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2017 (1) TMI 1142 - ITAT MUMBAI

2017 (1) TMI 1142 - ITAT MUMBAI - TMI - Penalty under section 271(1)(c) - addition on Dividend stripping u/s. 94(7) - Held that:- There was a boanfide mistake on the part of the assessee in not examining the provisions of section 94(7) of the Act in respect of the concerned transactions. We, therefore uphold the learned CIT(A)ís order in deleting the penalty levied under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income on this issue, since the disallowance under se .....

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section 14A r.w. Rule 8D, which is a statutory disallowance, all details have been disclosed by the assessee and the quantum of disallowance has varied only due to different interpretations by the AO and learned CIT(A) and not on account of any furnishing of inaccurate particulars of income. In this factual matrix of the case, as discussed above, we are of the considered view that penalty under section 271(1)(c) of the Act is not leviable in the case on hand and therefore uphold the finding of t .....

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Revenue is directed against the order of the CIT(A)-14, Mumbai dated 23.12.2014 deleting the penalty levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') for A.Y. 2008-09. 2. The facts of the case, briefly stated, are as under: - 2.1 The assessee is a company engaged in the business of trading in shares, securities and derivatives; including certain shares and securities in investment portfolio by way of strategic investment and w .....

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alty proceedings under section 271(1)(c) of the Act were simultaneously initiated by the AO for furnishing of inaccurate particulars of income. 2.2 On appeal, the learned CIT(A) upheld the disallowance under section 14A r.w. Rule 8D to the extent of ₹ 3,68,74,513/- (i.e. ₹ 18,39,11,187 less ₹ 14,70,25,674). The AO s adverse findings under section 94(7) of the Act amounting to ₹ 50.03,626/- on account of dividend stripping was not challenged by the assessee. 3.1 In penalty .....

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he learned CIT(A) allowed the assessee s appeal vide the impugned order dated 23.12.2014 deleting the penalty levied by the AO under section 271(1)(c) of the Act on both issues on which they were levied by the AO. (i) In respect of the addition of ₹ 50,03,628/- made under section 94(7) of the Act, the learned CIT(A) observed that the provisions of section 94(7) of the Act are attracted in the assessee s case and therefore the additions were rightly made to the assessee s income. The learne .....

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that view of the matter and placing reliance on the decisions of the Tribunal in the case of Mr. Walter Saldhana vs. DCIT Range 8(1), Mumbai in ITA 444/Mum/2010 and M/s. Crown Tradelink Pvt. Ltd. vs. ACIT (OSD), Rg. 1, Ahmedabad in ITA No. 2768/Ahd/2012, the learned CIT(A) deleted the penalty on this issue. (ii) In respect of the disallowance under section 14A r.w. Rule 8D, the learned CIT(A) observed that such disallowances were attracted only due to existing statutory provisions of section 14 .....

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d by the order of the CIT(A)-14, Mumbai dated 23.12.2014, deleting the penalty levied under section 271(1)(c) of the Act for A.Y. 2008- 09, Revenue has preferred the appeal, raising the following grounds: - 1.(i) The Learned CIT(A) has erred on facts and in law in deleting the penalty u/s.271(1)(c) of the Income Tax Act, 1961 of ₹ 1,90,84,194/- imposed by the Assessing Officer without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Off .....

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that the furnishing of inaccurate particulars /concealment of income is to be reckoned with reference to the returned income and the fact of withdrawal of loss claimed was irrelevant in this regard. 2. The Ld.CIT(A)'s order is contrary to law and on facts and deserves to be set aside and A.O 's order may be restored. 3. The appellant craves leave to amend or after any ground or add a new ground that may be necessary. 4.1 The learned D.R. for Revenue was heard in support of the grounds r .....

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he assessee, it is the assessee s first year of operations in the business of trading in shares and securities. Since in this activity there are a large number of such transactions involving thousands of crores and in which the assessee incurred huge loss, the assessee by oversight did not notice that dividend was declared by some of the companies in the interim period which was hit by the provisions of section 94(7) of the Act. It was submitted that the transactions on which dividends were rece .....

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352/Mum/ 2009 dated 30.11.2012) (ii) Four Dimensions Securities (India) Ltd. vs. ACIT (ITA Nos. 1466 & 1467/Mum/2013 dated 26.02.2015 - for A.Y. 2007-08 & 2009-10) (iii) Four Dimensions Securities (India) Ltd. vs. ACIT (ITA No. 2452/Mum/2012 dated 16.01.2015) 4.2.3 In respect of the disallowance under section 14A r.w. Rule 8D, the learned A.R. of the assessee submitted that the assessee had suo moto disallowed ₹ 21,85,29,927/- thereunder in the return of income/ computation of inco .....

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es as laid at above, it is nobody s case that this was a case of furnishing of inaccurate particulars of income or concealment of particulars of income on the part of the assessee. In support of this proposition reliance was also placed on the decision of the Hon'ble Apex Court in the case of Reliance Petroprodcuts Pvt. Ltd. (2010) 332 ITR 158 (SC). It is submitted by the learned A.R. of the assessee that in view of the above factual and legal position of the case, no penalty was leviable un .....

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& 4 as under: - 3. By taking ground nos. 1 to 4, the appellant have basically agitated against levy of penalty of ₹ 1,90,84,194/-. I have gone through the penalty order dt.25.03.2013. A reading of the same makes it clear that penalty has been levied by the A.O. on two accounts; firstly for the addition made by applying provisions of sec.94(7) and secondly on account of provisions of sec. 14A r.w. Rule 8D. I have gone through the order passed u/s.271(1)(c). The A.O. has discussed in hi .....

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y the A.O. at ₹ 40,24,40,614/-. The assessee then pleaded that even this estimate of disallowance u/s.14A has varied at all levels and hence penalty u/s. 271(l)(c) in their case should not be levied. For the same, they relied upon the decision given in the case of 124 ITR 15 - Cement Marketing Co. of India Ltd. (SC), 168 ITR 705 (SC) (Sir Shadilal Sugar & Gen, Mills Ltd. v/s. CIT), 211 ITR 35 (Orissa High Court), Hindustan Steel v/s. State of Orissa - 83 ITR 26 (SC), CIT vs. Smt. Bimla .....

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essee is considered but found not acceptable because of the following reasons: Regarding disallowance of dividend stripping u/s.94(7) amounting to ₹ 50,03,626/-, it is worthwhile to note that the assessee has accepted the decision of the A.O. and did not prefer any appeal on this ground. In reply to show cause notice, the assessee has stated, as seen above, that the company was under bonafide belief that provisions of sec.94(7) is not applicable. Further the assessee has not given any repl .....

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essors & Others (2008) 306 ITR 277 held that penalty being a civil offence mens rea is not required to be proved and hence the plea taken by the assessee that the deduction claimed by them or disallowance made by them u/s. 14A, though on the lower side were not willful and there is no falsehood in their accounts is not acceptable. The A.O. then relying upon the decision given in the case of CIT vs. Gates 91 1TR 467, Cement Distributors vs. CIT 60 ITR 586, CIT vs. Premier Breweries 244 ITR 59 .....

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m of loss to the extent of dividend income was mere technical default and without any malafide intention. Upon realizing the said mistake, the Appellant withdrawn its claim of loss to the extent of ₹ 50,03,626/-. The Appellant on its own, submitted the working of disallowance u/s. 94(7). Further the year under reference being the first year of operation, the Appellant had no grip over the technical aspect of Income-Tax Act. It is respectfully submitted that 94(7) is more in the nature of d .....

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rron Mahmood v/s. ACIT-12(3), Mumbai - ITA 1636/Mum/2013, M/s. Crown Tradelink Pvt. Ltd. v/s. ACIT (OSD) Rg. I, Ahmedabad - ITA 2768/Ahd/20I2 and M/s. Reliance Industries Ltd. v/s.ACIT, LTU, Mumbai - ITA 75/Mum/2009 3.5 I have gone through the facts and submissions and undisputedly additions were made in the income on account of provisions contained u/s.94(7) and 14A. For the sake of clarity the section 94 is reproduced as under : "94. (1) Where the owner of any securities (in this sub-sect .....

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e income of any other person. (2) xxxxxx (3) xxxxxx (4) xxxxx (5) xxxxxx (6) xxxxxxx (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 person sells or transfers - (i) such securities within a period of three months after such date; or (ii) such unit within a period of nine months after such date (c) the dividend or income on such securities or unit received or receivable by such person is exempt, then the loss, .....

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by them, which they considered as their investment. The record date and date of incorporation of the appellant are very much in proximity, so much so that any interval between the two is barely of two months. The appellant have also given the period of holding of these shares, which in good number of cases has spread over to the next F.Y., with an average holding of 150 + days. This all clearly shows that the appellant purchased shares, which were due for declaration of dividend by the concerned .....

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offered the income accordingly and not even preferred appeal. On these given facts, I am in agreement with the A.O. that provisions of sec.94(7) being attracted in this case, the additions were rightly made in the income of the appellant. However, merely because of existing deeming provisions were attracted in the case of appellant, this does not automatically attract penalty u/s.271(1)(c), as it is neither a case of furnishing inaccurate particulars nor concealing income by furnishing wrong par .....

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ax was sought to be evaded and thereby levying penalty u/s.271(1)(c). On this ground, penalty u/s.271(1)(c) being not leviable is unsustainable and hence is deleted. 3.6 Coming to the second addition made u/s.14A r.w. Rule 8D, again addition by way of disallowance were made by working out such disallowance as per the formula provided. Such disallowances were attracted again due to existing statutory provisions of sec. 14A only. This is also a fact that the calculation itself has undergone a chan .....

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e A. O., which was reduced at the level of 1st Appellate authority itself. On these given facts and in these given circumstances, again 14A disallowances being statutory in nature, I am of the view that penalty u/s.271(1)(c) is not leviable and hence penalty levied by taking into account disallowances made u/s.14A r.w. Rule 8D are deleted. The ground nos.1,2,3 and 4 are allowed. 4. In the result, the appeal is allowed. 4.3.2 On an appreciation of the submissions put forth, the material on record .....

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low that the provisions of section 94(7) of the Act were clearly attracted in the case on hand and the addition thereunder being correctly made to the assessee s income. It is seen that the assessee has admitted and accepted the same and not preferred an appeal in the matter. In our view, the facts on record indicate that in the light of huge volume of transactions undertaken by the assessee in its first year of operations, this is a bona fide mistake on the part of the assessee in computing/com .....

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being available on record. We find that in judicial pronouncements relied on by the assessee, that an identical issue was considered and adjudicated by a Coordinate Bench in the case of Four Dimensions Securities (India) Ltd. in ITA No. 2542/Mum/2012 dated 16.01.2015, wherein the Bench following the decision of another Coordinate Bench in the case of City Group Global Markets India P. Ltd. in ITA No. 5352/Mum/2009 dated 13.12.2011 has held as under at paras 2 to 5 thereof: - 2. Rival contention .....

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ction 88E of the Act. During the assessment proceedings, the A.O. noticed that the assessee had received a dividend of ₹ 47,16,889/- from Indian Companies and Mutual Funds. The A.O. asked the assessee to furnish the details of the purchase and sale in respect of companies which were hit by the provisions of section 94(7) of the Act. The assessee, in response, worked out the details of the disallowance at ₹ 6,70,776/- and offered the same for tax. After making this disallowance, the A .....

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not attract penalty under section 271(1)(c). First of all the assessee is regularly purchasing and selling shares as part of business activity in large volumes and only in these two cases there is a declaration of dividend and sale of shares immediately thereafter, which attracted the provisions of section 94(7). But for the declaration of dividend, the loss would have become business loss allowable otherwise in the course of its business activity of purchase and sale of transactions. Even the .....

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ctions, the CIT (A) allowed setoff and restricted to net amount of ₹ 12,45,342/-. In our view, this is a bonafide mistake happened at the level of compiling the data. The application of provisions of section 94(7) were not examined nor invoked. Since the assessee has declared large amount of profits in transactions on purchase and sale of shares, this aspect could have genuinely missed the attention of persons concerned. Since no malafide intention can be attributed to assessee in claiming .....

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attract penalty proceedings under section 271(1)(C). Accordingly the assessee s ground is allowed. The penalty levied on this disallowance of loss is hereby cancelled. 4. We have considered rival contentions and found that assessee is a share broker and share trader and has offered a total income of ₹ 13,98,55,100. The said income includes profits from share trading of ₹ 8,73,43,276/-. The profit has been resulted from innumerable transactions of purchase & sales of shares, inclu .....

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ares and units were called for in the course of ordinary hearing, the assessee furnished complete particulars of transactions. During these proceedings, the said mistake was realized and the assessee agreed before the A.O. to disallow the said amount. Since assessee has agreed for disallowance, no show cause notice was issued by the A.O. in this regard. The disallowance was made as per the working submitted by the appellant, which has been accepted by the A.O. Also, against the said disallowance .....

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e made under of Section 94(7) of the Act. 5. Similar view has been taken by the ITAT Mumbai bench in the case of Ramesh Damani, ITA No.1625/Mum/2012, dated 22-8-2014. Respectfully following the judicial pronouncements as discussed above, we do not find any merit in the imposition of penalty addition made with reference to the provisions of Section 94(7). 4.3.3 In the factual matrix of the case on hand as discussed above and drawing support from the decisions of the Coordinate Bench cited (supra) .....

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