SAMIR RAJNIKANT HAJI,MUMBAI vs. ASST CIT CIR 4(2), MUMBAI

The aforesaid appeal filed by the assessee is directed against the order passed by the CIT(A)-9, Mumbai for A.Y. 2010-11, dated 02.11.2016, which in turn arises from the order passed by the A.O under Sec. 143(3), dated 08.01.2013. The assessee assailing the order of the CIT(A), has raised before us the following grounds of appeal: On the facts and circumstances and in law, the Commissioner

Briefly stated, the assessee who is engaged in the business of securities including commodity brokerage and shares, currencies and commodities derivative trading had filed his „return of income‟ for A.Y 2010- 11, declaring total income of Rs. 13,38,353/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. Income of the assessee was assessed by the A.O, vide his order passed under Sec. 143(3), dated 08.01.2013 at Rs. 19,60,820/-, after inter alia making the following disallowances: S.No. Particulars Amount 1. Disallowance under Sec. 94(7) Rs. 2,509-00 2. Disallowance of excess claim of loss under the Rs. 37,011-00 head “Future & Options”

The assessee did not assail the aforesaid additions by carrying the matter any further in appeal before the CIT(A). However, as against the addition made by the A.O under Sec. 94(7) of Rs. 2,509/-, as informed by the ld. Authorised representative (for short „A.R‟) for the assessee, the assessee has filed an application under Sec. 154 of the Act.

Subsequently, the A.O after the culmination of the assessment proceedings called upon the assessee to show cause as to why penalty under Sec. 271(1)(c) may not be imposed on him. The explanation of the assessee that no penalty under Sec. 271(1)(c) was called for in his hands, did not find favour with the A.O, who vide his order dated 31.07.2013 imposed a penalty of Rs. 1,66,302/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating at length on the contentions advanced by the assessee before him, was however not persuaded to subscribe to the same and upheld the penalty imposed by the A.O under Sec. 271(1)(c).

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorised representative (for short „A.R‟) for the assessee took us through the observations of the lower authorities in context of the issue under consideration. It was the contention of the ld. A.R, that the excess claim of loss of Rs. 37,010.87 under the head “Future & options” (for short „F&O‟) and the difference of commodity profit of Rs 4,64,425.71, had occasioned because of a mistake in accounting of closing span margins. It was averred by the ld. A.R, that in the case of F&O there were two bills dated 31.03.2010 and 30.03.2010, showing the closing span margin of Rs. 35,55,250.77 and Rs. 35,92,261.50, respectively. It was the contention of the ld. A.R, that as the assessee had inadvertently accounted for the margin of Rs. 35,55,250.77 as per the bill pertaining to 30.03.2010, therefore, the same had resulted to an excess claim of loss of Rs. 37,010.87. Further, it was submitted by the ld. A.R that in case of commodities (MCX and NCDX) derivatives the assessee had by mistake accounted for the closing span margin of Rs. 4,71,308/- and Rs. 59,765/- as on 30.03.2010, rather then the span margin of Rs. 82,875/- and Rs. 8,04,153/- recovered by debiting in the bill of 31.03.2010. The ld. A.R averred that the wrong adoption of the closing span margin had resulted in accounting of an excess margin of Rs. 3,88,433/- [Rs. 4,71,308/- (-) Rs. 82,875/-] in the case of commodities (MCX), and accounting of less margin of Rs. 7,44,388/- [Rs. 59,765/- (-) Rs. 8,04,153/-] in the case of commodities (NCDX). Still further, it was submitted by the ld. A.R that in case of MCX Foreign exchange, the assessee failed to account for the closing span margin of Rs. 1,08,470/-, for the reason that the bill of 31.03.2010 was recorded on 21.03.2010, leading the assessee to infer that there was no no margin outstanding as on 31.03.2010. The ld. A.R submitted that the Samir Rajnikant Haji Vs. ACIT A.Y 2010-11 aforesaid misconception of the assessee had resulted to accounting of less margin of Rs. 1,08,470/-. The ld. A.R adverting to penalty imposed under Sec. 271(1)(c) as regards the addition of Rs. 2,509/- made by the A.O under Sec. 94(7) submitted, that as the addition in itself was based on misconceived facts, thus, the assessee had filed an application with the A.O under Sec. 154, which however had not been disposed off by him till date. In the backdrop of the aforesaid facts, it was the contention of the ld. A.R that as the adoption by the assessee of the closing span margin of F&O and Commodities (MCX and NCDX), as that of 30.03.2010, rather than that of 31.03.2010; as well the failure to not account for the closing span margin for MCX Foreign exchange on 31.03.3010 had occasioned on account of a bonafide mistakes/omissions, thus no penalty under Sec. 271(1)(c) was liable to be imposed. The ld. A.R in order to buttress her aforesaid contention submitted, that as the closing margins were to be carried forward to the next year i.e A.Y 2011-12, thus in a wider conspectus the entire exercise would be revenue neutral.

