SH. JAI PRAKASH SINGHAL,NEW DELHI vs. ACIT, NEW DELHI

Date of hearing 19.12.2018 Date of pronouncement 20.12.2018 ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 30/01/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-12, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2006-07 in relation to penalty under section 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’ ). The grounds of appeal raised by the assessee are reproduced as under:

1. That on the facts and under the circumstances of the case and in law, the order passed by Learned Commissioner of Income-tax (A) confirming the penalty of Rs.401,352/- imposed under section 271(1)(c) of the Income Tax is perverse, bad in law and liable to be cancelled. 2 That on the facts and under the circumstances of the case and in law, the Learned Commissioner of Income-tax (A) has failed to appreciate since the assessee had made full disclosure of the entire facts and also substantiated it by providing relevant material and the only dispute was the head of income under which such loss was to be assessed and as such the order imposing the penalty under section 271(1)(c) of the Income Tax Act was not justified at all. 3 That on the facts and under the circumstances of the case and in law, the Learned Commissioner of Income-tax (A) has failed to appreciate that the shares held by the assessee as stock in trade or as an investment, was a highly debatable issue and as such it could not be said that the assessee had concealed his income by furnishing inaccurate particulars so as to attract penalty under section 271 (1 )(c) of the Income Tax Act.

2. Briefly stated facts of the case are that assessment under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) was completed on 31/03/2006 wherein the total income was assessed at Rs.70,74,260/- as against returned income of Rs.52,17,079/-. During assessment proceedings, the Assessing Officer noticed claim of business loss of Rs.11,74,077/-on account of sale of 8500 shares of HFCL, which was adjusted against other business income and income from other sources. The assessee claimed that shares were held as stock-in-trade since assessment year 2002-03 and were valued at cost price. However, according to the Assessing Officer, the assessee had shown the shares under the head stock in trade in the individual capacity and no separate balance sheet or profit loss account had been drawn in respect of the purchase of the shares. The Assessing Officer also noted that shares of the group companies were held by the assessee as investment and there was no reason to treat the shares of the HFCL as stock-in-trade. The Assessing Officer also noted that this was a solitary transaction and there was no purchase/sale of shares of any other company in the year under consideration or in the earlier years. Accordingly, the Assessing Officer held that loss arising on sale of the shares was in the nature of long-term capital loss. On appeal filed by the assessee, the Ld. CIT(A) allowed Rs.11,74,281/- on account of long-term capital loss. On further appeal filed by the Revenue before the Income-tax Appellate Tribunal (in short the ‘Tribunal’), the order of the authorities were set aside to the file of the Assessing Officer for deciding a fresh. The Tribunal directed the assessee to demonstrate the fact that shares were valued at market price or cost price which was lower as on 31/03/2002, 31/03/2003 and 31/03/2004. The Tribunal directed that if the assessee had not taken into account the profit or loss arising on valuation of closing stock on those date(s), the shares cannot be held as a stock in trade.

3. In compliance to the direction of the Tribunal, the Assessing Officer called for the details from the assessee and on the issue of loss claimed on sale of shares, he found that assessee had valued the closing stock of the shares at Rs.13,77,000/- as on 31/03/2002, 31/03/2003, 31/03/2004 and 31/03/2005. Accordingly, in the assessment completed on 31/12/2010, he concluded that loss claimed of Rs.11,74,077/- as business loss by the assessee was actually in the nature of long-term capital loss. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act. No further appeal was preferred by the assessee against the loss held as capital loss by the Assessing Officer. In view of the addition not disputed by the assessee, the Assessing Officer issued show cause notice as why the penalty may not be levied. The assessee submitted that he has neither concealed not furnished inaccurate particulars on the issue of loss held as capital loss and the addition was only due to difference of opinion. The Ld. Assessing Officer rejected the contention of the assessee and levided penalty amounting to Rs.4,01,352/-equivalent to 100% of the tax sought to be evaded by the assessee. Aggrieved, the assessee filed appeal before the Ld. CIT(A), who upheld the penalty holding that the claim of business loss was a bogus and false claim. Aggrieved with the finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

4. Before us, the Ld. counsel of the assessee submitted that fact of the sale of 8500 shares of HFCL was duly disclosed by the assessee in the return of income and only difference was in respect of whether the loss on account of the sale of those shares should be treated as business loss or long-term capital loss. He submitted that the Hon’ble Madhya Pradesh High Court in the case of Commissioner of Income Tax Vs. Praveen B Gada (HUF) (2011) 244 CTR 463 held that merely because the assessee treated certain sum as business loss, whereas revenue treated it as capital loss, the provisions of section 271(1)(c) would not be attracted. The Ld. counsel also referred to the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Aretic Investments (P) Ltd (2010) 190 Taxman 157 (Delhi) and submitted that in the said case claim of business loss was treated as a speculative loss and penalty under section 271(1)(c) was levied by the Assessing Officer, however, the Hon’ble High Court held that claim made in the return was bonafide and deleted the penalty. The Ld. counsel also referred to the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Amit Jain (2013) 351 ITR 74 (Delhi) and submitted that merely because the Assessing Officer treated the income under some other head, same cannot be characterised as particulars reported in the return as inaccurate particulars or suppression of facts .

5. On the contrary, the Ld. DR relied on the finding of the lower authorities and submitted that the finding of the Ld. CIT(A) might be upheld.

“6. Having heard learned counsel for the appellant, we find that in the absence of any independent finding by the AO that the assessee either concealed his income or furnished inaccurate particulars, merely because the assessee treated it as a business loss, whereas the Revenue treated it as a capital loss, the provisions contained under s. 271(1)(c) of the Act would not attract. In the circumstances, we find no infirmity in the order passed by the Tribunal.”

“4. It is well-settled that assessment proceedings and penalty proceedings are distinct and independent of each other. No doubt, the findings in the assessment proceedings would have significance in the penalty proceedings also but they are not decisive or determinative. This position has been established in several decisions which include CIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC) and CIT vs. J.K. Synthetics Ltd. (1996) 135 CTR (Del) 4 : (1996) 219 ITR 267 (Del).

“3. This Court notices that the Tribunal while upholding the order of the appellate commissioner relied upon the decision in CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). Furthermore, the record reveals that the amount in question, which formed the basis for the assessing officer to levy penalty was in fact truthfully reported in the returns. In view of this circumstance, that the assessing officer chose to treat the income under some other head cannot characterize the particulars or reported in the return as an inaccurate particulars or as suppression of facts. The Court is also conscious of the decision of the Supreme Court in Calcutta Discount Co. Ltd. vs. Income Tax Officer (1961) 41 ITR 191

(SC) where it was held that it is up to the assessing officer to interpret the return and discern as to which head of income the amount had to be brought to tax.”

Order pronounced in the open court on 20th December, 2018.