The ACIT, Ahmedabad Circle-3,, Ahmedabad v. Shri Sushil H.Didwania,, Ahmedabad

ITA 195/AHD/2007 | 2001-2002
Pronouncement Date: 26-02-2010 | Result: Dismissed

Appeal Details

RSA Number 19520514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 195/AHD/2007
Duration Of Justice 3 year(s) 1 month(s) 15 day(s)
Appellant The ACIT, Ahmedabad Circle-3,, Ahmedabad
Respondent Shri Sushil H.Didwania,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 26-02-2010
Date Of Final Hearing 18-02-2010
Next Hearing Date 18-02-2010
Assessment Year 2001-2002
Appeal Filed On 10-01-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI BHAVNESH SAINI AND N S SAINI) ITA NO.195/AHD/2007 (ASSESSMENT YEAR: 2001-02) THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-3 AHMEDABAD V/S SHRI SUSHIL H DIDWANIA PROP. OF SUSHIL & CO. 662/13 H A MARKET KALUPUR AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI GOVIND SINGHAL SR. DR RESPONDENT BY:- SHRI RAMIL H SHAH CA O R D E R PER N S SAINI (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSION ER OF INCOME-TAX (APPEALS)-VI AHMEDABAD [THE CIT(A)] DATED 30-10- 2006 FOR ASSESSMENT YEAR 2001-02 WHEREBY THE CIT(A) HAS CANCELLED THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME-TAX ACT 1961 [THE ACT] A MOUNTING TO RS.16 14 896/-. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.52 86 030/- BEING LOSS INCURRED ON ACCOUNT OF PURCHASE AND SALE OF UNITS OF MUTUAL FUNDS. THE SAME LOSS WAS SE T OFF AGAINST OTHER SHARE TRADING INCOME. MOREOVER THE ASSESSEE WAS ALSO FOU ND TO HAVE PAID RS.27 860/- TO TATA FINANCE SERVICES LTD. AS INTERE ST CHARGES FOR FUNDS UTILIZED FOR PURCHASE OF THESE UNITS. THE AO DISALL OWED THE CLAIM OF LOSS OF RS.52 86 030/- AND CLAIM OF INTEREST EXPENSES OF RS .27 860/- AS PER PROVISIONS OF SECTION 14A OF THE ACT. THE AO ALSO A PPLIED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL & CO. 154 ITR 148. 3 IN APPEAL THE ABOVE DISALLOWANCE WAS RESTRICTED TO RS.46 09 651/- AND RS.27 860/-. AFTER GIVING APPEAL EFFECT PENALT Y PROCEEDINGS INITIATED IN 2 THE COURSE OF ASSESSMENT PROCEEDINGS WAS TAKEN UP. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING LEVY OF PENA LTY U/S 271(1)(C). IN RESPONSE TO THIS THE ASSESSEE FILED A DETAILED SUB MISSION. ON CONSIDERATION OF THE FACTS OF THE CASE AND THE EXPLANATION FILED BY THE ASSESSEE THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS CONCEALED PAR TICULARS OF INCOME TO THE EXTENT OF DISALLOWANCE CONFIRMED BY THE CIT(A) FOR WHICH HE CONSIDERED THIS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C). ACCOR DINGLY HE LEVIED A PENALTY OF RS.16 14 896/- BEING 100% OF TAX SOUGHT TO BE EV ADED. 4 IN APPEAL BEFORE THE CIT(A) THE ASSESSEE FILED W RITTEN SUBMISSION OBJECTING TO LEVY OF PENALTY. THE ASSESSEE SUBMITTE D THAT THERE WAS NO SCOPE FOR DISALLOWANCE OF ASSESSEES CLAIM OF LOSS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS A SETTLED LAW THAT THE PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDINGS ARE DISTINCT AND SEPARATE. T HE FINDING IN THE ASSESSMENT PROCEEDINGS THOUGH RELEVANT AND GOOD FOR MAKING THE QUANTUM ADDITION DOES NOT AUTOMATICALLY JUSTIFY THE IMPOSI TION OF PENALTY AS THE REGULAR ASSESSMENT ORDER IS NOT THE FINAL WORD IN P ENALTY PROCEEDINGS AND HOWSOEVER RELEVANT AND GOOD THE FINDINGS IN THE ASS ESSMENT ORDER MAY BE THEY ARE NOT CONCLUSIVE SO FAR AS THE PENALTY PROCE EDINGS ARE CONCERNED. FOR THE ABOVE