Pravin Shah Trust VS Dy CIT - 14 (1) - Penalty US 271 (1) (C)

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI

BEFORE SHRI SANJAY ARORA, A. M. AND SHRI VIJAY PAL RAO, J. M.

आयकर अपील सं
./I.T.A. No.4782/Mum/2010 (Assessment Year: 2004-05)

Pravin Shah Trust 95B, Meghdoot, Flat No.5, Marine Drive, Mumbai-400 020	Vs.	Dy. CIT-14(1), 2nd Floor, Earnest House, Nariman Point, Mumbai-400 021
�थायी लेखा सं./जीआइआर सं. / PAN/GIR No. AAATP 0068 P
(अपीलाथ� /Appellant)	:	(��यथ� / Respondent)

अपीलाथ� ओर से / Appellant by	:	Shri Gopal Bohra
��यथ� क� ओर से/Respondent by	:	Shri Rajarshi Dwivedy

सुनवाई क� तार�ख Date of Hearing	:	26.06.2013
घोषणा क� तार�ख / Date of Pronouncement	:	05.07.2013

आदेश / ORDER

Per Sanjay Arora, A. M.:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-25, Mumbai (‘CIT(A)’ for short) dated 20.04.2010, confirming the levy of the penalty u/s.271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2004-05 vide order dated 30.10.2006 at Rs.102 lacs, i.e., as levied, being only marginally over the minimum penalty of 100% of the tax sought to be evaded, which works to Rs.101.47 lacs.

1. Explaining the facts of the case, it was submitted by the ld. AR, the assessee’s counsel, that the impugned penalty arises on account of disallowance of the loss on the transfer of units of US-64, claimed by the assessee per its return of income in the sum of Rs.461.25 lacs, i.e., on the conversion of the said units into tax-free bonds by the UTI, the issuer, at a per unit price of Rs.12/-as against the face value (cost) of Rs.10/-per unit. The basis of the assessee’s claim for the loss, which stood brought out clearly in its computation of income accompanying the return, was that it is only the income arising by way of dividend on the said units that is exempt u/s.10(33) of the Act, and not the income (or loss) arising on their transfer. The same was found not acceptable in view of the provision of section 10(33) of the Act. The assessee had, he would urge further, claimed only a carry forward of the said loss as a part of the total loss under the head ‘long term capital gains’ (LTCG) at Rs.643.14 lacs, and not its set off against any other income. The assessee’s explanation was found not acceptable, so that the impugned penalty stood levied invoking Explanation 1 to section 271(1)(iii) by the Assessing Officer (A.O.), relying on the decisions in the case of Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) and K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC). The same stood confirmed in appeal on the same basis. Placing a copy of the order by the Tribunal in the case of Nalin P. Shah & Othrs. v. Dy. CIT (in ITA Nos.4780, 4781 and 4783/Mum/2010 dated 18.07.2012) on record, he would continue, that the tribunal, in similar cases, being in respect of the assessee’s family members, deleted the penalty. The same has been since confirmed by the hon’ble jurisdictional high court, holding that the facts of the case were covered by the decision by the apex court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), placing a copy of the order by the hon’ble court (in ITA (LOD) Nos.49,50 & 51 of 2013 dated 04.03.2013) on record, so that the matter should be considered as concluded in favour of the assessee-appellants and against the Revenue. 
2. The ld. DR did not raise any objection to or rebut any of the averments made by the ld.AR.
1. We have heard the parties, and perused the material on record.

3.1 Our first observation in the matter is that the statement/s made by the ld. AR at bar before us has been found by us as untrue on facts. This is as section 10(33) of the Act, which reads as under, does not exempt dividend income on units of US-64, as stated, but only the income arising on their transfer, i.e., the very income, albeit in the negative, that inures to the assessee during the year, and in respect of which the impugned loss stands claimed by it:

“Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(1)

agricultural income;

(2)

……………………….

(3)

……………………….

(33)

any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) and where the transfer of such asset takes place on or after the 1st day of April, 2002;”

[emphasis, supplied]

The language of the provision is precise and unambiguous. There is, as such, no scope for an argument that a view in favor of the assessee’s claim could possibly be taken, or gives rise to a debatable legal issue.

