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TMI Blog2010 (5) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was ton deal in securities. The assessee company filed its return of income on 27.10.04 declaring total income at Rs. 12,44,787/-. The return was initially processed u/s 143(1) of the Act. Later, the case was selected for scrutiny, and notice u/s 143(2) of the Act was duly issued within stipulated time, and was also served upon the assessee. The questionnaire along with notice u/s 142(1) of the Act dated 19.9.2005 was also issued by the AO, which was served upon the assessee. In response to the notices issued u/s 142(1) and 143(2) from time to time by the AO, the assessee's Authorized Representative appeared before the AO and filed the various details and evidences as required. Assessee also submitted written submissions before the AO. The matter was then examined and discussed by the AO, and framed the assessment u/s 143(3) on 28.12.2006. In the assessment, the AO has stated that during the course of assessment proceedings, it v/as noticed by the AO that the assessee had booked the income from dealing in securities under the head "Capital Gains". After discussing the matter thoroughly with the assessee, the AO noted the following facts:- (i) The purchase and sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in respect of this ground, the Tribunal had taken a view that the cross objection filed by the assessee on th 6. Having found that the disallowance made by the AO was confirmed by the CIT(A), the AO provided opportunity of being heard to the assessee before levying any penalty u/s 271(1)(c) of the Act. The AO then considered the facts as discussed in the assessment order and also the material available on record, and found that the fact with regard to the loss disallowable u/s 94(7) of the Act was not disclosed by the assessee in the audit report and by not doing so; the assessee has concealed the particulars of its income. The AO then vide his order dated 23.3.2009 levied penalty amounting to Rs. 10,820/-, being 100% of the tax sought to be evaded on the amount of Rs.30,159/- disallowed by the AO u/s 94(7) of the Act. 7. Being aggrieved with the AO's penalty order, assessee preferred an appeal before the learned CIT(A). 8. Before the learned CIT(A), the assessee has taken a ground that the assessee has duly deposited the amount of tax on the income of Rs.30,159/-along with applicable surcharge and interest thereon, even prior to issuance of notice for levy of penalty u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss arising from sale and purchase of same units against other profit on sale of securities without adjusting the dividend income earned on units against the loss arising from sale of same units sold within specified time, which is totally contrary to the specific provisions contained in Section 94(7) of the Act. He, therefore, submitted that the assessee's claim cannot be treated to be a bona fide one, but assessee has deliberately made a false claim totally in disregard of the specific provisions contained in Section 94(7) of the Act without disclosing the basic and primary facts relating to purchase and sale of units made within specified period of record date as contemplated u/s 94(7) of the Act. He, therefore, contended that the AO was very much justified in levying the penalty, which has been rightly confirmed by the learned CIT(A). 13. We have considered the rival contentions of both the parties and have carefully gone through the orders of the authorities below. We have also deliberated upon the decisions cited by both the parties. 14. The assessee company is a non-banking financial company approved by the Reserve Bank of India. The assessee company is engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10, for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may 15. The sub-section (7) in Section 94 was inserted effective from Assessment Year 2002-03 as a measure to curb creation of short-term losses by certain transactions in securities and units. The then existing provisions of the Act before the insertion of sub-section (7) in Section 94 of the Act did not cover a case where a person buys securities (including units of a mutual fund) shortly before the record date fixed for declaration of dividends, and sells the same shortly after the record date. Since the cum-dividend price at which the securities are purchased would normally be higher than ex-dividend price of which they are sold, such transactions would result in a loss which could be set off against other income of the year. At the same time, the dividends received would be exempt from tax u/s 10(33}. The net result would be the creation of a tax loss without any actually outgoings. With a view to curb the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/- was not adjusted against the dividend income but was adjusted against the other taxable income of the assessee. We, therefore, have to determine whether the act of the assessee in making claim of loss incurred on sale of units by way of adjusting the same against taxable income of the assessee instead of adjusting the same against dividend income contrary to the provisions of Section 94(7) of the Act is bona fide and whether the assessee has disclosed all relevant facts material to the computation of assessee's total income under the Act. 18. The basic and primary facts that these units were purchased by the assessee within a period of 3 months prior to the date fixed for the purpose of entitlement of the holder of the unit to receive dividend, and were subsequently sold within a period of three months after such record date, has not been disclosed by the assessee in the statement of account or any another note annexed to the return of income. The further fact that the dividend received by the assessee, which has been claimed as exempted, was in respect of the same units, which were purchased within a period of three months prior to the record date of distribution of dividend, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. In the course of first appellate proceedings against the penalty order, the assessee submitted its explanation saying that the assessee had incorporated the entry of claim in the books of accounts and the claim was bonafide, but the assessee hasi failed to show and establish as to how and in what manner the assessee had disclosed all relevant particulars necessary for deciding the question as to whether provisions of Section 94(7) were applicable to the dividend income earned by the assessee vis-a-vis loss incurred by the assessee on sale of same units and has failed to give any plausible explanation as to why the loss incurred on sale of units was adjusted against other taxable income of the assessee instead of adjusting the same against exempted dividend income. As already stated above, mere disclosing amount of any income or loss without disclosing the particulars of income or loss cannot be said to be a full and true disclosure of facts for the purpose of determining total income under the Act. In the present case, unless the assessee discloses the date of purchase of units, details of record date for distribution of dividend and the date of sale of units in respect of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of record date was not adjusted against the dividend received on such units. In this view of the matter, the contention of the learned counsel for the assessee that the assessee cannot be founded fault with because for the reason that no such disclosure was necessary to be made in the audit report obtained under the Company's Act, is misconceived and is, thus, rejected. 