Sistas P. Ltd, Mumbai vs Assessee

Sistas Private Limited, बनाम/ Income Tax Officer -2(3)(2), 101, Mahatma Gandhi Road, Aayakar Bhavan, Vs. 3rd Floor, Shetty House, M.K.Road, Mumbai-400023 Mumbai-400020 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AAACS5758E

अपीलाथ ओर से / Revenue by: Shri H P Mahajani

यथ क ओर से/Assessee by : Shri Neil Philip

सन ु वाई क तार ख / Date of Hearing : 20.11.2014 घोषणा क तार ख /Date of Pronouncement : 9. 1.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated 17.01.2013 passed by Ld CIT(A)-6, Mumbai and it relates to the assessment year 2005-06. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the penalty of Rs.36,14,604/- levied by the AO u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).

2. The facts that led to levy of penalty are discussed in brief. During the course of assessment proceedings, the AO noticed that the assessee has purchased units of mutual fund and sold them after the receipt of dividend, which led to incurring of losses. The AO noticed that the provisions of sec. 94(7) shall apply to the assessee, as per which the loss incurred on sale of units is required to be disallowed to the extent of the amount of dividend received, if it is sold within a prescribed period. The provisions of sec. 94(7), prior to the amendment by Finance (No.2) Act, 2004, shall apply if the units are purchased ITA No.1354/M/2013 2

within a period of three months prior to the record date (for declaring dividend) and sold within a period of three months after the above said date. As per the pre-amended provisions, the transactions carried out by the assessee were not hit by the provisions of sec. 94(7) of the Act.

3. However, the Finance (No.2) Act, 2004 amended the provisions of sec. 94(7) of the Act, whereby the sale made within a period of NINE months after the record date was also brought within its ambit. According to the assessee, the Finance (No.2) Act, 2004 was introduced in the parliament on 8th July 2004 and received the assent of the Hon'ble President of India on 10th Sep. 2004. It came into effect from 1.4.2005 and hence became applicable from asst. year 2005-06.

4. The case of the assessee was that it purchased and sold the units prior to 10th Sep. 2004, i.e., the date on which the Finance (No.2) bill, 2004 received the assent of the Hon'ble President of India. Since the transactions of sales were concluded prior to the receipt of assent of the President of India, the pre- amended provisions should be applied, i.e., the period of holding after the record date should be taken as three months only. Accordingly it is submitted that the transactions were not hit by the pre-amended provisions of sec. 94(7) of the Act. However, the said contentions did not find favour with tax authorities as well as the Tribunal, since the Finance (No.2) Act, 2004 was made applicable from assessment year 2005-06 and accordingly it was held that the units sold during the period from 1.4.2004 to 31.3.2005 have to be examined in terms of amended provisions of sec. 94(7) of the Act. Accordingly, by applying the amended provisions, the assessing officer disallowed the loss to the extent of Rs.64,13,137/-.

5. The assessing officer further noticed that the assessee had claimed various types of expenses against the income received by way of rent, profit on sale of investment, dividend. The AO further noticed that the assessee had incurred those expenses in connection with a new project of making a special Diary on Mahatma Gandhi. Hence, the AO disallowed expenditure claim to the extent of Rs.36,62,414/-. In the quantum appeal proceedings, the Ld CIT(A) confirmed both the disallowances. There after, in the penalty proceedings, the assessing levied minimum penalty of Rs.36,14,604/- on both disallowances discussed ITA No.1354/M/2013 3

above. The Ld CIT(A) also confirmed the penalty levied by the assessing officer. Aggrieved, the assessee has filed this appeal before us.

6. We heard the parties and perused the record. The assessee has challenged the order passed by Ld CIT(A) in quantum assessment proceedings by filing appeal before the ITAT and the Tribunal, vide its order dated 12-08- 2011, has confirmed the disallowance made u/s 94(7) of the Act. However, the matter relating to the disallowance of expenses was restored to the file of the assessing officer. The assessee has challenged the order of the Tribunal by filing appeal before the Hon'ble High Court of Bombay and the High Court has also confirmed the disallowance made u/s 94(7) of the Act, vide its order dated 07-09-2012 reported in (2012)(27 taxmann.com 236).

7. In the penalty proceedings, the main explanation of the assessee with regard to the disallowance made u/s 94(7) of the Act was that

(a) the amendment was brought by the Finance (No.2) Bill, 2004 in sec. 94(7) of the Act, whereby the period of holding after the record date was enhanced from 3 months to 9 months and the said Bill received the assent of the Hon'ble President of India on 10th Sep. 2004. Hence the assessee was under the bonafide belief that the amended provisions will not affect the transactions already concluded prior to the date of assent of the Hon'ble President of India.