PROPOSITION RELIANCE WAS PLACED ON THE FO LLOWING DECISIONS: - BANARAS TEXTORIUM VS. CIT (1988) 169 ITR 782 (ALL) - CIT VS. DHARAMCHAND L SHAH (1993) 204 ITR 462 (BOM) - NATIONAL TEXTILE CORPORATION VS. CIT (2000) 164 CTR 209 (GUJ) B) AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY O UT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI CRIMINAL PROCEEDINGS AND PEN ALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELI BERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATIONS. PENALTY WILL NOT ALSO BE IMPOSE D MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF T HE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. (C) IN THE LANDMARK DECISION OF CIT VS. ANWAR ALI ( 1970) 76 IIR 696 (SC) THE HON'BLE SUPREME COURT LAID DOWN THE FOLLOWING P ROPOSITION OF LAW: 3 'PROCEEDINGS UNDER SECTION 28 OF THE INCOME TAX ACT 1922 ARE PENAL IN CHARACTER. THE GIST OF THE OFFENCE UNDER SECTION 28(L)(C) IS THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOM E OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF SUCH INCOME AND THE BURDEN IS ON THE DEPARTMENT TO ESTABLISH THAT THE RECEIPT OF THE AMOUNT IN DISPUTE CONSTITUTES INCOME OF THE ASSESSEE. IF THERE IS NO EVIDENCE ON THE RECORD EXCEPT THE EXPLANATION GIVEN BY THE ASSESSEE WHICH EXPLANATION HAS BEEN FOUND TO BE FALSE IT DOES NOT FOLLOW THAT THE RECEIPT CONSTITUTES HIS TAXABLE INCOME. IT WOULD BE PERFECTLY LEGITIMATE TO SAY THAT THE MERE FACT THAT THE EXPLA NATION OF THE ASSESSEE IS FALSE DOES NOT NECESSARILY GIVE RISE TO THE INFERENCE THAT THE DISPUTED AMOUNT REPRESENTS INCOME. IT CANNOT BE SAID THAT THE FINDING GIVEN IN THE ASSESSMENT PROCEEDINGS FOR DET ERMINING OR COMPUTING THE TAX IS CONCLUSIVE. HOWEVER IT IS GOO D EVIDENCE. BEFORE PENALTY CAN BE IMPOSED THE ENTIRETY OF CIRCUMSTANCE S MUST REASONABLY POINT TO THE CONCLUSION THAT THE DISPUTED AMOUNT RE PRESENTED INCOME AND THAT THE ASSESSEE HAD CONSCIOUSLY CONCEALED THE PARTICULARS OF HIS INCOME OR HAD DELIBERATELY FURNISHED INACCURATE PAR TICULARS'. THIS DECISION WAS REITERATED AND FOLLOWED ONCE AGAI N BY THE HON'BLE SUPREME COURT IN THE CASE OF ANANTHARAM VEERASINGHA IAH & CO. VS. CIT (1980) 16 CTR (SC) 139: (1980) 123 JTR 457 (SC) 50R .308 BY LAYING DOWN THE FOLLOWING PROPOSITION; 'AN ORDER IMPOSING A PENALTY IS THE RESULT OF QUASI -CRIMINAL PROCEEDINGS AND THE BURDEN LIES ON THE REVENUE TO E STABLISH THAT THE DISPUTED AMOUNT REPRESENTS INCOME AND THAT THE ASSE SSEE HAS CONSCIOUSLY CONCEALED THE PARTICULARS OF HIS INCOME OR HAS DELIBERATELY FURNISHED INACCURATE PARTICULARS. SINCE THE BURDEN OF PROOF IN A PENALTY PROCEEDING VARIES FROM THAT INVOLVED IN AN ASSESSMENT PROCEEDING A FINDING IN AN ASSESSMENT PROCEEDING T HAT A PARTICULAR RECEIPT IS INCOME CANNOT AUTOMATICALLY BE ADOPTED A S A FINDING TO THE EFFECT IN THE PENALTY PROCEEDINGS. IN THE PENALTY P ROCEEDINGS THE TAXING AUTHORITY IS BOUND TO CONSIDER THE MATTER AF RESH ON THE MATERIAL BEFORE IT AND IN THE LIGHT OF THE BURDEN T O PROVE RESTING ON THE REVENUE TO ASCERTAIN WHETHER A PARTICULAR AMO UNT IS A REVENUE RECEIPT NO DOUBT THE FACT THAT THE ASSESSMENT ORD ER CONTAINS A FINDING THAT THE DISPUTED AMOUNT REPRESENTS INCOME CONSTITUTES GOOD EVIDENCE IN THE PENALTY PROCEEDINGS BUT THE FINDING IN THE ASSESSMENT PROCEEDING CANNOT BE REGARDED AS CONCLUSIVE FOR THE PURPOSE OF THE PENALTY PROCEEDINGS. BEFORE A PENALTY CAN BE IMPOSE D THE ENTIRETY OF THE CIRCUMSTANCES MUST BE TAKEN INTO ACCOUNT AND MU ST POINT TO THE CONCLUSION THAT THE DISPUTED AMOUNT REPRESENTS INCO ME AND THAT THE ASSESSEE HAS CONSCIOUSLY CONCEALED PARTICULARS OF H IS INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS. THE MERE FALSITY OF THE EXPLANATION GIVEN BY THE ASSESSEE IS INSUFFICIENT W ITHOUT THERE BEING IN ADDITION COGENT MATERIAL OR EVIDENCE FROM WHICH NECESSARY CONCLUSION ATTRACTING A PENALTY COULD BE DRAWN. 