Income Tax Appellate Tribunal - Kolkata
Dcit, Cc-Xvi, Kolkata, Kolkata vs Shree Ram Electrocast Pvt. Ltd., ... on 2 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH : KOLKATA
[Before Hon'ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
I.T.(SS)A No.32/Kol/2014
Assessment Year : 2009-10
D.C.I.T., Central Circle-XVI, -vs.- Shree Ram Electrocast Private Ltd.
Kolkata Kolkata
[PAN : AAICS 3476 P]
(Appellant) (Respondent)
For the Appellant : Shri Niraj Kumar, CIT(DR)
For the Respondent : Shri K.K.Chhaparia, FCA
Date of Hearing : 25.05.2017.
Date of Pronouncement : 02.06.2017.
ORDER
Per N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 20.12.2013 of CIT(A)- Central-II, , Kolkata relating to AY 2009-10.
2. In this appeal the revenue has challenged the order of CIT(A) whereby the CIT(A) cancelled the order of AO imposing penalty on the assessee u/s 271(1)(c) of the Income Tax Act, 1961 (Act).
3. The facts and circumstance under which the penalty was imposed on the assessee by the AO are as follows :-
The Assessee is a company. It is engaged in the business of leasing of land and plant and machinery and premises. The Assessee had a factory at Bellary, Karnataka which was engaged in the manufacture of pig iron. The Assessee had given the factory together with plant and machinery and premises on lease to M/s. Kalyani Steel Ltd. The source of income of the assessee is therefore income from leasing of land, plant and machinery and premises. There was a search and seizure operation conducted in the case of the assessee on 24.04.2008. Pursuant to the search assessment u/s 153A r.w.s. 143(3) of the Act was framed for A.Y.2005-06 to 2008-09. In the return of income for A.Y.2009-10 the assessee declared a total income of Rs.75,75,460/- . Since A.Y.2009- 2 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 10 was not part of the block of 6 years for which assessment has to be framed u/s 153A of the Act, proceedings u/s 143(3) of the Act for framing the assessment were initiated by the AO.
4. In the course of assessment u/s 143(3) of the Act the AO noticed that the assessee had claimed a sum of Rs.51,00,000/- as deduction while computing its income under the head "Income from Business or Profession". The facts and circumstances under which a sum of Rs.51,00,000/- was claimed as deduction by the Assessee was that the Assessee entered into a contract on 09.07.2008 for purchase of 200MT of "Silicon Magnum" and 50MT of "Ferro Silicon" at a rate of Rs.78,000/MT and Rs.86,000/MT respectively with Global Alloys Pvt. Ltd. of Kanpur. The agreement was valid till 28.02.2009 and the purchaser was required to make payment within 10 days after receiving the invoice from the seller. It was further agreed that Assessee would not purchase the materials agreed to be purchased from M/S.Global Alloys Pvt.Ltd., from any other seller during the continuation of the agreement. The other relevant clause 7 to 9 of this agreement were as follows:
"7. That, in case the seller fails to supply the materials as agreed herein and also the rates of the materials increase during the subsistence of this indenture, then the Seller shall be liable to bear and pay the compensation to the Purchaser which shall be equivalent to the amount calculated at the rate being difference between the market rates of the materials and the rates agreed herein.
8. That, in case the Purchaser fails to lift the materials as agreed herein and also the rates of the materials decrease during the subsistence of this indenture, then the purchaser shall be liable to bear and pay the compensation to the seller which shall be equivalent to the amount calculated at the rate being difference between the rates agreed herein and the market rates of the materials.
9. That, in the event of breach of any of the terms' of this indenture, the, suffering party shall serve a written notice to the defaulting party by notifying to remedy the breach within 15(fifteen) days time and the suffering party shall be with an option to terminate this indenture at its sole discretion by claiming compensation, if any, to the defaulting party".2 3
IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10
5. The Assessee who was purchaser under the agreement failed to lift the material on the date fixed for performance of the agreement. Therefore the Assessee paid damages to the seller as per clause-8 of the agreement which was quantified at a sum of Rs.51 lacs. If the loss of Rs.51 lacs is regarded as a speculative loss within the meaning of Sec.43(5) of the Act, the consequence would be that this loss cannot be allowed to be set off against the profit under the head business or profession but can be set off only against another speculation income of the Assessee for the same AY or earlier AY or has to be carried forward to be set off against speculative income in subsequent AY.
6. Sec.43(5) of the Act defines "speculative transaction" to mean a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. As per Sec.73 of the Income Tax Act, 1961 (Act), loss from purchase and sale of shares in the case of an Assessee which is a company had to be regarded as speculation loss and therefore cannot be set off against normal business income from trading in derivatives.
"Sec.73: Losses in speculation business.
(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and--
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.3 4
IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10
7. The AO held that the agreement read as a whole clearly showed that the loss in question was speculative in nature. According to the revenue an element of speculation was embedded in clause 7 and 8 of the agreement mentioned above. According to the Assessee the sum in question was paid for breach of contract. The Assessee relied on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Shantilal Pvt.Ltd. 144 ITR 57 (SC) in which it was held damages paid for breach of contract was not to be regarded as speculative loss. In this regard the plea of the Assessee was that, though the Assessee had leased out its manufacturing facility to Kalyani Steels Ltd., it was expecting to take over the manufacturing facility from Kalayani Steels and the materials were agreed to be purchased in anticipation of Assessee beginning manufacturing activity and there was no element of speculation in the agreement to purchase materials which were admitted used in the manufacture of steel. This plea of the Assessee was disbelieved by the revenue authorities and the revenue took the view that non delivery of material was contemplated in the contract itself and the payment of Rs.51 lakh was emanating directly from the settlement of the contract rather than on account of any arbitration award on account of any separate suit filed by the counter party for the breach of contract. The non delivery of material under agreement was never a breach of contract but is a part of contract under clause 7 and 8 of this contract and either Assessee or the seller could loose or gain depending upon whether the price of the material decreases or increases in future. Therefore, the loss or gain to either parties of this highly speculative contract on account of non delivery of material is a speculative business loss or gain arising directly from the terms and conditions of the business contract rather than any compensation received or paid for breach of this contract. The purchase contract of 200MT of 'Silicon Magnum' and 50MT of 'Ferro Silicon' did not result into a delivery but was settled by Assessee by paying Rs.51 lakh with some discount to the counter party as per clause 8 of the contract between Assessee and the counter party. Therefore, the loss of Rs.51 lakh to Assessee was a speculative loss u/s, 43(5) of the I. T. Act on account of settlement of the contract rather than breach of 4 5 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 contract. The revenue also rejected the plea of the Assessee that the purchase of material under the agreement for its intended use in manufacture of steel which it expected to commence. It was held by the revenue that the Assessee had leased out its entire factory premises to Kalyani Steels Ltd. and the only business income it had was the lease income from Kalyani Steel Ltd. who were operating from the factory of appellant. Therefore, the purchase deal of 200MT of "Silicon Magnum" and 50MT of "Ferro Silicon" could not have been entered into in the ordinary course of business of leasing out the factory by the Assessee. The contract was not cancelled because Assessee did not require these materials in any production or manufacturing process due to defect in material or other such normal business reason. The contract was destined to be cancelled because it was speculative in nature, and was not required in the business of appellant.
8. Accordingly a sum of Rs.51,00,000/- was added to the total income of the assessee as the loss in question was treated as speculative loss and therefore cannot said to be normal business income / loss of the assessee in view of the provision of Section 73 of the Act. The loss of Rs.51,00,000/- was however allowed to be carried forward for being set off against speculative income in the subsequent years in accordance with the provision of the Act.
