AF-TAAB INVESTMENT CO. LTD.,MUMBAI vs. ASST.C.I.T. CIR.2(1), MUMBAI

Af-taab Investment ACIT Circle -2(1), Company Ltd. R. No. 561, Aayakar बिधम/ Bhavan, M. K. Road, Corporate Centre, B- Mumbai-400 020 Block, 34, Sant Tukaram Vs. Road, Carnac Bun, Mumbai-400 009 स्थायीलेखासं./जीआइआरसं./ PAN No. AAACA4800H (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri P. J. Pardiwala & Ms. Zalak P. Shah, AR प्रत्यथीकीओरसे/Respondentby : Shri Brajendra Kumar, DR सुनवाईकीतारीख/ : 18.01.2021 Date of Hearing घोषणाकीतारीख / : 26.03.2021 Date of Pronouncement आदेश / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-4, in short ‘Ld. CIT(A)’, Mumbai, dated 05.09.2012 for AY 2002-03.

Af-taab Investment Company Ltd.

3. Further AO observed that the positive business income which includes a loss from sale of shares held as stock-in-trade. The assessee’s case was selected for scrutiny and AO held that loss incurred by the assessee from sale of shares held as stock-in- trade is a speculative loss as per the explanation to section 73 of the Act. AO observed that assessee has profit under the head ‘business’ and loss under the head ‘capital gains’. Therefore, the Af-taab Investment Company Ltd. main income of the assessee is from profit and gains of business and the explanation of section 73 of the Act is applicable in assessee’s case. Accordingly, the assessment was completed assessing the total income at Rs. NIL (after adjusting the brought forward losses). AO reclassified the business loss from sale of shares held as stock-in-trade as speculation loss.

4. Aggrieved with the above order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) has sustained the findings of AO. Even in second appeal, ITAT has sustained the order of Ld. CIT(A).

5. Pursuant to the order of Ld. CIT(A), notice u/s 274 r.w.s. 271(1)(c) was issued and served on the assessee. In response, assessee submitted the detailed submission objecting to the initiation of penalty proceedings. After considering the submission of the assessee, AO levied penalty.

6. Aggrieved with the above order, assessee preferred the appeal before CIT(A). Before him, assessee filed a detailed submission stating that explanation to section 73 is not applicable to the case of assessee, there is difference of opinion on the Af-taab Investment Company Ltd. interpretation of the explanation to section 73 of the Act. The provision of section 271(1)(c) cannot be invoked and assessee relied on several case law and further submitted that as per section 271(1)(c) (Clause-iii) states that there should be a evasion of tax by reason of concealment of particulars or furnishing of inaccurate particulars of income. It was submitted that in the given case, there is no evasion of tax since AO has not made any addition and merely reclassified the head of income.

7. After considering the submission of the assessee, Ld. CIT(A) sustained the penalty with the following observations:-

Af-taab Investment Company Ltd. and, therefore, the issue arises whether the penalty is leviable or not. Assessee has relied on several case laws, but case laws are in favour and against penalty orders u/s. 27l(l)(c), but the only issue is that if the assessee has filed inaccurate particulars and thereby concealed income then penalty is leviable otherwise not. Hence, it is to be examined whether the particulars filed by the assessee were inaccurate or not. Without dispute assessee claimed the loss in share trading as normal business loss and nowhere it was disclosed or indicated in any manner that explanation to section 73 is applicable to the case of the assessee and, therefore, such loss is speculation loss. Even it was not disclosed anywhere that assessee has claimed this as normal business loss because it is debatable issue. It was not disclosed or indicated in any manner that the facts are that the major income of the assessee is from dealing in shares and securities of other companies, whereas, assessee disagrees with the application of explanation to section 73 in any manner, therefore, it is clear that assessee had not disclosed complete correct facts and the fact that explanation to section 73 is applicable was concealed and, therefore, the facts which were filed were incomplete facts on the basis of which loss from dealing in shares was claimed as normal business loss and, therefore, clearly condition of section 27l(l)(c) are fulfilled. Hence, penalty is leviable. In Af-taab Investment Company Ltd. view of the facts that inaccurate particulars were filed and correct facts were concealed, the cases cited by the assessee are not applicable to the case of the assessee. Therefore, penalty levied by the A.O. is confirmed and the grounds of appeal are rejected.

8. Now before us, the assessee has preferred the appeal by raising the following grounds of appeal as under:-

2. The learned CIT(A) erred in holding that assessee had not disclosed complete correct facts and the fact that explanation to section 73 is applicable was concealed and, therefore, the facts which were filed were incomplete facts on the basis of which loss from dealing in shares was claimed as normal business loss and, therefore, clearly conditions of section 271(l)(c) are fulfilled.

