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TMI Blog2014 (1) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... easons and disclosures in support of its claim per the return of income for the year, on 29.09.2008 - This was admittedly not done - Even the computation of the total income was not filed - The assessee had not availed of the first opportunity to make full disclosure in terms of the Board Circular and, thus, the same must be deemed to be per its return of income for the year - The first instance on which proper disclosure, was made only vide the assessee's letter dated 28.08.2009 which was in response to the requisition dated 13.08.2009, and upon hearing on 17.08.2009 - The assessee cannot be said to have furnished any explanation, rather, contrary to it, cannot be considered as an explanation in law, and that in any case the assessee can only be considered as having failed to substantiate its explanation - Explanation 1(A) or 1(B) is applicable in such case - Penalty levied at minimum was sustained - Decided in favour of Revenue. - I.T.A. No. 7106/Mum/2010 - - - Dated:- 27-12-2013 - Shri B. R. Mittal, JM And Shri Sanjay Arora, AM,JJ. For the Appellant : Shri Surendra Kumar For the Respondent : Shri Niraj Sheth ORDER Per Sanjay Arora, A. M. This is an Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before us. 3. We have heard the parties, and perused the material on record. The ld. CIT(A) has found the assessee's case as valid on both the aspects of its case. The assessee's legal plea raises a debatable issue, so that the penalty could not be levied inasmuch as two views are reasonably possible. Two, full disclosure in any case stands made, so that the claim being legal, with all the material facts being truly and fully disclosed, its unsustainability in law would not attract penalty u/s.271(1)(c) inasmuch as there is no concealment or furnishing of inaccurate particulars of income. The assessee's case, which found favour with the first appellate authority, being based on its findings, we shall examine the same for the validity or otherwise thereof, and on which, therefore, would rest our decision with regard to his decision in setting aside the impugned penalty. We shall first discuss the assessee's explanation on merits. The issue, as would be apparent from the foregoing, is the validity in law of the set off of loss on transactions (of transfer) of LTCAs specified u/s. 10(38), on which STT is paid, against the income under the head 'LTCG', on which though STT bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one sense 'profits and gains' represent 'plus income' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 (of the 1922 Act) classifies income under six heads, the main charging provision is section 3 which levies income-tax, as only one tax, on the 'total income' of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income, profits and gains referred to in section 4(1)". Secondly, it must be "computed in the manner laid down in the Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." [emphasis, by underlining, ours] In J.H. Gotla (supra), the apex court, after examining the scheme of the Act, including as to the carry forward of loss, held that in computing the assessee's income, the income of his wife or minor children, which is liable to be added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and fact-settings, is that loss is only negative income, and that the definition of 'income' under section 2(24) of the Act includes 'loss'. In other words, it bears the same character and quality as does the positive income. Accordingly, if a particular income is exempt from tax, so that it does not enter the computation process (for and toward determination of total income u/s. 2(45)), it would be so for such income whether positive or negative, i.e., loss. In fact, in the case of Harprasad Co. (P.) Ltd. (supra), the apex court 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. Even ignoring for a moment the defining or machinery provisions of the Act, and looking fairly at the concept or notion of 'income' from a common perception/standpoint, 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 a positive income? Further, if construed to bear a character or nature different from income, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under that Chapter : Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB. Explanation.--For the purposes of this clause, "equity oriented fund" means a fund-- ........' Now, if STT paid LTCG is exempt u/s.10(38), so is the loss from the same class of assets, i.e., long term capital assets, being equity shares, etc. specified u/s.10(38), where STT paid. The same, as clarified during the hearing itself, is thus considered as a separate source of income, and the quantum of income therefrom being exempt becomes irrelevant for the purposes of the Act. In fact, one only needs to consider the proposition as to the exact status of income, if so, arising on the on market transactions, i.e., instead of loss. If the income, were it to be so, falls u/s. 10(38), how could the loss, which is distinguishable only by the arithmetical result, be of a different nature. The same is, therefore, to be ignored. Rather, the assessee having income from the said source, i.e., the assets specified in section 10(38) (at Rs.1660.41 lacs), the loss (Rs.106.49 lacs) would stand to be red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable u/s.45 of the Act. As such, the Act classifies all capital gains arising as from two sources, one which bears the character of the income for the purposes of the Act and the other which does not. Section 2(45), which defines the term 'total income' under the Act, reads as under: 'Definitions. 