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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: September 04, 2014
+ ITA 479/2014
COMMISSIONER OF INCOME TAX (CENTRAL)-III
..... Appellant
Through: Mr.Sanjeev Sabharwal, Sr.Advocate
with Ms.Swati Thapa, Advocate
versus
M/S. ANANT OVERSEAS P. LTD ..... Respondent
Through: Nemo.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
SANJIV KHANNA, J (ORAL)
Learned counsel for the Revenue submits that he has obtained
instructions. By order dated 14.11.2013 in the quantum proceedings passed
by the Income Tax Appellate Tribunal (`Tribunal', for short), an order of
remand to the Commissioner of Income Tax (Appeals) [CIT(A)] was passed
directing him to decide the appeal afresh.
2. We have examined the impugned order passed by the Tribunal
dated 14.11.2013 affirming the view of the CIT (A) deleting the penalty of
Rs. 15 lakhs imposed by the Assessing Officer under Section 271 (1)(c) of
ITA No. 479/2014 Page 1 of 9
the Income Tax Act, 1961 (`Act', in short). The appeal pertains to the
Assessment Year 2001-02.
3. The respondent-Assessee, during the period relevant to the
Assessment Year was engaged in the investment of shares and securities
cum business of shares and securities and other related activities. In the
return of income filed in response to the notice under Section 153C of the
Act, income of Rs. 10,65,750/- was disclosed. The respondent-assessee had
also disclosed short term capital gains of Rs. 31,04,398/- on account of sale
of 12,500 shares of Reliance India Ltd., 24,442 shares of Moser Baer India
Ltd., 8886 shares of NIIT Ltd. and 15,300 shares of Software Technologies
Group Ltd. The Assessing Officer held that the aforesaid sale and purchase
was not in the nature of the investment but transactions relating to trading in
shares, and accordingly, should be treated as business income.
4. In the penalty order passed by the Assessing Officer, he has
recorded that the assessee did not disclose full and necessary particulars as
the details were not mentioned in the return of income or any accompanying
documents. Further, if the return had not taken up for scrutiny, the
transactions in question would have been treated as short term capital gains
and not as income from business. He accordingly rejected the detailed
submissions made by the assessee to the effect that they were maintaining
two separate accounts; for investments and the other for shares held as
ITA No. 479/2014 Page 2 of 9
stock-in-trade. Thus they had treated the gains or losses suffered on account
of investment account as capital gains and transaction in shares held as
stock-in-trade was treated business income. It may be relevant to note here
that in the assessment order, one of the reasons given by the Assessing
Officer to treat the shares in question as stock-in-trade was that the broker
notes did not indicate whether the shares were procured as investment or as
stock-in-trade and the transaction statements did not show any demarcation.
Further, the respondent-assessee had not shown or established that it had
taken physical delivery of the said shares.
5. The CIT (A) deleted the penalty under Section 271(1)(c) of the Act
criticizing the aforesaid observations of the Assessing Officer and recording
that the bills/notes issued by the brokers would not mention whether the
shares purchased/sold were being treated by the respondent-assessee as
investment or as stock-in-trade. In Demat Accounts, the relevant numbers
and details of the shares were entered and the shares were not required to be
handed over physically. On the question, whether there was full and true
disclosure of material facts, the CIT (A) has recorded that the finding of the
Assessing officer was incorrect as all particulars relating to capital gains
were duly disclosed in the return as well as in the Balance Sheet which
indicated that the respondent-assessee was maintaining a clear demarcation
between the shares which were treated as investments and shares held as
ITA No. 479/2014 Page 3 of 9
stock-in-trade for business. He has recorded that the respondent-assessee
has submitted relevant copies of the books of accounts pertaining to the
capital account, step-wise investment accounts, purchase account and sales
account. We may record that in the written submission filed before the CIT
(A) as recorded in the order, it was stated that the details of shares held as
investments was duly mentioned in Schedule 4 of the Balance Sheet and in
Note No. 6 forming part of the Balance Sheet, detail of transactions which
were treated as business was clearly reflected. Further, the shares which
were sold and treated as short term capital gains were not accounted for in
the opening balance nor in the closing balance. In the books of accounts
also, the shares in question were shown under the head `investment' and in
the profit and loss account, short term capital gains was duly credited.
