ANGEL BROKING P.LTD,MUMBAI vs. DCIT 4(1)(1), MUMBAI

O R D E R

Per Dr. ArjunLalSaini, AM:

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 assessment order, the penalty proceedings were initiated u/s 271(1)(c) of the Act and the AO imposed a penalty to the tune of Rs.4,03,895/-. The assessee company was registered as non-banking Finance Company (NBFC)withRBIandholdsCertificate of Registration as provided u/s 45(IA) of RBI Act, 1934. The main activity of the company was that of lending/financing and strategic investments in subsidiaries. The assessee company was also engaged in the business of share trading and arbitrage. During the assessment proceedings, the assessee company furnished complete details of the transactions alongwith the working of section 94(7) of the Act and disalloweda small loss to the tune of Rs.11,88,275/- u/s 94(7) of the Act on account of dividend stripping. However, the AO rejected thecontention of the assessee and imposed penalty of Rs.4,03,895/- u/s 271(1)(c) of the Act holding that assessee has furnished inaccurate particulars of income. 3.On appeal, the ld. CIT(A) upheld the penalty imposed by the AO. Before the ld. CIT(A), the assessee submitted that disallowance u/s 94(7) of the Act depends upon cumulative satisfaction of certain prescribed conditions in the Act. The same has been remained to be applied by oversight and even the auditors have failed to point it. At the time of assessment proceedings in the ordinary course of hearing, the assessee company furnished complete details of transactions, therefore, there cannot be any escapement of income on the part of the assessee. Before the ld. CIT(A), the assessee also submitted that during the assessment proceedings, the mistake was realized and the assessee company was agreed to disallow the said amount. Since, the assessee company has agreed, no shown cause notice was issued by the Assessing Officer in this regard. The assessee also submitted that it is the case of inadvertent mistake and the assessee company was agreed for disallowance at the time of assessment proceedings and there was no gross negligence or means rea on the part of the assessee.However, the ld. CIT(A), having gone through the submissions of the assessee observed that the assessee company although had relied

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 on various judicial pronouncements but the decision from Hon’ble Punjab and Haryana High Court in the case of VSB Investment (P) Ltd vs. CIT reported in [2012] 21 taxmann.com 162 (Punjab and Haryana) wherein Hon’ble High Court had held a different view and which is in favour of the Department. Wherein it was held that it could not be said that the assessee was not aware of provisions of section 94(7) of the Act. It was noticed that the assessee company had been availing the services of a Chartered Accountant and in spite of that no reply was filed by the assessee on the issue, why the provisions of section 94(7) of the Act had not been complied with while working out the income shown in the income tax return. Therefore, the ld. CTI(A) observed that since decision in the case of VSB Investment P Ltd. (supra) had come from the higher judicial forum and the assessee had not been able to place any contradictory decision on this issue by any other Hon’ble High Courts and the assessee also failed to distinguish the said judgment, therefore, relying on the judgment on the Hon’ble Punjab and Haryana High Court (supra), the ld. CIT(A) confirmed the penalty passed by the Assessing Officer u/s 271(1)(c) of the Act.

4.Not being satisfied with the order of the ld. CIT(A), the assessee is in appeal before us.

The ld counsel for the assessee submitted before us that assessee has filed statement of dividend disallowance u/s 94(7) of the I.T. Act, 1961 before the Assessing Officer which is given below for ready reference:

Amount of Dividend Sr. No. Name of the Scrip Profit in Scrip Loss in Scrip Disallowance Dividend Recd. u/s 94(7) 1 ITC Ltd 362,250 3,060,936 - - - 2 India bulls Security 344,535 93,796 93,796 3 Tata Power 259,844 - 65,086 65,086 - 4 Ceat Ltd 257,788 2,437,655 - - 5 SAIL 181,663 6,537,945 181,663 Monsanto India 179,820 198,366 179,820 6 - 7 Infosys Technologies 172,057 3,749,082 172,057 8 Larsen &Toubro Ltd 134,925 - 1.242,350 134,925 9 Voltas Ltd 123,931 · 772,877 123,931 10 TCS Ltq 120,222 · 854,969 120,222 11 IB Real Estate 116,775 · 3,464,450 116,775 12 - Amtek Auto Line 111,115 970,260 - 13 - Hindu Uni Lt 110,025 3,448,390 . HCL Techno 105,806 Page | 3