2. In this Act, unless the context otherwise requires,- (1).....; (2).....; (45) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;' The income by way of capital gains in the instant case is, by virtue of being exempt u/s. 10(38), not chargeable u/s.45 and, consequently, outside the scope of the total income. Accordingly, it may be seen that, firstly, the relevant capital assets, income from which is not chargeable u/s.45, constitutes a separate source of income and, two, being so, i.e., tax exempt u/s. 10(38), would thus not go to form part of the total income. Both the conditions as stated by the apex court in Harprasad Co. (P.) Ltd. (supra) fail. The observations made by the hon'ble high court qua capital gains while distinguishing the said decision by the apex court, i.e., of the income under refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its explanation. We have already seen that the reliance on the decision in the case of Royal Calcutta Turf Club (supra), on which great emphasis was placed by the ld. AR during hearing, as completely misplaced. As such, the assessee, in fact, offers no explanation, so that its case falls under Explanation 1 (A) to the provision. We have, while discussing the assessee's case on merits, found its explanation to be inconsistent with the like inherent nature or quality of the receipt, irrespective of whether it results in a positive or negative income, with the difference lying only in the quantum, and not in its quality, so that it militates against the common understanding or notion of income; the scheme of the Act whereby a set off, subject to certain restrictions and/or conditions, therefore, of the positive and negative income is allowed; and, finally, the clear pronouncements of the apex court in the matter, citing three of its celebrated judgments, each of which is by a bench consisting of three judges. The same have been followed and applied, on several occasions, by hon'ble high courts across India, including by the jurisdictional high court, as in Hindustan Unilever Ltd. vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (PB pgs.27-29) clarified (vide para 6 thereof) that the assessees may in such circumstances avail of opportunity to file documents, furnishing reasons and make disclosures in support of various claims, in response to the first notice issued u/s.143(2) (para 6(v) of the said Circular). Continuing further, he submitted that the first notice u/s. 143(2) was issued on 22.09.2008 for 29.09.2008 (PB pg.30). As the same was only a formal notice, the matter was adjourned sine die. However, to clarify the matters, a letter was written by the assessee on 29.09.2008 (filed on 01.10.2008), bringing the status to the fore, and also communicating that any clarification, if required, may be sought (PB pg.31). The proceedings were revived by issue of notice u/s. 142(1) on 24.07.2009, requiring general information by way of Annexure thereto (PB pgs.32-34). The same was responded vide reply dated 13.08.2009 (PB pgs.35-39). This was followed by a reply dated 28.08.2009 (PB pgs.40-51), clarifying the assessee's stand. On this basis, it was submitted that there has been true and full disclosure as contemplated in Explanation 1(B) to section 271(1)(c). We are completely unable to persuade ourselves t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s', and further of being STT paid. The said information is only borne out by the accompanying reply, of which it is a part. There is, accordingly, no factual or legal basis for the ld. CIT(A) to state that the assessee has made true and full disclosures of all facts material to the computation of the income returned; we rather find it to be contrary to and de hors any material on record. 3.6 We may next discuss the assessee's reliance on the decision in the case of Nalin P. Shah (in ITA Nos.4780, 4781 4783/Mum/2010 dated 18.07.2012), wherein the tribunal deleted the penalty levied u/s. 271(1)(c) in respect of set off of losses incurred on sale of units of US 64 (income from which was exempt u/s.10(33) of the Act), against the taxable income assessable under the head 'capital gains'. The hon'ble jurisdictional high court, on same being challenged before it, declined interference per its order dated 04.03.2013 (in ITA (LOD) 49 to 51 of 2013), thereby upholding the tribunal's order. There is, with respect, no discussion of the law in the matter therein, i.e., either qua the maintainability in law of the assessee's claim on merits or in relation to the levy of penalty, by the tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC). The hon'ble apex court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) has not laid down any new law or modified the existing law, articulated over a few decades, but expressed that mere unsustanability of a claim in law cannot by itself lead to a levy of penalty, where the claim is made bona fide and accompanied by a full disclosure. There was, is and cannot be any quarrel with the said preposition and which in fact is consistent with the settled law, which stands clarified once again lately by the apex court in MAK Data (P.) Ltd. (supra) vide its decision dated 30/10/2013. There could well be a case of assessee having an arguable case, or of a rank, inadvertent mistake, as was found by the apex court in Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306 (SC). The question, thus, turns essentially on facts. We have found in the instant case that the assessee cannot be said to have furnished any explanation inasmuch as raising a plea, without any basis in law or facts and, rather, contrary to it, cannot be considered as an explanation in law, and that in any case the assessee can only be considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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