IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `H' : NEW DELHI)
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND
SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No.95/Del./2013
(ASSESSMENT YEAR : 2007-08)
Shri Uday Punj, vs. ACIT, Central Circle 2,
55, Sultanpur Farms, New Delhi.
New Delhi.
(PAN : AAAPP1309F)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Rahul Khare, Advocate
REVENUE BY : Shri Sameer Sharma, Senior DR
ORDER
PER B.C. MEENA, ACCOUNTANT MEMBER :
This appeal filed by the assessee emanates from the order of CIT (A)-III,
New Delhi dated 01.11.2012 for the assessment year 2007-08.
2. The assessee is an individual. Assessee draws his income from salary, house
property, capital gains and income from other sources. The return of income was
filed on 31.10.2007 declaring income at Rs.7,20,837/-. Assessee claimed short term
capital loss of Rs.2,47,81,239/-. The loss of Rs.86,53,403/- was in respect of
derivative trading and loss of Rs.1,61,27,836/- was in respect of margin trading in
commodities. In the assessment proceedings, the assessee was asked to furnish
details regarding these short term capital loss claimed. Loss of Rs.1,61,27,836/-
2 ITA No.95/Del./2013
debited was related to the margin trading in commodities. The assessee claimed
that this loss on commodity trading under F&O as short term capital loss and not as
a speculation loss. The Assessing Officer treated the loss as speculation loss and
did not allow the claim of the assessee and penalty proceedings u/s 271(1)(c) of the
Income-tax Act, 1961 was initiated for furnishing inaccurate particulars of income.
It is undisputed fact that actual delivery of commodities has not taken place. The
transaction was speculative. These transactions are taken on regular basis. The
transactions are covered by definition of speculative transaction as provided in
section 43 (5) of the Act. This disallowance was confirmed by the CIT (A). The
Assessing Officer levied the penalty on this addition relying on the decision of
Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textiles
Processors 306 ITR 277 (SC), ITO vs. Geep Industrial Syndicated Ltd. 101 ITD
448, CIT vs. Gates Foam and Rubber (Co.) - 91 ITR 464 (Kerala) and Anand
Liquors vs. CIT 232 ITR 35 (Kerala) by holding that assessee has filed inaccurate
particulars of income and concealed the income and levied the penalty u/s 271(1)(c)
of the Act. The CIT (A) confirmed the levy of penalty and directed the Assessing
Officer to compute the tax on the amount of Rs.1,61,27,836/- as per the relevant
laws at that time and then levy the penalty on that tax which was sought to be
evaded. The relevant part of the CIT (A) is reproduced as under :-
"4. I have gone through the submissions of the appellant, the facts on
records and have also perused the penalty order and considered the
decisions relied upon both by the appellant and the AO.
4.1 Section 271(l)(c), provides for imposition of penalty in case the
assessing officer, in the course of any proceeding under Act, is satisfied that
(i) any person had concealed particulars of his income or
3 ITA No.95/Del./2013
(ii) had furnished inaccurate particulars of such income.
Further, after insertion of Explanation 1 to Section 271(l)(c), the
onus is on the assessee to show that there was no intention of concealment
and not on the revenue.
4.2 In this context two landmark judgments were given by Apex Court
in Dilip N. Shroff Vs Joint CIT (2007) 291 ITR 519 (SC) and T. Ashok Pai
Vs CIT (2007) 292 !TR 11 (SC), which spell out mainly the following rules
for the purpose of penalty imposable:
(i) Both the expressions "concealment of income" and
"furnishing of inaccurate particulars" indicate some
deliberation on the part of the assessee, though the word
"deliberately" and the word "willfully" are no longer part of
the statue.
(ii) Mere omission or negligence would not constitute a
deliberate act of suppressiio veri or suggestio falsi.
(iii) Primary burden of proof is on the revenue. The statute
requires satisfaction on the part of the Assessing Officer. He
is required to arrive at a satisfaction so as' to show that there
is primary evidence to establish that the assessee had
concealed the amount or furnished inaccurate particulars and
this onus is to be discharged by the department.
(iv) The Assessing officer while considering levy of penalty
should consider whether the assessee has been able to
discharge his part of the burden. He should not begin with
the presumption that the assessee is guilty.
(v) Though penalty proceedings under the income-tax law may
not be criminal in nature they are still quasi-criminal
requiring the Department to establish that the assessee has
concealed his income.
(vi) It has to be understood that the Explanation to Section
271(l)(c) is an exception to the general rule raising a legal
fiction by which the burden which is ordinarily with the
Department is sought to be placed on the assessee. This
burden on the assessee is subject to "conditions precedent"
which are required to be satisfied before the Explanation
could be applied.
It was also pointed out as held by Supreme Court in K.C. Builders
Vs ACIT (2004) (265 ITR 562) (SC) that "deliberateness" is implied
in the concept of concealment.
4 ITA No.95/Del./2013
4.3 However after the decision laid down in Dilip N. Shroff (Supra), T.
Ashok Pai (Supra) in a dispute under Central Excise Law the Apex Court in
the case of UOI Vs Dharamendra Textile Processors (2.008) (306 ITR 277)
(SC) held that "default merited penalty without having to consider any
intend of the assessee to evade tax. The Mens rea is essential only for
matters of prosecutor & not penalty".