9. In respect of the addition made by AO treating the loss arising in respect of transaction with M/s. Global Alloys Pvt. Ltd and consequent addition made to the total income of the assessee the AO made penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars and concealing particulars of income. In the penalty proceedings the assessee took a stand that it had furnished all the particulars of the transaction with M/s. Global Alloys Pvt. Ltd. It was not disputed by the AO that the transaction was a genuine transaction. The bone of contention of the revenue was that since there was no delivery of the transaction agreed to be sold under the agreement with M/s.,Global Alloys Pvt. Ltd and since the transaction was ultimately settled by paying the difference in the price of the material on the date fixed for performance of 5 6 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 the contract compared with the rates agreed under the contract with M/s. Global Alloys Pvt. Ltd, the loss was considered as speculative loss. It was submitted that the assessee contemplated the terms of the agreement by which the entire factory premises had given on lease to Kalyani Steel Ltd and took back possession and run the factory on its own. The materials that were agreed to be purchased by the assessee from Global Alloys Pvt. Ltd were intended to use for carrying out manufacturing activity by the assessee on its own and this was the reason why the loss arising on account of non performance of transaction with Global Alloys Pvt. Ltd was treated as normal business loss. The assessee therefore submitted that this action in making the aforesaid claim was bona fide and that all particulars of income had been furnished. The learned counsel for the assessee particularly placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. 322 ITR 158 (SC) wherein it was held that mere making of a claim which is not sustainable in law by itself, will not amount to furnishing of inaccurate particulars regarding income of the Assessee. It was argued by him that the findings in the quantum proceedings were relevant in penalty proceedings but not conclusive and the Tribunal is competent to look into all facts and circumstances afresh in coming to a conclusion whether penalty can be levied or not.
10. The AO however held that the assessee was guilty of furnishing inaccurate particulars of income and the facts of the assessee's case are distinguishable from the decision of the Hon'ble Supreme Court rendered in the case of Reliance Petro Products Pvt. Ltd. (supra). According to the AO the assessee by claiming set off of loss arising from transactions which was a speculative transaction within the meaning of section 45(5) of the act against the normal business income had indulged in furnishing inaccurate particulars of income. The AO accordingly imposed penalty on the assessee.
11. On appeal by the assessee the CIT(A) was of the view that the assessee had not furnished inaccurate particulars of income and the issue before the AO was whether the loss of Rs.,51,00,000/- was speculative loss or normal business loss. The CIT(A) was of the view that the fact that a loss declared in the income was treated as a speculative loss 6 7 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 and consequently not allowed to be set off against the normal business income would only be a change of the sub-head of the loss and it cannot be said that there was furnishing of inaccurate particulars of income. The CIT(A) was of the view that the decision of the Hon'ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd. (supra) and the ratio laid down therein was clearly applicable to the case of the assessee. The CIT(A) also found that in the following cases the courts have taken a view that treating a loss claimed as normal business loss as a speculative loss and consequent addition made to the total income cannot amount to furnishing of inaccurate particulars of income.
i) CIT vs SPK Steels Pvt. Ltd. 270 ITR 156 (MP)
ii) CIT vs Auric Investment and Securities Ltd. 310 ITR 121 (Delhi)
iii) CIT vs Bhartesh Jain 323 ITR 358 (Delhi)
iv) ITO vs GACL Finance Ltd. 30 SOT 360 (Mum)
v) ITO vs Oasis Securities Ltd. 37 SOT 63 (Mum).
For the above reasons the CIT(A) cancelled the order of the AO imposing penalty on the assessee.
12. Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
13. The ld. DR brought to our notice the findings of the Tribunal in the quantum proceedings whereby the treatment of loss of Rs.51,00,000/- was held to be a speculative loss and therefore not capable of being set off as normal business loss. The ld. DR placed reliance on the decision of the Tribunal in the case of Classic Credit Ltd vs 126 ITD 469 (Mum) wherein it was held that the findings in the quantum proceedings can be the basis for levying penalty u/s 271(1)(c) of the Act. The ld. Counsel for the assessee apart from placing reliance on the order of CIT(A) also brought to our notice the decision of the Tribunal rendered in assessee's own case for A.Y.2007- 08 in IT(SS)A.No.31/Kol/2014 dated 03.03.2017 whereby this Tribunal on an identical 7 8 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 claim by the assessee came to the conclusion that penalty u/s 271(1)(c) of the Act cannot be levied.
