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order dated 19/02/2016 of the CIT(A)-9,Mumbai,the Assessing Officer (AO)has filed present appeal.Assessee-company is engaged in the business of broking of securities,financial-product-distribution,depository-participant,marketing of insurance produ- cts,merchant-banking, trading and arbitrage activity. It filed its return of income on 29/ 09/ 2009,declaring total income at Rs.12.65 crores.The AO completed assessment on 27/12/2011 u/s.143(3) of the Act,determining the income of the assessee at Rs.3.95 crores. 2.Effective Ground of appeal is about deleting penalty of Rs.82.67 lakhs imposed by the AO u/s. 271(1)(c)of the Act.While completing the assessment,the AO made certain disallowances and initiated penalty proceedings on the issue of Explanation to section 73 of the Act.In his penalty order,the AO observed that the assessee had challenged the assessment order before the First Appellate Authority(FAA),that the FAA partly allowed the appeal of the assessee, that the perusal of the financial statements of the assessee revealed that the assessee had set off share trading loss of Rs.6.31 crores on equity based transactions against the income from derivative trading, that as per clause (d) to proviso to section 43(5) of the Act income from derivative trading on recognized stock exchange was non speculative in nature. He reproduce -ed the provision to Explanation to section 73 and held that income/loss arising from share transaction were deemed to be speculative in nature, that speculation loss could only be set off against speculative income, that it had incurred share trading loss of Rs.6.31 crores,that it had claimed set off of share trading loss of Rs.2.19 crores against non speculative income from derivative trading, that the same was not allowable as per the Explanation to section 73 2310/Mum/2016 M/s. Networth Stock Broking Ltd.
of the Act.He further observed that for the speculative transactions 12% (Rs.24.18lakhs ) expenditure had to be computed. After considering the reply of the assessee,furnished in response to the penalty notice, he held that assessee had furnished inaccurate particulars of Rs.2.43 crores(Rs.2.19crores +24.18 lakhs).Finally,he levied a penalty of 82,67,384/- for furnishing inaccurate particulars of income for the year under consideration. 3.During the appellate proceedings,before the First appellate Authority(FAA),the assessee made detailed submissions and relied upon many a case laws.After considering assessment order,penalty order and the submissions of the assessee,the FAA held that in the quantum proceedings the then FAA had given part relief, that the assessee had demonstrated that there were divergent view for invoking Explanation to section 73, that he referred to case of Harvest Deals Securities Pvt.Ltd. (ITA/6165/Mum/2013-AY 07-08 dtd.27/02/2015) wherein it was held that penalty u/s. 271(1) (c ) could not be imposed where speculation loss had been disallowed to be set off against non speculative income.He also referred to the cases of Latest Impex Pvt.Ltd.(ITA/2598/Mum/2009,AY.03-04),Mahipat Raichand Share Broking Pvt.Ltd. (ITA/2794/Ahd./2006,AY-98-99,dtd.11.9.2009)and observed that the disallowance was made purely on a question of law,that there were divergent view about the issue, that the assessee had claimed loss in the P&L account filed along with return of income, that in the financial statements share trading had been disclosed,that it could not be said that assessee had not disclosed all material facts required for computation of income, that the loss claimed was not suppressed, that the issue had become debatable on which two opinions had become possible. Referring to judgment of Hon’ble Rajasthan High Court in the case of Harshvardhan Chemicals and Minerals Ltd.(259ITR212),he held that no penalty was leviable when the assessee had claimed a deduction of an amount that was debatable. He also referred to case of S.P.K Steels (P.) Ltd.(270ITR156) of the Hon’ble Madhya Pradesh High Court wherein it was held that penalty u/s. 271(1) (c) could not be levied where loss was genuine but was not allowable because of deeming provision of Explanation to section 73. 4.Before us,Departmental representative relied upon the order of the AO and stated that assessee had filed inaccurate particulars of income.The Authorised Representative contented that quantum appeal about the speculation loss was in favour of the assessee.She relied upon the cases of Shreearan Electrocast (P) Lt.d (166 ITD 209); Harvestdeal Securities P.Ltd. 1615/Mum/2013-AY.07-08,dtd.27/2/2015 and ITA 1017/Mum/2013 AY.01-02 dated 22/6/ 2016) 2 2310/Mum/2016 M/s. Networth Stock Broking Ltd.
5.We have heard the rival submissions and perused the material before us. We find that the assessee had duly disclosed loss on share trading activities and derivative activities in the P&L account,that the AO had treated business loss as speculation loss for levying penalty,that he invoked the deeming provisions of Explanation to section 73. We are of the opinion that treatment of business loss as speculation loss by the departmental authorities should not and would not result in holding that it was a case of furnishing inaccurate particulars/concealing particulars of income.We find that the FAA has relied upon cases that are directly dealing with the issue.We would like to refer to the case of Harvest - deal Securities Ltd.(supra)wherein the similar issue was dealt as under: “3. The root for the levy of penalty lie in the assessment order dt. 21.12.2009 made u/s. 143(3) of the Act. While scrutinizing the return of income, the Assessing Officer noticed that the assessee has debited share trading and other loss at Rs. 4,90,13,303/- out of which loss of Rs. 4,97,62,744/- comprises of F &O loss and speculation loss. On perusing the bifurcation, the AO noticed that the loss of Rs. 32,91,021/- pertains to daily squared up loss which was treated as speculation loss by the AO. The AO dismissed the claim of the assessee that it is also having share trading income on delivery basis and being a private limited company, the same should be treated as speculative income and the same if set off against the speculative loss as taken by the AO, there will be still speculation profit. The AO completed the assessment by treating daily squared up loss as speculation loss and initiated penalty proceedings u/s. 271(1)(c) of the Act for filing inaccurate particulars of income.
During the course of the penalty proceedings, the assessee contended that penalty cannot be imposed if business loss is treated as speculation loss. Further there is no tax liability and there is no loss of revenue by changing the head from business loss to speculation loss because the total carry forward losses are the same. The claim of the assessee did not find any favour with the AO. The AO was of the firm belief that the assessee has willfully claimed speculation loss as business loss and proceeded by levying penalty u/s. 271(1)(c) of the Act at Rs. 15 lakhs. XXXXX 8.We have carefully perused the orders of the authorities below and the relevant documentary evidences brought on record. In so far as the loss of Rs. 32,91,021/- is concerned, there is no dispute that this is a genuine loss suffered by the assessee. The only point of dispute is that the assessee has suffered this loss on daily transactions which were squared up during the day itself by invoking the provisions of Sec. 73 of the Act, the AO has treated such losss as speculation loss. In our considerate opinion, such action of the AO does not prove that the assessee has filed inaccurate particulars of income. On similar set of facts, the Co ordinate Bench in observed as under: “We have considered the rival contentions and relevant record. We noted that the assessee disclosed and furnished relevant particulars and material necessary for the assessment.The AO has framed the assessment based on record available and filed by the assessee. Therefore, the disallowance was merely, by treating the loss on sale of shares as speculative loss instead of business loss claimed by the assessee and not on the basis of any bogus claim or false claim made by the assessee. When the assessee disclosed all the material facts regarding the source of income /loss then it cannot be said that the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The addition on account of treatment of loss by applying the provisions of section 73 itself shows that the disallowance was made by the AO by applying the deeming provisions, under section 73 which does not amount to concealment of particulars of income or furnishing inaccurate particulars of income.”