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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SANJAY ARORA, AM & SHRI AMARJIT SINGH, JM
O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-23, Mumbai (‘CIT(A)’ for short) dated 11.7.2014, confirming the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2009-10 vide order dated 22.05.2012.
The facts of the case in brief are that the assessee, an individual, claimed set off of loss in commodities (Rs.14,16,135/-) against speculative income, i.e., to the extent available (Rs.5,31,333/-), and the balance (Rs.8,84,802/-) against non-speculative (A.Y. 2009-10) Girdharilal K. Agrawal vs. Asst. CIT business income (by way of interest on capital in a partnership firm), per his return of income for the year. The Broker Notes revealed the expiry of the contracts to be at a future date. The commodity trading was further through NCX of India Ltd., which Exchange was not a recognized exchange (at the relevant time), being notified as such only vide Notification dated 22.5.2009. The loss was accordingly speculative in nature, and its adjustment against non-speculative income, i.e., Rs.8,84,802/-, in clear contravention of law. In penalty proceedings, initiated on the conclusion of the assessment proceedings, holding thus (and, correspondingly, assessment of speculative loss of Rs.8.85 lacs, allowed to be carried forward), the assessee, relying on CIT vs. Reliance Petroproducts (P) Ltd. [2010] 322 ITR 158 (SC), based his case on having not furnished inaccurate, or concealed, any particulars of income; his return clearly stating both the nature of the income/loss, i.e., the loss on commodity trading, as well as it set off against non-speculative income. The Assessing Officer (AO), however, found the assessee’s claim for the impugned set off as clearly impermissible in law, which did not admit of two views. This was not corrected even per the revised return filed subsequently. In appellate proceedings, contesting the penalty (levied at the minimum rate of 100% of the tax sought to be evaded), the assessee emphasized his conduct, claimed bona fide, i.e., that the claim was made under a bona fide belief of being entitled to the claim (for set off) as made. The return was filed not through a professional but an employee. The same, even assuming it as a fact, was found not relevant in-as-much as the assessee had, per his return of income, clearly preferred a wrong claim. Further, no basis for the formation of the belief as to the validity of the said claim had been disclosed. The ld. CIT(A), accordingly, relying on CIT vs. Zoom Communication (P) Ltd. [2010] 327 ITR 510 (Del) and CIT vs. HCIL Arsspl Triveni (in dated 29.7.2013), also quoting from the latter, confirmed the penalty, also discussing the import of the decision in Reliance Petroproducts (P) Ltd. (supra), which he found, rather, as supportive of the Revenue’s case, as well as the decisions relied upon, (A.Y. 2009-10) Girdharilal K. Agrawal vs. Asst. CIT which were considered as inapplicable on facts. Aggrieved, the assessee is in second appeal.
We have heard the parties, and perused the material on record. The knowledge of the nature of the loss as speculative is confirmed by the fact of its set off against speculative income (to the extent of the availability of such income), returned as such. The same also proves, if one was required, that the assessee is also aware about the legal difference between ‘speculative’ and ‘non-speculative’ income, as well as that the speculative loss is adjustable only against income of the same nature, i.e., speculative income. This is as the very provision that allows set off of speculative loss against speculative income, i.e., section 72(1) r/w s.71, would also clarify that such loss can only be set off against income of a speculative business only. On what basis, then, does he claim the balance, unabsorbed speculative loss against non-speculative income, which therefore remains only unexplained? The law in the matter is unambiguously clear (refer Explanation 2 to section 28; sections 71 and 72). The claim is fatuous, if not false. Qua conduct, it is, firstly, the conduct in preferring the claim that is relevant, and is to be explained. No basis for the same has been furnished at any stage. The same, as afore-stated, suggests a clear understanding and the knowledge of the legal concepts, i.e., an awareness of the relevant provisions, which clearly provide for the two to be adjusted and carried forward separately, belying the claim of a bona fide conduct. How then the same be regarded as made under a mistaken, albeit, bona fide belief. The assessee’s conduct is, in fact, on the contrary, not bona fide. Apart from the manner of making the claim, suggesting an awareness of the legal concepts, as afore-noted, soon after receiving a notice u/s. 143(2) dated 18/8/2010, the assessee filed a revised return on 30/9/2010 setting off the entire speculative loss against non- speculative income, contrary to the understanding conveyed per the original return. On what basis, one may ask? The same, given that commodity trading is admittedly (A.Y. 2009-10) Girdharilal K. Agrawal vs. Asst. CIT speculative, i.e., by definition, inexplicable; the assessee thereby, rather than correcting his erroneous claim, compounding it further by claiming the entire loss on commodity trade against non-speculative income. As it would appear, the same stands filed to convey the impression that the assessee was not aware of the loss on commodity trading, which is speculative by definition (section 43(5)), is not so. On what basis? There is no explanation for this strange conduct. This is precisely what the AO observes when he states that the assessee did not rectify the mistake - a clear mistake of law – in the undisputed facts, even per the revised return. Could the revision be possible without visiting the law in the matter? The same casts a clear shadow and a serious and grave doubt on the assessee’s conduct. The plea of the return having been filed through an employee is again specious. The same is firstly unproved, with the assessee being represented, both before the Revenue authorities as well as before us, by Chartered Accountants/tax counsels. The argument is also without any factual basis in view of the claim/s made – and in the manner done - per the original and the revised returns, with no basis for the same being explained at any stage. The same in fact is a tacit admission of the claim being without any legal basis. Reference, apart from the decisions relied upon by the ld. CIT(A), may be made to the decision in CIT vs. N. G. Technologies Ltd. (in dated 01.12.2014), SLP against which stands dismissed by the Hon’ble Apex Court. Through whom, then, one may ask, was the return revised? Given the clear provision of law, both Explanation (1A) and (1B) to s. 271 (1)(c) are attracted in the instant case. We, accordingly, confirm the levy of penalty.