LENIENT FINVEST P . LTD,MUMBAI vs. ITO 2(2)(2), MUMBAI

This appeal by the assessee is arising out of the order of the CIT (A)-5, Mumbai passed in appeal No.CIT (A)-5/ITO 2(2)(2)/IT-16/2011-2012 dated 29-11-2012. Assessment was framed by the ITO, Ward -2(2) (2), Mumbai for assessment year 2001- 02 vide his order dated 20-12-2008 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) read with section 254C of the Act. The penalty under dispute was levied by the ITO, Ward- 2(2) (2), Mumbai u/s 271 (1) (c) of the Act vide order dated 29-03-2006.

The only issue in this appeal of the assessee is against the order of the CIT (A) confirming levy of penalty u/s 271 (1) (c) of the Act amounting to Rs.20,04,501/-.

Briefly stated, the facts of the case are that the assessee is engaged in investment and also in share trading. The assessee has claimed trading loss on account of purchase and sales of share of other companies at Rs.50,12,977/- as business loss but, the AO treated the Explanation to Section 73 of the Act. Accordingly, it was not allowed to be set off against the current year’s income. The AO initiated penalty proceedings u/s 271(1) (c) of the Act for furnishing of inaccurate particulars of income. The AO levied the penalty for treating the loss of Rs.50,12,977/- as speculation loss as against the claim of the assessee of business loss. Accordingly, the AO levied minimum penalty of Rs.20,04,501/- for furnishing of inaccurate particulars of income. Aggrieved, the assessee preferred appeal before the learned CIT (A), who also confirmed the action of the AO. Aggrieved, now the assessee is in second appeal before the Tribunal.

We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee stated that the assessee under bona fide belief made a claim of loss on purchase and sales of shares of other companies treating the same as trading loss/business loss. The learned Counsel for the assessee explained that this position is prior to the decision of the Special Bench of the Tribunal in the case of ACIT Vs Concord Commercial Pvt. Ltd. [95 ITD 117 (Mum.) (SB)]. The learned Counsel for the assessee also drew our attention to the penalty order page 3 the following paragraph:- “As discussed above, it has been established that the assessee by furnishing inaccurate particulars of income, has deliberately and consciously concealed the particulars of income. This has been also proved by the Assessing Officer at the time of assessment proceedings as well as by the CIT (A) at the appellate stage, resulting in dismissing the appeal. Therefore, it is a fit case for levy of penalty under section 271 (1) (c)”. The learned Counsel for the assessee argued that the AO himself is not sure of charge whether the assessee has furnished inaccurate particulars of income or concealed the particulars of his income. According to him, it means that the AO himself is not satisfied about the specific charge. As far as the penalty u/s 271 (1) (c) of the Act on merits is concerned, the learned Counsel for the assessee relied on the decision in the case of ACIT Vs Sudarshan Fiscal Services (P.) Ltd. reported in (2010) 41 ITR (Trib.) 0532 wherein on exactly identical facts the Tribunal deleted the penalty by observing in Para 6 of the order as under:- “6. In support of the assessee’s case that penalty imposed by the AO under s. 271 (1) (c) in respect of addition made to the total income of the assessee by treating the loss arising from trading in shares as normal business loss instead of speculation loss, is not sustainable on the merits, learned counsel for the assessee has made various submissions and has also relied upon various judicial pronouncements. In one of such cases namely CIT Vs. Auric Investment & Securities Ltd. (2009) 310 ITR 121 (Del), a similar issue involving the identical facts had come up for consideration before the Hon’ble Delhi High Court. In the said case, a return was filed by the assessee declaring the loss of Rs.23,05,096. During the course of assessment proceedings, the AO found that the loss claimed by the assessee was speculative in nature which could be allowed to be adjusted against speculative income only and not against income under any other head. The adjustment made by the assessee on account of the said loss thus was disallowed by the AO and the assessment was made at a loss of Rs.85,259, penalty proceedings under s. 271 (1) (c) were also initiated by the AO and the assessee was held to be liable for imposition of penalty by him on t he ground that the assessee has furnished inaccurate particulars of income to the extent of making wrong claim for set off of share trading loss against other income treating t he same as normal business loss. The penalty imposed by the AO under s. 271 (1) (c) however was held to be not sustainable by the learned CIT (A) as well as by the Tribunal and when the matter reached the Hon’ble Delhi High Court, it was held by their Lordships that, mere treatment of the business loss as speculation loss by the AO does not automatically warrant inference of concealment of income. It was held that the assessee having filed full details of sale of shares, it cannot be said that any particulars of his income were concealed by him so far as his computation of income was concerned. As the issue involved in the present case as well as all the material facts relevant thereof are similar to that of the case of CIT Vs. Auric Investment & Securities Ltd. (supra), we respectfully follow the decision of the Hon’ble Delhi High Court rendered in the said case and hold that the penalty imposed by the AO under s. 271 (1) (c) was not sustainable. The impugned order of the learned CIT (A) cancelling the said penalty therefore is upheld although on a different ground and this appeal filed by the Revenue is dismissed”.

On the other hand, the learned Sr. DR argued that the assessee has consciously filed inaccurate particulars of income claiming the loss as business loss whereas he was very much well aware that the loss is in the nature of speculative loss in terms of Explanation to Section 73 of the Act. According to him, the orders of the authorities be sustained.

We find from the above facts that the AO did not agree with the claim of the assessee that the loss claimed by the assessee as trading loss is actually speculation loss in view of application of Explanation to Section 73 of the Act and this loss of Rs.50,12,977/- is allowed to be carried forward for set off of speculation profits in any subsequent year. We find that all the facts and figures are available on record and the disallowance of loss is due to wrong interpretation of Explanation to Section 73 of the Act by virtue of which the same is treated as speculation loss. We are of the view that merely treating the business loss as speculation loss by the AO does not automatically warrant inference of concealment of income or furnishing of inaccurate particulars of income, particularly when the assessee has furnished full details of purchase and sales of shares. Even otherwise, we are of the view that the AO himself is not sure of the charge for levy of penalty whether the same is for concealment of income or for furnishing of inaccurate particulars of income. In view of the above, we set aside the orders of the authorities below and delete the penalty imposed on the assessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 22/06/2016.