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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ NEW DELHI
Before: SHRI J.S. REDDY & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been filed by the assessee against the order dated 26.8.2011 of Ld. CIT(A)-IX, New Delhi for Assessment Year 2004-05 on the following ground of appeal:-
“1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) has erred in upholding levy of penalty u/s 271(1)( c) of the Act of Rs. 681625/-?”
Briefly stated, the facts of the case are that the return was filed by the assessee on 30/10/2004 declaring income of Rs.3,21,10,203/-. The case was processed u/s 143(1) on I.T.A. 5065/Del/2011 Assessment year 2004-05 12/12/2005 and was later selected for scrutiny. During the year under consideration, the assessee company was engaged in the business of manufacturing of Time Mechanism Defence Store (Fuses, DAS/DAU Booster Sub Assembly, Graze Mechanism etc.) and X Ray Machine Parts. From the perusal of the return by the AO, it was found that during the year the assessee had shown a loss of Rs. 19,00,000 on sale of shares of Allied Tronics under the head ‘Short term capital loss’ and had set off this loss against the Short term capital gains’. The facts related to the issue are that the assessee had purchased 2,11,950 shares of M/s Allied Tronics (India) Ltd. @ Rs.10 per share on 1/11/2003 and had shown the sale of these shares to one of its employees Shri Jatinder Bawa @ Rs.l/- per share on 20/3/2004 i.e. during the year. This transaction had resulted in a loss of Rs. 19,00,000 which had been set off by the assessee against the short term capital gain during the year. The AO was of the opinion that during the year the business of the assessee consisted of purchase and sale of shares of Allied Tronics (India) Ltd. of Rs. 21,19,500/- and therefore, in view of the explanation to section 73, the assessee was deemed to have carried on the business of speculation to the extent of purchase and sale of the shares of I.T.A. 5065/Del/2011 Assessment year 2004-05 and hence the loss of Rs. 19,00,000 claimed to have been incurred on sale of these Shares to its employee, Shri Jatinder Bawa was held to be a speculation loss and a sum of Rs. 17,88,942/- was added back to the income of the assessee.
In appeal before the Ld. First Appellate Authority, the Ld. CIT(A) has also confirmed the addition made by the assessing officer with the following comments:-
“I have considered the matter. On going through the details of the share held by the assessee company, it is found that the assessee company owes shares six companies and more than 60 mutual funds. There is frequent churning buy and sell activities are frequent. It is settled law that the nomenclature given by an assessee to a transaction or the entry in the books determinative of the real nature of the transaction. The actual nature of the transaction must be looked into in order to determine as to whether the transactions constituted adventure in the nature of trade. The Supreme Court in the case of Raja Bahadur Visheshwar Singh vs. CIT : 41 ITR 685 held that purchase and sale of shares for substantial amount at frequent intervals would be treated as dealing in shares. In the assessee’s case, there is frequent buying and selling of securities by way of shares and units of mutual funds. It would thus be evident that the assessee is in business of dealing in shares. I am, therefore, in agreement with the Assessing Officer that the provision of explanation to section 73 would apply in the assessee’s case and the loss even if it had been genuine would be a speculation loss. In the result this ground is dismissed. ’’ I.T.A. 5065/Del/2011 Assessment year 2004-05
The appellant further agitated the matter before the Hon’ble ITAT which also confirmed the disallowance of loss by recording the following findings:
“5. We have considered the rival submissions. As regards purchase of shares, we find that as per the balance sheet of the company as on 31st March, 2002, advances by way of share application money of Rs. 19 lac is declared. After payment of balance amount 2,11,950 shares were allotted to the assessee on 1.11.2003. The certificate from the company is testimony in this regard. The assessee is stated to have sold the shares on 20th March, 2004 at Re.1/~ per share. The shares are movable property and movable property like shares can be transferred by signing share transfer deed along with relevant share certificate and on receipt of the sale consideration. However, in the present case the sale consideration is not received either at the time of sale or even subsequently. Therefore, there is no effective sale of shares. The shares are stated to be sold on 20th March, 2004, thereafter the purchaser is required to deposit the said shares along with transfer form to the company for registration of transfer. The company thereafter, after passing required resolution of its Board of Directors, will register the transfer. As per certificate issued by Allied Tronics (India) Ltd., the shares were transferred to Shri Jatinder Bawa on 20th March, 2004. This is impossible task. When the assessee itself sold the shares on 20th March, 2004, even if all the formalities are completed in the least possible time, the shares could not have been registered in the name of Shri