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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI S.S. GODARA & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R PER PRADIP KUMAR KEDIA - AM: The captioned appeal filed at the instance of the assessee is against the order of the Commissioner of Income Tax(Appeals)-XVI, Ahmedabad [CIT(A) in short] dated 20/09/2013 upholding the Assessing Officer’s action of imposing penalty amounting to Rs.21,03,000/- in penalty proceedings under s.271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 2 - 2. Briefly stated, the assessee filed return of income for the AY 2008-09 wherein income from Long Term Capital Gain (LTCG) of Rs.92,76,732/- on sale of Farm House was inter alia declared. The return was subjected to scrutiny assessment. The Assessing Officer (AO) observed that against the aforesaid LTCG of Rs.92,76.732/- and above, the assessee has claimed exemption of Rs.36,85,222/- taking shelter of section 54 of the Act. It was further observed that the AO that the assessee has also claimed deduction towards Long Term Capital Loss (LTCL) of Rs.55,91,510/- brought forward from earlier years. The AO denied the deduction towards capital losses brought forward as well as exemption claimed under s.54 of the Act and held that entire Long Term Capital Gains of Rs.92,76,732/- is susceptible to incidence of tax. The aforesaid action of the AO was challenged in the quantum proceedings before the CIT(A) as well as the ITAT. The CIT(A) confirmed the action of the AO which was, in turn, endorsed by the ITAT in ITA No.1719/Ahd/2011 order dated 14/02/2017. The denial of exemption claimed by the assessee under s.54 of the Act and also rejection of claim of brought forward losses invited penalty proceedings under s.271(1)(c) of the Act. The AO vide penalty order dated 16/03/2012 imposed penalty of Rs.21,03,000/- towards wrongful claim of adjustment towards brought forward Long Term Capital Losses as well as wrongful deduction claimed under s.54 of the Act. The CIT(A) in first appeal
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 3 - endorsed the aforesaid action of imposition of penalty vide its order dated 20/09/2013.
Aggrieved by the imposition of penalty and confirmation thereof by the first appellate authority, the assessee is in appeal before the Tribunal.
The Ld.Senior Counsel for the assessee Mr.S.N.Soparkar submitted that the penalty has been imposed on two aspects; namely (i) disallowance of deduction under s.54 of the Act amounting to Rs.36,85,222/- and (ii) disallowance of set off of brought forward long term capital losses of Rs.55,91,510/-. Addressing the second aspect of disallowance of set off of brought forward capital losses first, the Ld.Counsel submitted that the aforesaid loss arose in the AY 2006-07, the return for which was filed on 31/10/2006. The return was subjected to scrutiny assessment under s.143(3) of the Act. The aspect towards loss was brought on record by the assessee vide its submission dated 19/11/2008 relevant to AY 2006-07 before then AO. It was submitted that assessee specifically brought to the notice of the AO in the AY 2006- 07 of its claim towards Long Term Capital Gain of Rs.55,92,841/-. It was submitted that it is a different matter that the assessment order passed for AY 2006-07 does not specify the aforesaid amount of loss to be carried forward. The Ld.Counsel accordingly submitted that the assessee was entitled under law to set off capital loss of Rs.55,92,841/-
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 4 - arose to it in AY 2006-07 which has been claimed as deduction in the AY 2008-09 concerned. As regards the first aspect i.e. exemption claimed under s.54 of the Act, the Ld.Counsel submitted that the assessee-trust is in the nature of discretionary trust and thus is akin to individual-assessee and therefore the loss deductible to individual is applicable to the assessee in view of the judicial precedents in the case of CWT vs. Trustees of H.E.H. Nizam’s Family Trust (1977) 108 ITR 555 and in the case of CIT vs. Deepak Family Trust (No.1) (1995) 211 ITR 575 (Guj.).
The Ld.Counsel accordingly submitted that although the quantum appeal has been decided against the assessee, the issues involved are quite debatable and thus cannot invite consequences in the form of penalty under s.271(1)(c) of the Act. The Ld.Counsel thereafter invited our attention to an interim order of admission of the tax appeal in the Tribunal’s order in quantum proceedings as per Tax Appeal No.780 of 2017, order dated 09/10/2017 whereby both the issues of disallowances i.e. Deduction u/s.54 of the Act and eligibility for set off of brought forward losses has been admitted for adjudication on merits in quantum proceedings. The Ld.Counsel accordingly submitted that the circumstances narrated above would show that the issues involved is highly debatable and there is no concealment of particulars of income per se.
