SRI DEO KUMAR SARAF,KOLKATA vs. ACIT, CIRCLE-49, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM] I.T.A No.199/Kol/2015 Assessment Year: 2009-10 Sri Deo Kumar Saraf Vs. Assistant Commissioner of Income-tax (PAN: ALCPS1036P) Circle-49, Kolkata. (Appellant) (Respondent)

Date of hearing: 03.09.2015 Date of pronouncement: 07.10.2015 For the Appellant: Shri S. M. Surana, Advocate For the Respondent: Shri Alok Kr. Nag, JCIT, Sr. DR ORDER Per Shri Waseem Ahmed, AM: This appeal by assessee is arising out of order of CIT(A)-15, Kolkata in Appeal No.11/CIT(A)-15/14-15/Cir-49/Kol dated 13.01.2015. Assessment was framed by ACIT, Cir-49, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2009-10 vide its order dated 27.12.2011. Penalty was imposed by ACIT, Circle-49, Kolkata u/s. 271(1)(c) of the Act vide his order dated 27.06.2012.

2 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 inaccurate particulars of income and as such penalty imposed by AO itself is bad in law. Ld. Counsel for the assessee also stated that there is no satisfaction recorded by the AO for initiating penalty proceedings merely writing a line in the assessment order that penalty proceedings u/s. 271(1)(c) of the Act is initiated is not sufficient. For this, first he relied on the decision of Hon’ble Gujarat High Court decision in the case of New Sorathia Engineering Co. Vs. CIT (2006) 282 ITR 642 (Guj), wherein Hon’ble High Court has held that the penalty order and the order of CIT(A) showed that no clear cut finding in respect to satisfaction is reached whether penalty is being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income has been furnished by the assessee and there should be a clear cut finding by the AO while initiating penalty. Ld. Counsel heavily relied on the decision of Hon’ble Gujarat High court cited supra, which has been followed by Coordinate Bench of this Tribunal in the following cases: “1. ACIT Vs. M/s. Vinayak Properties & Developers (AOP), ITA No. 598/Agr/2008, AY 2005-06 dated 25.06.2010; 2. Shri Mahendra Singh Vs. ITO, ITA No. 81/K/2013, AY 2006-07 dated 10.10.2014, 3. Munnalal R. Halwai Vs. ITO, ITA No.253/PNJ/2013, AY 2006-07 dated 23.01.2015; 4. Sri Chandra Prakash Bubna Vs. ITO, ITA No.289/K/2012, AY 2005-06 dated 21.05.2015, 5. M/s. Unipack Air Express (P) Ltd. Vs. ITO, ITA No.421/K/2012, AY 1996- 97 dated 30.07.2014 & 6. DCIT Vs. Shri Anand Sharma, ITA No. 211/K/2010, AY 2006-07 dated 30.07.2014.”

3 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 writing. Hon’ble Supreme Court at page 599 of its order has finally observed as under: “The Assessing Officer has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing. The scope of section 271(1)(c) has also been elaborately discussed by this court in Union of India v. Dharmendra Textile Processors (2008) 13 SCC 369 and CIT v. Atul Mohan Bindal (2009) 9 SCC 589.” 5. On the issue of initiation of penalty and recording of satisfaction, we have heard both the sides and gone through facts and circumstances of the case. We have noticed that the AO has initiated penalty proceedings u/s. 271(1)(c) of the Act for furnishing of inaccurate particulars of income and has recorded this fact stating that “penalty proceedings u/s. 271(1)(c) is separately initiated” in the very assessment order. In view of the decision of Hon’ble Supreme Court in the case of Mak Data P. Ltd., supra, we are of the considered view that there is no need for the AO to reduce in writing his satisfaction but merely reached to a satisfaction and initiate penalty proceedings. In the present case, the AO has initiated penalty proceedings and there is no further requirement under the Act to reduce it into writing. This view of ours is fully supported by the decision of Hon’ble Supreme Court in Mak Data P. Ltd., supra. Accordingly, this jurisdictional issue is decided against the assessee and in favour of revenue. 6. Coming to the merits of the case. The first aspect added by the AO is bogus speculation income. Briefly stated facts are that the assessee has disclosed speculation profit to the extent of Rs.53,34,463/- in the audited profit and loss account for the year ending 31.03.2009 and set off the same against brought forward speculation loss of earlier years and the difference of Rs.1,58,786/- was shown as income from profit and gains of business and profession. During the course of assessment proceedings the AO required the assessee to explain the details of speculation profit earned by assessee amounting to Rs.53,39,463/- but assessee could not file any detail except a certificate dated 05.12.2011 from Nakamichi Securities Ltd. 23A, N. S. Road, Kolkata-700001. The AO served a notice u/s. 133(6) of the Act to Nakamichi Securities Ltd. having its registered office at Mercantile Building, Block Ä”, 1st floor, 9/12, Lal Bazar St., Kolkata-