Thus after the decision in the case of Dharamendra Textile
Processor (Supra) "Mens rea is not necessary to be proved by revenue for
civil penalties."
4.4 But with the decision of the Supreme Court in the case of CIT Vs
Reliance Petro Products Pvt. Ltd (20l0) (322 ITR 158) (SC), it is clear that
the Supreme Court by giving the ruling in Dharmendra Textile Processor's
Case (Supra) has not overruled their decision in Dilip N. Shroff's case
except for its mention of Mens rea therein.
4.5 It is also pertinent to mention here that after the ruling of
Dharamendra Textile Processor, the Supreme Court has come out with the
ruling in 2 different case namely CIT Vs Atul Mohan Bindal (2009) (317
ITR1) and UOI Vs Rajasthan Spinning & Weaving Mills (20l0) (1GSTR66)
(SC) and have given a finding that "that for applicability of Section
271(1)(c) the conditions stated therein must exist."
Even in the decision in the case of CIT(LTU) Vs. MTNL, ITA
NO.626/2011 dated 10.10.2011, the jurisdictional Delhi High Court has
upheld the same view.
From above, it is very clear that for imposing penalty under Section
271(1)(c), the AO have to be satisfied that:
(a) assessee has concealed the particulars of income or
(b) assessee has furnished inaccurate particulars of such income.
4.6 . Thus in view of the above discussion and in view of the Hon'ble
Supreme Court in Reliance Petroproducts (supra) it is clear that the
legislature did not intend to impose penalty on every assessee whose Claim
was rejected by the assessing officer. What is sought to be covered under
Section 271(l)(c) is concealment of "particulars of income" or "furnishing
of" inaccurate particulars of income and not making of an untenable claim.
4.7 From the various judicial precedents it is seen that the facts and
circumstances in each case has to be seen in the context and then penalty
provision should be applied to see whether there was the concealment of
particulars of income or the appellant has furnished inaccurate particulars so
as to call for the penal action under Section 271(1)(c).
4.8 In the appellant's case it is seen that it was only during the
assessment proceedings the AO found that the appellant had adjusted the
5 ITA No.95/Del./2013
"speculation loss" against the other income. Had the appellant's case not
been selected for scrutiny, the appellant would have got away with the
excess deduction which was patently wrong.
4.9 Here, it is pertinent to note the following observation of the
jurisdictional Delhi High Court in the case of CIT Vs Zoom
Communication Pvt. Ltd. (2010) (327 ITR 510)(Del) where the Court
observed that :
"---------------20. The Court cannot overlook the fact that only a
small percentage of the Income Tax Returns are picked up for
scrutiny. If the assessee makes a claim which is not only incorrect
in law but is also wholly without any basis and the explanation
furnished by him for making' such a claim is not found to be
bonafide, it would be difficult to say that he would still not be liable
to penalty under Section 271(l)(c) of the Act.
If we take the view that a claim which is wholly untenable in law
and has absolutely no foundation on which it could be made the
assessee would not be liable to imposition of penalty even if he was
not acting bonafide while making a claim of this nature, that would
give a licence to unscrupulous assessees to make wholly untenable
and unsustainable claims without there being any basis for making
them, in the hope that their return would not be picked up for
scrutiny and they would be assessed on the basis of self Assessment
under Section 143(1) of the Act and even if their case is selected for
scrutiny, they can get away merely by paying the tax, which in any
case, was payable by them. The consequence would be that the
persons who make claims of this nature, actuated by a malafide
intention to evade tax otherwise payable by them would get away
without paying the tax legally payable by them, if their cases are not
picked up for scrutiny. This would take away the deterrent effect,
which these penalty provisions in the Act have........"
4.10 The appellant in its submission has stated that since they have
disclosed all the facts in their return of income hence in view of the ruling
of Reliance Petro product (supra), penalty under 271(1)(c) is not attracted.
This view of the appellant is not admissible, because if for an example in a
case, where any assessee debits the cost of an asset to its profit and loss
account or debits any capital expenditure or any patently wrong claim in its
profit and loss accounts and claim it as revenue expense, I am afraid in such
an event no assessee can be allowed to go scot free. In that case ho assessee
should be allowed to take shelter and claim that since they have disclosed
the facts, therefore in such a case no penalty is leviable in view of the
decision of Supreme Court in the case of Reliance Petro Products Ltd.
(supra). Such an interpretation would make provisions of Section 271(1)(c)
redundant, which in my humble view is not the intention of the legislature.
6 ITA No.95/Del./2013
4.11 On a combined reading of the aforesaid decisions of the Supreme
Court in the case of Reliance Petro Products (supra) on which the appellant
relies and the Delhi High Court given in Zoom Communication (supra), in
my humble view the position which emerges is that penalty leviable has to
be determined, on the basis of classification of any claim made by an
assessee as relating to the "realm of law or fact". Where the claim is made
on the basis of incorrect facts or the claim is so untenable in law so as to
afford no justification thereof, penalty under section 271(l)(c) of the Act
would be invited. The facts of the appellant's case, in my view falls in the
second category, as by setting off the speculation loss against other income
the appellant has tried to reduce his tax liability in a mischievous way.