6. The aforesaid finding of the CIT (A) was affirmed by the Tribunal
in the impugned order dated 14.11.2013. Thus, we do not think, the finding
of the Assessing Officer that material facts were not duly disclosed by the
assessee is correct. No document or material has been filed before us to
support or contend that the finding of the appellate authorities including the
Tribunal is perverse or factual incorrect.
7. Now, coming to the question of bona fides and the explanation
offered by the respondent-assessee, we notice that the question whether the
shares were held as investment or stock-in-trade is highly debatable and a
ITA No. 479/2014 Page 4 of 9
difficult call in many a cases. As noticed above, the respondent-assessee
was investing in shares and securities and also dealing in purchase and sale
of securities. There is no adverse comment or observation of the Assessing
Officer on the submission and assertion made by the respondent-assessee
that they were maintaining two separate portfolios, one for shares held as
investment and the other for the shares held as stock-in-trade. The
assessment order itself records that there were number of transactions
relating to the shares which were held as stock-in-trade. Further, the
aforesaid demarcation of shares held as investment and as stock-in-trade had
existed in earlier and subsequent years also. We have already noted the two
observations in the assessment order; (1) physical delivery of the shares was
not taken and (2) brokers did not indicate whether the shares were held as
investment or as stock-in-trade, are not acceptable and cannot be a ground to
hold that the shares were held as stock-in-trade and not as an investment.
The assessee had brought forward long term capital loss of Rs. 39,79,915/-
and the short term capital gains were sought to be set off from the said long
term capital loss. This is indicative of the fact that in the earlier years, the
assessee had sold or transferred certain shares held as an investment and
suffered long term capital loss. The respondent-assessee was certainly
holding shares as investment. In fact, the assessment order itself records
that the respondent-assessee held certain shares of group companies as
investment. On the said aspect, we would like to refer to the reply given by
ITA No. 479/2014 Page 5 of 9
the respondent-assessee, giving the explanation why the penalty of
concealment should not be imposed, which reads as under:
"(i) "That the assessee maintained separate account for
investment & stock-in-trade. and whatever profit/loss resulted on
investment, the' assessee, treated it as capital. gain & in the case
of stock-in-hand, treated the same as business income.
(ij) That the assessee disclosed full particulars & submitted all the
necessary particulars in support of short term capital gain at the
time of assessment proceedings vide submission dated
31.10.2007.
(iii) That for levy of penalty u/s 271(1)(c), the pre-requisite is that
there should be a concealment of particulars of income or
furnishing of inaccurate particulars of such income. In the instant
case of the assessee, it has been contended that none of the
particulars of the income have been concealed or inaccurately
furnished.
(iv) Relying upon the judgement of Hon'ble Supreme Court in the
case of Cement Marketing Co. of India Ltd. vs. Asstt.
Commissioner of Sales Tax, Indore. it was contended that a return
cannot be false unless there is an element of deliberateness in it...
where the assessee does not include a particular item in the
taxable turnover under a bonafide belief that he is not liable so to
include it, it would not be right to condemn the return as a false
return inviting imposition of penalty.
(v)Relying upon the judgement, of the Hon'ble Delhi High Court in
the case of CIT vs. Bacardi Martini India Ltd. [2007] 158 Taxman
348 (Delhi), it was contended that the material facts for
computation of income was brought by the assessee, on record
and none of the particulars had been concealed and submitted
inaccurately.
(vi) ,The assessee invited attention towards the Judgement of
Hon'ble Rajasthan, High Court, Jaipur Bench in the case of
Chender Pal, Bagga vs. the Appellate Tribunal and another (2003)
261 ITR 67 (Raj.). Relying upon this judgement, it was contended
that if the assessee has claimed any exemption after disclosing
the relevant basic facts and under ignorance of the provisions of
the Act of 1961 has not offered that amount for tax, in such cases,
penalty should not be imposed.
(vii) The assessee also placed reliance upon the judgement of
Hon'ble ITAT, Delhi Bench 'F' in the case of DClT, Circle14 (1),
New Delhi vs. M/s PEC Ltd. reported as 2010-TlOL-50-ITAT-DEL
ITA No. 479/2014 Page 6 of 9
and contended that only because addition is sustained, the penalty
is not automatic.