Jatinder Bawa on 20th March, 2004. Though Shri Jatinder Bawa is stated to be employee of appellant company, he was never produced nor his whereabouts declared by the assessee to the Assessing Officer so that correct fact could be ascertained. When the assessee did not file requisite information or substantiate his claim, the Assessing Officer is competent to draw adverse I.T.A. 5065/Del/2011 Assessment year 2004-05 inference. It can be stated that the assessee chose not to file evidence as filing evidence in the form of attendance of Shri Jatinder Bawa could have gone against it. At one instance the asessee states that the cheque was received on 24th March, 2004 i.e. much after shares were sold. Thereafter, on enquiry Accounts Manager of the asessee states that no cheque had been received from Shri Jatinder Bawa. It is not the case of the assessee that the shares were sold for cash. Therefore, it can be held that the assessee failed to establish genuineness of the transaction of sale of shares. Rather the assessee tried to claim the loss against other short term capital gain earned by it. We, therefore, hold that the loss of Rs.19 lac stated to be suffered by the assessee is not a genuine loss and hence was rightly disallowed by the Assessing Officer. As regards disallowance of alternate ground that the same was treated as speculation loss, we find that this was a solitary transaction of sale of share during the year and hence it cannot be said that the assessee was engaged in the business of purchase and sale of shares. Therefore, the loss cannot be considered as loss in speculation business so as to hit by Proviso to Explanation to section 73 of the Act."
A penalty show cause notice was issued on 13.03.2009 and the assessee was asked to show cause why penalty u/s 271(l)(c) should not be imposed upon the assessee and subsequently, the AO reached a conclusion that during the assessment proceedings, the assessee had filed misleading facts and claimed loss on shares under the head “Short-term capital loss” and had set off this against the Short-term capital gains. According to the AO the assessee had consciously and willfully filed inaccurate I.T.A. 5065/Del/2011 Assessment year 2004-05 particulars of loss on sale of investments which was not in consonance with the provisions of the Act. Accordingly, penalty amounting to Rs. 6,81,625/- was imposed under the provisions of section 271(1)(c ) of the Act.
On appeal before the First Appellate Authority, the Ld. CIT (A) also confirmed the imposition of penalty and now the assessee is in appeal before us.
The Ld. AR submitted that the disallowance made for short term capital loss was not after un-earthing any concealed income but have been made on technical grounds or subjective judgment of the Assessing Officer. No charge for concealment can be fastened on the assessee as it was under sincere belief that the claims were correctly made and the disallowance was debatable and subjective. It was further submitted that all the facts were disclosed in the Return of Income and during routine assessment proceedings all details were submitted. The transaction of sale and purchase was duly reflected in all company records and there was no charge that the transaction did not take place.
Even the records of the company whose shares were sold were I.T.A. 5065/Del/2011 Assessment year 2004-05 produced and they showed all the transactions and these were duly recorded in their share transfer and members records. The Ld. AR submitted that the penalty deserves to be deleted.
The Ld. DR relied on the orders of the authorities below and submitted that the penalty was correctly levied and as such the same should be upheld.
Having heard the rival submissions and perused the material on record it is clear that in the instant case it cannot be said that the assessee withheld any relevant information regarding the receipts and income from the AO. The figure added back by the AO pertaining to the loss on sale of shares was a figure disclosed by the assessee itself. With regard to the provisions of section 271(1)(c ) of the Act pertaining to penalty, the Hon’ble Apex court has authoritatively laid down that making of a claim by the assessee which is not sustainable will not tantamount to furnishing inaccurate particulars. Thus, in CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), the Hon’ble Apex Court has held as follows:
“A glance at this provision would suggest that in order to be covered, there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of I.T.A. 5065/Del/2011 Assessment year 2004-05 his income. The present is not a case of concealment of income. That is not the case of the Revenue either. However, the Ld. Counsel for the revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income." We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.”
Although both the lower authorities have held that the assessee has furnished inaccurate particulars, on a consideration on the facts, such a view is not tenable is the present appeal. Therefore, respectfully following the judgment of the Hon’ble Apex court in the case of Reliance Petroproducts Pvt. Ltd. (Supra) we delete the penalty.
In the result, the appeal of the assessee is allowed.
I.T.A. 5065/Del/2011 Assessment year 2004-05 Order pronounced in the Open Court on 22nd of March, 2016.