14. We have given a very careful consideration to the rival submissions. As submitted by the ld. counsel for the assessee, the Tribunal vide its order dated 22.03.2013 passed in ITA No. 759/KOL/2011 has already accepted the genuineness of share trading loss shown by the assesese by upholding the finding recorded by the ld. CIT(Appeals) that the same cannot be regarded as a bogus loss. By the said order, the Tribunal, however, has upheld the order of the ld. CIT(Appeals) passed in the quantum proceedings whereby it confirmed the action of the Assessing Officer in treating the said share trading loss as deemed speculation loss as per Section 73 of the Act and consequently not entitled for set off against other income of non-speculative nature. The question that requires our consideration and decision is whether the disallowance of assessee's claim for set off of share trading loss against other income by treating the same as speculation loss as per Explanation to Section 73 of the Act will attract the penalty under section 271(1)(c). In this regard, we find that this issue is squarely covered in favour of the assessee by the various judicial pronouncements cited by the ld. counsel for the assessee including those which have been relied upon by the ld. CIT(Appeals) in his impugned order while cancelling the penalty imposed by the Assessing Officer under section 271(1)(c). In one of such cases, namely CIT -vs.- SPK Steels Pvt. Limited [270 ITR 156 (M.P.)], it was held by the Hon'ble Madhya Pradesh High Court that penalty under section 271(1)(c) was not exigible in respect of disallowance of assessee's claim for set off of share trading loss by treating the same as speculative in nature as per Explanation to Section 73 on the basis of preliminary details furnished by the assessee along with the return of income as the assessee could not be said to have filed inaccurate particulars or concealed particulars of his income, which was chargeable to tax.
15. In the case of CIT -vs.- Auric Investment & Securities Limited [310 ITR 121 (Delhi)] before the Hon'ble Delhi High Court, the claim of the assessee for set off of share trading loss against other income of non speculative nature was disallowed by the 8 9 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 Assessing Officer by treating the same as the loss of speculative nature by invoking the Explanation to section 73. The Assessing Officer also imposed penalty under section 271(1)(c) on the ground that the assessee had furnished inaccurate particulars of income to the extent of making a wrong claim for set off of share trading loss against normal income. Hon'ble Delhi High Court, however, held that the penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable as mere treatment of business loss as speculation loss by the Assessing Officer did not automatically warrant inference of concealment of income and there was nothing on record to show that in furnishing its return of income, the assessee had either concealed its income or had furnished any inaccurate particulars of income. Similarly in the case of CIT -vs.- Bhartesh Jain [323 ITR 358 (Delhi)], the Hon'ble Delhi High Court held that mere treatment of business loss as speculation loss would not justify levy of penalty under section 271(1)(c).
16. As far as the decision of the Hon'ble Mumbai High Court in the case of Classic Credit Ltd relied upon by the ld. DR is concerned, the facts of the aforesaid decision were totally different. In that case certain item of expenditure were disallowed by the AO on the allegation that the expenditure was not substantial by any evidence and that the claim was made only to defraud the revenue and this finding was confirmed in the quantum proceedings. These findings were the basis for imposing penalty. The Tribunal therefore came to the conclusion that the finding in the quantum proceedings justified the imposition of penalty. As we have already seen that in the present case there is neither allegation of the Assessee attempting to defraud the revenue nor is there any allegation that the loss in question was not actually sustained by the assessee. In the circumstances the aforesaid decision is not of assistance to the plea of the revenue in this appeal.
17. Keeping in view the ratio of the judicial pronouncements relied upon by the learned counsel for the Assessee, which decisions are squarely applicable in the present case, we find no infirmity in the impugned order of the ld. CIT(Appeals) cancelling the 9 10 IT(SS)A.No.32/Kol/2014 Shree Ram Electrocast Private Ltd.
A.Yr.2009-10 penalty imposed by the Assessing Officer under section 271(1)(c) and upholding the same, we dismiss this appeal filed by the Revenue.
18. In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 02.06.2017.
Sd/- Sd/-
[Waseem Ahmed] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 02.06.2017.
[RG PS]
Copy of the order forwarded to:
1. Shree Ram Electrocast Private Limited, 8, Camac Street, Shantiniketan Building, 9th Floor, Room No.16, Kolkata-700017.
2. D.C.I.T.-Central Circle-XVI, Kolkata.
3..C.I.T(A), Central-II, Kolkata. 4. C.I.T.-(Central)-II, Kolkata.
5.CIT(DR), Kolkata Benches, Kolkata.
True copy By Order Senior Private Secretary Head of Office/D.D.O., ITAT Kolkata Benches 10