learned counsel for the assessee, referring to the decision of the Hon’ble Supreme Court in the case of PCTI vs Reliance Petro Products Pvt. Ltd. reported in 322 ITR 158 submitted that Hon’ble Supreme Court in the said decision has held that mere making of an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. Merely because the assessee claimed deduction which has not been accepted by the Revenue, the penalty u/s 271(1)(c) cannot be attracted. If the contention of the Revenue is accepted, the assessee would be liable for penalty u/s 271(1)(c) of the Act in every case where the claim made by the assessee is not accepted by the Assessing Officer for any reason. That is clearly not the intendment of the legislature.
10.1. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs Bhartesh Jain reported in 323 ITR 358, he submitted that Hon’ble Delhi High Court in the said decision has held that the penalty u/s 271(1)(c) was not leviable where the addition was made on account of treatment of business loss as speculation loss. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs Auric Investment & Securities Limited reported in (310 ITR 121)(Del.), he submitted that the Hon’ble High Court in the said decision has held that mere treatment of business loss as speculation loss by the Assessing Officer does not automatically justify interference for concealment of income and therefore, the penalty u/s 271(1)(c) of the Act is not leviable. Similar view has been taken by the Hon’ble Delhi High Court in the case of CIT vs Arpetic Pvt. Ltd. reported in 39 DTR 243, where again it is held that mere fact that the Assessing Officer had treated the business loss as speculative loss did not automatically result in the inference of concealment of income justifying imposition of penalty u/s 271(1)(c) of the Act. He also relied on following decisions:- i. ACIT vs Sudarshan Fiscal Services (P) Ltd. (2010) 4 ITR 0532(ITAT Mum.) ii. SRJ Securities Ltd. vs ITO (2011) 8 ITR 0041, (ITAT Del.) iii. DCIT vs Shree Ram Elextrocas (P) Ltd. (2017) 166 ITD 0209, (ITAT Kol) iv. CIT vs Anr Vs SSA’s Emerald Meadows, (2016) ITA 380/2015 (Kar) v. CIT vs Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) vi. Dilip Shroff vs JCIT (2007) 291 ITR 519 (SC) vii. Sri Venkata Ratnam Meka vs ACIT in date of order 17.02.2017 (ITAT Hyd.) viii. CIT vs Samson Perinchery, (2017) 392 ITR 0004 (Bom) ix. Meherjee Cassinath Holdings Pvt. Ltd. vs ACIT (ITA NO.2555/2012, date of order 28.04.2017, ITAT Mum. x. M/s Aditya Chemicals Ltd. vs ITO (ITA No.5006/2013, date of order 21.11.2017 (ITAT Del.) xi. M/s Vashulinga Finance Pvt. Vs ITO ITA No.2550/2016 date of order 13.09.2019 (ITAT Del.)
He accordingly submitted that both legally and factually the penalty levied by the Assessing Officer is not sustainable and therefore the order of the learned CIT(A) should be upheld and the grounds raised by the Revenue should be dismissed.
12. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case levied penalty of Rs. 9,39,26,270/- u/s 271(1)(c) of the Act on account of addition of Rs.27,63,30,230/- being speculative loss on derivative transactions which according to him cannot be set off against business income and disallowance of Rs.4,798/- u/s 14A r.w.r 8D(2)(iii) of the Rules.
While doing so, the Assessing Officer held that the assessee has furnished inaccurate particulars of business income to the extent of Rs.27,63,35,028/-.
We find the learned CIT(A) deleted the penalty so levied by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the learned CIT(A) cancelling the penalty levied by the Assessing Officer on this issue. The Hon’ble Delhi High Court in the case of CIT vs Bhartesh Jain (supra) has held that penalty u/s 271(1)(c) of the Act was not leviable where the addition was made on account of treatment of business loss as speculation loss. The Hon’ble Delhi High Court in the case of CIT vs Auric Investment & Securities Ltd. (supra) has held that the assessee having submitted the requisite details of the share transactions during the course of assessment proceedings as required by the Assessing Officer, it cannot be said that the assessee has concealed any particulars relating to its computation of income. Merely because the Assessing Officer disallowed assessee’s claim of business loss by treating it as speculation loss and therefore, the penalty u/s 271(1)(c) of the Act is not leviable. We find the Hon’ble Delhi High Court in the case of CIT vs Aretic Investment Pvt. Ltd. has held that mere fact that the Assessing Officer had treated the business loss as speculative loss did not automatically result in the inference of the concealment of income justifying in imposition of penalty u/s 271(1)(c) of the Act. Similar view has been taken by the Co-ordinate Bench of the Tribunal in various other decisions filed by the assessee in case law compilation. Under these circumstances, we hold that merely because the Assessing Officer has treated the business loss claimed by the assessee as speculation loss, the same cannot tantamount to concealment of income warranting levy of penalty u/s 271(1)(c) of the Act.
13. The Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. (supra) has held that making of an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. Merely because the assessee claimed deduction which has not been accepted by the Revenue, the penalty u/s 271(1)(c) is not attracted. If the contention of the Revenue is accepted, the assessee would be liable for penalty u/s 271(1)(c) of the Act in every case where the claim made by the assessee is not accepted by the Assessing Officer for any reason. That is clearly not the intendment of the legislature. In view of the above discussion, we are of the considered opinion that the learned CIT(A) is fully justified in cancelling the penalty levied by the AO u/s 271(1)(c) of the Act.
14. Even otherwise also, a perusal of the notice issued by the Assessing Officer u/s 274 r.w.s 271 of the Act, dated 29.12.2011, a copy of which is placed at page 87 of the paper book shows that it is in only a printed form without striking off the inappropriate words in the said notice.
Therefore, it is not understood as to under which limb of the provisions of section 271(1)(c), the Assessing Officer has initiated penalty proceedings i.e. whether for concealment of income or for furnishing of inaccurate particulars of such income. The Hon’ble Delhi High Court in the case of PCIT vs Sahara India Life Insurance Company Ltd. (supra) has dismissed the appeal filed by the Revenue on identical circumstances, the relevant observations of which have already been reproduced in the preceding paragraphs while recording the arguments of the learned counsel for the assessee. We, therefore, hold that the notice issued by the Assessing Officer is bad in law since it did not specify under which limb of section 271(1)(c) of the Act, the penalty proceedings have been initiated i.e. whether for concealment of income or for furnishing of inaccurate particular of income. In this view of the matter, we uphold the order of the learned CIT(A) cancelling the penalty levied by the Assessing Officer. The grounds raised by the Revenue are accordingly dismissed.
15. In the final result, the appeal filed by the Revenue is dismissed.
Oder pronounced in the open court on 27.05.2021.