4 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 700001. Nakamichi Securities Ltd responded to the notice u/s 133(6) of the Act stating that no such share trading profit was given to the assessee company and they have denied the same. The AO accordingly, added the undisclosed speculation profit to the income of the assessee and adjustment of brought forward speculation loss of the earlier years was disallowed. This was not contested by assessee in appeal and accepted the assessment of the same. 7. As regards the second item of short term capital loss disclosed by assessee at Rs.9,67,233/- claimed to have been carried forward for setting off. The AO required the assessee to file details of the same and assessee submitted a sale and purchase account of shares but scrip wise details was not provided. Accordingly, AO accepted sale and purchase account of shares but disallowed the claim of interest received/adjusted against sale and purchase and added to the returned income of the assessee under the head interest received. This was also not contested by assessee in second appeal and assessment was accepted as it is. 8. Coming to third item of addition in respect to disallowance of expenses qua exempt income by invoking the provision of section 14A of the Act read with rule 8D of the I. T. Rules, 1962. The AO computed the disallowance only on the basis of audit report in Form No. 3CB and 3CD filed along with return of income. The assessee has not contested this addition of disallowance of expenses of Rs.3,01,590/- and assessment to the same was accepted. 9. In respect to above three items the AO initiated penalty proceedings and penalty was also levied only on the basis that the assessee did not offer any written explanation in response to the notice issued and no evidence was filed contrary to the observation of the AO made in the assessment order in respect to all these three items. Accordingly, AO levied penalty u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income as under: “On the basis of the above discussion, total penalty u/s. 271(1)(c) on the issues as discussed above, is computed as under. Penalty imposed as per discussion in para 2.0 Rs.17,60,912/- Penalty imposed as per discussion in para 3.0 Rs. 3,82,940/- Penalty imposed as per discussion in para 4.0 Rs. 1,02,511/- Total penalty imposed Rs.22,46,363/-“

5 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 10. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) in respect to bogus speculation income observed that this is income from other sources and not speculation income as claimed by the assessee and, therefore, the loss claimed against this alleged speculation income is actually income from other sources and hence, disallowance of loss is actually concealment of income by filing inaccurate particulars of income. Hence, after discussing the modus operandi of assessee, he confirmed the levy of penalty relying on the decision of Hon’ble Supreme Court in the case of K. P. Madhusudanan Vs. CIT (2001) 251 ITR 99 (SC) and also Hon’ble Karnataka High Court decision in the case of B. Damodar Vaman Baliga Jewellers Vs. JCIT (2014) 353 ITR 205 (Kar). In respect to suppression of interest income under the head short term capital loss, the CIT(A) confirmed the penalty by observing that this intra head adjustment is not available to the assessee and, therefore, interest income cannot be set off against short term capital loss and thereby the assessee has concealed this taxable income and accordingly, he confirmed the levy of penalty. Similarly, in respect to third addition of expenses disallowed qua exempt income was reported in the audit report in Form No. 3CB and 3CD but income included in the computation of income and accordingly, this disallowance of expenses is actually concealed income. Accordingly, he confirmed the penalty on this count also. Aggrieved, now assessee is in second appeal before Tribunal. 11. We have heard rival submissions and gone through facts circumstances of the case. The first aspect of merits of the case is that the assessee has claimed speculation profit amounting to Rs.53,34,463/- earned on account of share trading with Nakamichi Securities Ltd. but Nakamichi Securities Ltd. vide letter dated 21.12.2011 denying having any transaction with the assessee. It was also clarified by Nakamichi Securities Ltd. that no certificate was issued by the Nakamichi Securities Ltd. to Deo Kumar Saraf, the assessee in respect of any speculation income from shares in Balarampur Chini Mills Limited in NSE for FY 2008-09 relevant to AY 2009-10. According to them, he does not have any transaction with the assessee. But, assessee’s main claim was that this letter of Nakamichi Securities Ltd. was never confronted to the assessee during the course of assessment proceedings or during the penalty proceedings. Even during first appeal, this letter

