TMI Blog2012 (6) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... ncealed the particulars. Thus, considering only the amount of speculation loss for quantification as concealed income is not correct according to the law. Limitation - As per the record, the ITAT order was dated 15/2/2007. Therefore, six months time limit for passing penalty order expires on 30/09/2007. The penalty order passed on 31/08/2009 was certainly barred by limitation. Also, limitation prescribed u/s 275(1)(a) does not extend the time limit till miscellaneous application was disposed off. Hence, both on merits of the case as well as on the ground of limitation, the order of the penalty cannot be sustained - Decided in favor of assessee - IT APPEAL NO. 6814 (MUM.) OF 2010 - - - Dated:- 30-4-2012 - B. RAMAKOTAIAH, S.S. GODARA, JJ. Aravind Sonde for the Appellant. Goli Srinivas Rao for the Respondent. ORDER B. Ramakotaiah, Accountant Member This is an appeal by assessee against the confirmation of penalty by the CIT(A)-10 Mumbai under section 271(1)(c) vide the order dated 26.8.2010. The assessee raised the following grounds: "Ground No. 1: Based on facts of the case and in law, the CIT (A) erred in upholding the action of the Assessing Officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal No. 6 before the CIT (A) relating to passing of the order giving effect to the ITAT's order dated 15th February, 2007 before passing the penalty order becomes infructuous". 2. All the grounds are with reference to the levy of penalty under section 271(1)(c). Brief facts are that the assessee is a foreign Bank operating in India. The assessee filed return of income on 29-12-1992 declaring total taxable income of Rs. 78,29,86,150/-. The assessment was completed under section 143(3) on 22-03-1995 assessing total income at Rs. 112,17,74,590/-. In the assessment order the Assessing Officer disallowed loss of Rs. 3,71,29,557/- and initiated penalty proceedings vide notice under section 274 of the Act. Assessee filed appeal before CIT (A). The CIT (A) vide order dated 09-11-1998 has confirmed the action of the Assessing Officer. Assessee went in to appeal before Tribunal. The Tribunal decided the appeal vide order dated 15-02-2007 partly allowing the appeal, while confirming the action of AO on losses determined. Afterwards, assessee preferred a miscellaneous application before the ITAT on some other issues. The ITAT vide order dated 12-01-2009 has dismissed the miscel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laneous Application is received by CIT. The appeal in this becomes final when the order dtd 12-1-2009 disposing of miscellaneous application was passed by the Tribunal. Since this order of the Tribunal is received on 28.02.2007 by Department. The time limit of six month will run from the end of six month in which order is received by the Department. Therefore, this ground is not tenable in law. The A.R. relied in the case of CIT v Alagendran Finance Ltd. 211 CTR 69 (SC) wherein it was held that the issue which was not subject matter of re-assessment, limitation for passing order under section 263 would apply from original assessment order. Thus, it is obvious that this decision pertains to limitation for invoking of proceedings under section 263 hence distinguishable on facts. In case of assessee, the appellate order itself was subject matter of Miscellaneous Application. Further, the issue which has not attained finality, the Assessing Officer cannot impose penalty upon assessee on such addition, as it would be against the principle of natural justice. Further, the decision is related to limitation prescribed under section 263(2) of the Act, whereas in the instant case, issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties should be only through SGL accounts was issued on 20-06-1992 i.e. after the end of year under appeal, was therefore not applicable. The AO on the basis of instructions issued by the central government and the RBI came to conclusion that ready forward transactions are illegal. Further on the basis of ratio laid down in the cases reported in Haji Aziz Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC), CIT v. S.C. Kothari [1972] 82 ITR 794 (SC) and CIT v. Piara Singh [1980] 124 ITR 40/3 Taxman 67 (SC), the AO came to conclusion that illegal losses cannot be set off against the legal income. For these reasons, the AO disallowed the loss of Rs. 3,71,29,557/-. Such disallowance was also confirmed by CIT(A) vide order dated 9-11-1998. In appeal before Tribunal, the disallowance of Rs. 1,61,67,154/- being ready forward transactions with non-bank clients were came to be sustained as held by CIT (A). Similarly the disallowance of Rs. 2,88,60,206/- being ready forward transactions with non-SGL securities were also confirmed. However transaction with trustee securities amounting