(viii) The assessee also placed reliance upon the judgement of
Hon'ble ITAT, Ahmedabad Bench 'B' in the case of ADIT
(International Transaction) Vs. Precision Drilling (Cyprus) Ltd.
reported as 2010-TIOL-07-ITAT-Ahm. and contended that merely
because some disallowances' are made, penalty cannot be made.
(ix) It was also contended that the material facts for computation of
income had been brought by the assessee on record and none of
the particulars had been concealed nor any inaccurate particulars
were submitted".
8. The aforesaid factors and details were duly noticed and considered
by Tribunal. Reference has been made to the decision of the Supreme Court
in Commissioner of Income Tax Vs. Reliance Petro Products Pvt. Ltd.,
[2010] 11 SCC 762, wherein it has been held:
"10. Section 271(1)(c) is as under:
"271. Failure to furnish returns, comply with notices,
concealment of income, etc.--(1) If the Assessing Officer or the
Commissioner (Appeals) in the course of any proceedings under
this Act, is satisfied that any person--
***
(c) has concealed the particulars of his income or furnished
inaccurate particulars of such income."
A glance at this provision would suggest that in order to be
covered, there has to be concealment of the particulars of the
income of the assessee. Secondly, the assessee must have
furnished inaccurate particulars of his income. Present is not the
case of concealment of the income. That is not the case of the
Revenue either. However, the learned counsel for the Revenue
suggested that by making incorrect claim for the expenditure on
interest, the assessee has furnished inaccurate particulars of the
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 Section 271(1)(c) would embrace the
ITA No. 479/2014 Page 7 of 9
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.
11. 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 words concerned. 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. In CIT v. Atul
Mohan Bindal [(2009) 9 SCC 589] where this Court was
considering the same provision, the Court observed that the
assessing officer has to be satisfied that a person has concealed
the particulars of his income or furnished inaccurate particulars
of such income. This Court referred to another decision of this
Court in Union of India v. Dharamendra Textile Processors
[(2008) 13 SCC 369] as also the decision in Union of India v.
Rajasthan Spg. & Wvg. Mills [(2009) 13 SCC 448] and
reiterated in para 13 that: (Atul Mohan Bindal case [(2009) 9
SCC 589] , SCC p. 597, para 13)
"13. It goes without saying that for applicability of Section
271(1)(c), conditions stated therein must exist."
12. Therefore, it is obvious that it must be shown that the
conditions under Section 271(1)(c) must exist before the penalty
is imposed. There can be no dispute that everything would
depend upon the return filed because that is the only document,
where the assessee can furnish the particulars of his income.
When such particulars are found to be inaccurate, the liability
would arise.
13. In Dilip N. Shroff v. CIT [(2007) 6 SCC 329] this Court
explained the terms "concealment of income" and "furnishing
inaccurate particulars". The Court went on to hold therein that
in order to attract the penalty under Section 271(1)(c), mens rea
was necessary, as according to the Court, the word "inaccurate"
signified a deliberate act or omission on behalf of the assessee. It
ITA No. 479/2014 Page 8 of 9
went on to hold that clause (iii) of Section 271(1) provided for a
discretionary jurisdiction upon the assessing authority, inasmuch
as the amount of penalty could not be less than the amount of tax
sought to be evaded by reason of such concealment of particulars
of income, but it may not exceed three times thereof. It was
pointed out that the term "inaccurate particulars" was not
defined anywhere in the Act and, therefore, it was held that
furnishing of an assessment of the value of the property may not
by itself be furnishing inaccurate particulars.
14. It was further held in Dilip N. Shroff [(2007) 6 SCC 329] that
the assessee must be found to have failed to prove that his
explanation is not only not bona fide but all the facts relating to
the same and material to the computation of his income were not
disclosed by him. It was then held that the explanation must be
preceded by a finding as to how and in what manner, the
assessee had furnished the particulars of his income. The Court
ultimately went on to hold that the element of mens rea was
essential.
9. In view of the aforesaid position, we do not think any substantial
question of law arises for consideration before us in this appeal. The appeal
is dismissed. No costs.
SANJIV KHANNA, J.
V. KAMESWAR RAO, J.
SEPTEMBER 04, 2014/akb
ITA No. 479/2014 Page 9 of 9
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