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TMI Blog2008 (3) TMI 506X X X X Extracts X X X X X X X X Extracts X X X X ..... rores. The same units were sold to ANZ on 5-7-1990 which resulted into loss of Rs. 51,61,875 which was claimed by the assessee while filing the return of income. The Assessing Officer disallowed the loss while framing intimation under section 143(1)( a ). The loss was disallowed by way of prima facie adjustment which was confirmed by learned CIT(A). The matter was carried before the Tribunal. The Tribunal by its order in ITA No. 8028/Delhi/92 dated 16-9-1998 held that the treatment of loss as speculation loss is outside the purview of prima facie adjustment permissible under section 143(3)( a ). For this kind of finding, the Assessing Officer would have been required to make verification and hear the assessee. Such action would have been possible only in the course of regular assessment under section 143(3) of the Act. Accordingly, the addition made by way of prima facie adjustment under section 143(1)( a ) was deleted by the Tribunal. During the regular assessment proceedings under section 143(3), the assessee was required to prove the genuineness of the loss. The assessee vide his letter dated 18-2-1994 submitted following documents : ( a )ANZ letter of 21-5-1990. ( b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonings are as under : ( a )The units transferred to the appellant were not transferred in the name of the appellant in the register of UTI. ( b )It seems that there was a clear understanding between the appellant and the bank that this transaction was only for the period of 60 days and immediately after the completion of 60 days, the units were returned back to ANZ Grindlays Bank. The assessee preferred an appeal against the order of CIT(A) before the ITAT. The Tribunal has held that the above loss was speculation loss and not to be adjusted against current year s income. Relevant extract from the ITAT s order is reproduced as under : "After going through these decisions, we find that they are applicable on the facts of the present case. No doubt transactions were genuine, as ANZ Bank confirmed in having selling the units to assessee and then buying the same from assessee. Though one entry was passed on 20th July, 1990 but there was an entry showing debit balance against the assessee on account of purchase and sale of these units. But these transactions cannot be said that they were entered bona fidely as clearly emerges from the facts of the present case that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed further appeal before the High Court and the decision is awaited. The addition is made on the basis of particulars furnished by the assessee itself and at no stage the assessee has withheld any information or furnished inaccurate particulars. Full cooperation and effort has been made to furnish accurate information during the course of assessment itself. It was also contended that penalty proceedings are not automatic or only on the basis of finding in assessment order. Penalty is attracted only when the Assessing Officer is satisfied that the conduct of assessee was not bona fide . Various case laws were cited. The Assessing Officer distinguished the case laws relied by the assessee. The Assessing Officer concluded as under : "Concealment of income is the element result in those cases where there is a discrepancy in the income returned and income ultimately found, though it may not be invariably so. The charge of concealment of income in this case has been found to have been established because the explanation furnished by the assessee-company have been found to be non-substantiated. There is hardly any doubt that at no stage i.e., at the assessment stage, CIT(A) leve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act imposed by the Assessing Officer stating that penalty is not leviable on the issue of addition of Rs. 51,61,875 disallowed as speculation loss as the same was covered under Explanation 6 of section 271(1)( c ) since the adjustment was made under section 143(1)( a ) and additional tax was charged. The ld. CIT(A) has erred in ignoring the fact that the addition on account of speculation loss was made by the Assessing Officer under section 143(3) and the penalty under section 271(1)( c ) was imposed in view of this order under section 143(3) and not in respect of order under section 143(1)( a ). The ld. CIT(A) erred in ignoring the fact that the addition made by the Assessing Officer has been held to be speculation loss by ITAT, which is the final fact finding authority. It was submitted that the prima facie adjustment has been cancelled by the Tribunal. Thus, reliance of learned CIT(A) on Explanation 6 to section 271(1)( c ) is misplaced. Since the Tribunal has given a finding that the loss is speculative in nature, which has attained finality, the penalty levied should have been confirmed. 7. Learned counsel for assessee Shri S.K. Aggarwal submitted that or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the gross total income. It is a different fact that ultimately when this assessee itself declared dividend, to that extent assessee was entitled to claim deduction under section 80M out of such dividend income. However, on the date of entering into transaction, the assessee was not certain as to whether it will declare dividend or will claim deduction under section 80M. Shri Aggarwal further submitted that the assessee has always disclosed true particulars of its income. All the questions raised by the Assessing Officer has been answered and nothing was concealed, it is a different fact that based on the very same material disclosed by the assessee, the view of Assessing Officer or CIT(A) or Tribunal is that the transaction is speculative in nature. The fact remains that the assessee had declared all necessary particulars of his income and has filed true particulars of income. If the Tribunal holds a view contrary to the view of the assessee, it do not amount to furnishing inaccurate particulars of income for the purpose of levy of penalty under section 271(1)( c ). For this purpose, reliance was placed on following decisions : 1. CIT v. Nath Bros. Exim International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss is not allowable on the basis of principle of Supreme Court in the case of McDowell Co. Ltd. ( supra ). Learned CIT(A) upheld the order of Assessing Officer and concluded that the transaction was speculative in nature. The Tribunal also confirmed the action of CIT(A) by observing that though the transaction is genuine, the same is speculative in nature. Therefore, the limited question is in view of the finding by the Tribunal upholding the transaction as speculative and disallowing loss, will also attract penalty under section 271(1)( c ) of the Act. The issue whether loss is allowable or not was held against the assessee by the Tribunal wherein the Tribunal held that the transaction is genuine but the loss is not allowable as the same was a speculative transaction. We find that the assessee had all time furnished relevant information in respect of loss claimed on sale of units. The assessee claimed loss because the purchase price paid was more than the sale consideration of the units of UTI. The assessee filed copy of the certificate issued by UTI showing the assessee as registered holder of the units. The assessee also received dividend income on the units. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units were with ANZ Bank. However, the same was in their possession to secure the loan obtained against the units and because the purchase price of the units were not paid in full. But the fact remains that the units were transferred in the name of assessee and on which as a registered holder it has received dividend also. This dividend is offered for taxation under the head "Income from other sources" and assessed as such. The dividend received on these units was forming part of gross total income but was eligible for deduction subject to conditions prescribed in section 80M. On the date of transaction or on the date of receipt on dividend, it was not certain whether the assessee would be entitled to claim deduction under section 80M in respect of such dividend income or not. It is the subsequent action on the part of Board to declare dividend to its own shareholders which entitle the assessee to claim deduction under section 80M but that do not prove that the transaction on the date of purchase and sale were speculative in nature. 9. The Special Bench of the Tribunal in the case of Wallfort Shares Stock Brokers Ltd. ( supra ) held that where the assessee purchase units of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l interests, as perceived by the respondents . The Special Bench of the Tribunal in the case of Wallfort Shares Stock Brokers Ltd. ( supra ), also considered the rule laid down in the case of McDowell Co. Ltd. ( supra ) and it was held that such transactions resulting into loss are not to be viewed otherwise and loss is allowable as such. Where the assessee discloses all the facts, but draws an inference not acceptable to the Assessing Officer, it does not mean that the assessee could be subjected to penalty on the addition consequent on his inference, as was held in International Audio Visual Co. ( supra ) in the context of the assessee s claim, that foreign exchange received in conferring dubbing rights of Hindi films should be treated as export for purposes of relief under section 80HHC. It was a case where the primary facts were disclosed, so that penalty was not found exigible. 11. In yet another case, the assessee filed a revised return claiming a loss on the basis of a finding in appeal for a different year. In the original return, all necessary facts had been given and the matter had also been set right by the revised return. There was no concealment of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of the total income of any person under this Act, (A)such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or Commissioner to be false, or (B)such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause ( c ) of this sub-section be deemed to represent the income in respect of which particulars have been concealed." Reading the aforesaid Explanation, it is clear that Explanation 1 can be invoked in such a situation where ( i ) the assessee fails to offer an explanation; or ( ii ) the explanation offered is found by the Assessing Officer to be false; or ( iii ) the assessee is unable to substantiate explanation offered and also failed to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material or circumstances leading to the reasonable conclusion that the amount does represent the assessee s income. It is not enough for the purpose of penalty that the amount has been assessed as income, and ( ii ) the circumstances must show that there is animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. Explanation 1 to section 271(1)( c ) has no bearing on factor No. 1 but has a bearing only on factor No. 2. The Explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee s case is false, the Explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee. Alternatively, treating the Explanation as dealing with both the ingredients ( i ) and ( ii ) above, where ..... X X X X Extracts X X X X X X X X Extracts X X X X
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