4 SIMILARLY IN ANOTHER SUPREME COURT DECISION IN THE CASE OF CIT VS. KHODAY ESWARSA & SONS 1972 CTR (SC) 295 : (1972) 83 ITR 36 9 (SC) IT WAS HELD AS FOLLOWS:- 'PENALTY PROCEEDINGS BEING PENAL IN CHARACTER THE D EPARTMENT MUST ESTABLISH THAT THE RECEIPT OF THE AMOUNT IN DISPUTE CONSTITUTES INCOME OF THE ASSESSEE. APART FROM THE FALSITY OF THE EXPL ANATION GIVEN BY THE ASSESSEE THE DEPARTMENT MUST HAVE BEFORE IT BEFORE LEVYING PENALTY COGENT MATERIAL OR EVIDENCE FROM WHICH IT COULD BE INFERRED THAT THE ASSESSEE HAS CONSCIOUSLY CONCEALED THE PARTICULARS OF HIS INCOME OR HAD DELIBERATELY FURNISHED INACCURATE PARTICULARS I N RESPECT OF THE SAME AND THAT THE DISPUTED AMOUNT IS A REVENUE RECE IPT. NO DOUBT THE ORIGINAL ASSESSMENT PROCEEDINGS FOR COMPUTING T HE TAX MAY BE A GOOD ITEM OF EVIDENCE IN THE PENALTY PROCEEDINGS B UT PENALTY CANNOT BE LEVIED SOLELY ON THE BASIS OF THE REASONS GIVEN IN THE ORIGINAL ORDER OF ASSESSMENT' D) THE CASE LAW RENDERED PRIOR TO INTRODUCTION OF O RIGINAL EXPLANATION TO SECTION 271(L)(C) COUPLED WITH DELETION OF WORD 'DE LIBERATELY' FROM SECTION 271(L)(C) OF THE ACT REQUIRES TO BE SCRUTINIZED AN D APPLIED WITH SPECIAL CARE. IT IS TRUE THAT EARLIER DECISION OF SUPREME COURT WITH SPECIAL REFERENCE TO CIT VS. ANWAR ALI (SUPRA) LAID DOWN THAT THE PROCE EDINGS UNDER SECTION 28 OF THE REPEALED ACT WERE PENAL IN CHARACTER AND THE BURDEN WAS ON THE DEPARTMENT TO ESTABLISH THAT THE RECEIPT IN QUESTIO N CONSTITUTED INCOME OF THE ASSESSEE. HOWEVER TAKING INTO ACCOUNT THE RULE OF EVIDENCE INTRODUCED VIDE ORIGINAL EXPLANATION AS WELL AS NEW SUBSTITUTE D EXPLANATIONS 1 TO 3 THE INITIAL BURDEN OF PROOF WILL UNDOUBTEDLY BE NOW ON ASSESSEE TO PROVE THE NEGATIVE FACT CONTAINED IN THE RESPECTIVE EXPLANATI ONS 1 TO 3 TO SECTION 271(L)(C) OF THE ACT THIS HOWEVER DOES NOT MEAN T HAT THE INITIAL OR ORIGINAL BURDEN TO ESTABLISH THE CHARGE OF CONCEALMENT OR FU RNISHING INACCURATE PARTICULARS OF INCOME ON THE REVENUE IS NOT TO BE D ISCHARGED ONCE THE ASSESSEE HAS RENDERED HIS EXPLANATION. FOR THIS PRO POSITION REFERENCE MAY BE MADE TO THE LANDMARK DECISION RENDERED BY THE K HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. S.P. BHATT (1974) 97 F TR 440 (GUJ) DEALING WITH THE NATURE OF PROCEEDINGS BURDEN OF PROOF ETC. WIT H SPECIAL REFERENCE TO THE ORIGINAL EXPLANATION INCORPORATED IN SECTION 27 1(1)(C) OF THE ACT. IN THE SAID DECISION IT WAS HELD AS UNDER WHICH HOLDS GOOD EVE N TODAY WHILE CONSTRUING AND APPLYING THE SUBSTITUTED EXPLANATIONS 1 TO 3 TO THE SAID SECTION: 'BUT WHAT IS NECESSARY TO BE BORNE IN MIND IS THAT WHEN WE ARE CONSTRUING THE TRUE MEANING AND EFFECT OF THE EXPLA NATION WE MUST NOT FORGET THAT IT IS THE EXPLANATION WHICH ADDS TO THE RIGOUR OF A HIGHLY PENAL PROVISION AND WE MUST NOT THEREFORE BE OVER ANXIOUS TO ENLARGE THE SCOPE AND AMBIT OF THE EXPLANATION BY M AKING AN EFFORT TO 5 BRING EVERY POSSIBLE CASE WITHIN IT BUT WE SHOULD INSTEAD CONSTRUE THE EXPLANATION AND APPLY IT IN A FAIR AND REASONABLE W AY WITH