3. The learned CIT(A) erred in holding that inaccurate particulars were filed and correct facts were concealed, the cases cited by the assessee are not applicable to the case of the assessee.. .

Af-taab Investment Company Ltd. The learned CIT(A) erred in not following the decision of the Delhi High Court decision in the case of CIT v. Auric Investment & Securities Ltd. (310 ITR 121), which is similar to the facts of the appellants case.

4. The learned CIT(A) erred in not appreciating that mere change of the head of income from "Business Income" to "Speculation Income" in the assessment order cannot automatically lead to penalty under section 271(l)(c) of the Act.

5. Each one of the above grounds of appeal is without prejudice to the other.

9. At the outset, Ld. AR appearing on behalf of the assessee brought to our notice brief facts of the case and submitted that AO has reclassified the head of income from business income to speculative income. There is a difference of opinion and assessee is of the view that the explanation to section 73 of the Act is not applicable to the case of assessee. However, Ld. CIT(A) and Hon’ble ITAT has rejected the contention of the assessee in quantum appeal. However, assessee has not challenged the Af-taab Investment Company Ltd. quantum appeal. Further, he brought to our notice page 1 of the paper book and submitted that there is no change in the gross total income of the assessee even after modifying the head of income. He further submitted that the case of the assessee will not fall under explanation to section 73 of the Act. He brought to our notice findings of AO and submitted that reclassification of the business loss to speculative loss has not made any difference to the carry forward of loss. Carry forward of business loss was replaced by carry forward of speculative loss. Therefore, it is only a reclassification of head of income for carry forward. He further brought to our notice penalty order in which the AO observed that assessee has furnished inaccurate particulars of income and concealed particulars of income by availing excess deduction not legally allowable to the assessee company. Thus, attracting the provision of section 271(1)(c) of the Act. He submitted that assessee has no benefit or taken any benefit as claimed by the AO. He further brought to our notice Explanation 4 (b) of section 271(1)(c) of the Act and submitted that there is no change in the taxable income of the assessee. Therefore, the Af-taab Investment Company Ltd. AO cannot invoke the penalty u/s 271(1)(c) of the Act. For that proposition, he relied on the following case law:-

i) CIT vrs. Aretic Investment Pvt. Ltd. (2010) 190 taxman 157 (Delhi) ii) CIT vrs. Navinchandra & Co. (2014) 42 taxmann.com 28 (Guj) iii) SRJ Securities Ltd. vrs. ITO (2011) 16 taxmann.com 90 (Del)

Af-taab Investment Company Ltd.

Af-taab Investment Company Ltd. on a speculation business. If, the submission of the Revenue is accepted, it would lead to an incongruous situation, where in determining as to whether a company is carrying on a speculation business within the meaning of the explanation, sub section (1) of Section 73 is applied in the first instance. This would in our view not be permissible as a matter of statutory interpretation, because the explanation is designed to define a situation where a company is deemed to carry on speculation business. It is only thereafter that sub section (1) of section 73 can apply. Applying the provisions of Section 73(1) to determine whether a company is carrying on speculation business would reverse the order of application. That would be impermissible, nor, is it contemplated by Parliament. For, the ambit of Sub Section (1) of Section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and accept against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the explanation applies, the legislature has first mandated a computation of the gross total income of the Company. The words "consists mainly" are indicative of the fact that the legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross

Af-taab Investment Company Ltd. total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the explanation.

Af-taab Investment Company Ltd.

2. The Tribunal was of the view that the loss was suffered by the assessee in the said activity of purchase and sale of shares and having regard to the nature of the said transactions as well as the nature of its own business, the assessee-company was under a belief that the said transactions were forming part of its business and the loss suffered in the said transactions was its business loss and not speculative loss. Consequently, the assessee claimed the same as business loss against the other business income in the current year. The Tribunal came to the conclusion that the mere fact that the Assessment Officer had treated the business loss as speculative loss did not automatically result in the Af-taab Investment Company Ltd. inference of concealment of income justifying imposition of penalty under section 271(1)(c). Reliance was placed on CIT v. Auric Investment & Securities Ltd. (2007) 163 Taxman 533 (Delhi) and CIT v. V Excellent Commercial Enterprises & Investment Ltd. [2006] 282 ITR 423(Delhi).

After referring to the said decisions the Tribunal was of the view that the mere change of nature of the loss from business loss to speculative loss was not enough to impose penalty on the assessee. The Tribunal held that the assessee had claimed the loss as business loss under a bona fide belief that he was entitled to do so.

4. With respect to the fact that the assessee had accepted the view taken by the Assessing Officer that V the loss due to trading in shares was in the nature of a speculative loss, the assessee contended that in the Af-taab Investment Company Ltd. penalty proceedings, it can take up the plea that the claim made in the return was bona fide.