6 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 of Nakamichi Securities Ltd. was never confronted to the assessee. When a specific query was put to Ld. Sr. DR he categorically stated that this statement was never confronted to the assessee. When a query was put from the bench whether any details or evidence were filed by the assessee in respect to speculation profit of Rs.53,39,463/- other than a certificate purportedly received from Nakamichi Securities Ltd. We find that the entire basis of penalty is the denial letter issued by Nakamichi Securities Ltd. dated 21.12.2011 and there is no other evidence available with revenue which suggests that the assessee has concealed the particulars of income. Once the very basis for levy of penalty is no doubt, it cannot be said that the assessee has concealed the particulars of income or furnished inaccurate particulars of income, as the case may be. Here in the present case, the assessee has disclosed income from speculation profit only and the case is that he could not prove that this is speculation income or any other income for the want of evidence and merely he has not challenged the quantum addition. Hon’ble Rajasthan High Court in the case of CIT Vs. G. Nemichand (1976) CTR (Raj) 193 held that an assessee may file an appeal against an order of imposition of penalty even though he might not have filed an appeal against the order of assessment. The assessment proceedings are quite distinct and different from penalty proceedings. Although the order of assessment is a good evidence but it is not a conclusive proof that the assessee has concealed the particulars of income. In the present case before us, the AO’s levy of penalty is entirely based on the assessment order that the assessee is unable to prove the profit declared in speculation income received to be one from Nakamichi Securities Ltd. in the absence of evidence. In levying penalty the burden is on the revenue to prove that the particular amount is profit not from speculation income but income from other sources against which speculation loss cannot be adjusted. No doubt the findings during assessment proceeding for determining or computing the income is conclusive and it is also a good piece of evidence for initiating penalty proceeding but before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income that the assessee has concealed the particulars of income or has deliberately furnished inaccurate particulars of income. Here none of the case is present. In view of the above, we are of the considered view that the penalty u/s.

7 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 271(1)(c) of the Act in the given facts and circumstances is not leviable. Accordingly, we delete the penalty and allow this issue of assessee’s appeal. 12. Coming to the second aspect of suppression of interest income under the head short term capital loss. The assessee made a claim of short term capital loss of Rs.9,67,232/- and gave complete computation of purchase and sale of shares, which is as under: “Shares Purchase A/c 14,51,62,084.49 Less: Interest received 11,26,622.00 14,40,35,464.49 Shares Sales A/c. 14,30,68,229,97 SHORT TERM CAPITAL GAIN/LOSS 9,67,232.52” 13. The assessee has also reduced interest received from share purchase account at Rs.11,26,622/- and disclosed in the return of income and made a claim. The assessee has reduced interest income from the cost of shares while calculating short term capital loss. We find that the assessee has claimed speculation profit amounting to Rs.53,34,463/- earned on account of share trading with Nakamichi Securities Ltd. but Nakamichi Securities Ltd. vide letter dated 21.12.2011 denying having any transaction with the assessee. It was also clarified by Nakamichi Securities Ltd. that no certificate was issued by the Nakamichi Securities Ltd. to Deo Kumar Saraf, the assessee in respect of any speculation income from shares in Balarampur Chini Mills Limited in NSE for FY 2008-09 relevant to AY 2009-10. According to them, it does not have any transaction with the assessee. The assessee’s main claim was that this letter of Nakamichi Securities Ltd. was never confronted to the assessee during the course of assessment proceedings or during the penalty proceedings. Even during first appeal, this letter of Nakamichi Securities Ltd. was never confronted to the assessee. When a specific query was put to Ld. Sr. DR he categorically stated that this statement was never confronted to the assessee. When a query was put from the bench whether any details or evidence were filed by the assessee in respect to speculation profit of Rs.53,39,463/- other than a certificate purportedly received from Nakamichi Securities Ltd. We find that the entire basis for levy of penalty is the denial letter issued by Nakamichi Securities Ltd. dated 21.12.2011 and there is no other evidence available with revenue which suggests that the assessee has concealed the particulars of income. Once the very basis for levy of penalty is in

8 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 doubt, it cannot be said that the assessee has concealed the particulars of income or furnished inaccurate particulars of income, as the case may be. Here in the present case, the assessee has disclosed income from speculation profit only and the case is that he could not prove that this is speculation income or any other income for the want of evidence and merely he has not challenged the quantum addition. Hon’ble Rajasthan High Court in the case of CIT Vs. G. Nemichand (1976) CTR (Raj) 193 held that an assessee may file an appeal against an order of imposition of penalty even though he might not have filed an appeal against the order of assessment. The assessment proceedings are quite distinct and different from penalty proceedings. Although the order of assessment is good piece of evidence but it is not a conclusive proof that the assessee has concealed the particulars of income. In the present case before us, the AO’s levy of penalty is entirely based on the assessment order that the assessee is unable to prove the profit declared in speculation income received to be one from Nakamichi Securities Ltd. in the absence of evidence. In levying penalty the burden is on the revenue to prove that the particular amount is profit not from speculation income but income from other sources against which speculation loss cannot be adjusted. No doubt the findings in the assessment proceeding for determining or computing the income is conclusive and it is also a good piece of evidence for initiating penalty proceeding but before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income that the assessee has concealed the particulars of income or has deliberately furnished inaccurate particulars of income. Here none of the case is present. In view of the above, we are of the considered view that the penalty u/s. 271(1)(c) of the Act in the given facts and circumstances is not leviable. Accordingly, we delete the penalty and allow this issue of assessee’s appeal. 14. Now coming to third aspect on account of disallowance of expenses against exempt income u/s. 14A of the Act by invoking Rule 8D of the I. T. Rules, 1962. We find that the assessee himself disclosed the same in audit report in Form No. 3CB and 3CD along with return of income and complete particulars were filed along with return of income.

9 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 15. We have gone through facts of the case and noticed that the assessee has filed complete details in respect to all three items under dispute i.e. –(i) speculation profit, (ii) short term capital loss, and (iii) disallowance of expenses relating to exempt income u/s. 14A of the Act. There is no charge by revenue that details supplied by the assessee in its return of income are found to be incorrect or erroneous or false and in such eventuality there is no question of inviting penalty u/s. 271(1)(c) of the Act. A mere making of a claim, which is not sustainable in law, by itself will not amount to furnishing of inaccurate particulars of income regarding those items of income of the assessee. Such a claim made in the return of income cannot be treated as furnishing of inaccurate particulars of income. The provisions of section 271(1)(c) of the Act clearly defined that there has to be concealment of the particulars of income by the assessee and secondly the assessee must have furnished inaccurate particulars of his income. Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (Supreme Court) has interpreted the meaning of the word ‘particulars’ as used in section 271(1)(c) of the Act that the same would embrace the details of the claim made. Where no information given in the return of income is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing of inaccurate particulars of income. In the present case also, the AO has nowhere found the explanation of the assessee as false and moreover from the details filed it could not be ascertained that the claim made by assessee is false. The AO has to prove that the assessee has concealed the particulars of income. In such circumstances, the penalty levied by the AO cannot be sustained. 16. Here, we are relying on the decision of Hon’ble Supreme Court in the case of Reliance Petro-product Ltd. supra, wherein Hon’ble court has observed as under: “We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster’s Dictionary, the word “inaccurate” has been defined as :

“not accurate, not exact or correct ; not according to truth ; erroneous ; as an inaccurate statement, copy or transcript.”

We have already seen the meaning of the word “particulars” in the earlier part of this judgment. Reading the words in conjunction, they must mean the details

10 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10

supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect ; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms ; an item of receipt may be suppressed fraudulently ; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

In this behalf the observations of this court made in Sree Krishna Electricals v. State of Tamil Nadu [2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings under the Tamil Nadu General Sales Tax Act, the court had found that the authorities below had found that there were some incorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This court, therefore, observed (page 251) :

“So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant’s account books. Where certain items which are not included in the turnover are disclosed in the dealer’s own account books and the assessing authorities includes these items in the dealer’s turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside.”

The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return. The Tribunal, as well as, the Commissioner of Income-tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.”

11 ITA No.199/K/2015 Sri Deo Kumar Saraf AY 2009-10 Respectfully following the decision of Hon'ble Supreme Court, we delete the penalty levied u/s. 271(1)(c) of the Act and allow the appeal of assessee. 17. In the result, the appeal of assessee is allowed. 18. Order is pronounced in the open court on 07.10.2015 Sd/- Sd/- (Mahavir Singh) (Waseem Ahmed) Judicial Member Accountant Member Dated : 07th October, 2015 Jd. Sr. P.S Copy of the order forwarded to: APPELLANT – Shri Deo Kumar Saraf, AL-222, Salt Lake City, Kolkata- 1. 700091 Respondent – ACIT, Circle-49, Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.