IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `D', NEW DELHI
Before Sh. R. S. Syal, AM And Sh. A. T. Varkey, JM
ITA No. 5625/Del/2011 : Asstt. Year : 2006-07
Jain Exports Private Ltd. Vs Deputy Commissioner of Income-
Flat No. 111, Competent House, F- tax, Circle-4(1),
14, Connaught Place, New Delhi
New Delhi-110001
(APPELLANT) (RESPONDENT)
PAN No. AAACJ1215B
Assessee by : Sh. O. P. Mody, Adv.
Revenue by : Dr. B. R. R. Kumar, Sr. DR
Date of Hearing : 02.09.2014 Date of Pronouncement : 4.9.2014
ORDER
Per R. S. Syal, AM:
This appeal by the assessee is directed against the confirmation of
penalty of Rs. 14,90,000/- imposed by the Assessing Officer u/s
271(1)(c) of the Act, in relation to the assessment year 2006-07.
2. Briefly stated the facts of the case are that assessee in the return of
income, inter alia, declared loss of Rs. 44,20,250/- on sale of shares of
M/s Pasupati Haryana Woolen Mills (PHWL) under the heads `Capital
gains'. As against the cost/indexed cost of acquisition of the shares
purchased in earlier years at Rs. 44,26,250/-, the consideration of such
2 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
shares sold during the year was shown at Rs. 6000/-, thereby giving net
loss of Rs. 44,20,250/-. On being called upon to explain as to how there
was sale consideration of Rs. 6000/- against the cost of acquisition of
Rs. 44.26 lac, the assessee stated that these shares were purchased in
Financial Years 1989-90, 1990-91 and 2004, 2005. Since the net worth
of PHWL was completely eroded and it was registered with BIFR, the
market value of this investment came at Rs. Nil. Despite the best efforts,
the company could manage to sell these shares in the instant year for a
lump sum of Rs. 6000/-. The Assessing Officer did not find any
substance in the assessee's explanation about PHWL going into loss in
the years of purchase of shares. It was found that PHWL was registered
with BIFR since 1995 and there was no fresh development in the status
of the company. In the light of the above facts, the Assessing Officer did
not allow the claim of loss of Rs. 44.20 lac. It is on the basis of this
disallowance of loss, that the penalty was imposed. In the mean time,
the assessee was successful before the ld. CIT(A) in quantum
proceedings against the reversal of disallowance of loss of Rs. 44.20
lac, but the Tribunal overturned the CIT(A)'s views and restored the
action of the A.O. By the impugned order, the ld. CIT(A) confirmed the
imposition of penalty by relying on observations made by the Tribunal
in the order passed in quantum proceedings. The assessee is aggrieved
against the sustenance of such penalty.
3 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
3. We have heard the rival submissions and perused the relevant
material on record. There is no dispute on the fact that the assessee
purchased the shares of PHWL in earlier years as mentioned above.
There is further no dispute that the sale of such shares took place in the
previous year relevant to the assessment year under consideration for a
sum of Rs. 6000/-. Under such circumstances, the question arises as to
whether penalty can be imposed on the loss disallowed by the Assessing
Officer claimed in respect of sale of shares. The ld. DR vehemently
relied on the tribunal order upholding the sustenance of disallowance of
loss on sale of shares in quantum proceedings, which formed the
foundation for the imposition of the penalty.