(b) The assessee was under bonafide belief that the transactions carried on by him in accordance with the provisions that existed at the time of entering into the transactions cannot be affected by a subsequent amendment brought with retrospective effect.

(c) The assessee has not furnished any inaccurate particulars of income. All the details were furnished before the assessing officer either in the return of income or during the course of assessment proceedings.

(d) A claim, which is not sustainable in law, will not lead to furnishing of inaccurate particulars of income.

However these explanations did not find favour with the assessing officer and Ld CIT(A).

8. We notice that there is no dispute with regard to the fact that the assessee has furnished all the details before the assessing officer during the course of ITA No.1354/M/2013 4

assessment proceedings. In the return of income, the copy of which is placed at pages 2 to 5 of the paper book, the assessee has stated that the Disallowance u/s 94(7) was NIL. Further the following note was also appended in the return of income:-

"It is the Company's contention that the amendment brought about by the Finance (No.2) Act, 2004 to Section 94(7) with effect from 1.4.2005 should not apply to transactions concluded before introduction of the Finance Bill 2004 in Parliament on 8th July, 2004."

Thus, it is seen that the assessee was very much conscious about the applicability of the provisions of sec. 94(7) and also about the amendment brought in by Finance (No.2) Act. At the time of filing return of income, the assessee had entertained a bonafide belief that the transactions entered into by him upto the date of introduction of Bill in the parliament, i.e., upto 08-07-2004 would not be hit by the new amendment. However, in the assessment proceedings, the assessee has contended that the amended provisions shall not apply to the transactions concluded before the Bill came into an Act, i.e., the date of receipt of assent of Hon'ble President of India.

9. Before us, the Ld A.R submitted that the penalty u/s 271(1)(c) of the Act was levied by the AO for "furnishing inaccurate particulars of income". He further contended that the transactions entered into by the assessee would not attract penalty, since the assessee had furnished all the details and hence there was no question of furnishing of inaccurate particulars of income. He further submitted that a claim which is not sustainable in law, by itself would not amount to furnishing of inaccurate particulars of income as per the decision of Hon'ble Supreme Court rendered in the case of CIT Vs. Reliance Petro Products Pvt Ltd (322 ITR 158). He further placed reliance on various case laws on which identical views have been expressed.

10. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A). He submitted that the assessee has furnished return of income after expiry of about one year from the date of conclusion of the relevant transactions, by which time, the amended provisions were very much in existence. Accordingly he submitted that the assessee was aware of the amended provisions, but still chose not to make disallowance u/s 94(7) of the Act and hence the same would lead to furnishing of inaccurate particulars of income.

ITA No.1354/M/2013 5 11. In the rejoinder, the Ld A.R drew our attention to the decision dated 14-12- 2012 rendered by the Hon'ble jurisdictional Bombay High Court in the case of CIT V/s M/s Aditya Birla Nova Limited (successor), In Business to M/s Birla Global Finance Limited, (2012-(IT1)-GTX-0390-Bom)(Income Tax Appeal No. 3899 of 2010). We have gone through the said decision. The facts prevailing in that case are that the assessee therein claimed deduction u/s 35D of the Act and the same was disallowed on the ground that it is not an industrial undertaking. It is pertinent to note that a similar claim in the earlier years had also been disallowed. Another claim put forth by the assessee was related to the dimunition in the value of shares. The said claim was also disallowed on the ground that the shares were held as investments. The penalty levied on both the disallowances were deleted by the Hon'ble jurisdictional High Court with the following observations:-

"11. ............. However to attract the provisions of section 271, the assessee must be held to have concealed the material particulars or to have furnished inaccurate particulars. At the cost of repetition in the present case, there was no concealment of any material particulars by the respondent. Nor did the respondent furnish inaccurate particulars. The respondent disclosed all material particulars and on the basis thereof, made certain claims which have been found purely as a question of law to be not sustainable.

In the present case, Explanation 1(B) is inapplicable. This is in view of the fact that it is an admitted position that the respondent has neither concealed any particulars of income nor furnished inaccurate particulars of income. Explanation 1(B) would apply only where an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Explanation 1(B) provides that in such cases if the reasons given for the concealment or furnishing of inaccurate particulars of income are found to be unsubstantiated or not bona-fide, the amount added or disallowed in computing the total income would represent income in respect of which particulars have been concealed.