to Rs. 32,94,006/- were restored to the file of Assessing Officer with a direction to verify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court did not disturb those which were already settled. It was further submitted that when the assessment order was passed, this issue was subject matter of debate and was pending in various litigations. It was further submitted that the such issue prior to 1992 was there but no specific prohibition of the transactions, and consequent to the scam, the RBI issued a circular of June 20, 1992 prohibiting the Bank w.e.f. 22.6.1992 from undertaking inter-bank ready forward deals and therefore, the transactions entered prior to that are not covered by the ready forward transactions had to be considered illegal. It was further submitted that the issues were contested as the matter was pending before the Hon'ble Supreme Court as the appeal was admitted regarding quantification of loss. It was also the contention that the Assessing Officer did not give effect to the order of the ITAT and if the order was given effect to, there would be no variation to the income offered. Accordingly there is no scope for levy of penalty. On the above submissions, the learned CIT did not agree and confirmed the penalty by holding as under: "2.3 I have considered the facts and gone through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t - (A) Such person fails to offer an explanation or offers an explanation which is found by the (Assessing Officer or the (Commissioner (Appeals) (or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate (and) fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him) then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed". 2.3.1. The perusal of above provisions read with Explanation I to section 271(l) (c) shows that the penalty would be deemed to attract where in respect of a fact material to the computation of income either no explanation is offered, or explanation offered is found to be false. The Appellant has offered explanation which was found to be false as the appellant was directed to be refrained in dealing of buy back securities vide RBI Circular NO. BC 42 of 1987 dated 15-4-1987 and also by RBI Circular 1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in the case of Bank of India Finance Ltd. v Custodian (1997) (10 SCC 488). Thus the issue was not debatable. Since, the appellant knew before entering in to transaction that loss incurred in ready forward transactions was illegal hence loss was not allowable as deduction. Therefore, the addition made by the AO was on sound ground on which penalty for concealment is attracted. This is more so when the additions were sustained by Hon'ble ITAT. Thus the appellant was unable to substantiate his explanation. I am, therefore, of the view that the assessment has been made on the basis of investigation conducted during the course of assessment proceedings and facts were found to be not fully disclosed by the Appellant It is also seen that this issue had been settled by the Hon'ble Supreme Court which also suggest that the action of the AC was correct. The AR also brought to my notice that the Tribunal has restored the matter on of loss of Rs. 32,94,000 being in trustee securities. I find that AC has not considered this addition while levying the penalty. Thus, it is held that the case of the Appellant is, therefore, covered by Explanation I to section 271(1)(c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable. The case of the Appellant is, therefore, duly covered by Explanation 1. Based on the facts of the case, I note that the Appellant had not made all the necessary disclosures of illegal loss in the return of income. Therefore, the AC has rightly imposed penalty under section 271(1)(c) of the Act. 2.3.3. Earlier there was some dispute as to whether penalty proceedings u/s. 271(1)(c) of the Income tax Act are quasi criminal in nature or not. This controversy has been brought to an end by recent judgment of three member bench of Supreme Court in the case of M/s. Dharmendra Textile Processors and others 166 TAXMAN 65 wherein Hon'ble Supreme Court has said that liability imposed under section 271(1)(c) is purely a civil liability and there is no requirement to establish "mens rea" before levying penalty. It is useful to reproduce the observation of the Supreme Court in and Para 25 of the order: "24. It of significance to note that the conceptual and contextual difference between Section 271(1)(c) and Section 276C of the Intact was lost sight of in Dilip Shroff's case ( supra ) 25. The Explanations appended to Section 271(1)(c) of the I.T. Act entirely indicates the element of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of each case. There cannot be any precedent on facts. Precedent can be only on the point of law. Every decision has to be understood in the light of the facts of that particular case. As rightly said by the Supreme Court in Willie (William) Slaney v. State of M. P ., AIR 1956 SC 116; [1955] 2 SCR 1140, "there is no such thing as a judicial precedent on facts that counsel and even judges, are sometimes, prone to argue and to as if they were". A decision is available as precedent only if it decides a question of law. In other words, the principles laid down for arriving at a decision alone will bind as a precedent. Therefore it is not necessary to refer to all judgments relied upon by the AR of the appellant in the written submission filed 2.3.7. As regards satisfaction, I found that the AO has recorded satisfaction at pages 14, 17 and 24 of the assessment order, it is very clear that the AO has initiated the penalty proceedings under section 271(1) (c), in respect of each addition made by him in the case of appellant. Vide the amendment brought in the statute vide Finance Act, 2008, Section 271(18) has been inserted with e.f. 01-04-1989 wherein it is mentioned that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limitation as he should have passed the order within six months from the end of the month in which the ITAT order was received and according to assessee the time expired on 20.9.2007. Therefore, the order passed on 31/08/2009 was hopelessly time barred. Second is with reference to the merits of the amount involved in the transactions, the learned Counsel took us to various orders to submit that assessee has furnished all the details so it cannot be considered that assessee furnished inaccurate particulars. It was also the contention that assessee bank entered into number of transactions and net result of all transactions was only profit. But the Assessing Officer chose only certain transactions so as to consider them as illegal and denied the loss as speculative loss which assessee claimed as business loss. He also referred to the order of the Hon'ble Bombay High Court admitting the appeal of assessee on merits that the loss is speculative loss or not and quantification thereon. It was further submitted that both the CIT (A) as well as ITAT directed the Assessing Officer to set off its loss to similar profits and the Assessing Officer without giving effect to the order determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no delivery of securities and the entire transaction is speculative as defined under section 43(5) of the Income Tax Act, 1961. The disallowance of the loss is proper and is accordingly confirmed. But the loss can be set off against other speculative income such as the income from C.I.S. in accordance with section 73 of the Income-tax Act 1961. The Assessing Officer is therefore, directed to set off the loss against the income from C.I.S". 11. There seems to be no appeal on the above direction of the CIT(A) by Revenue and this loss, even though first quantified as speculative loss was to be set off to income from CIS. Further, the ITAT also while upholding the order of the CIT (A) vide Para 21 reiterated that such loss can be set off against the profit arising to assessee from prohibited ready forward transactions. The Assessing Officer was accordingly directed to allow such set off. However, as contented by assessee before the CIT (A) as well as before us, the Assessing Officer has not given any set off to the income, which results in netting off/ setting off to profits and as such and there will be no disallowance/addition to the total income originally offered. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in further appeals. Therefore, we are of the view that considering only the amount of speculation loss for quantification as concealed income is not correct according to the law. 14. There is no scope for levy of penalty under section 271(1)(c) as the claims made by the Bank cannot be considered as malafide in nature and certainly there is no furnishing of any inaccurate particulars thereon. Therefore, on merits of the penalty, we are of the opinion that a mere disallowance made in the assessment order which ultimately does not have any effect on total income computation, does not call for any penalty under section 271(1)(c). 15. Coming to Ground No.1 on the issue that the order was barred by limitation under section 275, we have to uphold the contentions of assessee. Under section 275(1) the Assessing Officer will get time for finalizing the penalty proceedings if an appeal under section 253 was preferred by assessee or Revenue. As per section 275(1)(a) the time limit for completion of the proceedings are six months from the end of the month in which the order of the CIT (A), or as the case may be of Appellate Tribunal is received by the Chief Commissioner or Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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