4.12 Thus, in view of the above discussion and observation of judgments
of Supreme Court in the case of Reliance Petro product (supra), Atul Mohan
Bindal (supra), Rajasthan Spinning and Weaving Mills (supra) and
observations of Delhi High Court in the case of Zoom Communication
(supra), the penalty levied by the A.O. is upheld.
4.13 In upholding the penalty levied by AO, I also carry strength by the
recent decision dated 13.01.2012 of Delhi High Court in the case of
Kanchenjuga Advertising (P) Ltd. Vs. CIT (ITA No. 944/2011), where
court on the same facts has held "the claim of statutorily prohibited
deduction falls within the mischief of expression "furnishing of inaccurate
particular" and assessee cannot take the shelter 'behind the decision in the
case of Reliance Petro Products (supra), rather in such situations, the ruling
of Zoom communications (supra) is to be followed."
4.14 Thus in view of the above discussion, in the facts of the appellant's
case the penalty levied by the AO is upheld. However, in terms of
calculating the amount of penalty, I agree with the appellant that in the
instant case the penalty should be levied on the amount of tax sought to be
evaded. Accordingly, AO is directed to compute the tax on the amount of
Rs.l,61,27,836 as per the relevant laws at that time and then levy the penalty
on that tax which was sought to be evaded.
Now, the assessee is in appeal by taking the following ground :-
"The learned CIT (A) erred in fact and in law in confirming the penalty of
Rs.54,28,629/- imposed u/s 271(1)(c), which is not only bad in law but also
against the facts and circumstances of the case.
3. We have heard both the sides on the issue. We have also considered the case
laws relied upon by both the sides including the decision of Hon'ble Supreme Court
in the case of CIT vs. Reliance Petro Products Pvt. Ltd. reported in 322 ITR 158
(SC) and decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom
7 ITA No.95/Del./2013
Communication Pvt. Ltd. reported in 327 ITR 510 (Del.). The assessee claimed
that he has disclosed all the relevant facts in the return of income. The assessee
entered into contracts of purchasing and selling commodities and these contracts
were settled without actual delivery of commodities. Prima facie this loss incurred
of Rs.1,61,27,836/- was a `speculative loss' incurred on speculation transaction of
commodities. The speculation loss can be allowed only against the speculation
profits and it cannot be allowed to set off against any other income of the assessee.
The speculation transactions are clearly defined in section 43(5) of the Income-tax
Act, 1961 wherein a speculative transaction means a transaction in which a contract
for the purchase or sale of the commodity, including stocks and shares, is
periodically and ultimately settled otherwise than by the actual delivery or transfer
of the commodity or scrips. The assessee has tried to take the benefit of provisions
of section 43(5)(d) which provides for the purpose of section 43(5) that an eligible
transaction in respect of trading in derivatives referred to in clause (ac) of section 2
of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock
exchange. Thus, this claim was wholly untenable and unsustainable. Once it is
established that the claim is wholly untenable in law and unsustainable, then the
assessee would be liable to the imposition of penalty for making a claim of this
nature. If such persons are not levied penalty then a licence to the unscrupulous
assessees to make wholly untenable and unsustainable claims without there being
any basis for making them, in the hope that their return would not be picked in
scrutiny and they will be assessed on the basis of self assessment u/s 143(1) of the
Act and even if their case is selected fro scrutiny, they will get away merely by
8 ITA No.95/Del./2013
paying the tax, which in any case, was payable by them, then consequence would be
that the persons who, make claims of this nature, actuated by a malafide intention to
evade tax otherwise payable them would get away without paying the tax legally
payable by them, if their cases are not picked up for scrutiny and even if selected
for scrutiny they will pay merely the tax and get away from penalty provisions of
the Act. The assessee's claim that all the relevant facts were disclosed in the return
of the income is not correct. He has not disclosed that the loss was on the
transactions where no delivery of commodities has taken place. Assessee has not
disclosed in the return that loss was of speculative loss, not short term capital loss.
The explanation submitted by the assessee is not a bonafide explanation and it is
also unsustainable in law. The law clearly defines the `speculative transactions'.
Assessee was well in the knowledge of the fact that for the transactions entered into,
delivery of commodities has not taken place. It is a clear case of "speculation
transaction". In view of this fact, assessee had not disclosed all relevant facts in the
return of income. The assessee has made a claim which is ex-facie in exigible in
the law. Therefore, in our considered view, the assessee is liable to penalty u/s
271(1)(c) of the Income-tax Act, 1961. We sustain the order of CIT (A).
4. In the result, the appeal of the assessee stands dismissed.
Order pronounced in open court on this 24th day of April, 2014.
Sd/- sd/-
(DIVA SINGH) (B.C. MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated the 24th day of April, 2014/TS
9 ITA No.95/Del./2013
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-III, New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.
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