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2016 (8) TMI 462 - ITAT PUNE

2016 (8) TMI 462 - ITAT PUNE - TMI - Penalty u/s.271(1)(c) - assessee has maintained combined profit and loss account without bifurcating the income/loss of its share trading business and its normal share brokerage business - Held that:- From the various details furnished in the paper book we find the assessee has given full details of income from share trading activity and income from brokerage activity for all the years. The AO has allocated the expenses to the above income and therefore some .....

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proceedings are independent proceedings and the assessee always can raise new plea during the penalty proceedings. - The Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) has held that a mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. - In vie .....

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The above 4 appeals filed by the assessee are directed against the separate orders dated 10-03-2015 of the CIT(A)-II, Nashik relating to Assessment Years 2000-01 & 2002-03 to 2004-05. Since common issue is involved in all these appeals, therefore, these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. Penalty of ₹ 53,590/- for A.Y. 2000-01, ₹ 35,683/- for A.Y. 2002-03, ₹ 1,69,575/- for A.Y. 2003-04 and ₹ 4,66, .....

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rder, the AO held that Explanation to section 73 of the I.T. Act was applicable to the assessee and treated the assessee s share trading business as speculative business. The AO bifurcated the income and expenses relating to the speculative share transactions and the normal business of share brokerage. In other words, the AO redrew the profit and loss account for business of its own trading in shares and had worked out the profit at ₹ 1,00,505/-. The AO had also worked out the net profit o .....

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st the income from normal brokerage business in shares which was aimed at evading the correct tax liability. According to the AO, the assessee is well conversant with the provisions of section 73 of the Act and the Explanation thereof. Despite this the assessee has maintained combined profit and loss account without bifurcating the income/loss of its share trading business and its normal share brokerage business. Thus, the income/loss from speculative business was hidden in the combined accounts .....

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r the assessee submitted that the assessee is a share broker who purchases and sells shares on behalf of its clients as well as doing own business. The company was incorporated in the year 1995 and is filing returns regularly. The method of accounting being followed is consistent and there is no change in the method of accounting and its presentation before the tax authorities. The Department has accepted the returns upto A.Y. 1999-2000 and in most of the cases orders have been passed u/s.143(3) .....

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were debited to the profit and loss account and net income was computed. The AO therefore bifurcated the income and allocated the expenses on estimate basis and worked out the normal income and speculative income/loss on estimate basis and completed the assessment. He submitted that the order of the AO was upheld by the CIT(A) and on further appeal by the assessee the Tribunal also confirmed the order of the CIT(A). 7. The Ld. Counsel for the assessee submitted that the AO levied penalty u/s.271 .....

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itted that the assessee has given details of brokerage on said share broker activities and commission and other income the total of which is ₹ 23,82,244.73. Similarly in Schedule 10 the assessee has given details of income from share trading activity disclosing loss of ₹ 1,26,561.95. This shows that the assessee has maintained proper accounts without which all these details could not have been prepared. Referring to page 155 of the paper book the Ld. Counsel for the assessee drew the .....

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for A.Y. 2000-01. Referring to page 81 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to such details for A.Y. 2002-03 and page 106 of the paper book for A.Y. 2003-04. He submitted that the AO has not pointed out what is the inaccurate particulars. 9. Referring to the decision of Hon ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 he submitted that the Hon ble Supreme Court in the said decision has held that a .....

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as held that where quantum of loss on account of purchase and sale of share was undisputed and addition was made treating such loss as speculation loss no penalty can be levied u/s.271(1)(c) of the I.T. Act. He submitted that the Delhi Bench of the Tribunal has followed the decision of the Hon ble Delhi High Court in the case of CIT Vs. Auric Investment and Securities Ltd. reported in 310 ITR 121 and the decision of Hon ble Madhya Pradesh High Court in the case of CIT Vs. SPK Steels Pvt. Ltd. re .....

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er submitted that the Finance (No.2) Act 2014 has made amendment to the Explanation to section 73 of the Act to clarify the real intention behind the insertion thereof by removing the obvious hardship caused to various assessees whose main business is trading in shares. The amendment has removed the anomaly and brought the ambit of Explanation to 73 of the Act in line with the intention of the legislature by placing the companies whose principal business is trading in shares as part of the expen .....

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Act 2014 is curative and clarificatory in nature and this amendment has to be applied retrospectively from the date of the insertion to Explanation to section 73 of the Act. He accordingly submitted that the order of the CIT(A) be set aside and the AO be directed to cancel the penalty. 12. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A) who has confirmed the penalty levied by the AO. 13. We have considered the rival arguments made by both the sides .....

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Besides the assessee was also engaged in buying and selling of shares for itself on delivery basis. The said deliveries were taken through Demat account maintained with the brokers. The assessee company has not maintained separate books of account for the share transaction of the clients and of its own self and the establishment expenses were debited to profit and loss account and the income/loss was computed. We find the AO applying the provisions of Explanation to section 73(2) of the Act trea .....

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ove, on the ground that assessee has furnished inaccurate particulars of income and thereby concealed his income. We find the Ld.CIT(A) upheld the penalty levied by the AO. 14. It is the submission of the Ld. Counsel for the assessee that since all the particulars are given, therefore, there is no question of any concealment or furnishing or inaccurate particulars of income. Further, since the expenses have been allocated between the speculative income and commission income there is some element .....

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e submission of the Ld. Counsel for the assessee. From the various details furnished in the paper book we find the assessee has given full details of income from share trading activity and income from brokerage activity for all the years. The AO has allocated the expenses to the above income and therefore some element of estimation is definitely there while computing the income. The Delhi Bench of the Tribunal in the case of S.R.J. Securities Ltd. (Supra) in somewhat similar circumstance has hel .....

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ed all the details of share transaction done by the assessee. The audit report in the Form 3CD as found at pages 15 to 19 of the Paper Book also do not talk of Explanation to Section 73 being applicable. The trial balance in respect of the trading of shares quantifying of loss of ₹ 34.99 lacs was also placed before the A.O. A perusal of the assessment order shows that the A.O. has invoked the provisions of Explanation to Section 73 of the Act to treat the loss incurred by the assessee on a .....

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the assessee in so far as the business loss as incurred by the assessee is treated as speculation loss for the purpose of computation of taxable income. A perusal of the decision of Hon'ble Jurisdictional High Court in the case of Auric Investments & Securities P. Ltd. referred to supra, shows that the Hon'ble High Court had under similar circumstances where all the requisite information as required by the A.O. was furnished by the assessee and there is nothing on record to show that .....

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on of Hon'ble Jurisdictional High Court in the case of Auric Investments & Securities Pvt. Ltd., we are of the view that the penalty levied u/s 271(1)(c) of the Act is not exigible. In these circumstances, the penalty as levied by the A.O. and as confirmed by the Ld. CIT(A) stands deleted. 16. The Mumbai F Bench of the Tribunal in the case of Fiduciary Shares & Stock Pvt. Ltd. (Supra) relying on various decisions has held that the amendment inserted in Explanation to section 73 of th .....

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tion to section 73 of the Act by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 is clarificatory in nature and would therefore operate retrospectively from 01.04.1977 from which date the Explanation to section 73 was placed on the statute since this amendment to section 73 of the Act '.... or a company the principal business of which is the business of trading in shares .....' brings in the assessee whose principal business is trading of shares. Therefore, the loss incurred in share trading .....

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