Income Tax Appellate Tribunal - Delhi
Moral Trading And Investment Ltd., New ... vs Department Of Income Tax on 26 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : 'E' NEW DELHI
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
I.T.A No. 4481/Del/11
Asstt. Year - 2006-07
M/s. Moral Trading and Vs. ITO, Ward-5 (4)
Investment Ltd.
New Delhi.
C/o Mr. R.P. Mittal,
81, Sainik Farm, M.B. Road,
New Delhi
PAN AAACM1076B
(Appellant) (Respondent)
I.T.A No. 4402/Del/11
Asstt. Year - 2006-07
Income Tax Office, Ward 5(4), Vs. M/s. Moral Trading and
Investment Ltd.
Room No. 327,
C/o Mr. R.P. Mittal,
C.R. Building, I.P. Estate,
81, Sainik Farm, M.B. Road,
New Delhi.
New Delhi
PAN AAACM1076B
(Appellant) (Respondent)
Appellant by: Shri Vinod Bindal & Ms. Sweety Kothari, CAs
Respondent by: Shri Raj Tandon, CIT(DR)
2
ITA No. 4481/Del/11
Asstt. year 2006-07
& ITA No. 4402/Del/11
Asstt. year 2006-07
Date of hearing : 26-04-2012
Date of pronouncement : 31-05-2012
ORDER
PER K.G. BANSAL, AM:
These cross appeals of the assessee and the revenue emanate from the order of CIT(Appeals) VIII, New Delhi, passed on 29.7.2011, in which the appeal was partly allowed. The assessee has taken up two substantive grounds in the appeal. The sum and substance of the grounds is that on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the levy of penalty u/s 271(i) (c) in respect of -(i) ` 2.39 crores, being capital gain not set off against the long-term capital gain (LTCG) and (ii) ` 22,03,822/- disallowed u/s 57 (iii). On the other hand, the revenue has also taken up two substantive grounds the sum and substance of which is that the Ld. CIT(A) erred in deleting the penalty in respect of the claim of short-term capital loss of ` 8,64,15,538/-, which subsequently was assessed as LTCG of ` 11,03,15,638/- and Short-term capital gain (STCG) of ` 2.39 crores.
2. The facts leading to levy of penalty are that the return was field on 24.11.2006 declaring total income of ` 58,43,535/-. Assessment u/s 143(3) was completed on 26.12.2006 at total income of ` 38,50,75,969/-. In this assessment the gain in respect of sale of 23,90,000 shares of Hotel Queen Road Pvt. Ltd. ("HQR" for short) was enhanced by adopting the sale consideration at ` 185.68 per share in place of the actual sale price of ` 3 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 20/- share. The gain was held to be STCG against the claim made in the course of assessment proceedings that it was LTCG. The result was that this gain was not allowed to be set off against Long-term capital loss incurred in respect of another sale of 898181 shares of HQR whose sale consideration was also adopted at ` 185.68 per share. Further the assessee had claimed deduction of interest amounting to ` 20,03,822/- against interest income. This deduction was also not allowed. Both these matters were subject matter of appeal before the ITAT. The appeal was disposed off on 30.4.2010 in ITA No. 4753/D/2009. Both the issues were decided against the assessee. The decision in respect of the nature of gain on sale of 23,90,000 shares is contained in paragraph No. 9.9 of the order, which is reproduced below :-
"9.9. On perusal of evidence on record, it can be said that there was an offer made by the assessee company to the HQR for subscribing to about 22,50,000 shares. However, it was a conditional offer that the allotment must be made before 31.3.2004. This condition has not been satisfied by the HQR. It is also a matter of fact on record that the assessee had paid ` 2.39 crore to the HQR by 04.03.2004 as share application money. However, it is not clear whether any board meeting took place or the directors by majority or consensus decided to allot 23,90,000 shares to the assessee company. As per the provisions of Companies Act, the shares could be allotted only if a meeting had taken place to consider the conditional officer and a decision taken to allot the aforesaid shares to the assessee. In the case of Portuguese Consolidated Copper Mines Ltd. (Supra), there was no proof available to show that the directors actually met to approve the transaction, but there was endorsement of five out of seven directors, which shows that they consulted one another and majority of them was of one mind and this was sufficient to signify the agreement on behalf of the company. In the instant case, letter dated 04.04.2004 does not indicate whether any meeting took place or not and if not, whether majority of the directors of the HQR was of one mind for allotting 2390000 shares to the assessee on 4.4.2004. The delay in allotment 4 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 probably required the assent of the assessee, which is also not proved by any evidence on record. Therefore, even in a situation where the requisite amount was paid by the assessee company, it cannot be said that any legally binding agreement came into existence between the assessee and the HQR on the basis of letter dated 4.4.2004. In other words this letter loses evidentiary value, more so because it has been written by the HQR without narrating the background details regarding meeting etc. and allotment. In the case of S.N. Zubin George vs. CIT (2004) 265 ITR 683, relied upon by the ld. DR, the Tribunal had recorded the finding that there was no evidence to show that the shares were in existence prior to 31.5.1998. Even if the money belonging to the assessee was appropriated to share deposit account of the company that by itself will not amount to allotment of shares. The reason being that the shares can be issued only after company passes a resolution deciding to allot shares. The assessee could not establish that the shares were allotted to the earlier than 31.5.1988. Therefore, its finding that the date of issue of share certificates was the date of allotment was upheld by the Hon'ble Court. As in that case, in this also there is no evidence regarding the holding of board meeting to consider allotment of shares to the assessee in terms of its conditional offer dated 11.11.2003. The computation of gain as short-term capital gains by the assessee. In the return of income by assessee itself negates the content of letter dated 4.4.2004. We are of the view that such a computation was in accordance with the judgment in the case of S.N. Zubin George (supra). We may add that the assessee has not produced copies of record from the office of Registrar regarding allotment of shares and shareholders' register showing the dates on which these shares were added against its name. The absence of these documents, the onus of production of which for substantiating its claim was on the assessee, further weakens the case of the assessee. It may also be added that under the Company Law "holder of equity shares" is a term synonymous with the "member of the company". Mere allotment of shares in the meeting of the board does not make an investor to be member of the company. He becomes the member only when his name is entered in the shareholders; register after completing necessary requirements under the Companies Act. However, we may not take this facts into account as the case is covered by the decision in the case of S.N. Zubin George (supra). In such circumstances, we are of the view that the ld. CIT(Appeals) was right in holding that the assessee held the shares with effect from 27.7.2004 and, thus, the capital gain was to be treated as "short-term capital gains"."5 ITA No. 4481/Del/11
Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 2.1 The discussion in respect of disallowance of ` 22,03,822/- is contained in paragraph No. 11.3, which Is also reproduced below for ready reference :-
"11.3 The facts canvassed by the ld. Counsel in our case are that the assessee had raised interest-free loans from Shri R.P. Mittal. The money was advanced to HQR and interest income was earned on the advances. The loans taken from Shri R.P. Mittal were discharged by repaying the loan from borrowed funds from other raised subsequently. The reason is stated to be that Shri Mittal was demanding return of his loan. Seen in this context, the dominant purpose of borrowings from others was to return the loan taken from Shri R.P. Mittal. This was done to discharge a pre-existing contractual liability. The funds were not borrowed from others to invest them for the purpose of earning the income. Thus, although the borrowings from others may have a remote connection with the lending to the HQR, though repudiated by the revenue, the dominant purpose of the borrowings was not to earn interest income. Therefore, it cannot be said that moneys were borrowed from others wholly and exclusively for the purpose of earning interest income from the HQR. Thus, the provision contained in section 57 (iii) is not applicable to the facts of the case as submitted to us and before the lower authorities. Therefore, it is held that the ld. CIT(Appeals) was right in disallowing the expenditure in computing interest income taxable under the residuary head."
2.2 The AO had also initiated penalty proceedings u/s 271(1)©. These proceedings were disposed off on 31.1.2011 and penalty of ` 2,03,30,842/- was levied. In appeal, the assessee has been given part relief with the result that the penalty in respect of STCG on sale of 2390000 shares of HQR and disallowance of ` 22,03,822/- has been confirmed. Aggrieved by this order, both the parties are in appeal before us.
3. Before us, the Ld. Counsel for the assessee referred to the details regarding sale of shares of HQR furnished alongwith the return of income. 6 ITA No. 4481/Del/11
Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 The details show that 898181 shares of HQR were sold on 10.5.2005 @` 20 per share. These shares were acquired @`10/- per share. Another lot of 2390000 shares was also sold on the same date @` 20/- per share. These shares were also acquired @ ` 10 per share. The total cost of these shares was ` 32,88,181/- and the sale price was ` 6,57,63,620/-. In the return income under the head STCG was shown as loss of ` 8,64,15,538/-. It was mentioned that this loss will not be set off against any other head of income. However, in the course of assessment, it was submitted that the loss is to be classified as LTCG and the computation should be made accordingly. In this connection, Ld. Counsel has referred to the findings of the Tribunal that the gain in respect of 23,90,000 shares is STCG for the reason that the shares were acquired on 27.7.2004 and sold on 10.5.2005. Thus the gain arisen from sale of these shares cannot be set off against the loss arising on sale of 8,98,181 shares. He also referred to the findings of the Tribunal in respect of disallowance of loss that the loans were taken for discharging the liability of Shri R.P. Mittal and not for earning any interest income. Therefore, there is no nexus between the interest income and the interest expenditure.
3.1It is submitted that the claim that income arising on account of sale of 22,50,000 (it should be read as 23,90,000) shares of HQR is LTCG was bonafide. The assessee received a letter dated 11.11.2003 from HQR to the effect that the company was in need of funds for completing the ongoing renovation activities. The fresh loans are not forth coming and 7 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 available funds are not sufficient to meet the requirement. Being a promoter, holding almost the whole of equity capital, the assessee was urged to make necessary arrangement of about ` 2.00 to ` 2.50 crores by 31.3.2004 as equity for allotment of shares at par on confirmed basis. This letter is placed on page 3 of the paper book. The assessee replied to this letter on the same date stating that necessary subscription in cash will be made as required for allotment to fresh shares at par. However the subscription shall be made in installments and a firm commitment to subscription of ` 2.25 crores is made. The amount will be paid by 15.3.2004 with the stipulation that the allotment of shares must be made before 31.3.2004. A cheque of ` 50 lakhs was also enclosed with this letter. This letter is placed on page No. 4 of the paper book. The HQR wrote a letter dated 4.4.2004 acknowledging the receipt of a sum of ` 2.39 crores as contribution for allotment 23,90,000 shares at par. It was confirmed that a right has been credited in favour of the assessee in these shares, which have distinct members 898353 to 32,88,352 which shall be delivered shortly after making requisite compliances). The case of the Ld. Counsel is that the claim of LTCG was bonafide and it is crucially dependent of this correspondence. It may be mentioned that these letters have been signed by Shri R.P. Mittal or Mrs. Sarla Mittal, his wife. These persons had been holding the position of Managing Director and Director in HQR and the assessee company. It is an admitted fact that shares holders register shows that the name of the assessee was entered therein 8 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 on 27.7.2004 and intimation to the registrar of companies was also made that the assessee company became a member in the HQR on 27.7.2004. The case of the revenue is built upon data available in official record which is open to public and which according to it shows that the state of affairs depicted in the correspondence is quite contrary to the actual state of affairs.
3.2 The Ld. Counsel drew our attention to page No. 2, paragraph No. 4 of the penalty order, which contains the submissions of the assessee that
- (i) the disallowance / addition and confirmation of such action by the Tribunal does not attract penalty; (ii) penalty proceedings are different from assessment proceedings and findings in the assessment proceedings are not conclusive for levy of penalty, (iii) the assessee's explanation submitted in the course of the penalty proceedings has to be considered and if the same is found to be bonafide, the penalty cannot be levied ; and
(iv) the assessee has given a bonafide explanation that the transfer of a capital asset is to be determined in accordance with the circular of the Board. It may be mentioned here that this circular has been considered by the Tribunal in the quantum order in paragraph No. 9.2, in which it has been held that the same is not applicable because the circular deals with transactions in securities undertaken through stock exchanges where the period of holding has to be reckoned from the date of broker's note for purchase on behalf of the investors. For the sake of ready reference, this paragraph is reproduced below :-
9ITA No. 4481/Del/11
Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07
2. "When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchases/sale of securities and thereafter, follow into with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of broker's note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the 'transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds."
3.3. Thereafter, he drew our attention to the findings of the AO in paragraph No 14 that there are two aspects of the guilt. The first one is the mental element involved in the guilt and the second one is omission or commission leading to breach of duty with or without guilty mind. The former has to be proved in offences committed against the State.
However in the case of civil liability, if the AO is able to establish that the assessee did not fully and truly disclosed the facts required for determination of tax liability, the liability can be fastened on the assessee. Penalty u/s 271(1)(c) can be levied if the assessee furnishes inaccurate particulars of income or has concealed its true particulars. This conclusion is arrived at on the basis of facts discovered by the AO. If he is satisfied that the assessee has concealed particulars of income or has furnished inaccurate particulars of income, then the explanation of the assessee is obtained in the matter. The same is considered and if it is found that the 10 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 assessee has failed to substantiate the explanation or it is found to be not bonafide, the case falls under the second limb. On facts, the case of the assessee is covered in the second limit of the 'mens-rea' and, therefore , penalty has been levied.
3.4 Our attention has also been drawn towards the findings of the Ld. CIT(A) in which it is mentioned that the assessee has not spelt out the circumstances in which profit of ` 2.32 crores had been set off against the loss of ` 11,03,15,538/-. The person who did so has not been identified. Therefore, the plea of inadvertence caused by clerical or typographical error has not been explained. It is further mentioned that facts regarding purchase of shares of HQR are in the exclusive knowledge of the directors of the assessee company, however, no evidence in this regard has been placed on record for the reasons best known to them. He has referred to the decision of the Tribunal in quantum appeal in this connection. It is further mentioned that the assessee has been frequently changing its position regarding the capital gains and the capital loss with reference to their nature. It has been established that the gain is STCG while the loss is LTCG, therefore, it is clear that assessee has failed to furnish any satisfactory explanation.
3.5 It is submitted that the minutes of the meeting of the Board of Directors could not be filed because the management of the company changed on account of the order of the Hon'ble High Court passed on 14.1.2009. The assessee thereafter had no access to the record. As a 11 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 matter of fact the assessee had no access to its own record because of dispute between old and the new management. The assessee had reason to believe that the shares had been allotted to it on 4.4.2004, the date by which all the payments had been made. The correspondence not only mentions above creation of right in favour of the assessee but also furnishes the distinctive number of shares allotted to it. Accordingly, under the reasonable belief that board may have passed the resolution before 31.3.2004, the gain was shown as LTCG and set off against other LTCG loss.
4. In reply, the Ld. CIT, DR submitted that the assessee had claimed the gain to be LTCG and, therefore, the burden to file relevant information or for that matter to declare correct nature of capital gain was on the assessee. The assessee has rued about lack of access to record. There is no evidence in this behalf. No doubt, there was dispute with the new management but it is all together a different matter to say that the assessee did not have access to the record of HQR. In any case, the assessee could have requested the AO issue summons to get the information. Therefore, these submissions do not have any force. 4.1 Coming to the merits, our attention has been drawn towards paragraph No. 1.2 of the order of the Tribunal in quantum appeal which furnishes the facts that the bid value of hotel Ashok Yatri Niwas was about 45.03 crore. However, the assessee took over only land and building and the sundry creditors and debtors were to be dealt with by the 12 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 ITDC. On this basis the value of assets, took over by the assessee from the ITDC represented by 8,98,166 shares, was about `. 16.49 crores which represented 99.97% of the paid up capital. The rest of the shares were acquired from other share holders at about ` 1.65 crores. Therefore, the cost of acquisition per share was about ` 183.63 per share. Some other expenses were incurred, which were added to the cost of acquisition leading to the cost per share at ` 185.68. This value was adopted by the AO for working out capital gains against the consideration actually received. The AO examined the transaction and came to the conclusion that the sale to Shri R.P. Mittal was a colourable transaction as Shri R.P. Mittal and Smt. Sarla Mittal, the husband and wife duo, controlled the assessee company. Since the HQR was wholly owned subsidiary company of the assessee company, it was also controlled by the husband and wife . In order to arrive at this conclusion, reliance has been placed on the decision in the case of CIT vs. L. N. Dalmia (1994) 207 ITR 89, in which it has been held that sale of shares to other company formed by the assessee at a lower rate was a device to avoid tax. It is contended that the levy of penalty should be considered in the light of aforesaid facts. Further, he referred to the submissions made before the Tribunal in the course of quantum proceedings that the authenticity of the correspondence cannot be relied upon in the face of the fact that in the return of income, the assessee had itself taken the shares to be short - term capital asset by reckoning the period of holding from 27.7.2004. The 13 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 assessee was required to produce the minutes book which was not done on the ground of dispute with the other brother Shri Ashok Mittal. Accordingly his case is that the correspondence was fabricated to suit assessee's case which in any case is against the actual fact that the assessee's name was entered in share holders register on 27.7.2004 and this date was also intimated to the registrar of companies. Thereafter, he referred to the findings of the Tribunal, which have already been reproduced by us. Briefly, the finding is that the date of acquisition of shares is 27.7.2004 and not 4.4.2004.