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 5 -
The Ld.DR, on the other hand, relied upon the orders of the authorities below and stridently opposed the contentions made on behalf of the assessee. The Ld.DR submitted that a reading of section 54 of the Act would suggest that deduction eligible under s.54 of the Act is restricted to specified classes of the assessee, namely ‘individuals’ and ‘HUF’s subject to other conditions prescribed therein. The assessee being a trust is neither individual nor HUF and thus not eligible for claim of aforesaid deduction. The Ld.DR pointed out to a specific finding of the ITAT on facts in quantum proceedings that the assessee is assessed in the status of AOP and therefore as a corollary does not fall in the category specified under s.54 of the Act. The Ld.DR accordingly submitted that the deduction claimed by the assessee under s.54 of the Act runs counter to the very scheme of section 54 of the Act. Therefore, penalty was fully justified for such a palpably wrong claim.
As regards second aspect of the matter, namely set off of carried forward of capital losses the Ld.DR submitted that the Coordinate Bench has denied the aforesaid deduction inter alia on a clear reasoning that no such capital loss was declared in the return of income filed by the assessee. The Ld.DR further referred to the assessment order and submitted that neither the claim of LTCLs was included in the return of income for AY 2006-07 where the claim is purportedly originated nor
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 6 - the return was filed within the stipulated time period under s.139(1) of the Act and therefore the impugned capital loss was at any rate, not eligible for carried forward and set off in subsequent assessment year. Under these circumstances, it was claimed that such set off of LTCL was clearly contrary to the statutory provisions for which the assessee cannot escape incidence of penalty. The Ld.DR accordingly submitted that no interference with the order of the CIT(A) is called for.
We have carefully considered the rival submissions and perused the orders of the authorities below, case-laws cited and material placed on record. The controversy in the present case revolves around imposition of penalty under s.271(1)(c) of the Act on alleged wrongful claim of deduction under s.54 of the Act and wrongful deduction towards set off of carried forward LTCLs.
We shall dwell upon the maintainability of penalty under s.271(1)(c) of the Act attributable to deduction under s.54 of the Act amounting to Rs.36,85,222/- first. We take note of the limited contention on behalf of the assessee that assessee-trust is assessed in the capacity of discretionary trust and therefore all the beneficial provisions applicable to an ‘individual’ is available to the aforesaid ‘private discretionary-trust’. It is thus the case of the assessee that status of the discretionary trust has been inappropriately taken as AOP instead of ‘individual’. In this regard, we
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 7 - note the categorical observations of the Coordinate Bench of the ITAT in quantum proceedings (ITA No.1719/Ahd/2011) that the assessee-trust is neither an individual nor a Hindu Undivided Family (HUF). We find a clear observation of the Tribunal that the status of the assessee is Association of Person (AOP). This being so, the assessee was clearly not entitled in law to claim deduction under plain and unequivocal provisions of section 54 of the Act. This finding clearly goes to support that there is no scope whatsoever for any debate on non-availability of deduction of section 54 of the Act. Significantly, we further notice that the assessee itself has treated the aforesaid trust as an ‘AOP’ in line with provisions of s.164 of the Act. For instance, the assessee has clearly mentioned in its return for AY 2006-07 that its is assessable at ‘maximum marginal rate’ (page 26 of the paper-book). This fact unflinchingly proves that the assessee had taken a specific position itself for taxation in the status of AOP. We also find that the assessee has applied flat rate of taxation (at 30%) applicable to assessee holding the status of AOP, unlike individuals where slab rates for different level of income is specified. Same is the case for return filed relevant AY 2007- 08. Needless to say, determination of status of an assessee is a part of process of computation of income and assessment. This clearly goes to show without any need for interpretation that the assessee was not susceptible to tax at par with individual. Therefore, we fail to find legitimacy of any sort in the claim of deduction under s.54 of the Act.
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 8 - The deduction under s.54 is entity specific and available only to individual and HUF. The assessee herein has declared its status as AOP and conducted itself in this manner. Hence, the deduction claimed was prima-facie contrary to abundantly clear statutory provision of s.54 of the Act. A spurious plea is sought to be tailored to support a wholly unjustified claim which is found to be untrue and misleading as a matter of fact. The deduction claimed under s.54 of the Act was prima-facie contrary to the statutory provision.
The decisions relied upon on behalf of the assessee to give the status of the assessee a colour of individual are totally dissimilar in facts. In Deepak Family Trust 211 ITR 575 (Guj.) relied upon by the assessee, the trustees of the discretionary trust were assessed as individual and not as AOP. The deduction under s.80L were allowed in that case in view of certain interpretation on retrospective amendment in section 80L(i) by Finance Act, 1994. However, as noted above, the assessee has admittedly offered itself as an assessable entity in the status of AOP as permissible in law. Therefore, there is no case for its status as individual. The deduction under s.54 of the Act is thus totally ousted. We do not see any possibility of debate surfacing in the light of Deepak Family Trust case relied upon. Similarly, the decision in the case of Trustees of H.E.H. Nizam’s Family Trust is of no consequence in the facts of the assessee where the assessee itself has claimed its status as
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 9 - AOP and sought to derive consequential benefit in the form of carry forward losses for otherwise belated return.
