Income Tax Appellate Tribunal - Chandigarh
Ankit Deposits And Advances P. Ltd.,, ... vs Assessee on 8 August, 2014
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
MS. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA Nos. 1096 & 1097/CHD/2009
Assessment Years: 2002-03 & 2003-04
Ankita Deposits And Advances P. Ltd., Vs. The DC IT
Parwanoo Parwanoo
PAN No. AABCA5524J
(Appellant) (Respondent)
Appellant By : Shri. Surinder Babbar
Respondent By : Smt Manjit Singh
Date of hearing : 23/07/2014
Date of Pronouncement: 08/08/2014
ORDER
PER T.R.SOOD, A.M.
Both the appeals have been filed by the assessee against the common order dated 10/9/2009 of C IT(Appeals), Shimla.
2. In both these appeals similar grounds been raised, therefore, the appeals were heard together and are being decided with common order.
3. First we shall deal with ITA No. 1096/Chd/2009 wherein the onl y ground raised by the assessee is as under:-
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals), Shimla, has grossly erred both in law and on facts of the case in confirming the penalty of Rs. 1,26,98,414/- imposed by the learned Deputy Commissioner of Income-tax, Parwanoo, u/s 271(1)(c) of the Income-tax Act, 1961.2
4. After hearing both the parties, we find that during assessment proceedings the Assessing Officer noticed that assessee has declared income under the head 'capital gains'. It was further noticed that assessee was engaged in the business of investment as well as trading of shares. After detailed discussion, the income from capital gain was held to be assessable under the head 'income from business and profession' because according to Assessing Officer the shares were purchased for trading purposes. Further it was noticed that assessee has claimed deduction u/s 80G amounting to Rs. 5,05,000,00/- but the assessee had not filed any evidence regarding exemption u/s 80G and, therefore, this deduction was denied. Accordingl y, the income was computed under the head 'business and profession' and penalt y proceedings u/s 271(1)(c) of the act were also initiated.
5. In response to the show cause notice for levy of penalt y, written submissions were filed through which it was mainl y explained that assessee had filed all the details to justify the claim which was not accepted by the Department during the assessment proceedings but this does not mean that assessee has concealed any particulars of income. It was further stated that assessee has converted the stock in trade into investments on 31.3.1999 and this position was accepted by the Revenue in assessment years 1999-2000, 2000-01, 2001-02 and, therefore, was under the bonafide belief that treatment by the assessee was correct.
6. After considering this explanation the Assessing Officer did not find any force in the same and observed that in the preceding three years there was no scrutiny assessment and return was processed u/s 143(1) and, therefore, it cannot be said that Revenue has accepted the position declared by the assessee. He further observed that rejection of the claim by the Department has been confirmed by the Tribunal also and, therefore, penal provision are clearl y 3 attracted and accordingl y he levied minimum penalt y amounting to Rs. 1,26,98,414/-.
8. On appeal before Ld. C IT(A), the submissions made before Assessing Officer were reiterated and it was further submitted that in fact no deduction u/s 80G was claimed because the amount of donation was added back in the computation by the assessee itself. Certain case laws were also relied.
9. The Ld. C IT(A) after considering the submissions did not find force in the same and confirmed the action of the Assessing Officer.
10. Before us Ld. counsel for the assessee submitted that before 31.3.1999, the assessee was doing the business of sale and purchase of shares and shares were reflected in the balance sheet as stock in trade and the income was returned under the head income from business and profession. On 31.3.1999, all the shares were converted into investment and thereafter the profits were declared under the head 'income from capital gains'. There is no bar on conversion of stock in trade into investment and this is recognized even under the Income Tax Act. Merel y because income from capital gain accepted by the Revenue in earlier years i.e. assessment year 1999-2000, 2000-01 and 2001-02 was accepted u/s 143(1) i.e. without scrutiny does not mean that treatment given by the assessee is wrong. In fact assessee has not concealed any particulars of income and declaration of income under the head 'capital gain' was as per the decision taken by the management to treat the shares as investments. The assessee has not concealed any particulars of income and also not furnished any inaccurate particulars of income, therefore, penal provisions cannot be applied and in this regard he relied on the decision of Hon'ble Supreme Court in the case of CIT v Reliance Petroproducts Pvt Ltd. 322 ITR 158. He also submitted that mere change in the head of income does not lead to penalt y consequences 4 and in this regard he relied on the decision of Delhi Bench of the Tribunal in the case of CIT v JMT Advisors P Ltd (2010) 124 ITD 223(Delh). He further submitted that in similar circumstances the Hon'ble Delhi High Court in the case of C IT v Amit Jain 351 ITR 74 (Delhi) where the assessee has shown the income under the head 'short term capital gain' but the same was assessed to the head 'business income', the penalt y was held to be not justified. 11 On the other hand, the Ld. DR submitted that assessment to gains from the shares was made by the Assessing Officer under the head 'income from business and profession' and this decision was confirmed by the Tribunal as well as by the Hon'ble High Court of Himachal Pradesh. He then referred to the decision of Hon'ble High Court of Himachal Pradesh in assessee own case reported at 235 CTR (HP) 273 and particularl y invited our attention to para 19 wherein it is clearl y observed that it was onl y assessee who reall y can tell the facts whether shares were held as investment or stock in trade. Once the assessee has failed to disclose the proper particulars, the penal action is justified.