Per contra, the ld. Departmental representative (for short „D.R‟) relied on the orders of the lower authorities. It was averred by the ld. D.R that as the assessee had purposively suppressed the income to the extent of Rs. 5,03,946, thus the A.O had rightly imposed penalty under Sec. 271(1)(c), which after necessary deliberations was upheld by the CIT(A). It was submitted by the ld. D.R that the appeal of the assessee was devoid of any force and did not merit acceptance.

We have heard the authorised representatives of both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the penalty imposed by the A.O under Sec. 271(1)(c), as regards the addition of Rs. 2,509/- made on account of dividend stripping under Sec. 94(7) of the Act. We find, that is discernible from the order of the CIT(A) that the assessee had claimed the loss of Rs. 2,509/- on sale of shares of “GAIL India”, as under:

We shall now advert to the penalty imposed by the A.O under Sec. 271(1)(c), as regards the excess claim of loss of Rs. 37,010.87 under the head “Future & options”. We have deliberated on the facts in context of the issue under consideration and find that there were two bills dated 31.03.2010 and 30.03.2010, showing the closing span margin of F&O of Rs. 35,55,250.77 and Rs. 35,92,261.50, respectively. The assessee had by way of an inadvertent mistake accounted for the closing span margin as per the bill pertaining to 30.03.2010, which thus had resulted to excess claim of loss of Rs. 37,010.87. We find, that the assessee on realising his mistake had explained the bonafide reason leading to the same, and had offered the amount of Rs 37,010.87 for tax. Interestingly, the A.O while framing the Samir Rajnikant Haji Vs. ACIT A.Y 2010-11 assessment observed that the submission of the assessee was considered and found acceptable. Thus, in the backdrop of the aforesaid observation of the A.O, it can safely be concluded that the explanation of the assessee as regards the reasons leading to the aforesaid mistake was not doubted by the A.O. Be that as it may, we are even otherwise of the considered view that as the closing span margin was to be carried forward to the next year i.e A.Y 2011-12, and would stand reversed in A.Y 2011-12 by debiting shares derivative trading account and crediting futures margin account, thereby the profit of the said assessment year i.e A.Y 2011-12 will be reduced to the said extent. We thus, are of the considered view that the excess claim of loss of Rs. 37,010.87 during the year, when considered in the backdrop of the resultant effect in the succeeding year i.e A.Y 2011-12, would be merely a revenue neutral exercise.

We have given a thoughtful consideration to the issue under consideration, and in the totality of the facts are of the considered view that the excess claim of loss of Rs. 37,010.87 by the assessee was merely backed by a bonafide mistake, and not with an intent to evade any tax. We thus, old a conviction that though justifiably the excess loss claimed by the assessee was liable to be disallowed, but the same cannot lead to imposing of penalty under Sc. 271(1)(c). On the basis of our aforesaid observations, we vacate the penalty imposed by the A.O under Sec. 271(1)(c) as regards the excess claim of F&O loss of Rs. 37,010.87 by the assessee.

We further find, that for a similar reason in the case of commodities (MCX and NCDX) derivatives, the assessee by wrongly accounting for the closing span margin of Rs. 4,71,308/- and Rs. 59,765/- as on 30.03.2010, rather than taking the closing span margin of Rs. 82,875/- and Rs. 8,04,153/- as per the bill of 31.03.2010, had thus on one hand accounted an excess margin of Rs. 3,88,433/- [Rs. 4,71,308/- (-) Rs. 82,875/-] in the case of commodities (MCX), while for on the other hand had accounted a lower margin of Rs. 7,44,388/- [Rs. 59,765/- (-) Rs. 8,04,153/-] in the case

We have given a thoughtful consideration to the issue under consideration, and in the totality of the facts, are of the considered view that the lower commodity profit of Rs. 4,64,425.71 shown by the assessee was merely backed by a bonafide mistake on his part, and not with an intent to evade any tax. We thus, are of the considered view that though justifiably an addition of the aforesaid short commodity profit was called for in the hands of the assessee, but the same cannot lead to imposing of penalty under Sc. 271(1)(c). On the basis of our aforesaid observations, we vacate the penalty imposed by the A.O under Sec. 271(1)(c) as regards the short commodity profit of Rs. 4,64,425.71 shown by the assessee in his return of income.

We thus, in terms of our aforesaid observations set aside the order of the CIT(A), and delete the penalty of Rs. 1,66,302/- imposed by the A.O under Sec. 271(1)(c) of the Act.

The appeal of the assessee is allowed. Order pronounced in the open court on 12.10.2018