3.2 The premise of the decision in the case of Reliance Petroproducts (P.) Ltd. (supra), is that merely because a wrong claim is made by the assessee, or that the legal claim made by it is not accepted, the same would not amount to furnishing inaccurate particulars of income, where in fact all the facts material to the computation of the income and relevant to the legal claim being made stand furnished per the return, establishing the assessee’s bona fides qua its claim. The same would have no application in or cover cases where no legal claim as being pressed arises on the basis of the facts furnished; in fact, stands negated by a particular provision of law, as in the instant case.

That is, the facts furnished, on which there is no dispute, contradict or disprove the

assessee’s claim inasmuch as the same stand squarely governed by the relevant provision. There is therefore no basis for the assessee’s legal claim, even as Explanation 1 to the provision would also stand clearly attracted. Furnishing of a plausible explanation in making the claim, establishing its bona fides, would thus continue to govern the levy or otherwise of penalty under section 271(1)(c) in this case as in any other. The interpretation of the provision, including Explanation 1 thereto, which deems, in the absence of an explanation for the default, concealment or furnishing inaccurate particulars of income, attracting penalty thereunder, has been the subject matter of elucidation by the hon’ble courts, including the hon’ble apex court itself, per a number of decisions over the years, as follows, so that the claim must rest on some reasonable premises or basis, i.e., have some basis to it: Dharmendra Textile Processors and Ors. (supra); Guljag Industries v. CTO [2007] 293 ITR 584 (SC); K.P. Madhusudhanan vs. CIT (supra); B.A. Balasubramaniam and Bros v. CIT (1999) 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC).

The apex court has, per its decision in the case of Reliance Petroproducts (P.) Ltd. (supra), not sought to reinvent or rewrite the law on penalty or even reinterpret the same, and which has thus to be read in consistence and harmony with the settled law in the matter, i.e., as emphasizing a particular aspect of the matter, which was the subject matter of the levy in that case. That is, is to be read in the background and context of the fact situation of the case. The said decision cannot be understood to imply a complete exposition of the law in the matter or read de hors the same, i.e., as explained by the apex court itself per a host of decisions cited supra. In fact, the decision in the case of Reliance Petroproducts (P.) Ltd. (supra) has received interpretation and explanation by the higher courts of law in different fact situations, where the same was sought to be applied, so that this issue can no longer be considered as res integra. In CIT vs. Escorts Finance Ltd. [2010] 328 ITR 44 (Del), the hon’ble court found the assessee’s claim u/s.35D, said to be based on the opinion of its Chartered Accountant, a tax expert, as without basis in view of the clear language of the provision, extending the benefit of the said deduction to an industrial company, while the assessee-respondent was admittedly a finance company.

Where the claim was ex facie bogus, it could attract penalty, clarifying that it was not a case of a wrong claim but of a false claim. In CIT vs. Zoom Communication (P.) Ltd. [2010] 327 ITR 510 (Del.), the claim was qua income-tax, barred by section 40(a)(ii), so that the plea of ‘omission’ was considered not acceptable. In CIT vs. Usha International Limited [2013] 214 Taxmann.com 519 (Del), again, the claim was u/s.35CCA, which was found as de hors any basis. In VSB Investment (P.) Ltd. vs. CIT [2013] 212 Taxman 59 (P&H) (Mg.) [21 taxmann.com 162], the appellant-assessee’s inability to furnish any explanation in support of its claim for loss on sale of shares, which was not allowable in view of s. 94(7), was confirmed for levy of penalty u/s.271(1)(c). Penalty there-under was accordingly confirmed, or its deletion reversed, as the case may be, in all these cases by the hon’ble courts, confirming thus that furnishing of a plausible explanation for the default continues to be the building block or an essential ingredient for saving levy penalty u/s. 271(1)(c) of the Act, and would apply even in respect of legal claims and, further, even after the decision in the case of Reliance Petroproducts Pvt. Ltd. (supra), which decision was considered in all these cases.

3.3 Coming to the facts of the case, the assessee’s explanation was, in view of the provision of s. 10(33), not what the ld. AR would state before us (refer para 2), which is itself depreciable, but that sec. 10(33) is inapplicable in its case as the same refers only to ‘income’ while the assessee has admittedly incurred a ‘loss’. It is this explanation, given in response to the show cause notice u/s. 274, which is relevant, and forms the basis of the respective cases of the parties. The said ‘explanation’, if it may be termed as one, only needs to be stated to be rejected. Firstly, it clarifies, if any such was required, that there is no ambiguity in the provision, and stands also understood by the assessee in the same manner. On the merits of the explanation, what, one may ask, is loss, if not negative income? How could it (loss) have a character other than that of income, being only the result of the same computation process which yields positive income? Further, if construed to bear a character or nature different from income, how could the same be adjusted or set off against income? In fact, it is only its computation that yields a loss, and which (computation) would become applicable or need to be applied only for computing income which forms part of the total (or taxable) income; the assessee apparently earning an income of Rs. 2/-per unit. That is, an income exempt u/c. III of the Act, not forming part of the total income, would not enter the computation process to determine the quantum of income under the relevant head of income, each of which has its own computation provisions. Needless to add, the assessee did not prefer any appeal against the non-acceptance of its so called legal claim. The explanation, if it could be considered as one, is false. We need not dwell any further in the matter; the same being basic and integral to the scheme of the Act, and part of the well settled law. Reference in this context be made to the decisions, inter alia, in the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC) and CIT v. Gold Coin Health Foods (P.) Ltd. [2008] 304 ITR 308 (SC), to the effect that loss is only negative income, bearing the same character, and that the definition of income in s. 2(24) includes ‘loss’. In fact, per the former decision, the apex court has clarified that the assessee is not obliged to disclose loss from a source of income in its return where the income from that source is tax exempt, nor the ITO under an obligation to compute or assess the same.

Continuing further, the assessee has in fact nowhere stated the basis of its claim per the return, which only states the capital asset(s) on which income claimed as long term capital loss, i.e., under the Chapter IV-E of the Act, arises to it, and the manner of its computation. Also, the argument that what is sought is only a carry forward and not an actual set off of loss, is also shorn of all legal basis, and equally without merit. The brought forward of any loss is only for its subsequent set off, and which right inures to the assessee on its assessment and being allowed carry forward in its respect, i.e., the same right which the assessee claims per its return. The actual set off, be it in the year of claim or a subsequent year, is of little moment. In either case, the same falls squarely within the purview of Explanation 4 to section 271(1)(iii).

In sum, the assessee’s claim is ex facie inadmissible, being contrary to the clear provision of law and, further, without any basis whatsoever. Far from being debatable, it qualifies for being termed as baseless and false. The assessee, therefore, can clearly be considered as having not furnished any explanation within the meaning of the term, or as

one which it could not substantiate, so as to be covered by Explanation 1 to s. 271(1)(iii).

3.4 Continuing further, the tribunal, per a co-ordinate bench decision, has, however,

under an identical situation, stated as being in respect of the assessee’s family members,

held such claim to, in view of disclosure of primary facts, not warrant levy of penalty in

light of the decision in the case of Reliance Petroproducts Pvt. Ltd. (supra); its findings

being as under:

“7. After hearing the rival submissions and perusing the material available we are of the opinion that penalty levied/upheld by the AO/FAA cannot be endorsed. In the case under consideration assessee had disclosed all the details about sale of units of US 64. AO had gathered the information about the said sale and loss/carry forward from the return filed by the assessee. In these circumstances in our opinion it cannot be held that the assessee had filed inaccurate particulars of his income. We are of the opinion that a wrong claim made by an assessee is not filing of inaccurate particulars/ concealing of income. Now it is settled law that making an incorrect claim does not tantamount to furnishing inaccurate particulars and that to attract penalty, the details supplied in the return ‘must not be accurate, not exact or correct, not according to the truth or erroneous’. In the matter under consideration facts reveal that details supplied by the assessee did not fall in any of these categories. In these circumstances we delete the penalty levied u/s. 271(1) (c) of the Act.”

The merits of the legal plea, i.e., that s. 10(33) speaks only of ‘income’ while what it

claims is ‘loss’, which is the assessee’s explanation on facts; the provision of law as well

as well-settled law being only proven facts, has not been, as apparent, discussed by the

tribunal. The basis of the decision by the tribunal was the factum of the assessee making

a legal claim coupled with the disclosure of the primary facts, in view of the decision in

the case of Reliance Petroproducts Pvt. Ltd. (supra). There was however no reference to

precedents, as in the form of decisions by the hon’ble high courts referred to supra.

3.5 The issue was raised by the Revenue before the hon’ble jurisdictional high court.

The assessee’s claim being without doubt a legal claim, though not sustainable in law, the

hon’ble court found nothing amiss in the decision by the tribunal, so that in its view it had correctly applied the decision in the case of Reliance Petroproducts Pvt. Ltd. (supra). It did not go into the merits or the maintainability of the legal plea, or the explanation, if any, offered in support thereof, being matters of fact. Going by the findings of fact by the tribunal, it declined to entertain the question/s of law raised by the Revenue before it; the relevant part of its decision reading as under:

“6. On further appeal, the Tribunal in the impugned order held that the respondent-assessee had in its return of income filed a note with its computation of income disclosing all details about the sale of US 64 units, the loss and resultant carry forward. Further, all details were disclosed in its return of income as is evident from the fact that the assessing officer gathered information about the carry forward loss and sale of units from return filed by the respondent-assessee. The Tribunal held that the from the aforesaid facts at the highest it can be said that the claim of the assessee was not sustainable in law but there was no furnishing of inaccurate particulars or concealment of income on the part of the respondent-assessee. Thus, the penalty was set aside. We find that the same view is taken by the Apex Court in the matter of CIT v/s. Reliance Petroproducts Pvt. Ltd. reported in [2010] 322 ITR 158 (SC). As the decision of the Tribunal is essentially based on finding of fact, we see no reason to entertain the proposed question of law.”

Under the circumstances, therefore, no ratio in terms of an interpretation of the provision of s. 271(1)(c) arises out of the order by the hon’ble court, so as to be considered as applicable across all similar situations. Reference in this context is made to the decision in the case of Sandvik Asia Ltd. vs. CIT [2004] 267 ITR 78 (Bom). This is for the simple reason that hon’ble court decided thus on the basis of, as stated therein, the finding of fact by the tribunal that under the facts and circumstances at the highest it can be said that the assessee’s claim is not sustainable in law. It is for this reason that the hon’ble court declined to admit and answer the larger questions of law proposed by the Revenue, raising like issues. Surely, if the assessee’s claim could be considered as debatable, i.e., giving rise to a genuine debate, the mere fact of it being not acceptable, would not make it susceptible to penalty, and which is without doubt the ratio of the decision in the case of Reliance Petroproducts Pvt. Ltd. (supra). Furthermore, the decision by the hon’ble jurisdictional high court can by no score be considered as holding in favour of non-levy of penalty u/s. 271(1)(c) even in the face of admittedly wrong or false claim/s, i.e., which has no basis in fact or in law or both; the facts in the instant case disproving the assessee’s ‘legal’ claim. The issue thus essentially boils down to the finding of fact as to whether the claim is indeed debatable, or is it frivolous.

1. At the same time, it cannot be denied that the decision by the hon’ble high court in the case of Nalin P. Shah & Othrs. (supra) is rendered in an identical fact situation, wherein it has been held that the impugned claim is not liable to be visited with penalty u/s. 271(1)(c) as there is under the circumstances no furnishing of inaccurate particulars of income. The fact situation in the instant case being identical, we are constrained on the ground of consistency to adopt the same view as has found approval by the hon’ble jurisdictional high court. Accordingly, following the same, we set aside the levy of the impugned penalty.
2. In the result, the assessee’s appeal is allowed.

प�रणामतः िनधा�ृ ै

�रती क� अपील �वीकत क� जाती ह।

Order pronounced in the open court on July 05, 2013

आदेश क� घोषणा खुले �यायालय म� �दनांकः जुलाई 05, 2013 को क� गई ।

Sd/-Sd/

(VIJAY PAL RAO) (SANJAY ARORA) �याियक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

मुंबई Mumbai; �दनांकDated : 05.07.2013

व.िन.स./Roshani, Sr. PS

10 ITA No.4782/Mum/2010 (A.Y. 2004-05) Pravin Shah Trust vs. Dy. CIT

to :
/Copy of the Order forwarded

1. अपीलाथ� / The Appellant
2. ��यथ� / The Respondent

^3. आयकर आयु�(अपील) / The CIT(A)

^4. आयकर आयु� / CIT – concerned

1. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
2. गाड� फाईल / Guard File / BY ORDER,

Dy./Asstt. Registrar)मुंबई / ITAT, Mumbai