A VIEW TO ACHIEVING THE PURPOSES OF THE MAIN PROVISION NAMEL Y THAT AN ASSESSEE WHO HAD CONCEALED THE PARTICULARS OF HIS I NCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME SHOULD NOT ES CAPE PENALTY.........' IT WAS FURTHER HELD WITH REFERENCE TO THE QUANTUM O F PROOF OR DEGREE OF PROOF REQUIRED BY THE ASSESSEE IN DISCHARGING THE S TATUTORY PRESUMPTION IN THE FOLLOWING TERMS: 'IF THE ASSESSEE WANTS TO REPEL THE LEGAL FICTION A ND THROW THE BURDEN OF BRINGING THE CASE WITHIN SECTION 271(L)(C) AGAIN ON THE REVENUE AS IT WOULD BE IN THE ABSENCE OF THE EXPLANATION THE ASSESSEE HAS TO SHOW AND THIS BURDEN IS UPON HIM - THAT HIS FAILURE TO RETURN THE CORRECT INCOME DID NOT ARISE FROM ANY FRAUD OR GROS S OR WILLFUL NEGLECT ON HIS PART. NOW THIS BURDEN IS NOT OF THE SAME NA TURE AS THE BURDEN WHICH RESTS ON THE PROSECUTION IN A CRIMINAL CASE W HERE THE PROSECUTION HAS TO ESTABLISH THE GUILT OF THE ACCUS ED BEYOND REASONABLE DOUBT NOR IS IT OF THE SAME NATURE AS TH E BURDEN WHICH LIES UPON THE REVENUE IN ESTABLISHING THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. IT IS A BURDEN AKIN TO THAT IN A CIVIL CASE WHERE THE DETERMINATION IS MADE ON PREPONDERANCE OF PROBABILI TIES. IT IS ALSO NOT NECESSARY THAT ANY POSITIVE MATERIAL SHOULD BE PRODUCED BY THE ASSESSEE IN ORDER TO DISCHARGE THIS BURDEN WHICH RE STS UPON HIM. THE ASSESSEE MAY CLAIM TO HAVE DISCHARGED THE BURDEN BY RELYING ON THE MATERIAL WHICH IS ON RECORD IN THE PENALTY PROCEEDI NGS IRRESPECTIVE OF WHETHER IT IS PRODUCED BY HIM OR BY THE REVENUE.. . ... ..' THE ABOVE OBSERVATIONS OF THE HON'BLE GUJARAT HIGH COURT WILL GO TO SHOW THAT THE ONUS OF PROOF OR BURDEN OF PROOF EVEN AFT ER INTRODUCTION OF EXPLANATION IS NOT STATIC AND WILL GO ON OSCILLATI NG AND AFTER INITIAL DISCHARGE OF BURDEN MORE OR LESS BY THE ASSESSEE THE BURDEN IS AGAIN THROWN BAC K ON THE REVENUE TO PROVE THE DEFAULT WITHIN THE WELL ES TABLISHED MEANING OF SECTION 271(L)(C) OF THE ACT. THIS CAN OF COURSE BE DISCHARGED BY THE REVENUE ONCE AGAIN BY POINTING OUT INHERENT DEFECTS AND/OR ABSURDITY IN THE ASSESSEES EXPLANATION OR BY ADDUCING COGENT AND CL EAR EVIDENCE IN REBUTTAL SO AS TO ESTABLISH THE GUILT OR DEFAULT OF THE ASSE SSEE UNDER THE SAID PROVISIONS. E) THE MANNER IN WHICH THE EXPLANATION OF THE ASSES SEE [WHILE REBUTTING LEGAL PRESUMPTION IN ANY OF THE SAID EXPLANATIONS T O SECTION 271(L)(C) SHOULD BE APPRECIATED IS WELL LAID DOWN BY HON'BLE SUPREME COURT AND MADRAS HIGH COURT IN THE FOLLOWING TWO JUDGEMENTS AS UNDER:- (A) SREELEKHA BANERJEE VS. CIT (1963) 49 ITR112 (SC ) 6 'BEFORE THE DEPARTMENT REJECTS SUCH EVIDENCE IT MU ST EITHER SHOW AN INHERENT WEAKNESS IN THE EXPLANATION OR REBUT IT BY PUTTING TO THE ASSESSEE SOME INFORMATION OR EVIDENCE WHICH IT HAS IN ITS POSSESSION. THE DEPARTMENT CANNOT BE MERELY REJECTING UNREASONA BLY A GOOD EXPLANATION CONVERT GOOD PROOF INTO NO PROOF'. (B) S. HASTMAL VS. CIT (1963) 49 ITR 273 (MAD): ''AFTER THE LAPSE OF A DECADE AN ASSESSEE SHOULD N OT BE PLACED UPON THE RACK AND CALLED UPON TO EXPLAIN NOT MERELY THE ORIGIN AND SOURCE OF A CAPITAL CONTRIBUTION BUT THE ORIGIN OF ORIGIN AND SOURCE OF SOURCE AS WELL. THE DIFFICULTY ON THE PART OF ANY ASSESSEE TO EXPLAIN A TRANSACTION WHICH TOOK PLACE BEFORE A DECADE HAS TO BE BORNE IN MIND BY THE DEPARTMENT AND SHOULD UNDER NO CIRCUMSTANCES BE UNDER- ESTIMATED OR TAKEN ADVANTAGE OF BY THEM'. F) AS REGARDS DISCHARGE OF NEGATIVE BURDEN