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 14 - 4,534 - 15 Others <1 Lac - - 2,119,932 - 16 ICICI PruInstitutional Liquid Plan (Mutual - 3,457,658 - - Fund Dividend) Total 8,158,345 9,921,775 16,978,920 1,188,275 The ld. Counsel for the assessee submitted that during the assessment proceedings, by an inadvertent mistake, the assessee company missed out to disallow a small loss to the tune of Rs.11,88,275/- u/s 94(7) of the Act on account of dividend stripping. During the assessment proceedings, the mistake was realized and the assessee company agreed before the Assessing Officer to disallow the said amount andsince, the assessee company has agreed, suo-moto, for disallowance, no show cause notice was issued by the Assessing Officer in this regard. The disallowance was made by the assessing officer as per the working submitted by the assessee, which has been accepted by the Assessing Officer. It was a case of an inadvertent mistake and the assessee company agreed for disallowance at the time of assessment proceedings. There was no gross or willful neglect on the part of the assessee company to conceal the particulars of income and furnish the inaccurate particulars of income. The Counsel also submitted that assessee had undertaken large number of transactions during the year and before filing the returns the same could not be examined for applicability of provisions of section 94(7) of the Act. The ld. Counsel for the assessee has relied on the judgmentof Hon`ble Bombay High Court, in the case of CIT vs. Nalin P. shah in ITA(LOD) NO.49 of 2013 (Bom. H C),wherein it was held that assessee had in its return of income filed a note with its computation of income disclosing all details about the sale of US 64 units, the loss and resulted carry forward. The assessing officer gathered information from the return and detail filed by the assessee. It was held that the from the aforesaid facts at the highest it can be said that the claim of the assessee was not sustainable in law but there was no furnishing of inaccurate particulars or concealment of income on the part of the respondent-assessee. Thus the penalty was set aside.

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 The Counsel also relied on the judgment of Hon`ble ITAT, Mumbai in the case of Nalin P. Shah vs. DCIT ITA No.4780,4781&4783/Mum/2010 wherein it was held that it is settled law that making an incorrect claim does not tantamount to furnishing inaccurate particulars and that to attract penalty, the details supplied in the return ‘must not be accurate, not exact or correct, nor according to the trust or erroneous. In the matter under consideration facts reveal that details supplied by the assessee did not fall in any of these categories. In these circumstances, penalty was deleted.

4.1 The ld Counsel for the assessee has further relied on the following judgments: (i)in the case of Pravin Shah Trust vs. Dy.CIT-14(1) ITA,No.4782 of 2010 wherein it was held that : “In VSB Investment (P) Ltd. vs. CIT[2013] 212 Taxman 59 (P&H) (Mg.) [21 taxmann.com 162], the appellant-assessee’s inability to furnish any explanation in support of its claim for loss on sale of share, which was not allowable in view of s.94(7), was confirmed for levy of penalty u/s 271(1)(c). Penalty thereunder was accordingly confirmed, or its deletion reversed, as the case may be, in all these cases by the hon’ble courts, confirming thus that furnishing of a plausible explanation for the default continues to be the building block or an essential ingredient for saving levy penalty u/s. 271(1)(c) of the Act, and would apply even in respect of legal claims and, further, even after the decision in the case of Reliance Petro-products Pvt. Ltd.(supra), which decision was considered in all these cases.” (ii) City Group Global Markets (P) Ltd. vs. ACIT Circle-4(2).ITA No.5352/Mum/2009 wherein it was held as follows: “5. In our view this does not attract penalty under section 271(c). First of all the assessee is regularly purchasing and selling shares as part of business activity in large volumes and only in these two cases there is a declaration of dividend and sale of shares immediately thereafter, which attracted the provisions of section 94(7). But for the declaration of dividend, the loss would have become business loss allowable otherwise in the course of its business activity of purchase and sale of transactions. Even the professional Auditors/Advisors who examined large number of transactions before filing the returns could not advise the assessee on the application of this particular provision introduced from this assessment year. Even the Assessing Officer at the time of assessment was considered only the loss on VSNL shares alone of `13,21,084/- as attracted by section 94(7) and disallowed loss. As assessee also undertook transactions in Infosys shares, in which there was gain and also loss on 5 transactions, the CIT (A) allowed setoff and restricted to net amount of Rs. 12,45,342/-. In our view, this is a bonafide mistake happened at the level of compiling the data. The application of provisions of section 94(7)were not examined nor invoked. Page | 5

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 Since the assessee has declared large amount of profits in transactions on purchase and sale of shares, this aspect could have genuinely missed the attention of persons concerned. Since no malafide intention can be attributed to assessee in claiming loss in these transactions, we are of the view that penalty under section 271(1)(C) is not warranted. Various case law relied upon by the assessee also supports the contentions made. However, without getting into the legal parameters, on facts of the case we are of the view that there occurred a bonafide mistake in not examining the provisions of section 94(7) on these transactions. Moreover, though there are disallowances in the course of the assessment proceedings, mere disallowance does not attract penalty proceedings under section 271(1)(C). Accordingly the assessee's ground is allowed. The penalty levied on this disallowance of loss is hereby cancelled.”