At this juncture, we also take note of second plea of the assessee that all material facts relevant to claim toward deduction under s.54 were disclosed and therefore no penalty can be imposed in view of the decision of the Hon’ble Supreme Court in Reliance Petroproducts Pvt.Ltd. (2010) 322 ITR 158(SC). We are not impressed by such plea. The deduction under s.54 depends on status of assessee. This material fact of status as ‘AOP’ was kept aside for wrongful and ineligible claim devoid of any merits. Needless to say, the penalty under s.271(1)(c) of the Act is in the civil liability and available as a recourse to the revenue as a remedy for loss of possible revenue deduction claimed under s.54 in itself is found to contrary to mandate of law. In these circumstances, we find difficult to admit the plea on behalf of the assessee that the issue of deductibility is debatable of any sort.
As observed, the claim of deduction under s.54 carried is clearly in contravention of statutory mandate and hence cannot be bracketed in league of bonafide action. The assessee has totally failed to demonstrate the bonafide of its action except ex-parte admission of the appeal before the Hon’ble Gujarat High Court against the quantum proceedings. The Hon’ble Gujarat High Court in the case of CIT vs.
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 10 - Dharanshi V.Shah 366 ITR 140 (Guj.) has held that the admission of appeal is under S.260A per se is inconsequential for determination of imposition of penalty. As we notice that the action of the assessee prima-facie lacks bonafide both on facts as well as on law, the consequences of penalty is inescapable. Therefore, we do not find any error in the conclusion drawn by the CIT(A). Consequently, we decline to interfere therewith.
We shall now turn to the other aspect namely bonafides of claim of carried forward LTCLs purportedly arose in AY 2006-07. It is the case of the assessee that Long Term Capital Loss was claimed in the return of income for AY 2006-07 by way of computation of income. This fact was also brought to the notice of the AO in the course of scrutiny proceedings. However, the AO has declined to allow the carry forward of the capital loss mainly on the ground that (i) the return of income was not filed under s.139(1) and (ii) the loss was not shown as part of the return of income. It is claimed on behalf of the assessee that the due date for filing the return of income for AY 2006-07 was extended from 31/07/2006 to 31/10/2006 vide order of the CBDT dated 24/02/2006 under s.119(2)(b) of the Act. The return of income for the relevant assessment year filed on 30/10/2006 is therefore within extended due date prescribed under s.139(1) of the Act. In this regard, we note that
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 11 - the extension has been granted by the CBDT in the matter of due date under s.139(1) where the assessee falls within the category of non- corporate tax payers (excluding individuals and HUFs not having business income). Thus, individuals and HUFs not having business income were under continuing obligation to file the return on or before 31/07/2006. Thus by virtue of status of assessee as AOP, the extended due date under s.139(1) would be 31/10/2006 in terms of the CBDT Circular. Thus, mitigating circumstances exists to prove the bonafides for possibility of carry forward of claim of capital losses under s.80 in the light of the fact that the assessee is assessable entity as an AOP. In the given circumstances, we do not see any culpability or impropriety in claiming set off of carry forward loss claimed as per return of income filed within the extended due date under s.139(1) of the Act. Hence, the plea raised on behalf of the assessee for cancellation of penalty on this issue is quite plausible.
As regards second plea of revenue, we note that the assessee has shown the LTCL in the ROI and also apprised the AO at the time of assessee. Thus, notwithstanding the fact that Capital Loss does not appear in the statutory firm for filing ROI, the benefit of ambiguity must go in favour of the assessee in so far as penalty proceedings are concerned. Consequently, we find merit in plea of assessee for cancellation of penalty on additions made owing to disallowance of carry
ITA No.2853/Ahd/2013 IRM Trust vs. ACIT Asst.Year – 2008-09 - 12 -
forward capital losses. We therefore direct the AO to delete the penalty levied on this score.
In the result, appeal of the assessee is partly allowed. This Order pronounced in Open Court on 21 / 12 /2017
Sd/- Sd/- (एस.एस.गोदारा) (�द�प कुमार के�डया) �या�यक सद�य लेखा सद�य ( PRADIP KUMAR KEDIA ) ( S.S. GODARA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 21/ 12 /2017 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-XVI, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 5.12.2017 (dictation-pad 29-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …5.12.2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….21.12.17 7. Date on which the file goes to the Bench Clerk…………………21.12.17 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………