BY THE A SSESSEE IT IS SUBMITTED THAT ASSUMING FOR A WHILE THAT THE EXPLANATION TO S ECTION 271(L)(C) OF THE ACT IS ATTRACTED THE BROAD PROBABILITIES OF THE EXPLAN ATION OFFERED BY THE ASSESSEE ARE SUCH AS MAY BE BELIEVED THOUGH NOT SU FFICIENT FOR CONCLUSIVE PROOF THE INITIAL ONUS TO PROVE SUCH A NEGATIVE FA CT CAN WELL BE SAID TO HAVE BEEN DISCHARGED BY THE ASSESSEE AS HELD BY THE HON' BLE PATNA HIGH COURT IN THE CASE OF CIT VS. NIPANI TOBACOO STORES (1984) 14 5 ITR 128 (PAT). IT IS CONTENDED HERE THAT THE DEGREE OR STANDARD OF PROOF REQUIRED IN CRIMINAL OR QUASI-CRIMINAL CASES IS HIGHER OR STRICTER THAN THA T REQUIRED IN A CIVIL CASE. IN CIVIL PROCEEDINGS THE NORMAL RULE IS THAT A FACT C AN BE SAID TO BE ESTABLISHED IF IT IS PROVED BY A PREPONDERANCE OF PROBABILITIES . G) THE BURDEN IS ON THE DEPARTMENT TO PROVE THE CONCEALMENT UNDER THE MAIN SECTION OF 271(L)(C) AND IT IS ONLY WHEN THE E XPLANATION APPLIES THAT THE ONUS SHIFTS TO THE ASSESSEE TO PROVE THAT HIS EXPLANATION IS NO T FALSE. RELIANCE R PLACED ON THE FOLLOWING DECISION FOR THE ABOVE PROP OSITION: A) T.N. SRIDHARAN VS. IAC (1999) 70 ITD 48/ 65 TTJ 367 (CHENNAI) (T.M.) 3. THAT AS EVIDENT FROM THE FACTS OF THE APPELLANT' S CASE; IT IS CLEAR THAT IT IS MERELY A CASE OF DIFFERENCE IN OPINION BETWEEN THE APPELLANT AND REVENUE IN SUPPORT OF THE PROPOSITION OF LAW THAT MERE REJE CTION OF THE PLAUSIBLE EXPLANATION FURNISHED BY THE ASSESSEE DOES NOT WARR ANT PENALTY U/S. 271(L)(C) OF THE ACT RELIANCE IS PLACED ON THE DEC ISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SHIV LAL TSK VS. CTT (200 1) 251ITR 373 (RAJ.) WHEREIN INTERALIA IT IS HELD AS UNDER: 'THOUGH THE EXPRESSION 'FAILURE TO RETURN THE TOTAL ASSESSED INCOME AS NOT ARISING ON ACCOUNT OF ANY FRAUD OR WILLFUL NEGL IGENCE ON PART OF THE ASSESSEE' DOES NOT FIND PLACE IN EXPLANATION 1 TO S ECTION 271(L)(C) OF THE INCOME TAX ACT 1961 YET CLAUSE (B) READ WITH THE PROVISO (II) TO 7 SECTION 271(1} MAKES IT CLEAR THAT WHERE THE DIFFER ENCE BETWEEN THE ASSESSED INCOME AND THE RETURNED INCOME DOES NOT AR ISE ON ACCOUNT OF ANY GROSS OR WILLFUL NEGLIGENCE ON THE PART OF T HE ASSESSEE NO PENALTY IS LEVIABLE. THE STATUTE HAS CLEARLY DRAWN A DISTINCTION BETWEEN A DELIBERATE FALSE EXPLANATION FURNISHED BY THE ASSESSEE AND AN EXPLANATION WHICH MAY NOT BE FALSE BUT IS NOT ACCEPTED BECAUSE THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE IT. WHILE THERE IS NO RELAXATION IN THE RIGOUR OF THE EXPLANATION IN RAIS ING A PRESUMPTION AGAINST THE ASSESSEE IN THE FORMER CASE IN THE LAT TER CLASS OF CASES THE STATUTE ITSELF RELAXES ITS RIGOUR BY DIRECTING THAT WHERE IN RESPECT OF ANY AMOUNT ADDED OR DISALLOWED AND ANY EXPLANAT ION IS OFFERED BY SUCH PERSON WHICH IS NOT ACCEPTED BECAUSE THE ASSES SEE HAS FAILED -TO SUBSTANTIATE THE SAME BUT SUCH EXPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY HIM THE EXPLAN ATION SHALL NOT APPLY'. IN VIEW OF THE ABOVE ELABORATE FACTS SUBMISSIONS A ND LEGAL POSITION ON BOTH MERITS OF THE ADDITION MADE BY THE AO ON WHICH THE IMPUGNED PENALTY HAS BEEN LEVIED AS WELL AS MERITS IN SUPPORT OF NON-LEV Y OF PENALTY THE IMPUGNED PENALTY OF RS.16 14 896/- REQUIRES TO BE D ELETED. 