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Diligent Services (P) Ltd., 201, S-524, Agarwal Complex, Vikas Marg, Shakarpur, Delhi-110092 Vs ACIT, Circle 10(1), New Delhi.
November, 03rd 2014
ITA No. 510/Del/2012
Asstt.Year: 2006-07

                       DELHI BENCH `B' NEW DELHI


                           Assessment Year : 2006-07

Diligent Services (P) Ltd.,         vs ACIT, Circle 10(1),
201, S-524, Agarwal Complex,           New Delhi.
Vikas Marg, Shakarpur,
(Appellant)                             (Respondent)

              Appellant by: S/Shri Ajay Vohra, Gaurav Jain, Adv.
              Respondent by : Miss Ashima Neb, Sr.DR



       This appeal has been preferred by the assessee against the order of

CIT(A)-XVIII, New Delhi dated 21.11.2011 in Appeal No.55/10-11 for AY

2006-07 by which the CIT(A) upheld the penalty order dated 30.03.2010 passed

u/s 271(1)(c) of the Income Tax Act, 1961.

2.     The assessee has raised following grounds in this appeal:-

              "1. That the CIT(A) erred on facts and in law in
        upholding the levy of penalty under section 271 (1)( c) of the
        Act holding that the appellant has furnished inaccurate
        particulars on income.

                                                                         pg. 1
ITA No. 510/Del/2012
Asstt.Year: 2006-07

              2. Without prejudice to ground No 1, That CIT(A)
        erred in facts and in law in upholding the quantum of penalty
        overlooking the fact that no tax could have been evaded on
        following items:
                a)     Returned Tax
             b) Amount of allowance of Interest and other expenses
        proportionate to earning of income assessed as business
              c) Rebate U/S 88E on Securities Transaction Tax
        (STT) which was eligible for deduction. "

3.     Briefly stated the facts giving rise to this appeal are that the AO levied

penalty of Rs.37,11,280/- at minimum rate, taking tax sought to be evaded at the

same amount. During quantum proceedings, the AO made additions on two

counts. The first disallowance relates to disallowance of exemption u/s 10(38)

of the Act on an amount of Rs.53,61,68,729/- which has been shown as long

term capital gain (LTCG) by the assessee but the AO treated the same as

business income. The AO also treated an amount of Rs. 1,10,25,787/- shown as

short term capital gain (STCG) which was also treated as business income by

the AO. The second issue was pertaining to disallowance of Rs. 10 lakh u/s

14A of the Act in the context of earning exempt income. The AO initiated

penalty proceedings and levied penalty of Rs. 37,11,280/- u/s 271(1)(c) of the

Act. The aggrieved assessee preferred an appeal but remained empty handed as

the appeal was dismissed by the CIT(A) by passing the impugned order. Now,

                                                                           pg. 2
ITA No. 510/Del/2012
Asstt.Year: 2006-07

the assessee has preferred this second appeal before the Tribunal with the

grounds as reproduced hereinabove.

4.     We have heard arguments of both the sides and carefully perused the

relevant material placed on record. Ld. Counsel for the assessee has drawn our

attention towards order of ITAT Delhi `B' Bench dated 6.1.2012 in assessee's

own case i.e. ITA No. 3299/Del/2009 for AY 2006-07 wherein the order of the

CIT(A) in quantum proceedings has been upheld by confirming the action of the

AO which treated long term capital gain and short term capital gain as business

income of the assessee. Ld. Counsel placed his reliance on the recent decision

of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs Amit

Jain (2013) 351 ITR 74 (Del) wherein it was held that the amount in question

which forms the basis for the AO to levy the penalty was in fact truthfully

reported in the return of income of the assessee. Their lordships further held

that in view of these circumstances, the AO chose to treat the income under

some other head cannot characterise the particulars reported in the return as

inaccurate particulars or as concealment or suppression of facts. Finally, in this

case of Amit Jain (supra), it was held that when amount of income is reported in

the returns and the AO has reported the same in the return of income under a

particular head and AO is treating the same income under some other head, it

cannot be said to be furnishing of inaccurate particulars and penalty is not

leviable in this situation.

                                                                            pg. 3
ITA No. 510/Del/2012
Asstt.Year: 2006-07

5.     Ld. DR supported the orders of the authorities below and submitted that

the assessee has concealed particulars of its income and has furnished wrong

particulars of its income, therefore, the AO was right in levying penalty which

was upheld by the CIT(A) on justified reasons.

