2014 (12) TMI 516 - AT - Income Tax

Penalty u/s 271(1)(c) Relevant facts not disclosed by assessee - Loss on commodity trading under F&O as STCG or speculation loss AO was of the view that the loss is to be treated as speculation loss penalty u/s 271(1)(c) levied - Held that - The assessee claimed that he has disclosed all the relevant facts in the return of income - assessee entered into contracts of purchasing and selling commodities and the contracts were settled without actual delivery of commodities - Prima facie the loss incurred was a speculative loss incurred on speculation transaction of commodities - The speculation loss can be allowed only against the speculation profits and it cannot be allowed to set off against any other income of the assessee - The speculation transactions are clearly defined in section 43(5) of the Income-tax Act, 1961 wherein a speculative transaction means a transaction in which a contract for the purchase or sale of the commodity, including stocks and shares, is periodically and ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. The assessee has tried to take the benefit of provisions of section 43(5)(d) which provides for the purpose of section 43(5) that an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 carried out in a recognized stock exchange - once it is established that the claim is wholly untenable in law and unsustainable, then the assessee would be liable to the imposition of penalty for making a claim of this nature - The assessee s claim that all the relevant facts were disclosed in the return of the income is not correct - He has not disclosed that the loss was on the transactions where no delivery of commodities has taken place - assessee has not disclosed in the return that loss was of speculative loss, not short term capital loss - The explanation submitted by the assessee is not a bonafide explanation and it is also unsustainable in law - The law clearly defines the speculative transactions . Assessee was well in the knowledge of the fact that for the transactions entered into, delivery of commodities has not taken place - It is a clear case of speculation transaction - assessee had not disclosed all relevant facts in the return of income - assessee is liable to penalty u/s 271(1)(c) and the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues Involved:
1. Classification of loss from margin trading in commodities as speculative loss.
2. Imposition of penalty under Section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income.

Detailed Analysis:

1. Classification of Loss from Margin Trading in Commodities as Speculative Loss:

The assessee, an individual, filed a return of income declaring a total income of Rs. 7,20,837/- and claimed a short-term capital loss of Rs. 2,47,81,239/-. This included a loss of Rs. 1,61,27,836/- from margin trading in commodities. During the assessment proceedings, the Assessing Officer (AO) treated this loss as a speculative loss under Section 43(5) of the Income-tax Act, 1961, as the transactions did not involve the actual delivery of commodities. The AO disallowed the claim of the assessee and initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The CIT (A) upheld the AO's decision, confirming that the transactions were speculative and the loss could not be set off against other income.

2. Imposition of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars of Income:

The CIT (A) analyzed the conditions under Section 271(1)(c), which provides for the imposition of penalty if the assessee has concealed particulars of income or furnished inaccurate particulars. The CIT (A) referred to landmark judgments, including Dilip N. Shroff vs. Joint CIT, T. Ashok Pai vs. CIT, and Union of India vs. Dharmendra Textiles Processors, to explain the principles of concealment and furnishing inaccurate particulars. The CIT (A) emphasized that the primary burden of proof is on the revenue to establish that the assessee had concealed income or furnished inaccurate particulars.

The CIT (A) noted that the assessee had not disclosed that the loss was on transactions without actual delivery of commodities, thus classifying it as speculative loss rather than short-term capital loss. The CIT (A) concluded that the assessee's explanation was not bona fide and unsustainable in law, as the law clearly defines speculative transactions. The CIT (A) upheld the penalty, directing the AO to compute the tax on the amount of Rs. 1,61,27,836/- and levy the penalty on the tax sought to be evaded.

Appellate Tribunal's Decision:

The assessee appealed against the CIT (A)'s decision, arguing that the penalty was not justified. The Tribunal considered the case laws cited by both sides, including the Supreme Court's decision in CIT vs. Reliance Petro Products Pvt. Ltd. and the Delhi High Court's decision in CIT vs. Zoom Communication Pvt. Ltd. The Tribunal found that the assessee had not disclosed all relevant facts in the return of income, specifically that the loss was from speculative transactions without actual delivery of commodities. The Tribunal held that the assessee's claim was wholly untenable and unsustainable, and the explanation was not bona fide.

The Tribunal concluded that the assessee was liable to penalty under Section 271(1)(c) for making a claim that was ex-facie ineligible under the law. The Tribunal upheld the CIT (A)'s order and dismissed the appeal.

Conclusion:

The appeal of the assessee was dismissed, confirming the classification of the loss from margin trading in commodities as speculative loss and upholding the imposition of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. The Tribunal emphasized the importance of disclosing all relevant facts in the return of income and the consequences of making untenable and unsustainable claims.