4.2 The case of the Ld. CITDR is that the plea of typographical error is incorrect and it is a case of making a positive claim which is not borne by any reliable evidence. The assessee failed to substantiate the claim that the shares were acquired on 4.4.2004. Therefore the conduct of the assessee is not bonafide.
5. We have considered the facts of the case and submissions made before us. The facts are that the assessee showed gain of sale of 23,90,000 shares of HQR as STCG. This stand was changed in the course of assessment proceedings and it was claimed that the shares were long - term capital asset, therefore, the gain was LTCG. Such a claim , if accepted by the AO, would permit the assessee to set off other LTCG loss against this gain. The claim that these shares were acquired on 4.4.2004 is based on three letters to which we have already adverted to. These letters have been written by Shri R.P. Mittal or Smt Sarla Mittal on behalf 14 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 of the respective companies and these two person are husband and wife. No evidence is on record to prove that the contents of these letters are correct. On the other hand the share holders register as well as intimation to the registrar of companies show that the shares were acquired by the assessee company on 27.7.2004. On the basis of this date of acquisition, the gain has to be qualified as STCG, which cannot be set off against other loss in the form of LTCG. The question is whether the assessee is liable to be penalised u/s 271(1)(c) on these facts ?
5.1 In order to support his case, Ld. Counsel has relied on the decision in the case of CIT vs. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (Sc.) . The court mentioned that it is not concerned with mens- rea. However, it has to see whether the assessee has furnished inaccurate particulars. In this connection, it referred to Webster's dictionary which furnishes the meaning of the word "accurate " to be "not accurate, not exact or correct ; not according to truth ; erroneous ; as an inaccurate statement, copy or transcript". In this case, the penalty was levied on issue of disallowance u/s 14A and it was argued on behalf of the revenue that the AO had correctly reached the conclusion that since the assessee had claimed excessive deduction knowing that it is incorrect it amounted to concealment of income, which can take either of the two forms - (i) a receipt may be suppressed fraudulently, (ii) an item of expenditure may be claimed of an exaggerated amount falsely. The court did not agree with this argument. It is mentioned that mere acceptance or rejection of a 15 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 claim would not lead to levy of penalty provided all facts regarding the claim have been correctly shown in the return of income. 5.2 Ld. Counsel referred to various cases field in the compilation from page No. 68 to 167 which are as under :-
UP State Bridge Corporation Ltd. vs. DCIT - (2009) 17 DTR (Lucknow) (Trib) 297 - in which it has been held that mere disallowance of claim does not lead to levy of penalty; (ii) Raj Pesticides vs. Income Tax Officer (2004) 1SOT 216 (Asr) - in which it has been held that since the AO was not sure as to whether the assessee concealed the particulars of income or had furnished inaccurate particulars of income , the penalty is liable to be deleted ; (iii) ITO vs. Roborant Investments (P) Ltd,. (2006) 7 SOT 181 (Mum) - in which it has been held that mere rejection of a legal claim of assessability of income under a particular head of income which is not accepted, cannot lead to levy of penalty. (iv) Gujarat Credit Corpn. Ltd. Vs. ACIT 2008 113 ITD 133 (Ahmedabad), in which it has been held that since the disallowance of capital loss was not accepted by the CIT(A) as correct, therefore, the entire edifies crumbles and falls down. ; (v) Deputy Commissioner of Income Tax vs. JMD Advisors (P) Ltd. (2010) 124 ITD 223 (Del) - in which it has been held that since fair capital market cannot be adopted as sale consideration in absence of any material on record, penalty cannot be levied ; (vi) CIT v. Sidhartha Enterprise (2010) 322 ITR 80 (P & H) - in which it has been held that the decision in the case of Union of India vs. Dharmendra Textile Processors & Ors (2008) 306 ITR 16 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 277 (SC) cannot be read to mean that in every case where particulars of income are inaccurate, penalty must follow. ; (vii) Mrs. Maninder Sidhu vs. Asstt. Commissioner of Income Tax (2010) 39 DTR (Del) (Trib) 233 - in which it has been held that one has to distinguish between a wrong claim and a false claim. If there is no falsity of facts in making the claim, penalty cannot levied.