5.1 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE P ENALTY IS BASED ON DISALLOWANCE OF LOSS INCURRED BY THE APPELLANT O N ACCOUNT OF SALE AND PURCHASE OF UNITS OF DIFFERENT MUTUAL FUNDS. TH E DISALLOWANCE HAS BEEN CONFIRMED TO THE EXTENT OF RS.46 09 651/- BY T HE ID. CIT(A). IN ADDITION TO THIS THE PENALTY IS ALSO LEVIED ON RS. 27 860/- BEING INTEREST AMOUNT DISALLOWED BY THE AO. THERE ARE DIV ERGENT OPINIONS OF THE COURTS RELATING TO ALLOWANCE OF CLAIM OF LOSS I N A DIVIDEND STRIPPING TRANSACTION. IN THE FOLLOWING DECISIONS THE COURTS HAVE HELD THAT LOSS ON ACCOUNT OF TRADING IN UNITS OF MUTUAL FUNDS ARE ALLOWABLE AS DEDUCTION. IT IS ALSO HELD THAT THE PRINCIPLE LAID DOWN BY THE HON'BLE S.C. IN MCDOWELL'S CASE ARE NOT APPLICABLE TO SUCH TRANSACTIONS WHERE SALE AND PURCHASE OF UNITS ARE CARRIED ON THE BASIS OF RATES PREVALENT ON RESPECTIVE DATES AND THE ASSESSEE COMPANY HAS NO CONTROL OVER THE PRICES OF THESE MUTUAL FUNDS. CASE CITATION ASST.YEAR WALLFORT SHARES & STOCK BROKERS LTD. (ITAT SPECIAL BENCH MUMBAI) ITA NO.8020/MUM/2003 & 2307/MUM/2004 2000-01 & 2001-02 ITAT RAJKOT IN THE CASE OF SMT. BHANUBEN CHIMANLAL MALAVIA 100 TTJ 337 (RJT) 2001-02 8 JYOTIPRASAD AGARWAL CIT(A)-XVII AHMEDABAD CIT(A)- XVII/WD.11(1)/0 8/04- 05 2001-02 BRIJMOHAN AGARWAL. CIT(A)-XVII AHMEDABAD CIT(A)- XVII/WD.11(3)/3 2/2004-05 2001-02 DHIREN VORA CIT(A)-I AHMEDABAD CIT(A)- I/CC.1(3)/40/04 -05 2001-02 5.2 THE AO HAD A DIFFERENT VIEW ON SUCH CLAIM. ACCO RDING TO HIS INTERPRETATION OF SECTION 14A THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF LOSS ON ACCOUNT OF SALE AND PURCHASE O F THESE UNITS. THE LD. CIT(A) HAS UPHELD THIS VIEW OF THE AO. THUS IN THE ASSESSEE'S CASE THE DISALLOWANCE IS MADE PURELY ON A QUESTION OF LA W. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS SUPPRESSED ANY MATERIAL FACT OR HAS FURNISHED ANY WRONG PARTICULARS WHILE CLAIMING THE LOSS. THEREFORE DISALLOWANCE OF THE LEGAL CLAIM CANNOT A TTRACT PENALTY U/S 271 (L)(C). 5.3 FURTHER THE APPELLANT'S CLAIM IS SUPPORTED BY A NUMBER OF DECISIONS QUOTED ABOVE. IN ANY CASE THE ISSUE BECO MES DEBATABLE ON WHICH CLEARLY TWO OPINIONS ARE POSSIBLE. IN THE CAS E OF CIT VS. HARSHVARDHAN CHEMICALS & MINERAL LTD. 259 ITR 212 THE HON'BLE RAJ'ASTHAN HIGH COURT (JAIPUR BENCH) HAVE HELD AS U NDER: 'FROM THE FOREGOING DISCUSSION IT FOLLOWS THAT SUCH A DEDUCTION COULD BE AN ARGUABLE CONTROVERSIAL OR A DEBATABLE QUESTION. IN SUCH A SITUATION THE CLAIM COULD NOT BE SAID TO BE FALSE. IF THIS WERE NOT SO IT WOULD BECOME IMPOSSIBLE FOR ANY ASS ESSEE TO RAISE ANY CLAIMS OR CLAIM ANY DEDUCTIONS WHICH ARE DEBATABLE. IT IS NOT CERTAINLY THE INTENTION OF THE LEGISLATURE T O MAKE PUNISHABLE SUCH CLAIMS OR DEDUCTIONS UNDER SECTION 271(1)(C) IF THEY ARE NOT ACCEPTED.' AFFIRMING THE DECISION OF THE APPELLATE TRIBUNAL T HE HON'BLE COURT IN THIS CASE HAVE HELD THAT NO PENALTY IS LEVIABLE WHE N THE ASSESSEE HAS CLAIMED DEDUCTION OF AN AMOUNT THAT WAS DEBATABLE. IT COULD NOT BE SAID THAT THE ASSESSEE HAS CONCEALED AN Y INCOME OR FURNISHED INACCURATE PARTICULARS FOR EVASION OF TAX . 5.4 WHERE ASSESSEE CLAIMS A DEDUCTION WHICH IS NOT PERMITTED BY ACT IT DOES NOT TANTAMOUNT TO CONCEALMENT (DEVIDAS SUKHANI VS ITO (JODH) ITA NO.387 OF 2005 DATED 21.4.2006). 5.5 WHERE THE ASSESSEE HAD DISCLOSED ALL MATERIAL F ACTS PERTAINING TO THE COMPUTATION OF INCOME AND THE SAME WERE NOT FOUND FALSE BUT 9 THE ADDITIONS / DISALLOWANCES WERE MADE ON ACCOUNT OF DIFFERENCE OF OPINION IT COULD NOT BE SAID THAT HE EITHER CONCEA LED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS THERE OF (NUCHEM LTD. VS DY. CIT (1993) 47 ITD 487 (DELHI). 