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2021 (3) TMI 1122

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..... enough to impose penalty on the assessee. Therefore, we are inclined to delete the penalty imposed in this case. Accordingly, grounds raised by the assessee are allowed. - I.T.A. No. 6913/Mum/2012 - - - Dated:- 26-3-2021 - Hon ble Justice P. P. Bhatt, President And Hon ble Shri S. Rifaur Rahman, AM For the Appellant : Shri P. J. Pardiwala Ms. Zalak P. Shah, AR For the Respondent : Shri Brajendra Kumar, DR ORDER PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-4, in short Ld. CIT(A) , Mumbai, dated 05.09.2012 for AY 2002-03. 2. The brief facts of the case are, assessee is an investor and dealer in shares and securities. During assessment proceedings, AO observed from annual report for FY 2001-02 that some of the shares are held as long term investments while the others are stock-in-trade. The profit or loss on sale of long term investments is offered for tax under the head Capital gains while the stock-in-trade is offered for tax under the head Business Income . In the return of income, assessee declared the total income as under:- .....

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..... alment of particulars or furnishing of inaccurate particulars of income. It was submitted that in the given case, there is no evasion of tax since AO has not made any addition and merely reclassified the head of income. 7. After considering the submission of the assessee, Ld. CIT(A) sustained the penalty with the following observations:- 4. I have considered the facts of the case and submissions of the assessee. The assessee has claimed that its income is mainly chargeable under the head capital gain and, therefore, the provisions of explanation to section 73 are not applicable, whereas, this is no more in dispute because the business loss on account of trading in shares has been confirmed as speculation loss by CIT(A) and Hon'ble ITAT in the quantum appeal and, therefore, to again argue in the penalty proceedings that provisions of explanation to section 73 are not applicable cannot help the assessee. The loss claimed by the assessee is a speculation loss and, therefore, the issue arises whether the penalty is leviable or not. Assessee has relied on several case laws, but case laws are in favour and against penalty orders u/s. 27l(l)(c), but the only issue is that .....

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..... case of the assessee.. . The learned CIT(A) erred in not following the decision of the Delhi High Court decision in the case of CIT v. Auric Investment Securities Ltd. (310 ITR 121), which is similar to the facts of the appellants case. 4. The learned CIT(A) erred in not appreciating that mere change of the head of income from Business Income to Speculation Income in the assessment order cannot automatically lead to penalty under section 271(l)(c) of the Act. 5. Each one of the above grounds of appeal is without prejudice to the other. 6. The appellant reserves the right to amend, alter or add to the above grounds of appeal. 9. At the outset, Ld. AR appearing on behalf of the assessee brought to our notice brief facts of the case and submitted that AO has reclassified the head of income from business income to speculative income. There is a difference of opinion and assessee is of the view that the explanation to section 73 of the Act is not applicable to the case of assessee. However, Ld. CIT(A) and Hon ble ITAT has rejected the contention of the assessee in quantum appeal. However, assessee has not challenged the quantum appeal. Further, he brought .....

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..... n creates a deeming fiction by which a company is deemed to be carrying on a speculation business where any part of its business consists in the purchase and sale of shares of other companies. Now, the exception which is carved out applies to a situation where the gross total income of a company consists mainly of income which is chargeable under the heads Interest on securities , Income from house property , Capital gains and Income from other sources . Now, ordinarily income which arises from one source which falls under the head of profits and gains of business or profession can be set off against the loss which arises from another source under the same head. Sub Section (1) of Section 73 however sets up a bar to the setting off of a loss which arises in respect of speculation business against the profits and gains of any other business. Consequently, a loss which has arisen on account of speculation business can be set off only against the profits and gains of another speculation business. However, for Sub Section (1) of Section 73 to apply the loss must arise in relation to a speculation business. The explanation provides a deeming definition of when a company is deemed t .....

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..... CIT(A) has given clear cut findings on the issue. Hence, he supported the orders passed by the revenue authorities. 13. Considered the rival submissions and material placed on record. We notice that assessee has incurred loss on sale of shares which was held as stock-in-trade. The assessee treated the same as part of business whereas AO treated the same as speculative loss by invoking explanation to section 73 of the Act. Assessee challenged the same before ld. CIT(A) and ITAT. At the same time, AO initiates penalty proceedings u/s 271(1)(c) and levies the penalty. We notice that in the similar case, Hon ble Delhi High Court in the case of CIT vrs. Aretic Investment Pvt. Ltd. (2010) 190 taxman 157 (Del) held as under:- 2. The Tribunal was of the view that the loss was suffered by the assessee in the said activity of purchase and sale of shares and having regard to the nature of the said transactions as well as the nature of its own business, the assessee-company was under a belief that the said transactions were forming part of its business and the loss suffered in the said transactions was its business loss and not speculative loss. Consequently, the assessee claimed the sa .....

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