5.3 On the other hand, the Ld. CIT DR relied on the decision in the following cases :- (i) CIT vs. Harparshad & Co. Ltd. (2010) 328 ITR 533 (Del) - in which it has been held that where a bogus claim of payment of commission to Director has been made and it is found that the Director has not rendered any services ; and assessee fails to offer any explanation in respect of the disallowance, penalty can be levied ; (ii)CIT vs. Zoom Communication Pvt. Ltd. (2010)327 ITR 510 (Del)- in which it has been held that if a prime facie bogus claim in respect of payment of income tax or loss on sale of asset is made and such claim is not found to be bona fide, then penalty can be levied ; (iii) CIT vs,. Splender Construction 2011 - TIOL- 54 - HC - Del - IT - in which the substantial question of law was admitted because the issue whether an asset is long -
- capital asset or short - capital asset is such a question ; iv) Ravindranath S. Doddi (HUF) vs. ACIT (2011) 12 txmann.com - 117 (Mum.) - in which levy of penalty was upheld in respect of higher claim of cost of acquisition of shares and the assessee failed to show that the claim was bonafide. 17 ITA No. 4481/Del/11
Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 5.4 We have considered these cases also. Reverting to the facts, the question is - whether, the claim based upon correspondence between the husband and wife on behalf of HQR and the assessee company respectively is a wrong claim or a false claim ? It is seen that these letters, actually written on the letterheads of the companies, do not show any inward or outward number of the companies. The contents of the correspondence are contrary to official record, i.e. share holders register and intimation available with the Registrar of Companies. Therefore, a heavy burden lied on the assessee to show that the correspondence was actually made between the companies for proving that the explanation is bonafide. We are of the view that this correspondence cannot be relied upon and that it was made only to show the gain as LTCG. It is a case of false claim rather than a wrong claim. In such a situation, the decision of jurisdictional High Court in the case of Zoom Communication Pvt. Ltd. clearly applicable. Further since particulars furnished for ascertaining the nature of capital gain are inaccurate, the decision in the case of Reliance Petro Products is not applicable. In the light of this finding, it is clear that the explanation is not bonafide. Accordingly, the levy of penalty on this amount is upheld.
6. The second issue is in respect of disallowance of interest while computing income under the residuary head. The case of the Ld. Counsel is that the addition has been sustained on interpretation of section 57 (iii) and there is no falsity in furnishing the facts. The interest has actually 18 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 been paid. Therefore, the explanation of the assessee is bonafide. As against this, the submission of the Ld. DR is that the Ld. CIT(A) rightly levied the penalty and in this connection reliance has been placed on his finding on page No. 10 of the impugned order. It has been mentioned that the Tribunal has given a clear finding that the claim is not admissible. A reasonable assessee could not have made such a claim, therefore, the decision in the case of Zoom Communication Pvt. Ltd. is applicable.
7. We have considered the rival submissions. The findings of the Tribunal have already been summarised by us. It is mentioned that the borrowings were made to discharge the existing loan taken from Shri R.P. Mittal and borrowings were not made for earning any income. Thus, although the borrowings from others may have remote connection with lending, the dominant purpose of borrowings was not to earn any interest income. The Tribunal has sustained disallowance because lack of connection between the earning and the expenditure. Yet, it may be noted that it is also mentioned that there may be remote connection between the two. All facts have been correctly furnished and there is no inaccuracy in them. Therefore, the decision in the case of Reliance Petro Products Pvt. Ltd. is applicable. Accordingly, we are of the view that the Ld. CIT(A) was not justified in sustaining the levy of penalty in respect of this amount.
8. The appeal of the revenue is in respect of enhancement of capital gain which was computed on the basis of estimated fair market value, 19 ITA No. 4481/Del/11 Asstt. year 2006-07 & ITA No. 4402/Del/11 Asstt. year 2006-07 which was substituted in place of actual consideration. This addition has been deleted by the Tribunal in the quantum order. Therefore, there is no case for levy of penalty on such addition.
9. In the result, the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed.
Sd/ sd/-
[R.P. TOLANI] [K.G. BANSAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Veena
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order,
Deputy Registrar, ITAT