(iii)Nandkishore& Co. vs. ACIT-4(2),ITA No.8644/Mum/2011, dated 03.06.2016,wherein it was held as follows:

With respect to dividend stripping u/s 94(7) of the Act, the assessee-firm has pleaded accidental or inadvertent omission due to oversight and represents bonafide and unintentional mistake and relied upon the case laws as under : 1. KhanchandThakurdas v. CIT -140 ITR 581(Kar. HC) 2. CIT v. Dev Raj-98 ITR 76(P&H HC) 3. Mahadeswara Movies v. CIT 144 ITR 127(Kar. HC) 4. CIT v. HiralalShankarlal 165 ITR 124(Calcutta HC) 9 ITA 8644/Mum/2011 5. CIT v. Raj Textile -166 ITR 632(MP HC) In our considered view and peculiar facts and circumstances of the case, this is not a fit case for levying of penalty u/s 271(1)(c) of the Act as the assessee-firm has not concealed the particulars of income nor furnished any inaccurate particulars of income. No doubt there has been slip up in filing the claim u/s 94(7) of the Act but the same keeping in view the explanation submitted by the assessee-firm was an inadvertent omission and mistake which was not intentional or deliberate on the part of the assessee-firm or otherwise with an intention to defraud revenue to fall within four corners of rigours of penalty provisions u/s 271(1)(c) of the Act , and rather the assessee-firm came forward with a bona-fide explanation accepting the inadvertent mistake on its part and did not persue the litigation further. The case laws cited by the assessee-firm supports the contentions of the assessee- firm to take it out of rigours of penalty provisions u/s 271(1)(c) of the Act.

5.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. Besides, the ld. DR has relied on the judgments of ITAT, Mumbai in the case of ITO- 22(1)(3) vs. Mr. Mukesh Mohan Patel in A.Y.2005- 06, dated 18.09.2017.

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 6.We have given a careful consideration to the rival submissions and perused the materials available on record, we note that there is merit in the submissions of the assessee. The assessee under consideration is regularly purchasing and selling shares/securities in large volumes. The assessee auditors/advisors who examined large number of transactions before filing the return of income could not advise the assessee on the application of this particular provision of section 94(7) of the Act . Even the Assessing Officer at the time of assessment was considered only the provisions of 94(7) and has not considered that it happenedbecause of inadvertent mistake, as the assessee undertook transactions in large volumes. Therefore, the inadvertent mistake committed by the assessee is a bona fide mistake happened at the level of comparing and compilation of data. The application of section 94(7) were not examined nor invoked since the assessee has declared large number of profits and transactions of purchases and sales and there was an inadvertent mistake in comparing and compilation of data, but there was no any mala fide intention of the assessee to furnish inaccurate particulars of income. We note that the assessee has not concealed the particulars of income nor furnished any inaccurate particulars of income. No doubt there has been slip up in filing the claim u/s 94(7) of the Act but the same keeping in view the explanation submitted by the assessee that it was an inadvertent omission and mistake which was not intentional or deliberate on the part of the assessee. We note that the assessee came forward with a bona-fide explanation accepting the inadvertent mistake on its part during the assessment proceedings before the assessing officer. We note that the assessee is regularly purchasing and selling shares as part of business activity in large volumes and even the professional Auditors/Advisors who examined large number of transactions before filing the returns could not advise the assessee on the application of this particular provision of section 94(7) of the Act. In our view, this is a bonafide mistake happened at the level of compiling the data. The application of Page | 7

M/s Angle Broking P. Ltd. Assessment Year: 2009-10 provisions of section 94(7)were not examined nor invoked. Since the assessee has declared large amount of profits in transactions on purchase and sale of shares, this aspect could have genuinely missed the attention of persons concerned. For this, we rely on the judgment of coordinate Bench Mumbai Tribunal in the case of City Group Global Markets (P) Ltd. vs. ACIT Circle-4(2).ITA No.5352/Mum/2009 (supra). We also note that judgment relied by the ld DR for the Revenue is distinguishable on facts. We are of the view that penalty under section 271(1)(C) is not warranted as discussed above. Therefore, we quash the penalty imposed by the Assessing Officer and confirmed by the ld. CIT(A).

7.In the result, the appeal filed by the assessee, is allowed. Order is pronounced in the open court on 28.02.2018.

Sd/- Sd/- (C. N. PRASAD) (DR. A.L.SAINI) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER Place: Mumbai Dated 28/02/2018 (RS, SPS) आदेशकीप्रनिलऱपपअग्रेपषि/Copy of the Order forwarded to :

1. 1. अपीऱाथी/ The Appellant –M/s Angle Broking P. Ltd. प्रत्यथी/ The Respondent-DCIT Cen Cir.7(3), Mumbai 2. आयकरआयुक्त(अपीऱ) / The CIT(A), 3. आयकरआयुक्त/ CIT 4.