12. We have considered the rival submissions carefull y and find that in this case the income from sale of shares was declared under the head 'income from long term capital gain' which was held to be income from 'business and profession'. Ultimatel y, the matter traveled to the Hon'ble High Court of Himachal Pradesh and the High Court observed at para 19 as under:-
19.The law is very well settled that the onus is on the assessee to show that his investment is a long-term investment. Whether a particular holding of shares is by way of long-term investment or is a stock-in-trade is a matter solely within the knowledge of the assessee who holds the shares. Normally, it is the assessee along who would be in a position to produce evidence whether he has maintained any distinction between those shares which are stock-in-trade and those shares which are long-term 5 investment. Another important principle of law is that the initial intention of the assessee as to whether he holds the shares as stock -in-trade or his investment is relevant and has to be taken into consideration while deciding the nature of holding of the assessee. Normally when the assessee is engaged in the business of buying and selling the shares, the profit or loss on such shares would be the profit and loss of such business unless the assessee establishes that the shares in question were bought as a long-term investment. In the P&L a/c in the year ending 1995-96 the assessee suffered loss of Rs. Five lacs on the shares. It had also received some income. The loss in the sale of shares was adjusted against the income by treating it as a loss from business. The entire holding of the assessee company in various shares including the shares of the company sale of which led to the profit with which we are concerned were valued and reflected as stock-in-trade. Similar is the position for the asst.
yrs. 1996-97, 1997-98 and 1998-99. It is only thereafter that the assessee started reflecting the stock of shares of Information Technology under the head of investment. Earlier in the year 1998-99 the profit made from the sale of shares of this very company (Information Technology) was reflected in the P&L a/c. It is apparent that due to issuance of bonus shares and splitting of shares the value of the shares of Information Technology rose sharply and realizing that the company would be liable to pay 30 per cent tax, the assessee started claiming the profits realized from sale of these shares as long-term capital gains. After going through the entire record the Revenue authorities have come to the conclusion that the shares of Information Technology were purchased by the assessee not by way of assessment (sic- investment) but by way of trading. This is a pure finding of fact and not of law. It is true that the principles of law have to be applied and the question as to whether certain shares had been purchased by way of trade or by way of investment may be a mixed question of fact and law but if the authorities have properly considered the legal position then the resultant finding is basically a finding of fact. In the present cases, we find no error in the orders of the Revenue. Therefore, we answer the second question against the assessee and in favour of the Revenue."
6
13. From the above, it becomes clear that it was a finding of fact that shares were not held as investment which was confirmed by the Hon'ble High Court. However, at the same tome we find that there is no bar in the Companies Act to convert the stock in trade into investments. Merel y because the assessee has treated a particular item of income and the Revenue has changed that treatment would not attract the penal action. The Hon'ble Supreme Court in the case of Cement Marketing Co. of India Ltd v Assistant Commissioner of Sales Tax 124 ITR 15 observed as under:-
"If the view canvassed on behalf of the Revenue were accepted, the result would be that even if the assessee raises a bonafide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the court to be not acceptable. That surely could never have been intended by the legislature."
From the above, it becomes clear that wherever the assessee has a bonafide explanation to treat an item in a particular fashion and if that view is not accepted then the same cannot be fastened with penal consequences. This position further becomes clear from the decision of Hon'ble Supreme Court in the case of CIT v Reliance Petroproducts (P) Ltd wherein it was observed as under;-
"A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, 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. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, 7 the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, 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. The attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous."
14 In the case before us, the assessee has dul y disclosed the facts regarding sale of shares but the onl y difference is that since shares were treated as investment, therefore, gains were declared under the head 'capital gain' whereas same were assessed as income from business and profession by the Assessing Officer. This cannot be called to be a case of concealment of income or furnishing of inaccurate particulars of income.
15. In any case merel y the change in the heads of income would not lead to levy of penalt y u/s 271(1)(c) of the Act. In this regard the Hon'ble Delhi High Court in the case of CIT v Amit Jain 351 ITR 74 (Delhi) wherein the assessee declared an income of Rs. 2,60,73,558/- from short-term capital gains and the Assessing Officer on an interpretation of the relevant provisions and having regard to the nature of transactions assessed it as income from business. He also levied penalt y under section 271(1)(c) of the Income-tax Act, 1961, to the tune of Rs. 58,45,899/- on the ground that the assessee had furnished inaccurate particulars of his income. The Commissioner (Appeals) cancelled the penalt y. This was confirmed by the Tribunal.
16. On appeal, the Hon'ble Delhi High Court held as under:- 8
"Held, dismissing the appeal, 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 could not be characterize the particulars or reported in the return as "inaccurate particulars" or as suppression of facts. Therefore, the Tribunal was not in error in deleting the penalty.
17. As far as the issue of rejection of claim on account of donation u/s 80G, we find force in the submissions of Ld. counsel for the assessee that assessee had itself added back his claim of donation in the computation of income, copy of which is available at page 5 of the paper book. In any case this claim was denied simpl y because the assessee could not file the certificate of eligibilit y for exemption u/s 80G and as far as payment is concerned, the same has not been doubted. Therefore, in view of the above discussion, we are of the opinion that penalt y is not leviable in this case and accordingl y we set aside the order of Ld. C IT(A) and delete the penalt y.
ITA No. 1097/Chd/2009
18. The facts and circumstances of this case are identical to the facts and circumstances for assessment year 2002-03 which we have adjudicated above in ITA No. 1096/Chd/2009 in the above noted paras and following that order this issue is also decided in favour of the assessee.
19. In the result, appeals filed by the assessee are allowed.
Order Pronounced in the Open Court on 08/08/2014
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R.SOOD)
JUDICIAL MEMBER ACCOUNTANT MEMER
Dated : 8 t h August, 2014
Rkk
9
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR