Income Tax Appellate Tribunal - Mumbai
Sound Capital Markets Ltd, Mumbai vs Assessee on 31 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI.
Before B.R. Mittal, Judicial Member and
Shri P.M. Jagtap, Accountant Member
I.T.A. No. 667/Mum/2010
Assessment Year : 2004-05.
M/s Sound Capital Markets Ltd., Dy. Commissioner of Income-tax,
151, Mittal Court, A Wing, Vs. 10(2), Mumbai.
Mariman Point,
Mumbai - 400021.
PAN AACCS2093J.
Appellant. Respondent.
Appellant by : Shri Jayant R. Bhatt.
Respondent by: Shri O.A. Mao.
Date of hearing : 31-10-2011.
Date of pronouncement : 18-11-2011.
O R D E R.
Per P.M. Jagtap, A.M. :
This appeal filed by the assessee is directed against the order of learned CIT(Appeals)-22, Mumbai dated 18-12-2009 whereby he confirmed the penalty of Rs.15 lakhs imposed by the AO u/s 271(1)(c).
2. The assessee in the present case is an investment company which is engaged in the business of trading in shares and securities. The return of income for the year under consideration was filed by it on 18-10-2004 declaring loss of Rs.8,88,478/-. During the course of assessment proceedings, it was noticed by the AO that the 2 ITA No.667/Mum/2010 Assessment Year : 2004-05.
assessee has claimed loss of Rs.37,09,018/- in respect of units of Birla Index Fund Plan-A. He noted that the relevant details such as purchase and sales value of the said units, however, were not given by the assessee in respect of the said loss in the statement filed along with the return of income giving similar details in respect of profit or loss suffered in other transactions. As noted by him in the assessment order, the loss of Rs.37,09,019/- in respect of units of Birla Index Fund Plan-A was only indicated in the last column of the said statement without giving any details or particulars thereof. The assessee, therefore, was called upon by the AO to furnish the details of such loss. Accordingly the required details were furnished by the assessee which revealed that the assessee had purchased the units of Birla Index Fund on 17-10-2003 for Rs.1 crore, the market value of which was adopted by the assessee at Rs.62,90,982/- as on 31-03-2004 and the resultant loss due to diminution in the value of units amounting to Rs.37,09,018/- was claimed by reducing the same from the profits from trading in shares. On perusal of the balance sheet of the assessee, the AO found that the Birla Index Fund units were shown by the assessee as investment and not stock in trade. He noted that similarly units of other mutual funds purchased by the assessee in the earlier years were shown as investment in the balance sheet as on 31-03-2003 at cost price. He noted that the assessee, on the other hand, had shown inventory of shares as stock in trade and the same was valued at cost or market price whichever is lower. According to the AO, the units of mutual funds thus were treated by the assessee as investment all along in the earlier years as well as in the year under consideration and the same not being its stock in trade, their value should have been taken at cost and the assessee was not entitled to claim the loss on account of diminution in the market value of Birla Index Fund Units. Accordingly the claim of the assessee for the loss was disallowed by the AO. He also initiated penalty proceedings u/s 3 ITA No.667/Mum/2010 Assessment Year : 2004-05.
271(1)(c) for the wrong claim of loss made by the assessee observing that while making the said claim, the relevant details were not furnished by the assessee.
3. During the course of penalty proceedings, no reply was filed by the assessee in response to the notice issued by the AO u/s 271(1)(c) read with section 274. In the absence of any reply filed by the assessee, the AO proceeded to impose penalty of Rs.15 lakhs u/s 271(1)(c) for the following reasons given in the penalty order :
"(i) The assessee is a company incorporated under the Companies Act.
The accounts of the company are duly audited under the provisions of Companies Act approved and passed by the Board of Company and the same is filed with the Registrar of Company.
(ii) Once the Balance Sheet of the company has been passed by the Board and the General Body of the company and furnished to ROC, there is no scope for amendment of the same. If an item has been shown as investment in the Balance Sheet it is deemed to be shown.
(iii) Since the year of the purchase, i.e. F.Y. 2002-03, the assessee has been disclosing the Mutual Fund Units as "Investment" at cost and not as stock-in-trade.
(iv) It is seen from the records that assessee has claimed loss of Rs.37.09 lacs against Units of Birla Index Fund, however, no disclosure in the statement has been made about the value of sales or purchase cost. Merely, loss of Rs.37.09 lacs has been shown in the last column of the statement."
For the reasons given above, the AO held that the assessee has furnished inaccurate particulars of its income and it is liable for penalty u/s 271(1)(c). Accordingly the penalty of Rs.15 lakhs was imposed by him u/s 271(1)(c).
4. The penalty imposed by the AO was challenged by the assessee in an appeal filed before the learned CIT(Appeals). During the course of appellate proceedings 4 ITA No.667/Mum/2010 Assessment Year : 2004-05.
before the learned CIT(Appeals), it was submitted on behalf of the assessee that the loss in respect of Birla Index Fund was claimed as a business loss under the bonafide belief that the investment in the said units represented its trade investment. It was contended that the loss in respect of similar units was consistently claimed by the assessee as business loss under the bonafide belief that the said units represented its business assets. It was contended that the said bonafide belief was based on the normal practice prevailing in the prudential accounting norms. It was contended that although the units were classified as investment, the same were in the nature of trade investment and not long term investment.
5. The learned CIT(Appeals) did not find merit in the submissions made on behalf of the assessee. According to him, when the balance sheet was prepared by the assessee company as per the provisions of Companies Act and the same was approved by the shareholders and was also filed with the Registrar, the assessee could not take the plea that treatment given to the units in the accounts was wrong. He noted that even in the immediately preceding year, the assessee company had shown the units of mutual funds as investment and not as stock in trade and the same were valued at cost. He also noted that the relevant particulars in respect of loss claimed by the assessee on Birla Index Fund Units were not furnished by the assessee giving value of purchase and sales. He held that all these facts made it quite clear that the assessee had deliberately and knowingly made wrong claim on account of loss to set it off against the business income and it was a clear case of furnishing of inaccurate particulars of its income by the assessee. Accordingly he confirmed the penalty imposed by the AO u/s 271(1)(c) relying inter alia, on the decision of Hon'ble Supreme Court in the case of Union of India vs. Dharmendra 5 ITA No.667/Mum/2010 Assessment Year : 2004-05.
Textile Processor 306 ITR 277. Aggrieved by the order of the learned CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
6. The learned counsel for the assessee submitted that the loss claimed by the assessee as a result of revaluation of mutual funds unit was disallowed by the AO treating the same as a capital loss. He submitted that the business of the assessee is dealing in shares and securities and the units of Birla Index Funds purchased during the year under consideration were shown as investment in the books of accounts by mistake. He invited our attention to the copy of certificate issued by Auditors of the assessee company placed at page No. 23 of its paper book and submitted that the mistake in showing the said units under the head "Investment" as against "current assets" was purely a presentation error. He contended that the said units as certified by the Auditors represented stock in trade of the assessee company for all practical purposes and the profit arising out of sale of the said units was rightly claimed as a business loss. He contended that there is no dispute that the assessee has actually suffered the loss claimed by it and the only dispute is whether the same is a capital or revenue loss. He contended that the assessee was under a bonafide belief that the units of Birla Index Fund represented its trading assets/investment and under this bonafide belief, the loss arising from the sale of the said units was claimed by it as a business loss. He submitted that the assessee company as per Accounting Standard 13 issued by the ICAI was required to value the current investments at cost or market price whichever is lower and any deduction in the value of such investments was to be disclosed/reflected in the profits and loss statement. He contended that the assessee company was thus required to recognize the impairment loss in respect of units of Birla Index Fund which represented its current investment/asset. He also contended that while making the claim of loss, no inaccurate particulars were furnished by the assessee 6 ITA No.667/Mum/2010 Assessment Year : 2004-05.
and even the AO has not made out any such case. Relying on the decision of Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. 322 ITR 158 (SC), he contended that the case of the assessee is not a fit case to impose penalty u/s 271(1)(c). He also relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Arisudana Spinning Mills Ltd. 326 ITR 429 to contend that when the assessee has acted in a bonafide manner while making a claim, the disallowance of such claim does not attract penalty u/s 271(1)(c).
7. The learned DR, on the other hand, strongly relied on the orders of the authorities below in support of Revenue's case that the present case is a fit case to impose penalty u/s 271(1)(c). He submitted that the units of mutual funds were shown by the assessee as investment in the earlier year as well as in the year under consideration and there was nothing brought on record to show that the said units represented its current assets or stock in trade. He submitted that even the relevant details while making the loss in respect of units of Birla Index Fund were not fully and truly furnished by the assessee and it was only as a result of enquiry made by the AO during the course of assessment proceedings that the wrong claim made by the assessee treating the said loss as business loss was detected. He contended that the said wrong claim thus was made by the assessee with a clear intention to reduce his taxable income and there being nothing to establish the bonafide of the assessee for making such a wrong claim, penalty u/s 271(1)(c) was rightly imposed by the AO and confirmed by the learned CIT(Appeals). As regards the decision of Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (supra) relied upon by the learned counsel for the assessee, he contended that the facts involved in the present case are altogether different from the facts involved in the said case decided by the Hon'ble Supreme Court. In support of this contention, he 7 ITA No.667/Mum/2010 Assessment Year : 2004-05.
relied on the decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication (P) Ltd. reported in 327 ITR 510.
8. We have considered the rival submissions and also perused the relevant material on record. It is observed that the loss as a result of revaluation of units of Birla Index Fund was claimed by the assessee as deduction in computing its business income. Since the said units were in the nature of investment i.e. capital asset as per the treatment given by the assessee in its books of account, the AO held that the loss claimed by the assessee was not allowable and the deduction claimed by the assessee was disallowed by him. He also imposed penalty u/s 271(1)(c) in respect of addition made on account of disallowance of assessee's claim for the said loss holding that by making a wrong claim for the said loss, the assessee furnished inaccurate particulars of its income.
9. Before us, the learned counsel for the assessee has contended that the units of Birla Index Fund actually represented the stock in trade forming part of current assets of the assessee company and the same were shown as investment in the books of account by mistake. He has also contended that the said units even otherwise represented current investments of the assessee company and as per the accounting standard 13, the same were required to be valued at cost or market price whichever is lower and the loss as a result of reduction in the value of current investment was required to be recognized and reflected in the profit and loss statement. After perusing the relevant material on record, we find it difficult to accept these contentions of the learned counsel for the assessee.
10. It is observed that in its audited balance sheet as on 31-03-203, the units of other mutual funds purchased by the assessee company in the financial year 2002- 03 were shown under the caption "Investment" and the value thereof was taken at 8 ITA No.667/Mum/2010 Assessment Year : 2004-05.
cost. In the statement of significant accounting policies annexed to and forming part of the balance sheet as on 31st March, 2003, it was clearly mentioned that the assessee company carried on the business of trading in shares and securities during the financial year 2002-03 and the inventories of shares were valued at cost or market price whichever is less. It was also clearly stated that the investment in different mutual funds, however, were treated as long term investment. In the balance sheet as on 31st March, 2004, the assessee again disclosed the units of Birla Index Fund purchased during the year under consideration under the same caption viz. "investment" and there is nothing in the statement of significant accounting policies and notes to accounts annexed to and forming part of the balance sheet as on 31st March, 2004 to show that there was any significant change in the accounting policies relating to the investment. It, therefore, follows that the units of Birla Index Fund purchased by the assessee in the year under consideration represented its long term investment and the same, therefore, were required to be valued at cost.
11. The learned counsel for the assessee has made an attempt to contend that the unit of Birla Index Fund purchased by the assessee during the year under consideration actually represented its stock in trade or current investments and the same were wrongly shown under the caption "investment" by mistake in the books of account. The stand taken by the learned counsel for the assessee, however, is contrary to the evidence placed on record before us including the audited balance sheet of the assessee company which was duly approved by the shareholders and was also filed with the Registrar of Companies. Even the certificate issued by the Auditors of the assessee company to the effect that units were shown under the head "Investment" erroneously as against current assets and the same represented stock in trade of the assessee company is contrary to the particulars furnished by 9 ITA No.667/Mum/2010 Assessment Year : 2004-05.
them in form No. 3CD along with the tax audit report. Column No. 28A of form No. 3CD requires the Auditors to give quantitative details of principal items traded by the assessee and such details furnished by the Auditors as are available on page No. 51 of the assessee's paper book clearly show that the units of Birla Index Fund were not included in the said details meaning thereby that the said units did not represent the items traded by the assessee company. The certificate issued by the Auditors and relied upon by the learned counsel for the assessee in support of the assessee's case, in our opinion therefore, cannot be relied upon to accept the stand of the assessee. Similarly the accounting standard 13 relied upon by the learned counsel for the assessee is of no help to the assessee's case as the same requires the assessee to recognize any loss as a result of reduction in the value of current investments and not the long term investments. The said accounting standard actually supports the case of the Revenue because it specifies that the long term investments are usually valued at cost. In our opinion, the assessee thus has completely failed to substantiate its explanation in regard to its claim for loss as a result of reduction in the value of units of Birla Index Fund as business loss and it, therefore, cannot be said that there was any basis whatsoever to claim such loss in computing its business income by the assessee. The said claim, therefore, cannot be regarded as a bonafide claim made by the assessee.