6 THE APPELLANTS CASE IS SQUARELY COVERED BY THE A BOVE DECISIONS. ON CONSIDERATION OF THE FACTS OF THE CASE AND FOLLO WING THE DECISIONS CITED ABOVE I HOLD THAT PENALTY CANNOT BE LEVIED I N THE CASE OF APPELLANT WHERE ITS CLAIM OF LOSS INCURRED IN PURCH ASE AND SALE OF UNITS OF MUTUAL FUND AND INTEREST ON BORROWED FUNDS UTILI ZED FOR SUCH PURCHASE HAVE BEEN DISALLOWED. ACCORDINGLY THE PEN ALTY LEVIED BY THE AO IS CANCELLED. 5 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER. 6 THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSE SSEE SUPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS). 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION OF LOSS OF RS.52 86 030/- ON PURCHASE AND SALE OF UNITS OF MUTUAL FUNDS AND CLAIMED SET OFF O F THE SAME AGAINST ITS SHARE TRADING INCOME. THE ASSESSEE ALSO CLAIMED INT EREST OF RS.27 860/-ON FUNDS UTILIZED FOR PURCHASE OF THESE UNITS. THE LEA RNED ASSESSING OFFICER DISALLOWED THE CLAIM OF LOSS AND INTEREST TO THE AS SESSEE U/S 14A OF THE ACT. IN APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX ( APPEALS) RESTRICTED THE DISALLOWANCE OF LOSS TO RS.46 09 651/- AND RS.27 86 0/-. THEREAFTER THE AO LEVIED PENALTY U/S 271(1)(C) OF THE ACT FOR CONCEAL MENT OF INCOME OF RS.16 14 896/- BEING 100 % OF TAX SOUGHT TO BE EVAD ED WHICH WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) BY OBSERVING AS UNDER:- 5.1 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE P ENALTY IS BASED ON DISALLOWANCE OF LOSS INCURRED BY THE APPELLANT O N ACCOUNT OF SALE AND PURCHASE OF UNITS OF DIFFERENT MUTUAL FUNDS. TH E DISALLOWANCE HAS BEEN CONFIRMED TO THE EXTENT OF RS.46 09 651/- BY T HE ID. CIT(A). IN ADDITION TO THIS THE PENALTY IS ALSO LEVIED ON RS. 27 860/- BEING INTEREST AMOUNT DISALLOWED BY THE AO. THERE ARE DIV ERGENT OPINIONS OF 10 THE COURTS RELATING TO ALLOWANCE OF CLAIM OF LOSS I N A DIVIDEND STRIPPING TRANSACTION. IN THE FOLLOWING DECISIONS THE COURTS HAVE HELD THAT LOSS ON ACCOUNT OF TRADING IN UNITS OF MUTUAL FUNDS ARE ALLOWABLE AS DEDUCTION. IT IS ALSO HELD THAT THE PRINCIPLE LAID DOWN BY THE HON'BLE S.C. IN MCDOWELL'S CASE ARE NOT APPLICABLE TO SUCH TRANSACTIONS WHERE SALE AND PURCHASE OF UNITS ARE CARRIED ON THE BASIS OF RATES PREVALENT ON RESPECTIVE DATES AND THE ASSESSEE COMPANY HAS NO CONTROL OVER THE PRICES OF THESE MUTUAL FUNDS. CASE CITATION ASST.YEAR WALLFORT SHARES & STOCK BROKERS LTD. (ITAT SPECIAL BENCH MUMBAI) ITA NO.8020/MUM/2003 & 2307/MUM/2004 2000-01 & 2001-02 ITAT RAJKOT IN THE CASE OF SMT. BHANUBEN CHIMANLAL MALAVIA 100 TTJ 337 (RJT) 2001-02 JYOTIPRASAD AGARWAL CIT(A)-XVII AHMEDABAD CIT(A)- XVII/WD.11(1)/0 8/04- 05 2001-02 BRIJMOHAN AGARWAL. CIT(A)-XVII AHMEDABAD CIT(A)- XVII/WD.11(3)/3 2/2004-05 2001-02 DHIREN VORA CIT(A)-I AHMEDABAD CIT(A)- I/CC.1(3)/40/04 -05 2001-02 5.2 THE AO HAD A DIFFERENT VIEW ON SUCH CLAIM. ACCO RDING TO HIS INTERPRETATION OF SECTION 14A THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF LOSS ON ACCOUNT OF SALE AND PURCHASE O F THESE UNITS. THE LD. CIT(A) HAS UPHELD THIS VIEW OF THE AO. THUS IN THE ASSESSEE'S CASE THE DISALLOWANCE IS MADE PURELY ON A QUESTION OF LA W. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS SUPPRESSED ANY MATERIAL FACT OR HAS FURNISHED ANY WRONG PARTICULARS WHILE CLAIMING THE LOSS. THEREFORE DISALLOWANCE OF THE LEGAL CLAIM CANNOT A TTRACT PENALTY U/S 271 (L)(C). 