RAJESH BEGUR,MUMBAI vs. ASST CIT 11(3), MUMBAI

At the outset, the learned Counsel for the assessee stated that he has instructions from the assessee not to press the quantum appeal filed by assessee in for the A.Y. 2009-10. Accordingly, he requested that the same must be dismissed as withdrawn. On query from the Bench, the learned Sr. DR has not objected to the withdrawal of the appeal. In view of the above, we dismiss assessee’s appeal in ITA No. 2569/Mum/2014 as withdrawn.

The only issue in the appeal of assessee in CIT (A) confirming the levy of penalty u/s 271(1) (c) of the

Briefly stated facts are that the assessee is an individual, who is a practicing advocate. The assessee has declared income consisting of ‘Income from House Property’, ‘income from business’, ‘capital gains’ and ‘income from other sources’. The assessee for the year under consideration filed e-return of income declaring taxable income of Rs.1,75,41,782/- besides declaring capital loss of current year to be carried forward at Rs.1,25,52,708/- which comprises of amounting to Rs.52,60,736/- under the head of short term capital loss and amounting to Rs.72,91,972/- under the head of long term capital loss arising from sale of shares and unit of mutual funds. The AO issued notice u/s 142(1) dated 11- 11-2011 and required assessee to explain amongst others, to give explanation and evidences, as to how conditions of Section 94(7) of the Act and are not satisfied. The assessee after verifying the details in respect of capital loss on sale of shares and units of mutual funds agreed before the AO that out of numerous transactions, three transactions relating to Kotak Flexi Debt Scheme, IDFC Dynamic Fund and Canara Rebaco Income Growth Fund comes under the provisions of Section 94(7) of the Act and he voluntarily vide letter dated 25-11-11 requested the AO to reduce the short-term capital loss declared by assessee at Rs.6,49,873/- and only to allow the net loss of Rs.1,8,92,815/- to be carried forward. Accordingly, AO reduced the sum of Rs.6,49,873/- from short term capital loss by observing as under: -

The AO required the assessee to explain as to why penalty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income be not levied. The assessee replied that the short-term capital loss declared by assessee in its return due to inadvertence and the provision of section 94(7) of the Act was not applied. According to assessee, he has received dividend of units as per details submitted and loss was the disallowable as the sales/purchases were within the stipulated period. It was claimed before the AO that this is an inadvertent and bonafide and genuine mistake of not invoking of Section 94(7) of the Act in respect of just three transactions out of voluminous transactions. Even the auditor in his TAR and on the basis of which the return is filed, could not record this mistake or could not point out this mistake. But the AO has not accepted the explanation of assessee and levied penalty for furnishing of inaccurate particulars of income to the extent of 100% tax. Accordingly, he levied penalty amounting to Rs.2,20,892/-. Aggrieved, assessee preferred appeal before CIT (A), who also confirmed the action of AO by observing in para 8 as under: -

We have heard the rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee declared capital losses of current year to be carried forward, which comprised of Rs.52,60,736/- under short-term capital loss and Rs.72,91,972/- under long-term capital loss, both on sale of shares and units of mutual funds. The assessee, during the course of assessment proceedings on a specific query explained before AO that after verification of entire details in respect of capital gains/loss on sale of shares and units of mutual funds, the assessee’s tax consultant Mr. Sameer P. Bhagat noticed that out of numerous transactions, three of the transactions relating to Kotak Flexi Debt Scheme, IDFC Dynamic Fund and Canara Rebaco Income Growth Fund losses claim falls under the mischief of Section 94(7) of the Act and is to be disallowed. Accordingly, the same was disallowed by the assessee himself vide letter dated 25-11-2011 requesting the AO to reduce the aggregate loss declared by assessee and claimed to be carried forward by an amount of Rs.6,49,873/-. In such facts, it is significant to note that the quantum of short-term and long-term capital loss claimed to be carried forward has not at all affected the quantum of income assessed as compared to return income. The reduction in the 5 2570 /Mum/2014 quantum of loss to be carried forward has no effect on reducing the taxable income for the A.Y. under consideration as determined by the AO. Further, we are of the view that the assessee filed explanation during the course of assessment proceedings as to how this claim of loss to be carried forward was in advertently claimed on wrong premise that the provisions of section 94(7) of the Act will not apply. It was also explained that this entry is tax neutral for the year under consideration. In our view, in the given facts of the case that the assessee voluntarily reduced the loss claimed to be carried forward vide letter dated 25-11- 2011 requesting the AO to reduce the aggregate loss by the amount of Rs.6,49,873/-. Considering all these facts, we are of the view that the assessee has voluntarily reduced the claim of loss before detection of concealment in the course of assessment proceedings and on consideration of conduct of assessee right from reduction of loss by filing a letter before the AO, before pointed out by the AO specifically disallowance of loss u/s 94(7) of the Act, seems bonafide of assessee, which is apparent. Accordingly, this penalty levied by AO and confirmed by CIT (A) deserves to be deleted. Hence, we delete the penalty and allow the appeal of the assessee.

In the result, the appeal of the Assessee in is dismissed as withdrawn and appeal in is allowed.