4. We are not fully convinced with the submission of the ld. DR, on
principle, that the sustenance of the disallowance of loss falsifies the
claim of the genuineness and as such penalty is exigible. The criteria for
sustenance of an addition and imposition of penalty are not necessarily
similar. One needs to appreciate the logic of the legislature in keeping
the assessment proceedings distinct from the penalty proceedings. The
reason for keeping these two proceedings separate from each other is
that if the assessee fails to persuade the authorities below in quantum
proceedings about the genuineness of its claim from the angle of
allowability in the quantum proceedings, which forms the bedrock for
the imposition of penalty u/s 271(1)(c) of the Act, the assessee gets
another opportunity of explaining his point of view for non-imposition
4 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
of penalty by demonstrating that there was no concealment of income or
furnishing of inaccurate particulars. If the assessee succeeds in making
out a case in penalty proceedings that either the addition was wrongly
made or even if it was rightly made, but the same cannot give rise to
penalty, then there can be no fetters on the powers of the authorities in
not imposing or deleting the penalty. There is no dearth of the judgments
laying down that the upholding of addition in quantum proceedings
would not automatically and per se lead to the imposition of penalty. If
the assessee succeeds in proving his case during the penalty proceedings,
notwithstanding the fact that the addition has been confirmed by the
Tribunal in the quantum proceedings, the Tribunal can still order for
deletion of penalty, if a case is made out that the assessee was not
caught within the mischief of section 271(1)(c). The Hon'ble Bombay
High Court in CIT Vs Balraj Sahani(1979) 119 ITR 36 (Bom.) has
upheld the deletion of penalty when the addition was confirmed in
quantum proceedings. Similar view has been taken by the Hon'ble
Allahabad High Court in CIT Vs Devi Dyal Aluminium Industries (Pvt.)
Ltd. (1988) 171 ITR 683 (All.). In view of the above cited judgments
and several other laying down the similar proposition, we hold that the
mere fact about the sustenance of disallowance of loss by the Tribunal
in quantum proceedings cannot be a ground for automatic confirmation
of penalty u/s 271(1)(c). This contention of the ld. DR is rejected.
5 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
5. Now we will examine as to whether the parameters for the
imposition of the extant penalty are satisfied in this case. It is noticed
that the Assessing Officer disallowed the loss by noticing that : `No
justification of taking such a low price of sales consideration was
provided by the assessee company'. From the above observations of the
Assessing Officer, it is clear that he disallowed the loss by considering
sale consideration of shares of PHWL at Rs. 6000/- at a very low level.
Except for this presumption that the sale price was low, there is nothing
in the assessment order to indicate that the assessee, in fact, got some
higher price from the sale of shares and declared it at a lower level. The
assessee categorically stated the facts about the attrition of the net worth
of PHWL and it being registered with BIFR. It is further relevant to note
that what the AO found was that PHWL was registered with BIFR even
prior to the date stated by the assessee. Despite these facts and the
assessee making it clear that the shares became worthless and the
assessee could manage to sell these shares for a paltry sum of Rs.6000,
the AO carried out no investigation worth the name to bring on record
some material to disprove the facts stated by the assessee. It goes
without saying that apparent is to be taken as real unless proved
otherwise and the burden to prove that apparent is not real is on the one
who claims so. When we examine the facts, it is found that the AO has
not discharged onus on him to prove that apparent was not real. Except
for the ipse dixit, there is no substantiation of his stand that the sale price
6 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
was manipulated. What to talk of proving such a thing, the AO has not
even taken pains in explaining that the market price of the shares was
more than that realized by the assessee. The ld. CIT(A) has proceeded
to confirm the penalty by holding that the purchase price of such shares
was doctored. We fail to comprehend as to how such a view can be
canvassed given the situation that such shares were purchased in earlier
years and the figure of Investment in shares is only a brought forward
balance. When the purchase price of the shares has not been disputed by
the AO in any of the earlier assessments, how the authorities can canvass
a view in the instant year that such purchase price was inflated in earlier
years. It is trite that the transactions which have not been disputed in the
earlier years cannot be reviewed in the assessment of the subsequent
years. This type of stand would have been admissible if the AO had not
accepted the purchase price of shares as genuine in the assessments of
such years when these shares were purchased. Once these transactions
have been accepted, then it is not possible to take up such issues for
examination in the assessment of the subsequent year. The only
transaction which took place in the instant year is the sale of such shares.
Since there is nothing to show that the sale price of shares was not
properly shown, there can be no question of imposing or confirming any
penalty by presuming that either the sale consideration declared by the
assessee was less or the purchase price of the shares in the earlier years
7 ITA No. 5625/Del/2011
Jain Exports Private Ltd.
was inflated. We, therefore, set aside the impugned order and direct the
deletion of penalty.
6. In the result, the appeal is partly allowed.
Order pronounced in the open Court on 4/9/2014.
Sd/- Sd/-
(A. T. Varkey) (R. S. Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 4/9/2014
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
Date
Initial
1. Draft dictated on 02.09.2014 PS
2. Draft placed before author 02.09.2014 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.
*
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