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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
2 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the Revenue against the orders of the Learned Commissioner of Income Tax (Appeals) -8, Mumbai dated 31.12.2015 for the Assessment Year 2007-08.
Since issue in these two appeals is common both are clubbed, heard and disposed off together for the sake of convenience. The only issue in both these appeals is in respect of the deletion of penalty levied u/s. 271(1)(c) of the Act by the Ld.CIT(A).
Briefly stated the facts are that, both these assessees namely M/s. Metmin Investments & Trading Pvt. Ltd. and M/s. Metmin Finance & Holdings Pvt. Ltd. are non-banking finance companies filed their returns of income on 22.11.2007 and 19.10.2007 declaring loss of ₹.1,78,60,550/- and ₹.40,31,098/- respectively. The assessments were completed u/s. 143(3) determining income at ₹.12,33,121/- and ₹.5,89,624/- respectively.
While completing the assessments, the Assessing Officer noticed that assessees incurred losses in trading of shares and was required to explain why loss resulting in trading of shares should not be treated as 3 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. speculative loss as the assessee’s income does not consists mainly of income chargeable under the heads Interest on securities, income from house property, capital gains and income from other sources. An elaborate reply was furnished by the assessee explaining as to why loss arising from sales of shares should not be treated as speculation loss should be treated as only normal business loss. Further not convinced with the reply, Assessing Officer treated the loss on sale of shares as speculative loss and completed the assessment accordingly. The action of the Assessing Officer in treating the loss suffered on account of sale of shares as speculation loss was challenged before the Ld.CIT(A) and the Ld.CIT(A) accepted the view of the Assessing Officer. Assessee did not challenge the order of the Ld.CIT(A) and accepted the decision.
Penalty proceedings were initiated u/s. 271(1)(c) of the Act and order was passed on 29.03.2014 in both the cases imposing minimum penalty of ₹.57,95,288/- and ₹.14,68,056/-.
6. On appeal the Ld.CIT(A) deleted the penalty. Against which the Revenue is in appeal before us.
The Ld.DR submits that in the earlier Assessment Years the assessee accepted the loss on account of sale of shares as speculation
4 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. loss and when the return was filed by the assessee, this was the position and since the claim of the assessee is wrong claim assessee certainly furnished inaccurate particulars of income and there is a concealment for which the Assessing Officer has rightly imposed the penalty. He strongly supported the orders of the Assessing Officer in levying penalty u/s.271(1)(c) of the Act.
Learned Counsel for the assessee submits that in early Assessment Years owing to losses the assessee did not pursue the quantum addition/disallowance. It was further submitted that in the case of M/s. Metmin Finance and Holdings (P) Ltd. for the Assessment Year 2002-03 on the very same issue the Assessing Officer initiated penalty proceedings and subsequently the same was dropped, a copy of the order dated 27.03.2008 passed by the Assessing Officer dropping the penalty u/s. 271(1)(c) for the Assessment Year 2002-03 is placed before us. The Learned Counsel for the assessee submits that all the information regarding the claim has been furnished in the return of income and there is no furnishing of inaccurate particulars or concealment of income by the assessee. The Learned Counsel for the assessee submits that it is a mere change of opinion as to whether the loss on account of sale of shares in 5 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. the case of the assessee is a business loss or speculation loss in view of the Explanation to 73 of the I.T Act.
The Learned Counsel for the assessee submits that, when there is complete disclosure of facts and simply because there is claim by the assessee though not sustainable in law, the same cannot be considered as concealment or income or furnishing of inaccurate particulars of income. For this proportion he placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. S.M.Construction [60 taxmann.com 135]. The Learned Counsel for the assessee submits that on identical facts the Mumbai bench of the Tribunal in the case of ACIT v. Sudarshan Fiscal Services (P) Ltd. [4 ITR (Trib.) 532] deleted the penalty following the decision of the Hon'ble Delhi court in the case of CIT v. Auric Investment and Securities Ltd. [310 ITR 121] holding that mere treatment of the business loss as speculation loss by the Assessing Officer does not automatically warrant inference of concealment of income. Similarly Learned Counsel for the assessee placed reliance on the Mumbai bench in the case of ITO v. GACL Finance Limited [30 SOT 360] and the decision of the ITAT Calcutta Bench in the case of DCIT v. Shree Ram Electrocast (P.) Ltd., [84 taxmann.com 63] in support of his contentions.
6 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd.
