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Friday, 24 June 2016 12:56

Merely Treating the Business Loss as Speculation Loss by the AO Does Not Automatically Warrant Inference of concealment of Income or Furnishing of Inaccurate Particulars of Income - Mumbai Tribunal

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Penalty u/s 271(1)(c) - Concealment of Income Penalty u/s 271(1)(c) - Concealment of Income

Penalty u/s 271(1)(c) on Treating Business Loss as Speculation Loss 

1. AO himself is not sure of the charge for levy of penalty whether the same is for concealment of income or for furnishing of inaccurate particulars of income

2. Merely treating the business loss as speculation loss by the AO does not automatically warrant inference of concealment of income or furnishing of inaccurate particulars of income, particularly when the assessee has furnished full details of purchase and sales of shares

FactsMumbai Tribunal

1. The only issue in this appeal of the assessee is against the order of the CIT (A) confirming levy of penalty u/s 271 (1) (c) of the Act amounting to Rs.20,04,501/-

2. Assessee is engaged in investment and also in share trading 

3. The assessee has claimed trading loss on account of purchase and sales of share of other companies at Rs.50,12,977/- as business loss but, the AO treated the same as speculation loss in accordance to Explanation to Section 73 of the Act

4. Accordingly, it was not allowed to be set off against the current year’s income

5. The AO initiated penalty proceedings u/s 271(1) (c) of the Act for furnishing of inaccurate particulars of income

6. The AO levied the penalty for treating the loss of Rs.50,12,977/- as speculation loss as against the claim of the assessee of business loss

7. Accordingly, the AO levied minimum penalty of Rs.20,04,501/- for furnishing of inaccurate particulars of income

8. Aggrieved, the assessee preferred appeal before the learned CIT (A), who also confirmed the action of the AO

9. Aggrieved, now the assessee is in second appeal before the Tribunal

10. Tribunal deleted the Penalty u/s 271(1)(c)

Assessee's Arguments 

Learned Counsel for the assessee stated that the assessee under bona fide belief made a claim of loss on purchase and sales of shares of other companies treating the same as trading loss/business loss. The learned Counsel for the assessee explained that this position is prior to the decision of the Special Bench of the Tribunal in the case of ACIT Vs Concord Commercial Pvt. Ltd. [95 ITD 117 (Mum.) The learned Counsel for the assessee argued that the AO himself is not sure of charge whether the assessee has furnished inaccurate particulars of income or concealed the particulars of his income. According to him, it means that the AO himself is not satisfied about the specific charge. As far as the penalty u/s 271 (1) (c) of the Act on merits is concerned, the learned Counsel for the assessee relied on the decision in the case of ACIT Vs Sudarshan Fiscal Services (P.) Ltd. reported in (2010) 41 ITR (Trib.) 0532 wherein on exactly identical facts the Tribunal deleted the penalty.

Revenue's Arguments

Learned Sr. DR argued that the assessee has consciously filed inaccurate particulars of income claiming the loss as business loss whereas he was very much well aware that the loss is in the nature of speculative loss in terms of Explanation to Section 73 of the Act. According to him, the orders of the authorities be sustained

Adjudication

We find from the above facts that the AO did not agree with the claim of the assessee that the loss claimed by the assessee as trading loss is actually speculation loss in view of application of Explanation to Section 73 of the Act and this loss of Rs.50,12,977/- is allowed to be carried forward for set off of speculation profits in any subsequent year. We find that all the facts and figures are available on record and the disallowance of loss is due to wrong interpretation of Explanation to Section 73 of the Act by virtue of which the same is treated as speculation loss. We are of the view that merely treating the business loss as speculation loss by the AO does not automatically warrant inference of concealment of income or furnishing of inaccurate particulars of income, particularly when the assessee has furnished full details of purchase and sales of shares. Even otherwise, we are of the view that the AO himself is not sure of the charge for levy of penalty whether the same is for concealment of income or for furnishing of inaccurate particulars of income. In view of the above, we set aside the orders of the authorities below and delete the penalty imposed on the assessee.

Cases Referred to

1. ACIT vs. Concord Commercial Pvt. Ltd. [95 ITD 117 (Mum.) (SB)]

2. ACIT Vs Sudarshan Fiscal Services (P.) Ltd. (2010) 4 ITR (Trib.) 0532

3. CIT Vs. Auric Investment & Securities Ltd. (2009) 310 ITR 121 (Del)

Additional Info

Read 12973 times Last modified on Thursday, 05 January 2017 21:30
Anil B.

A practicing Chartered Accountant Anil B. acquired CA, CS and LL.B degrees with over 12 years of rich and diverse management experience across Banking & Financial Services, Insurance and the Logistics industry spanning various markets and geographies globally.

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