5.3 FURTHER THE APPELLANT'S CLAIM IS SUPPORTED BY A NUMBER OF DECISIONS QUOTED ABOVE. IN ANY CASE THE ISSUE BECO MES DEBATABLE ON WHICH CLEARLY TWO OPINIONS ARE POSSIBLE. IN THE CAS E OF CIT VS. HARSHVARDHAN CHEMICALS & MINERAL LTD. 259 ITR 212 THE HON'BLE RAJ'ASTHAN HIGH COURT (JAIPUR BENCH) HAVE HELD AS U NDER: 'FROM THE FOREGOING DISCUSSION IT FOLLOWS THAT SUCH A DEDUCTION COULD BE AN ARGUABLE CONTROVERSIAL OR A DEBATABLE QUESTION. IN SUCH A SITUATION THE CLAIM COULD NOT BE SAID TO BE FALSE. IF THIS 11 WERE NOT SO IT WOULD BECOME IMPOSSIBLE FOR ANY ASS ESSEE TO RAISE ANY CLAIMS OR CLAIM ANY DEDUCTIONS WHICH ARE DEBATABLE. IT IS NOT CERTAINLY THE INTENTION OF THE LEGISLATURE T O MAKE PUNISHABLE SUCH CLAIMS OR DEDUCTIONS UNDER SECTION 271(1)(C) IF THEY ARE NOT ACCEPTED.' AFFIRMING THE DECISION OF THE APPELLATE TRIBUNAL T HE HON'BLE COURT IN THIS CASE HAVE HELD THAT NO PENALTY IS LEVIABLE WHE N THE ASSESSEE HAS CLAIMED DEDUCTION OF AN AMOUNT THAT WAS DEBATABLE. IT COULD NOT BE SAID THAT THE ASSESSEE HAS CONCEALED AN Y INCOME OR FURNISHED INACCURATE PARTICULARS FOR EVASION OF TAX . 5.4 WHERE ASSESSEE CLAIMS A DEDUCTION WHICH IS NOT PERMITTED BY ACT IT DOES NOT TANTAMOUNT TO CONCEALMENT (DEVIDAS SUKHANI VS ITO (JODH) ITA NO.387 OF 2005 DATED 21.4.2006). 5.5 WHERE THE ASSESSEE HAD DISCLOSED ALL MATERIAL F ACTS PERTAINING TO THE COMPUTATION OF INCOME AND THE SAME WERE NOT FOUND FALSE BUT THE ADDITIONS / DISALLOWANCES WERE MADE ON ACCOUNT OF DIFFERENCE OF OPINION IT COULD NOT BE SAID THAT HE EITHER CONCEA LED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS THERE OF (NUCHEM LTD. VS DY. CIT (1993) 47 ITD 487 (DELHI). 6 THE APPELLANTS CASE IS SQUARELY COVERED BY THE A BOVE DECISIONS. ON CONSIDERATION OF THE FACTS OF THE CASE AND FOLLO WING THE DECISIONS CITED ABOVE I HOLD THAT PENALTY CANNOT BE LEVIED I N THE CASE OF APPELLANT WHERE ITS CLAIM OF LOSS INCURRED IN PURCH ASE AND SALE OF UNITS OF MUTUAL FUND AND INTEREST ON BORROWED FUNDS UTILI ZED FOR SUCH PURCHASE HAVE BEEN DISALLOWED. ACCORDINGLY THE PEN ALTY LEVIED BY THE AO IS CANCELLED. THE CONTENTION OF THE ASSESSEE WAS THAT THE CONSIDE RATIONS WHICH APPLY IN ASSESSMENT PROCEEDINGS ARE DIFFERENT THAN THE CONSI DERATIONS WHICH APPLY IN PENALTY PROCEEDINGS. THE LEARNED DEPARTMENTAL REPRE SENTATIVE SUPPORTED THE ORDER OF THE AO BUT COULD NOT POINT OUT ANY SPE CIFIC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE TRANSACT IONS ENTERED INTO BY THE ASSESSEE FOR PURCHASE AND SALE OF UNITS WERE GENUIN E TRANSACTIONS AND ON WHICH THE ASSESSEE ACTUALLY SUFFERED LOSS. IT IS NO T A CASE WHERE THE ASSESSEE TO REDUCE ITS TAX LIABILITY HAS SHOWN A SHAM TRANSA CTION. THUS THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS FULLY JUST IFIED IN DELETING THE 12 PENALTY LEVIED U/S 271(1)(C) OF THE ACT WHICH WAS D ONE FOLLOWING THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HARSHVARDHAN CHEMICALS & MINERALS LTD. 259 ITR 212 (RAJ). WE THEREFORE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE O RDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). THEREFORE TH E APPEAL OF THE REVENUE IS DISMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 26-02-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 26-02-2010 COPY OF THE ORDER FORWARDED TO : 1. SHRI SUSHIL H DIDWANIA PROP. OF SUSHIL & CO. 6 62/13 H A MARKET KALUPUR AHMEDABAD 2. THE ACIT CIRCLE-3 AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-VII AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR ITAT AHMEDABAD