12. As we noted earlier, the matter in any event stands concluded in favour of the respondent by the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) where the Supreme Court considered a similar situation. The respondent therein had disclosed all the facts and there was no concealment of income. The Supreme Court negated an identical submission. The ITA No.1354/M/2013 6

judgment considers and interprets the judgment of the Supreme Court in Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (supra). The Supreme Court after setting out Section 271 (1)(c) in paragraph 10 held as under :-

"10. ....................................................................

A glance at this provision would suggest that in order to be covered, 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. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for the Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars.

11. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the words concerned.

The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal (2009) 9 SCC 589, where this Court was considering the same provision, the Court observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v.

Dharamendra Textile Processors as also the decision in Union of India v. Rajasthan Spg. & Wvg. Mills and reiterated in para 13 that: (Atul Mohan Bindal case, SCC p. 597, para 13) ITA No.1354/M/2013 7

"13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist."

19. It was tried to be suggested that Section 14-A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form part of the total income. It was, therefore, reiterated before us that the assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income.

20. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1) ( c ). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the assessing officer for any reason, the assessee will invite penalty under Section 271(1)( c ) .That is clearly not the intendment of the legislature.

21. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of T.N. (2009) 11 SCC 687, as regards the penalty areapposite. In the aforementioned decision which pertained to the penalty proceedings in the Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: (SCC p.688, para 7) ITA No.1354/M/2013 8

"7. So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside."

The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return."

The Supreme Court also held that it was only on the point of mens-rea that in Union of India & Ors. vs. Dharmendra Textile Processors & Ors, the Supreme Court over-ruled the earlier judgment of the Supreme Court in Dilip N. Shroff vs. Jt. CIT, (2007) 291 ITR 519.

13. Mr.Malhotra submitted that Explanation 1(B) to Section 271(1) mandates the levy of penalty even where a claim for deduction is not upheld, even though the assessee has disclosed all material facts and has not suppressed any material facts. He submitted that a view to the contrary would render explanation 1(B) nugatory. His only response to the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. was that the Supreme Court had failed to notice Explanation-1 to section 271(1).

14. We are unable to agree. In any event we are bound by the judgment of the Supreme Court. Merely because the Explanation was not referred to in the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., it cannot be said that the judgment is per-incuriam. The learned Judges having expressly considered the very section, it can hardly be suggested that they did not notice a part of the section and delivered the judgment in ignorance thereof merely because that part is not in terms noted in the judgment."

12. In the present case, it is not the case of the revenue that the assessee has failed to furnish all particulars of income. As noticed earlier, the assessee has indicated in its return of income that it was conscious of the provisions of sec. 94(7) of the Act. The assessee had attached a note also in this regard expressing its view about the applicability of the provisions of sec. 94(7) of the Act. In the assessment proceedings, the assessee has contended that the ITA No.1354/M/2013 9

amended provisions should not be applied on the transactions concluded prior to the date of receipt of assent of Hon'ble President of India. Thus, in our view, the assessee was under bona fide belief that the amended provisions will not be applicable for the transactions concluded atleast upto the date of receipt of assent of the Hon'ble President to Finance (No.2) Bill , 2004. In our view, the said belief cannot be altogether rejected, since the said claim of the assessee is a debatable one. Even otherwise, we are of the view that the decision of Hon'ble Supreme Court in the case of Reliance Petro Products (supra) supports the case of the assessee, i.e., a claim which is not sustainable in law by itself would not lead to furnishing of inaccurate particulars of income.

13. In view of the foregoing, we are of the view that the penalty levied on the disallowance made u/s 94(7) of the Act is liable to be deleted. Accordingly we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the penalty levied on the disallowance made u/s 94(7) of the Act.

14. With regard to the penalty levied on the disallowance of expenses, we notice that the Tribunal has restored the matter relating thereto to the file of the assessing officer while deciding the appeal filed by the assessee in quantum proceedings. Hence the penalty levied on the same does not survive and the assessing officer may examine about the levy of penalty in the set aside proceedings.

15. In the result, the appeal of the assessee is allowed.

The above order was pronounced in the open court on 9th Jan, 2015.

घोषणा खल ु े यायालय म दनांकः 9th Jan, 2015 को क गई ।

sd sd

( वजय पाल राव/VIJAY PAL RAO) (बी.आर. बा करन,/ B.R. BASKARAN) या यक सद य / Judicial Member लेखा सद य/Accountant Member

मंब ु ई Mumbai: 9th Jan,2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : ITA No.1354/M/2013 10

1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A)- concerned 4. आयकर आयु त / CIT concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब ु ई/ DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई /ITAT, Mumbai