Heard both the parties and perused the orders of the authorities below and the case laws relied upon. In these cases, it is not in dispute that the assessees incurred losses on sale of shares. Further, assessees has disclosed all the particulars of its receipts loss in its Books of Accounts and return of income and the only dispute is regarding the nature of the loss i.e. whether such loss on account of sale of shares is a business loss or a speculation loss. In the case of DCIT v. Shree Ram Electrocast (P.) Ltd., (supra), the ITAT Calcutta Bench held that merely because losses were not allowed to be set-off against normal income and was treated as a speculation loss it was only the change of sub-head of loss and not furnishing of inaccurate particulars of income invoking the penalty provisions. In coming to such conclusion it was observed as under:
“14. We have given a very careful consideration of the rival submissions. As submitted by the ld. Counsel for the assessee, the Tribunal vide its order dated 22.03.2013 passed in ITA.No. 459/KOL/2011 has already accepted the genuineness of share trading loss shown by the assessee by upholding the finding recorded by the Ld.CIT(A) that the same cannot be regarded as a bogus loss. By the said order, the Tribunal, however, has upheld the order of the Ld.CIT(A) passed in the quantum proceedings whereby it confirmed the action of the Assessing Officer in treating the said share trading loss as deemed speculation loss as per Section 73 of the Act and consequently not entitled for set off against other income of non-speculative nature. The question that requires our consideration and decision is whether the disallowance of assessee’s claim for set off of share trading loss against other income by treating the 7 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. same as speculation loss as per Explanation to Section 73 of the Act will attract the penalty under section 271(1) (c). In this regard, we find that this issue is squarely covered in favour of the assessee by the various judicial pronouncements cited by the Ld. Counsel for the assessee including those which have been relied upon by the Ld.CIT(A) in his impugned order while cancelling the penalty imposed by the Assessing Officer under section 271(1)(c). In one of such cases, namely SPK Steel (P.) Ltd. (Supra), it was held by the Hon'ble Madhya Pradesh High Court that penalty under section 271(1)(c) was not exigible in respect of disallowance of assessee’s claim for set off of share trading loss by treating the same as speculative in nature as per Explanation to Section 73 on the basis of preliminary details furnished by the assessee along with the return of income as the assessee could not be said to have filed inaccurate particulars or concealed particulars of his income, which was chargeable to tax.
In the case of Auric Investment & Securities Ltd. (supra) before the Hon'ble Delhi High Court, the claim of the assessee for set off of share trading loss against other income of non-speculative nature was disallowed by the Assessing Officer by treating the same as the loss of speculative nature by invoking the Explanation to Section 73. The Assessing Officer also imposed penalty under section 271(1)(c) on the ground that the assessee had furnished inaccurate particulars of income to the extent of making a wrong claim for set off of share trading loss against normal income. Hon'ble Delhi High Court, however, held that the penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable as mere treatment of business loss as speculation loss by the Assessing Officer did not automatically warrant interference of concealment of income and there was nothing on record to show that in furnishing its return of income, the assessee had either concealed its income or had furnished any inaccurate particulars of income. Similarly in the case of Bhartesh Jain (supra), the Hon'ble Delhi High Court held that mere treatment of business loss 8 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. as speculation loss would not justify levy of penalty under section 271(1)(c).”
An identical issue came up before ITAT Mumbai bench in ITO v. GACL Finance Limited (supra), in this the assessee a Public Limited Company was engaged in the business of hire purchase, leasing, finance and investment in shares and securities. Assessee claimed loss from trading of shares. Assessing Officer treated the said loss under Explanation to section 73 as deemed speculation loss. The Assessing Officer levied penalty u/s. 271(1)(C) of the Act. The Coordinate Bench held as under: - “6.14 In the light of the above discussion, if we consider the facts of the case under consideration, we find that the assessee has claimed loss from trading of shares and furnished all the relevant materials. The Assessing Officer treated the said loss under Explanation to section 73 and treated the said loss as deemed speculation loss and levied penalty under section 271(1)(c). The CIT(A) cancelled the said penalty by holding that the assessee has disclosed all the material facts and it was only under a deeming provisions that the loss was to be treated as speculative loss. The Ld.CIT(A) has cancelled the penalty after considering the facts on merit of the case. He has not cancelled the penalty on the ground of ‘wilful’ concealment or on the ground of ‘mens rea’. Thus, the law laid down by the Apex Court in the case of Dharmendra Textiles processors(supra) does not help to the Revenue. As said above that the CIT(A) has decided the case on facts and we also decide this case considering the totality of the case with reference to above discussions, we find that it is a simple case of fighting in between duty and rights which automatic do not amount to a case of concealing particulars or furnishing inaccurate particulars of income, 9 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. neither there is finding of the Assessing Officer that explanation furnished by the assessee is found to be false. 6.15 In view of the said discussion and in the totality of the facts of the case, in our considered view it is not a fit case of levy of penalty under section 271(1)(c). Therefore, we uphold the order of the CIT(A) on this count.
