ACIT CC 47, MUMBAI vs. AMLA A RUIA, MUMBAI

Date of hearing : 08-12-2016 Date of order : 23 -12-2016

O R D E R Per Bench These appeals have been filed by the revenue pertaining to related assessees involving identical issues, therefore these were heard together.

2 & 6421/Mum/2014 I.T.A. No. 641`5 & 6416/Mum/2014 2. First we shall take up appeal filed by the Revenue in the case of Shri Ashok R Ruia in ITA No.6415/Mum/2014 for A.Y. 2002-03 filed against the common order of Commissioner of Income-tax (Appeals)-38, Mumbai [hereinafter called CIT(A)] dated 25-07-2014 passed against penalty order u/s 271(1)(c) on the following grounds:-

“1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied by the AO. The Hon'ble Bombay High Court held that the losses incurred on derivative transaction to be treated as speculative losses in terms of Section 43(5) of the Income Tax Act." 2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty levied by the AO as by claiming a loss, which is not otherwise allowable to be set off against regular business income, the assessee has submitted inaccurate particulars of income for purpose of tax evasion."

3 & 6421/Mum/2014 I.T.A. No. 641`5 & 6416/Mum/2014 as well as the order passed by the Tribunal in the case of ACIT vs M/s Ashok Apparels Pvt Ltd in ITA Nos 5701 & 5702/Mum/2012 and ACIT vs Amla Ashok Ruia (ITA No.5707/Mum/2012) order dated 23-07-2015. It is noted that the facts involved in the case before us and the cases decided by the Tribunal are identical. The Tribunal examined the issue in detail before deleting the penalty by observing as under:-

“The brief facts of the case are that the assessee claimed loss on derivative transactions as business loss. However, the AO treated the same as speculative loss by applying the provisions of section 43(5) of the Act and also initiated the penalty proceedings. The assessee preferred appeal before the Ld. CIT(A) who vide order dated 05.09.07 confirmed the disallowance made by the AO. The assessee carried the matter to the Tribunal, The Tribunal vide order dated 29.04.11 decided the issue in favour of the assessee. In pursuance of the order of the Tribunal in favour of the assessee, the AO dropped the penalty proceedings. However, in the meanwhile, the Revenue carried the matter of disallowance in quantum proceedings to the Hon'ble Bombay High Court. The Hon'ble Bombay High Court vide order dated 18.04.11 reversed the order of the Tribunal and decided the issue in favour of the Revenue. The penalty proceedings thus were reinitiated against the assessee. The AO in the penalty proceedings observed that since the issue has been decided in favour of the Revenue by the Hon'ble Bombay High Court, hence it was a case of levy of penalty under section 271(1)(c) of the Act. He, therefore, levied the impugned penalty against the assessee on the ground that the assessee has made a wrong claim of business loss which was in fact a speculative loss of the assessee. However, in the meanwhile, the assessee carried the matter relating to quantum disallowance to the Hon'ble Supreme Court by way of SLP. The Hon'ble Supreme Court vide order dated 08.05.12 has granted the leave to appeal and thus the appeal is pending before the Hon'ble Supreme Court relating to quantum disallowance. The assessee filed appeal against the order of levy of penalty under section 271 (1)(c) before the Ld. CIT(A).

4 & 6421/Mum/2014 I.T.A. No. 641`5 & 6416/Mum/2014 4. The Ld. CIT(A). vide impugned order and after discussing in detail the chronology of events and the proposition of law involved, held that on the material available on record and on the same set of facts, the various authorities have interpreted the application of provisions of section 43( 5) of the Act differently, therefore it is indicated that it was a case of bonafide claim and the issue of interpretation of law was involved at the time of filing of the return of income by the assessee. He also took notice of the relevant amendment carried out vide Finance Act, 2005 by insertion of the proviso (d) to section 43(5) as per which the transactions of trading in derivatives are not to be treated as speculative transactions w.e.f, A. Y. 2006-07. He, therefore, considering the overall facts and circumstances of the case, held that it was not a case of furnishing of inaccurate particulars of income or concealment of income: That it was a case of bonafide claim and debatable issue and the matter is still pending before the Hon'ble Supreme Court. He, therefore, deleted the penalty so levied by the AO. Aggrieved by the order of the Ld. CIT(A), the Revenue has come in appeal before us.

5 & 6421/Mum/2014 I.T.A. No. 641`5 & 6416/Mum/2014 of Mrs. Amla Ruia, wife of the assessee. The Tribunal has held with the help of detailed reasoning that penalty is not liable to be levied in the given facts and circumstances. Thus, following the order of the Tribunal, it is held that penalty has rightly been deleted by Ld. CIT(A), and therefore no interference is called for in his order; thus, Revenue appeals are dismissed.

“1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty levied by the AO. The Hon'ble Bombay High Court held that the losses incurred on derivative transaction to be treated as speculative losses in terms of Section 43(5) of the 1. Tax Act. "