19. The present case is not a case of small investor making investment in shares and units. The assessee company is a Non-Banking Financial company and its one of main business is to deal and invest in shares, mutual funds and other securities. The focus of the assessee company is on investment in shares and other securities and mutual fund etc. The assessee has been deriving profit on sale of shares and mutual funds, interest income and dividend income. The assessee company's shares are listed in Stock Exchange. This makes it amply clear without any doubt that the assessee company is supposed to be fully aware about the various situations in which the price of shares or units are fluctuated. How the prices of shares or units cum dividend or ex-dividend are fluctuated in the market, is common phenomenon known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the assessee before the CIT(A) was totally misconceived, and without understanding the meaning and the effect of the order of the Tribunal. In respect of quantum appeal filed by the revenue, the assessee filed cross objection. Departmental appeal and the Cross Objection filed by the assessee were taken up together. In the departmental appeal, the issue was whether gain on sale of securities is to be treated and assessed as Tong-term capital gain' or as 'business income'. In the Cross Objection filed by the assessee, the assessee hasH taken four grounds of appeal, which have been reproduced by the Tribunal in Para 9 at pages 4,5 and 6 of the order. In Para 9, all the four grounds of appeal have been reproduced where the asscssee has contended that the assessment order is illegal inasmuch as ITO had no jurisdiction over the case of the assessee and notice issued u/s 143(2) and/or 142(1) of the Act were not addressed to the Principal officer, being in violation of provisions of Section 282(2) of the Act, and, therefore, the assessment deserves to be annulled/cancelled. The Cross Objection filed by the assessee, were disposed of by the Tribunal by discussing the matter in P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the dividend income. It is, thus, clear that assessee derived double benefit once by claiming dividend income as exempted, and secondly, by adjusting the loss incurred on same units against the other taxable income of the assessee. On the facts of the case, therefore, the decision in the case of International Audio Visual Co. (supra) is of no help to the assessee's case. 23. In the case of PHI Seeds India (supra), the Hon'ble Delhi High Court has given the following reasoning: "If a return of income is found to be incorrect and the assessment that is eventually framed by the AO is for a larger income, penalty proceedings are not an inexorable or inevitable consequence. It is axiomatic that Section 271(l)(c) is attracted only in those instances where the assessee has concealed the particulars of his income, or has furnished inaccurate particulars of such income with a intent to mislead the Revenue into accepting its return for an income offered for taxing, which is lesser than the income actually exigible to tax. Since all the transactions had been mentioned by the assessee in its return, concealment is obviously . not made out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, the assessee has claimed double benefit, one by claiming the dividend income as exempted and the other by setting off of loss incurred on sale of such units against the other taxable income of the assessee. The present case is a case where bogus claim is made. Therefore, the present case is not a case where we can say that the assessee's conduct was bonafide and has disclosed all primary and basic facts relating to the loss on units. 25. In the light of the discussions made above, we are of the considered view that the aforesaid three decisions relied by the assessee do not advance the case of the assessee rather they support the case of the revenue on facts of the present case. 26. The assessee has also furnished before us a copy of the decision of Hon'ble Court of Delhi in the case of CIT v. Usha Marketing (P.) Ltd. [2009] 176 Taxman 159 which decision, in our considered view, is also not of any help to the assessee's case but rather it supports the case of revenue. In this case, parameters of explanation to Section 271(l)(c) has been applied, and then it was held that no penalty would be leviable u/s 271(l)(c) of the Act. Under Explanation to Section 271(l)(c), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned, to be set off against other taxable income of the assessee rather than to be set off against the dividend income. Therefore, the present case is not a case where all the facts relating to claim were disclosed by the assessee and by itself has been merely disallowed, but it is the case where a claim of loss on units has been made by the assessee without disclosing or furnishing full and true particulars relating to the claim where no such claim did exist at all under the law. 28. At this stage, a reference is made to a decision of Hon'ble jurisdictional high Court of Delhi in the case of CIT vs Escorts Finance Ltd. dated 21th August, 24, 2009 where penalty levied u/s 271(l)(cJ in respect of the disallowance of assessee's claim made u/s 35D for expenses incurred for public issue of shares was held to be justified. In that case, it was found that the deduction u/s 35D was clearly available only to other investment company or industrial undertaking for expansion of business and there could not be two opinions that the assessee was not eligible for such benefits, and against such clarity in law, how can the assessee claimed that such a deduction was made under bonafide bel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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