12. At the time of hearing before us, the learned counsel for the assessee has relied on the decision of Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (supra) in support of the assessee's case. It is observed that the said decision of the Hon'ble Supreme Court was relied upon on behalf of the assessee before the Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd. reported in 327 ITR 510 wherein the issue involved was 10 ITA No.667/Mum/2010 Assessment Year : 2004-05.
relating to the penalty imposed u/s 271(1)(c) in respect of disallowance of assessee's claim for deduction on account of "Equipment written off". The Hon'ble Delhi High Court, however, found the case of Reliance Petro Products P. Ltd. (supra) decided by the Hon'ble Supreme Court to be distinguishable on facts by observing that the assessee in that case had claimed interest u/s 36(1)(iii) of the Act which was paid on the loan which the assessee had utilized for purchasing some IPL shares by way of its business policy. The assessee, however, did not earn any income by way of dividend from those shares. It was submitted before the Hon'ble Supreme Court that the assessee company was an investment company and that in its own case for the assessment year 2000-01, the learned CIT(Appeals) had deleted the disallowance of interest made by the AO and Tribunal had also confirmed the stand of the learned CIT(Appeals) for that year. It was on the basis of this that the expenditure on account of interest was claimed by the assessee. The Tribunal had, however, restored the issue back to the AO. In the appeal arising out of the penalty proceedings, the Tribunal, in the circumstances, was of the view that the confirmation of disallowance by the Tribunal did not mean that the assessee had concealed the income or had furnished inaccurate particulars thereof. Noticing that the assessee had given an explanation vide its letter dated 22nd March,2006 giving reasons for claiming the interest as a deduction, the Tribunal was of the view that the onus shifted on the Revenue to prove that explanation offered by the assessee was false. The Tribunal felt that the bonafides of the explanation were clearly proved from the fact that the High Court admitted the appeal of the assessee about the disallowance of the interest. The Tribunal held that if there could be two views about the claim of the assessee, the explanation offered by it cannot be said to be false. The penalty was accordingly deleted by the Tribunal. The order of the Tribunal was maintained by the High Court and the decision of the High Court was 11 ITA No.667/Mum/2010 Assessment Year : 2004-05.
upheld by the Supreme Court holding that making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. After analyzing the decision of Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (supra) in the light of facts and circumstances involved in that case, the Hon'ble Delhi High Court held in the case of Zoome Communication P. Lt. (supra) that the proposition of law which emerges from the said case when considered in the back drop of the facts of the case before the Court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s 271(1)(c) of the Act even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. It was held that if the explanation is neither substantiated nor shown to be bonafide, Explanation 1 to section 271(1)(c) would come into play and the assessee will be liable to the prescribed penalty.
13. As already discussed, the explanation offered by the assessee in the present case in respect of its claim for deduction on account of loss as a result of reduction in the value of units of Birla Index Fund in computing the business income was neither substantiated by the assessee nor there was anything to show that the same was bonafide. Moreover, the relevant details or particulars relating to its claim for the said loss were not furnished by the assessee and it was only as a result of enquiry made by the AO during the course of assessment proceeding that the falsity of the assessee's claim for the said loss was detected. Having regard to all these facts of the case and keeping in view the decision of Hon'ble Delhi High Court in the case of Zoom Communication (P) Ltd. (supra), we are of the view that it is a fit case to impose penalty u/s 271(1)(c). In that view of the matter, we 12 ITA No.667/Mum/2010 Assessment Year : 2004-05.
uphold the penalty imposed by the AO and confirmed by the learned CIT(Appeals) and dismiss this appeal of the assessee.
14. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on this 18th day of Nov., 2011.
Sd/- Sd/-
(B.R. Mittal) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated: 18th Nov., 2011.
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, I-Bench.
6. Guard File.
(True copy) By Order
Asstt. Registrar,
ITAT, Mumbai.
Wakode