SWAN PETRCHEMICALS PVT. LTD.,MUMBAI vs. NFAC DELHI, DELHI

Per Vijay Pal Rao, JM:

This appeal by the assesse is directed against the order dated

30.09.2023 of the Commissioner of Income Tax (Appeals), National

Faceless Appeal Centers,(NFAC) Delhi arising from the penalty

order passed u/s 271(1)(c) of the Act for A.Y.2014-15.

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

“1. The Learned CIT(A) erred in confirming the penalty levied by the AO u/s 271(1)(c) of Rs. 13,80,000/-, That on the facts and in the circumstances of the case and in law the penalty levied is wrong, bad in law and prayed to be deleted. 2. The Learned CIT(A) erred in confirming the penalty levied u/s 271(1)(c) stating that the addition was made by the AO in the assessment order and that the said assessment order was not challenged by the appellant and also that there is an element of concealment. That on the facts and in the circumstances of the case the very premises, on which the Learned CIT(A) confirmed the penalty is misconceived and not tenable. 3. The appellant craves leave to add, to alter, amend, modify, substitute, delete and of reaçind all or any of the grounds of appeal on or before final hearing, if necessity so arises.” 3. The assessee is a private Limited Company and filed its e-

return of income on 24.09.2014 declaring total income at Nil. The

case of the assessee was selected for scrutiny under CASS and

consequently notice u/s 142(1) was issued by the Assessing Officer

on 23.09.2016. In the scrutiny assessment the A.O had made an

addition of Rs.44,57,310/- on account of impermissible loss

claimed by the assessee from the transactions carried out in the

National Multi Commodity Exchange of India (MCX) by treating

them as bogus transactions on account of manipulated

synchronized trading on MCX. The assessee did not challenged the

assessment order as this was otherwise speculative loss not

allowable for set off against any other income except profit from

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

speculation business. The Assessing Officer initiated penalty

proceedings after recording the satisfaction in the assessment order

as well as by issuing show cause notice dated 28.12.2016 and

thereby levied the penalty u/s 271(1)(c) of the Act at

Rs.39,18,000/- being 100% of tax ought to be evaded vide order

dated 30.06.2017. Aggrieved by the penalty order the assessee filed

an appeal before CIT(A) but could not succeed. Before the Tribunal

the Ld. AR of the assessee has submitted that the assessee itself

has filed the revised computation of income and also paid tax on

14.12.2016 before completion of the assessment. Therefore the

assessee has made suo-motto disallowance of the claim of set off of

speculative loss against his business income before the show cause

notice dated 19.12.2016 issued by the A.O. The Ld. AR has thus

submitted that it is a case of addition made by the Assessing Officer

by treating the business loss/speculative loss as bogus claim

whereas all the transactions are carried out on the stock exchange

through the registered broker and therefore, once the assessee itself

has withdrawn the claim of set off loss in the revised computation

as speculative loss it cannot be a case of furnishing inaccurate

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

particulars of income or concealment of particulars of income. Thus

he has contended that the initial claim of business loss was due to

the confusion about the definition of speculative loss provided u/s

43(5) and further amendment of Clause-e to the said sub-section by

Finance Act 2/2013 w.e.f 1.4.2014. Hence it was a bona fide claim

of the assessee. He has further submitted that the entire loss of

Rs.44.57 lakhs was incurred in the month of April 2013 and

therefore, it cannot be planned to set off against the unpredictable

future business loss. Thus the Ld. AR has submitted that treating

the claim of the assessee as bogus by the Assessing Officer is a

highly debatable issue having no tax impact as the assessee itself

has withdrawn the claim of set off of this loss against the business

income. The Ld. AR has submitted that the A.O has levied the

penalty by relying on explanation-1 to Section 271(1)(c) whereas at

the most it is a case of furnishing incorrect particulars of income

and not concealment of particulars of income. Therefore the

Explanation-1 is not applicable in the case of the assessee. In

support of his contention he has relied upon the following

decisions:

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

(i) Hon’ble Supreme Court in the case of CIT V/s Reliance Petroproducts Pvt. Ltd. 322 ITR 158(SC). (ii) Hon’ble Delhi High Court in the case of CIT v/s Auric Investment 310 ITR 121 (Del.) 3.1 Ld. AR has also raised the objection about the validity of the

initiation of penalty proceedings and consequential order passed by

the A.O on the ground that the A.O was not sure about the

default/charge under which the penalty was to be levied and

therefore, the order of levying penalty is not sustainable and liable

to the quashed. In support of this contention the Ld. AR has relied

upon the following decisions:

(i) ITO V/s Shri Uday Kumar B Bhatt ITA No.2072/Ahd/2018 of ITAT Ahmedabad Bench dated 06.08.2021. (ii) M/s HPCL Mittal Pipe Lines Ltd V/s ACIT ITA No.266(ASR)/2018 of ITAT Amritsar Bench dated 14.02.2019. (iii) M/s Oriental Clearing Agency V/s DCIT ITA No.356 to 359/Pun/2015 of ITAT Pune Bench. (iv) M/s Atibir Hi-Tech Pvt. Ltd V/s DCIT CC-XI, Kolkatta ITA No.1221/Kol/2011 of ITAT, Kolkatta Bench. 4. On the other hand Ld. DR has submitted that the A.O has

issued the show cause notice u/s 142(1) on 18.12.2015 and only

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

thereafter the assessee has revised its computation of income and

withdrew the claim of business loss incurred on account of

transactions carried out on MCX. The show cause notice dated

19.12.2016 was specifically on the point that the assessee has

carried out these transactions which are in the nature of

synchronized manipulated transactions for bogus claim of loss.

The A.O conducted an enquiry from the stock exchange and has

given the finding on the basis of the details procured from the stock

exchange that the transactions of incurring the loss are bogus

synchronized manipulated transactions. The assessee has not

challenged the assessment order and the finding of the A.O has

attained the finality. The Ld. DR has referred to the show cause

notice issued by the A.O placed at page-62 of paper book and

submitted that the A.O has specifically mentioned the charge for

initiation of the penalty proceedings u/s 271(1)(c) of the Act. In

support of his contention he has relied upon the following

decisions;

(i) Sundaram Finance Ltd V/s ACIT 403 ITR 407 (Madras). (ii)The SLP filed by the assessee was also dismissed by the Hon’ble Supreme Court, 259 Taxman 220(SC).

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

4.1 He has also relied upon the impugned order of the CIT(A).

material on record. The assessee has not disputed the fact to the

extent that the transactions carried out on MCX resulting loss of

Rs.44,57,310/- are speculative transactions. It is manifested from

the details of the transactions which are reproduced by the A.O in

the assessment order that all these transactions are intra day

transactions with no delivery and the purchase and sale of the

particular commodity is within the difference of few seconds

therefore, there is no dispute on this fact that the loss of

Rs.44,57,310/- claimed by the assessee in the return of income as

business loss is a speculative loss and impermissible to set off

against the business income.

5.1 The Ld. AR of the assessee has contended that the assessee

has suo-moto withdrew the claim before the A.O issued show cause

notice. However, we find that the case of the assessee was selected

for scrutiny and A.O issued notice u/s 143(2) of the Act on

21.09.2015 and show cause notice u/s 142(1) of the Act was issued

on 18.12.2015. In response to these notices one Shri Kapil Shah,

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

CA appeared and submitted the details and submissions which

were considered by the A.O and thereafter, the A.O has further

proceeded to conduct enquiry about the nature of transactions

being manipulated, synchronized trading on MCX by obtaining the

details from the Stock exchange. In this process the A.O has again

issued a show cause notice and confronted with the assessee about

the facts detected during the investigation conducted by the A.O.

Against the said show cause notice the Ld. AR has taken the plea

that the assessee already suo-moto withdrew the claim by the filing

the revised computation. However, it is not a case of voluntarily

withdrawal of the impermissible claim by the assessee but only

when the case of the assessee was taken up for scrutiny and the

A.O issued notice u/s 142(1) on 18.12.2015, the assessee filed

revised computation of income on 13.12.2016 to withdraw the

claim. Thus it is not a case of voluntarily act on the part of the

assessee before the A.O taken up the case for scrutiny or even

before first show cause notice issued u/s 142(1) dated 18.12.2015.

Therefore, we do not find any substance or merit in the contention

of the Ld. AR of the assessee. Though the A.O has treated the claim

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

of loss as bogus on account of manipulated synchronized trading

carried out by the assessee on MCX however, it is not in dispute

that the loss in question has been incurred on speculative

transactions carried out by the assessee and therefore, the said

claim is impermissible resulting furnishing of incorrect particulars

of income by the assessee in the return of income. The subsequent

withdrawal of the claim by the assessee would not change the

status of making the impermissible claim of speculative loss against

business income. It is not the case of the assessee that he has

made a wrong claim of setting off loss but the assessee has shown

and reported this loss as business loss which clearly establishes

the case of furnishing of incorrect particulars of income by the

assessee. Hence, it is not a case of bona fide claim of assessee

being speculative loss is mistakenly set off against business income

but the assessee has consciously claimed the speculative loss as

business loss and therefore, the decisions relied by the Ld. AR in

case of CIT V/s Reliance Petroproducts Pvt. Ltd. (supra) as well

as CIT v/s Auric Investment 310 ITR (supra) would not help the

case of the assessee.

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

initiation of proceedings u/s 271(1)(c) of the Act and consequential

penalty order. The Assessing Officer has recorded his satisfaction

in the assessment order in para 4.9 as under:

“4.9 Thus, in view of above analysis regarding losses booked on NMCE platform it is ample clear that the losses obtained by the assessee on NMCE Platform are contrived and preplanned losses which are incurred by executing the synchronized trades. The losses are incurred with a specific intention to reduce the taxable income by setting off the same against the profit earned from business activities other than trading on NMCE. Therefore, the losses incurred by the assessee at NMCE platform of Rs. 44,57,310/- is disallowed and added back to the total income. As the assessee has furnished inaccurate particulars, penalty proceedings is initiated u/s 271(1)(c) separately”. [Emphasis supplied by us]

6.1 Thus it is manifested from the satisfaction recorded by the A.O

that the penalty was to be initiated for furnishing incorrect

particulars of income by the assessee and the A.O has mentioned a

specific charge of furnishing incorrect particulars of income.

Further in the show cause notice dated 28.12.2016 issued u/s 274

r.w.s. 271(1(C) of the Act placed at page-62 of the paper book the

A.O has again mentioned the specific charge for initiating

proceedings u/s 271(1)(c) of the Act. For ready reference the show

cause notice is reproduced as under:

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

6.2 The A.O has consciously deleted all irrelevant and unrelated

part of the show cause notice and only the charge of furnishing

inaccurate particulars of income was mentioned in the show cause

notice. Thus, it is a case of initiation of penalty proceedings against

a specific charge of furnishing inaccurate particulars of income

which in our view is a correct charge for initiation of penalty u/s

271(1)(c) of the Act. Accordingly there is no defect either in

recording of satisfaction or in issuing the show cause notice u/s

274 r.w.s. 271(1)(c) of the Act for initiating the penalty proceedings

u/s 271(1)(c) of the Act. Once the penalty proceedings were

initiated on a definite charge and was made known to the assessee

by both means of recording the satisfaction in the assessment order

as well as serving the show cause notice then the objection of the

assessee has no legs to stand. Accordingly we do not find any

substance in this objection of the assessee.

discussed above we are of the considered view that the levy of

penalty u/s 271(1)(c) of the Act is proper and justified as it is a case

of furnishing of incorrect particulars of income by making a claim

ITA No.496/Ind/2023 M/s. Swan Petrochemicals Pvt.Ltd

of business loss as against the speculative loss not permissible

under the provisions of the Act. Hence we do not find any reason to

interfere with the impugned order of the CIT(A) confirming the levy

of penalty u/s 271(1)(c) of the Act.

Order pronounced in the open court on 16.07.2024.

Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member

Indore,_16.07.2024 Dev/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore