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TMI Blog2012 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the explanation is not bonafide. Accordingly, the levy of penalty on this amount is upheld. - I.T.A No. 4481/Del/11 I.T.A No. 4402/Del/11 - - - Dated:- 31-5-2012 - SHRI R.P. TOLANI, SHRI K.G. BANSAL, JJ. Appellant by: Shri Vinod Bindal Ms. Sweety Kothari, CAs Respondent by: Shri Raj Tandon, CIT(DR) ORDER PER K.G. BANSAL, AM: These cross appeals of the assessee and the revenue emanate from the order of CIT(Appeals) VIII, New Delhi, passed on 29.7.2011, in which the appeal was partly allowed. The assessee has taken up two substantive grounds in the appeal. The sum and substance of the grounds is that on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the levy of penalty u/s 271(i) (c) in respect of (i) Rs. 2.39 crores, being capital gain not set off against the long-term capital gain (LTCG) and (ii) Rs. 22,03,822/- disallowed u/s 57 (iii). On the other hand, the revenue has also taken up two substantive grounds the sum and substance of which is that the Ld. CIT(A) erred in deleting the penalty in respect of the claim of short-term capital loss of Rs. 8,64,15,538/-, which subsequently was assessed as LTCG of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulted one another and majority of them was of one mind and this was sufficient to signify the agreement on behalf of the company. In the instant case, letter dated 04.04.2004 does not indicate whether any meeting took place or not and if not, whether majority of the directors of the HQR was of one mind for allotting 2390000 shares to the assessee on 4.4.2004. The delay in allotment probably required the assent of the assessee, which is also not proved by any evidence on record. Therefore, even in a situation where the requisite amount was paid by the assessee company, it cannot be said that any legally binding agreement came into existence between the assessee and the HQR on the basis of letter dated 4.4.2004. In other words this letter loses evidentiary value, more so because it has been written by the HQR without narrating the background details regarding meeting etc. and allotment. In the case of S.N. Zubin George vs. CIT (2004) 265 ITR 683, relied upon by the ld. DR, the Tribunal had recorded the finding that there was no evidence to show that the shares were in existence prior to 31.5.1998. Even if the money belonging to the assessee was appropriated to share deposit account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al were discharged by repaying the loan from borrowed funds from other raised subsequently. The reason is stated to be that Shri Mittal was demanding return of his loan. Seen in this context, the dominant purpose of borrowings from others was to return the loan taken from Shri R.P. Mittal. This was done to discharge a pre-existing contractual liability. The funds were not borrowed from others to invest them for the purpose of earning the income. Thus, although the borrowings from others may have a remote connection with the lending to the HQR, though repudiated by the revenue, the dominant purpose of the borrowings was not to earn interest income. Therefore, it cannot be said that moneys were borrowed from others wholly and exclusively for the purpose of earning interest income from the HQR. Thus, the provision contained in section 57 (iii) is not applicable to the facts of the case as submitted to us and before the lower authorities. Therefore, it is held that the ld. CIT(Appeals) was right in disallowing the expenditure in computing interest income taxable under the residuary head. 2.2 The AO had also initiated penalty proceedings u/s 271(1) . These proceedings were disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed basis. This letter is placed on page 3 of the paper book. The assessee replied to this letter on the same date stating that necessary subscription in cash will be made as required for allotment to fresh shares at par. However the subscription shall be made in installments and a firm commitment to subscription of Rs. 2.25 crores is made. The amount will be paid by 15.3.2004 with the stipulation that the allotment of shares must be made before 31.3.2004. A cheque of Rs. 50 lakhs was also enclosed with this letter. This letter is placed on page No. 4 of the paper book. The HQR wrote a letter dated 4.4.2004 acknowledging the receipt of a sum of Rs. 2.39 crores as contribution for allotment 23,90,000 shares at par. It was confirmed that a right has been credited in favour of the assessee in these shares, which have distinct members 898353 to 32,88,352 which shall be delivered shortly after making requisite compliances). The case of the Ld. Counsel is that the claim of LTCG was bonafide and it is crucially dependent of this correspondence. It may be mentioned that these letters have been signed by Shri R.P. Mittal or Mrs. Sarla Mittal, his wife. These persons had been holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker s note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. 3.3. Thereafter, he drew our attention to the findings of the AO in paragraph No 14 that there are two aspects of the guilt. The first one is the mental element involved in the guilt and the second one is omission or commission leading to breach of duty with or without guilty mind. The former has to be proved in offences committed against the State. However in the case of civil liability, if the AO is able to establish that the assessee did not fully and truly disclosed the facts required for determination of tax liability, the liability can be fastened on the assessee. Penalty u/s 271(1)(c) can be levied if the assessee furnishes inaccurate particulars of income or has concealed its true particulars. This conclusion is arrived at on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t off against other LTCG loss. 4. In reply, the Ld. CIT, DR submitted that the assessee had claimed the gain to be LTCG and, therefore, the burden to file relevant information or for that matter to declare correct nature of capital gain was on the assessee. The assessee has rued about lack of access to record. There is no evidence in this behalf. No doubt, there was dispute with the new management but it is all together a different matter to say that the assessee did not have access to the record of HQR. In any case, the assessee could have requested the AO issue summons to get the information. Therefore, these submissions do not have any force. 4.1 Coming to the merits, our attention has been drawn towards paragraph No. 1.2 of the order of the Tribunal in quantum appeal which furnishes the facts that the bid value of hotel Ashok Yatri Niwas was about 45.03 crore. However, the assessee took over only land and building and the sundry creditors and debtors were to be dealt with by the ITDC. On this basis the value of assets, took over by the assessee from the ITDC represented by 8,98,166 shares, was about Rs. . 16.49 crores which represented 99.97% of the paid up capital. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the facts of the case and submissions made before us. The facts are that the assessee showed gain of sale of 23,90,000 shares of HQR as STCG. This stand was changed in the course of assessment proceedings and it was claimed that the shares were long term capital asset, therefore, the gain was LTCG. Such a claim , if accepted by the AO, would permit the assessee to set off other LTCG loss against this gain. The claim that these shares were acquired on 4.4.2004 is based on three letters to which we have already adverted to. These letters have been written by Shri R.P. Mittal or Smt Sarla Mittal on behalf of the respective companies and these two person are husband and wife. No evidence is on record to prove that the contents of these letters are correct. On the other hand the share holders register as well as intimation to the registrar of companies show that the shares were acquired by the assessee company on 27.7.2004. On the basis of this date of acquisition, the gain has to be qualified as STCG, which cannot be set off against other loss in the form of LTCG. The question is whether the assessee is liable to be penalised u/s 271(1)(c) on these facts ? 5.1 In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal market cannot be adopted as sale consideration in absence of any material on record, penalty cannot be levied ; (vi) CIT v. Sidhartha Enterprise (2010) 322 ITR 80 (P H) in which it has been held that the decision in the case of Union of India vs. Dharmendra Textile Processors Ors (2008) 306 ITR 277 (SC) cannot be read to mean that in every case where particulars of income are inaccurate, penalty must follow. ; (vii) Mrs. Maninder Sidhu vs. Asstt. Commissioner of Income Tax (2010) 39 DTR (Del) (Trib) 233 in which it has been held that one has to distinguish between a wrong claim and a false claim. If there is no falsity of facts in making the claim, penalty cannot levied. 5.3 On the other hand, the Ld. CIT DR relied on the decision in the following cases :- (i) CIT vs. Harparshad Co. Ltd. (2010) 328 ITR 533 (Del) in which it has been held that where a bogus claim of payment of commission to Director has been made and it is found that the Director has not rendered any services ; and assessee fails to offer any explanation in respect of the disallowance, penalty can be levied ; (ii)CIT vs. Zoom Communication Pvt. Ltd. (2010)327 ITR 510 (Del)- in which it has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) rightly levied the penalty and in this connection reliance has been placed on his finding on page No. 10 of the impugned order. It has been mentioned that the Tribunal has given a clear finding that the claim is not admissible. A reasonable assessee could not have made such a claim, therefore, the decision in the case of Zoom Communication Pvt. Ltd. is applicable. 7. We have considered the rival submissions. The findings of the Tribunal have already been summarised by us. It is mentioned that the borrowings were made to discharge the existing loan taken from Shri R.P. Mittal and borrowings were not made for earning any income. Thus, although the borrowings from others may have remote connection with lending, the dominant purpose of borrowings was not to earn any interest income. The Tribunal has sustained disallowance because lack of connection between the earning and the expenditure. Yet, it may be noted that it is also mentioned that there may be remote connection between the two. All facts have been correctly furnished and there is no inaccuracy in them. Therefore, the decision in the case of Reliance Petro Products Pvt. Ltd. is applicable. Accordingly, we are of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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