TMI Blog2010 (5) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... d that all and every fanciful and fantastic explanation offered by any person cannot in itself be construed to be a bona fide one Tribunal has cancelled the assessment on account of legality of the notice taken up in appeal, and, therefore, on this ground alone, the penalty cannot be imposed - 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)(c) 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 - u/s 94(7) of the Act, against the taxable profit of the assessee instead of adjusting the same against exempted dividend income and thereby derived double benefit, is totally in disregard to the clear and unambiguous provisions contained in Section 94(7) of the Act and is not bonafide, and further, the assessee has failed to disclose fully and truly all materials relating to that claim in the return of income - In the result, the appeal filed by the assessee stands dismissed - ITA No. 12/Del of 2010 - - - Dated:- 14-5-2010 - SHAMIM YAHYA ACCOUN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ularly during the assessment year. (iv) The main object of the assessee company carried out during the year was dealing in securities. (v) All the transactions in securities during the year were in listed securities. After analyzing the facts and circumstances of the case, AO came to a view that the gain of Rs.38,44,159/- shown by the assessee is to be treated as business profit of the assessee, and accordingly, no set off of this profit was allowed against the brought forward long term capital loss. The AO also noted one more fact that the loss of Rs.30,159/- 'incurred on sale of units has been adjusted by the assessee against the gain arising from sale of securities though the same was required to be adjusted against the dividend income received on same units in view of the provisions contained in Section 94(7) of the Act. As no reply was filed by the assessee in this regard, the AO after making a reference to Section 94(7) of the Act had taken a view that loss of Rs. 17,386/- on Birla MIP Plan A Monthly Dividend and a loss of Rs. 12,723/- on Franklin Templeton MIP Plan B was not allowable. The AO, therefore, disallowed the loss of Rs.30,159/- for the purpose of set off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it earned on sale of securities. It was further submitted that no opportunity of being heard was given by the AO before levying the penalty. 9. After considering the assessee's submissions and the facts of the case, the learned CIT (A) confirmed the penalty order by observing that the addition of Rs.30,159/- made by the AO has been sustained in appeal, and further the assessee failed to disclose the particulars about the applicability of Section 94(7) of the Act, which amounted to concealment of the particular of its income or furnishing inaccurate particulars of its income by the assessee. 10. Still aggrieved, the assessee is in appeal before us. 11. The learned counsel for the assessee has submitted that there is no requirement to disclose in the audit report the matter with regard to disallowance of loss within the meaning of Section 94(7), and as such mere because the fact of disallowance of loss to be made u/s 94(7) was not mentioned in the audit report, it could not be said that the assessee has concealed the particulars of his income or furnished inaccurate particulars of his income. The assessee further submitted that it has duly disclosed the particulars of income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest and other income of Rs.61,58,144/- consisting of the following items: (i) Miscellaneous income Rs,3,897/- (ii) Dividend on mutual fund Rs.2,89,538/- (iii) Interest on loan Rs. 19,97,199/- (iv) Profit On sale of assessee's/ Rs.38,67,509/- mutual fund units During the year, the assessee purchased and then sold units Plan A and Franklin Templeton Plan B, in respect of which the assessee had incurred a loss of Rs. 17,386/- and Rs. 12, 773 - aggregating to Rs.30,159/-. The dividend received on these units after the units were purchased and before the same were sold, were claimed exempted in the return of income filed by the assessee. While claiming the dividend income as exempted, the assessee has not adjusted the loss arising to the assessee on sale of said units in respect of which dividend was earned, j At this stage, we have to refer to the provisions contained in Section 94(7) of the Act, which reads as under (as it stood at the relevant point of time): "Section 94(7): Where- (a) any person buys or acquires any securities or unit 'within a period of three months prior to the record date; (b) Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le shall be ignored to the extent such loss does not exceed the amount of such dividend or interest, in the computation of the income chargeable to tax of such person. Definitions of the terms "record date" and "unit" have also been provided in the Explanation after subsection (7) of Section 94. This amendment was made effective from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. 16. In order to apply the aforesaid provisions of sub (section (7) of Section 94 of the Act to any given case, the following primary and basic facts need to be brought on record:- (i) Whether any person buys or acquires any securities or unit within a period of 3 months prior to the record date fixed for distribution of dividend. (ii) Whether such person sells or transfers such securities or unit within a period of 3 months after such record date. (iii) Whether the dividend or income on such securities or units received or receivable by such person is claimed exempted. (iv) Whether any loss arising to such person on sale of such securities or units has been adjusted against the dividend or income received or receivable on such securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced before the Id. CIT (A) was only that the assessee had incorporated the amount in its books of accounts, but the assessee has failed to show and establish that the primary and basic facts about the date on which the units were purchased, record date of distribution of dividend and the date on which the units were sold, were also disclosed. Mere stating the amount of income or loss in the statement of accounts without disclosing the particulars and details of the item, in respect of which the loss was incurred or the income was earned, cannot be considered to be a true and full disclosure of the particulars relating to that income or loss. Unless and until particulars of the item in respect of which income was earned or loss was incurred is disclosed, it is beyond imagination of any person to decide as to whether provisions of Section 94(7) are applicable or not in so far as that loss or income is concerned. The relevant particulars and basic facts necessary for applying the provisions of Section 94(7) must be brought on record before any assessee makes a claim that particulars of income or loss on securities or units were fully disclosed in the return of income. In the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome earned on units, and the loss incurred on sale of same units. The AO as well as CIT(A) has categorically stated in their respective orders that assessee has failed to disclose all the facts in the audit report filed along with the return of income, that would mean that the assessee never disclosed the primary and basic facts as to the applicability of provisions of Section 94(7) of the Act in the audited statement of account filed along with the return of income. Mere because the basic and primary facts necessary for the purpose of Section 94(7) are not required to be disclosed in the Audit Report obtained under Company's Act, that by itself cannot be a reason for the assessee for not disclosing the same in the return of income filed by the assessee particularly in the light of the fact that the assessee, on one hand, has claimed the dividend income exempted, and, at the same time, it has set off the loss incurred on sale of such units against the other taxable income of the assessee. Thus, in our considered view, mere because the assessee is not required to disclose the particulars of sale and purchase of units in the audit report obtained under the Company's Act, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout explaining as to how and why the claim made by the assessee is to be considered to have been made bona fide, is not A acceptable. It is well settled that all and every fanciful and fantastic explanation offered by any person cannot in itself be construed to be a bona fide one. 20. In the light of the scheme of Section 271(l)(c), it is by now well settled that each and every addition or disallowance made in the assessment would not by itself automatically attract penalty leviable under Section 271(l)(c) of the Act if the assessee gives an explanation that his claim was bona fide and all material facts relating to the computation of income has been fully and truly disclosed. However, in the present case, the assessee has not been able to point out any fact or circumstances indicating that the claim of loss incurred on sale of units without adjusting the same against dividend income as required u/s 94(7) of the Act was made bona fide or all basic and the primary facts relating to the said loss have been fully and truly disclosed. In other words, the burden that lay upon the assessee vide Explanation 1 to Section 271(l)(c) has not been discharged even to a smaller extent. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR of the assessee regarding any grounds of the Cross Objection. Therefore, it is wrong and incorrect on the part of the assessee to say that the Tribunal has cancelled the assessment in terms of Para 9 at page 6 of the order on account of legality of the notice taken up in appeal within the meaning of Section 282(2) of the Act. Whatever stated in para 9 at page 6 of the order is reproduction of the grounds taken by the assessee in the cross-objection and not that it was a decision given by the Tribunal. Thus, this contention advanced by the learned counsel for the assessee before the learned CIT (A) as well as before us is found to be misconceived, and is rejected. 22. Coming to the various decisions cited by the learned counsel for the assessee in support of the contention that no penalty u/s 271(l)(c) is leviable in the present case, we find, after going through all those decisions, that any advantage can hardly be derived by the assessee from these decisions. In the case of CIT v. International Audio Visual Co. (supra), there was a clear finding of fact that there was no concealment of primary facts and since there was no concealment of primary facts, it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(l)(c) is attracted only in those cases 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. However, this decision would also be no help to the assessee on facts inasmuch as in the present case, the assessee has concealed the particulars or furnished inaccurate particulars of units, in respect of which the dividend income was claimed as exempted, and, at the same time, loss incurred on sale thereof within specified time has been set off against the other taxable income of the assessee, though, under the law, the dividend income and loss on said units wee required to be set off against each other in the light of the specific provisions contained in Section 94(7) of the Act. The present case is a case where assessee has failed to furnish full particulars of dividend income and loss incurred on units, and has offered the lesser income than the income actually exigible to tax. Thus, the principle enunciated in this decision supports the revenue's case rather than of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the taxable income of the assessee instead of setting it off against the dividend income earned on same units, and further, the assessee failed to offer any explanation before the AO, and whatever explanation has been offered by the assessee before the learned CIT(A) cannot be held to be bonafide as no reasonable man would claim such loss on sale of units to be set off against the other taxable income of the assessee when such loss was squarely covered by the provisions of Section 94(7) of the Act. 27. After the hearing was concluded, the, learned counsel for the assessee forwarded a copy of Hon'ble Supreme Court judgment in the case of CIT vs Reliance Petroproducts Ltd. [2010] 322 ITR 158 to contend that in the light of this decision, the penalty u/s 271(1)( c) is not leviable upon the assessee. We have carefully gone through the aforesaid decision of Hon'ble Supreme Court in the case of Reliance Petro products Ltd. (and find that the Hon'ble Supreme Court noted in this order that in that case there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, and in that situation, a mere making of the claim, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, it is very difficult to believe that the assessee could claim double benefit, one by claiming the dividend income being exempted, and at the same time, claiming the loss incurred on sale of units in respect of which dividend was also received, to be set off against taxable income, when the purchase and sale of units were made within the specified period of record date as laid down in Section 94(7) of the Act. It is not the case of the assessee that there were two views possible about the meaning and scope of Section 94(7) of the Act. The assessee has merely made a wild statement that it was a bonafide claim, but it has failed to show how and in . what manner the assessee's claim can be said to be bonafide. particularly, in view of the fact that all the particulars about the purchase and sale of units made within the specified period of record date were not disclosed by the assessee in the return of income when assessee made the double claim as aforesaid. Therefore, this decision is squarely applicable to the present case, and in this view of the matter, we are constrained to uphold the order of CIT(A) in confirming the penalty levied by the AO u/s 271(l)(c) of the Act. 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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