In the case of ACIT v. Sudarshan Fiscal Services (P) Ltd. (supra) the ITAT Mumbai Bench also considered a similar situation where the assessee is a company which is engaged in the business of investment and trading in shares and securities made a claim for set off of business loss in trading of shares which was denied by the Assessing Officer treating the loss on trading of shares as a speculation loss by invoking the Explanation to section 73 of the Act. The Assessing Officer also levied penalty u/s. 271(1)(c) of the Act, since the explanation offered by the assessee was not found acceptable to the Assessing Officer, as according to him there was a willful default committed by the assessee by making wrong claim by treating speculation loss as normal business loss and to that extent there was furnishing of inaccurate particulars by the assessee. The Coordinate Bench deleted the penalty observing as under: “4. We have heard the arguments of both sides and also perused the relevant material on record. Learned Counsel for the assessee has fairly agreed that he issue involved in the present appeal of the Revenue now stands squarely covered in favour of the Revenue and against the assessee by the decision of the Hon'ble Supreme Court in the case of CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308 wherein it 10 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. was held that Explanation 4 to section 271(1)(c) as amended with effect from April 1, 2003 is clarificatory and the same therefore is applicable retrospectively. It was held that even during the period between April 1, 1976 to April 1, 2003, the positon thus was that the penalty under section 271(1)(c) was leviable even in a case where addition on concealed income reduced the returned loss. Respectfully following the said decision of the Hon'ble Supreme Court, we hold that the learned Commissioner of Income-tax(appeals) was not justified in cancelling the penalty imposed by the Assessing Officer under section 271(1)(c) on the ground that the income returned by the assessee as well as assessed by the Assessing Officer was negative i.e., loss.
5. Relying on Rule 27 of the Income-tax(Appellate Tribunal) Rules, 1963, Learned Counsel for the assessee, however, has sought to argue the case of the assessee that the penalty imposed by the Assessing Officer under section 271(1)(c) is not sustainable on the merits. He has contended that although the learned Commissioner of Income-tax (Appeals) has rejected the case of the assessee on the merits vide his impugned order holding that by claiming loss arising from trading in shares as normal business loss as against speculation loss in terms of the clear provisions of the Explanation to Section 73, there was furnishing of inaccurate particulars of his income by the assessee, the said rule 27 permits the assessee as respondent to support the order appeal against on any of the grounds decided against him despite there being no appeal filed by him. As the provisions of the said rule 27 are quite clear in this context and even the learned Departmental representative has also not raised any objection in this regard, we have permitted learned counsel for the assessee to argue the case of the assessee on the merits and the merits and the matter is being decided on the merits after hearing the arguments of both sides and perusing the relevant material on record.
In support of the assessee’s case that penalty imposed by the Assessing Officer under section 271(1)(C) in respect of addition made to the total income of the assessee by treating the loss arising from trading in shares as normal business loss
11 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. instead of speculation loss, is not sustainable on the merits, learned counsel for the assessee has made various submissions and has also relied upon various judicial pronouncements. In one of such cases namely CIT Vs. Auric Investments and Securities Ltd. [2009] 310 ITR 121 (Delhi), a similar issue involving the identical facts had come up for consideration before the Hon'ble Delhi High Court. In the said case, a return was filed by the assessee declaring the loss of ₹..23,05,096/-. During the course of Assessment Proceedings, the Assessing Officer found that the loss claimed by the assessee was speculative in nature which could be allowed to be adjusted against speculative income only and not against income under any other head. The adjustment made by the assessee on account of the said loss, thus disallowed by the Assessing Officer and the assessment was made at a loss of ₹. 85,259/- penalty proceedings under section 271(1)(c) were also initiated by the Assessing Officer and the assessee was held to be liable for imposition of penalty by him on the ground that he assessee has furnished inaccurate particulars of income to the extent of making wrong claim for set-off of share trading loss against other income treating the same as normal business loss. The penalty imposed by the Assessing Officer under section 271(1)(c) however was held to be not sustainable by the learned Commissioner of Income-tax (Appeals) as well as by the Tribunal and when the matter reached the Hon'ble Delhi High Court, it was held by their Lordships that, mere treatment of the business loss as speculation loss by the Assessing Officer does not automatically warrant inference of concealment of income. It was held that the assessee having filed full details of sale of shares, it cannot be said that any particulars of his income were concealed by him so far as his computation of income was concerned. As the issue involved in the present case as well as all the material facts relevant thereof are similar to that of the case CIT v. Auric Investment and Securitas Ltd. [2009] 310 ITR 121, we respectfully follow the decision of the Hon'ble Delhi High Court rendered in the said case and hold that he penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable. The impugned order of the Ld.CIT(A) cancelling the said penalty therefore is upheld 12 & 1490/MUM/2016 (A.Y: 2007-08) M/s. Metmin Investments and Trading Pvt. Ltd M/s. Metmin Finance and Holdings Pvt. Ltd. although on a different ground and this appeal filed by the Revenue is dismissed.
Further, in the case of CIT v. Reliance Petroproducts [322 ITR 158] the Hon'ble Supreme Court held that when there has been a complete disclosure of all the facts in the return of income, making of incorrect claim would not tantamount to furnishing inaccurate particulars of income. Therefore, in view of our above discussion, we uphold the orders of the Ld.CIT(A) in deleting the penalty levied u/s. 271(1)(c) of the Act as there is neither concealment of income nor furnishing of inaccurate particulars of such income.