6.     On careful consideration of above rival contentions and submissions, at

the outset, we observe that the additions made by the AO treating the long term

capital gain and short term capital gain as business income has been upheld by

the Tribunal in its order dated 6.1.2012 (supra).          The relevant operative

paragraph no. 7.4 of the Tribunal reads as under:-

             "7.4 As regards short term capital gain made by the
       assessee, Ld. Commissioner of Income Tax (Appeals) has given
       a finding that even though all the shares have been held as
       investment in the balance sheet, there were a large number of
       shares transacted relating to a variety of shares wherein the
       frequency of transactions is clearly reflected. It was further
       found that there are many instances where the holding period of
       shares is also very short and it clearly indicates the intention of
       the assessee to earn short term profit by purchasing and selling
       of shares in the market. In this regard, certain samples
       transaction as under:-
Name of the company         Date of purchase of shares   Date of sale of shares

TNPL                        September, 2005              October, 2005
Rajapamil                   September, 2005              October, 2005
Patel Engineering           July, 2005                   December, 2005
Madras Cen                  September, 2005              September, 2005
Madras Cen                  September, 2005              October, 2005
Jindal Poly                 September, 2005              October, 2005
Gulf Oil                    December, 2005               January, 2006
IDFC                        September, 2005              November, 2005
IFSI                        September, 2005              March, 2006

                                                                                  pg. 4
ITA No. 510/Del/2012
Asstt.Year: 2006-07

              The above clearly indicate that these shares were held
       with the intention of earning profits and not earning dividend.
       Thus, it is found that with respect to these shares transaction,
       the transactions were regularly entered during the year;
       purchase and sale of shares were continuous; holding period
       was very short; circumstances clearly indicate that the intention
       of the assessee was not to earn the dividend but to earn profit
       on sale and purchase of shares. The assessee has also shown
       speculation loss which indicate that share transactions in the
       nature of business were also being carried out by the assessee.
       Ld. Commissioner of Income Tax (Appeals) is correct in
       holding that whenever any investment is made by a person, a
       reasonable timeframe has to be kept in mind before the shares
       are sold, unless there are certain exceptional circumstances. In
       the present case, the shares have been claimed to be shown as
       investment have not been held as investment with the intention
       of earning dividends and therefore, merely because they have
       been shown as investment in the balance sheet does not
       strengthen their claim that sale of these shares should be
       treated as capital gain and not business income. The facts
       clearly indicate that keeping in view of the frequency of
       transaction, intention of the assessee to earn profits as well as
       most of these shares having been held in a separate DEMAT
       account, is pointing towards the fact that to the extent of these
       shares the assessee was carrying out business transactions.
       Thus, we agree with the finding that Ld. Commissioner of
       Income Tax (Appeals) with regard to these shares which have
       been shown as short term capital gain, these transactions
       cannot be treated as short term capital gains and have to be
       considered as business income of the assessee. Therefore, we
       uphold the order of the Ld. Commissioner of Income Tax
       (Appeals) on the issue of long term capital gain and short term
       capital gain. The long term capital gain is to be held as long
       term capital gain and short term capital gain is to be held as
       business income. "
7.     In view of above, we take cognizance of the recent decision of

Jurisdictional High Court of Delhi in the case of Amit Jain (supra) wherein it

was held thus:-

                                                                           pg. 5
ITA No. 510/Del/2012
Asstt.Year: 2006-07

                  "3. This Court notices that the Tribunal while
           upholding the order of the appellate commissioner relied
           upon the decision in CIT Vs. Reliance Petroproducts Pvt.
           Ltd. (2010) 322 ITR 158 (SC). Furthermore, the record
           reveals that the amount in question, which formed the basis
           for the assessing officer to levy penalty was in fact truthfully
           reported in the returns. In view of this circumstance, that
           the assessing officer chose to treat the income under some
           other head cannot characterize the particulars or reported
           in the return as an inaccurate particulars or as suppression
           of facts. The Court is also conscious of the decision of the
           Supreme Court in Calcutta Discount Co. Ltd. vs. Income
           Tax Officer (1961)41 ITR 191 (SC) where it was held that it
           is up to the assessing officer to interpret the return and
           discern as to which head of income the amount had to be
           brought to tax."

8.     In view of above factual matrix of the present case, we are inclined to

hold that if the assessee has declared income under a particulars head which was

treated by the AO under income of some other head and the findings of the AO

were confirmed upto the Tribunal, then, it cannot be presumed and concluded

that the assessee has furnished inaccurate particulars or wrong particulars of its

income and penalty in this situation is not leviable in the light of ratio of the

decision of Hon'ble Jurisdictional High Court in the case of CIT vs Amit Jain


9.     Accordingly, both the grounds of assessee appellant are allowed and AO

is directed to delete the penalty.

                                                                              pg. 6
ITA No. 510/Del/2012
Asstt.Year: 2006-07

10.        In the result, the appeal of the assessee is allowed.

           Order pronounced in the open court on 28.10.2014.

       Sd/-                                                        Sd/-

(G.D. AGRAWAL)                                     (CHANDRAMOHAN GARG)
VICE PRESIDENT                                          JUDICIAL MEMBER

DT. 28th OCTOBER, 2014

Copy forwarded to:-

      1.   Appellant
      2.   Respondent
      3.   C.I.T.(A)
      4.   C.I.T.
      5.   DR
                                                          By Order


                                                                            pg. 7
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