The DCIT, Ahmedabad Circle-1,, Ahmedabad v. Arman Lease & Finance Ltd.,, Ahmedabad

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T.K. SHARMA JM AND D.C.AGRAWAL AM DY CIT CIRCLE-1 AHMEDABAD. V/S . ARMAN LEASE & FINANCE LTD. 502/503 SAKAR-III OPP. OLD HIGH COURT ASHRAM ROAD AHMEDABAD. PAN NO.AABCA 3165E (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M. C. PANDIT SR.DR RESPONDENT BY:- SHRI S. N. SOPARKAR AND J.T. SHAH ARS O R D E R PER D.C. AGRAWAL ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) IN CANCELING THE PENALTY OF RS.5 34 561/- LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT. 2. LD. AO NOTED THAT ASSESSMENT UNDER SECTION 143(3 ) OF THE ACT WAS FINALIZED ON AN INCOME OF RS.40 24 598/- AS AGAINST RETURNED INCOME OF RS.20 90 260/- MAKING THEREIN THE FOLLOWING ADDITIO NS :- ITA NO.590/AHD/2007 ASST. YEAR :2001-02 2 I) SPECULATION LOSS RS.19 63 971/- II) EXP. RELATING TO DIVIDEND INCOME RS. 41 367/ - TOTAL RS.20 05 338/- THE CIT(A) DIRECTED THE AO TO VERIFY THE FACTS WHET HER THE LOSS OF RS.6 53 730/- IS ON SALE OF UNITS OF MUTUAL FUNDS A ND THEREFORE IS NOT A SPECULATION LOSS. LD. CIT(A) CONFIRMED REST OF THE FOLLOWING ADDITIONS : I) SPECULATION LOSS RS.19 63 971 6 53 730) RS.13 10 241 II) EXP. RELATING TO DIVIDEND INCOME RS. 41 367 TOTAL RS.13 51 608 THE AO DID NOT WAIT FOR THE MATTER TO BE FINALIZED AT THE LEVEL OF ITAT AND PROCEEDED TO LEVY PENALTY UNDER SECTION 271(1)( C) IN RESPECT OF THE ADDITION OF RS.13 51 608/- SO CONFIRMED BY THE LD. CIT(A). THE ASSESSEE HAD REQUESTED THE AO TO KEEP THE MATTER PENDING TIL L THE DISPOSAL OF QUANTUM PROCEEDINGS BEFORE ITAT BUT THE AO DECIDED AGAINST IT. HE HELD THAT ASSESSEE HAS WRONGLY SET OFF SPECULATION LOSS AGAINST PROFIT FROM NON- SPECULATION BUSINESS AND FURTHER HE HAS CLAIMED DED UCTION OF INTEREST ON THE AMOUNT BORROWED FOR MAKING INVESTMENT IN SHARES . HE ACCORDINGLY LEVIED PENALTY OF RS.5 34 561/-. THE LD. CIT(A) CAN CELLED THE PENALTY BY HOLDING THAT THERE ARE CONFLICTING DECISIONS AS TO WHETHER LOSS INCURRED BY THE ASSESSEE WOULD BE SPECULATION LOSS WITHIN THE M EANING OF EXPLANATION TO SECTION 73. THE ISSUE IS DEBATABLE AND THEREFOR E NOT COVERED UNDER SECTION 271(1)(C). HE HELD AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E 1 FIND THAT MAIN BUSINESS OF THE ASSESSES IS PROVIDING FINANCE ON LEASE AND HIRE PUR CHASE APART FROM THAT IT ALSO PROVIDES LOANS MAJOR PORTION OF ITS INCOME IS FROM HIRE PURCHASE LEASE RENTALS BILL DISCOUNTING AND COMMISSION ETC. IT IS ALSO A CERTIF IED CATEGORY'.-A NON-BANKING FINANCIAL COMPANY AS PER THE RESERVE BANK OF INDIA. IN THESE CIRCUMSTANCES WHETHER 3 EXPLANATION TO SECTION 73 WOULD BE APPLICABLE IN AS SESSEE'S CASE OR NOT IS A DEBATABLE ISSUE. THERE ARE DECISIONS TO THE EFFECT THAT HIRE PURCHASE IS ALSO IN THE NATURE OF FINANCIAL TRANSACTION AS HELD BY THE SUPREME COURT M THE CASE OF SUNDARAM FINANCE. THERE ARC CONFLICTING DECISIONS OF CALCUTIA HIGH CO URT IN THE CASE OF ARVIND INVESTMENTS LTD IN WHICH IT HAS BEEN HELD THAT LOSS WILL HAVE TD BE TREATED AS SPECULATIVE LOSS THIS SHOWS THAT THERE IS A DIFFERE NCE OF OPINION M THIS REGARD WHERE IT IS CLAIMED THAT THE ASSESSEE IS A NON BANKING FINAN CE COMPANY. ASSESSEE HAS ALSO RELIED ON THE IT AT. DELHI BUNCH'S DECISION M THE C ASE OF AMAN PORTFOLIO PVT LTD REPORTED AT 92 TTJ 351 IN WHICH IT HAS BEEN HELD TH AT EXPLANATION TO SECTION 73 IS A. PROVISION AGAINST TAX AVOIDANCE AND SHOULD BE INVOK ED ONLY IF ANY MANIPULATIVE DEVISE IS ADOPTED OTHERWISE THE LOSS IS TO BE TREAT ED AS NORMAL BUSINESS LOSS. THUS IT IS APPARENT THAT THE ISSUE WHETHER THIS AMOUNT OF LOSS ON DEALING IN SHARES WOULD BE A SPECULATIVE LOSS OR NOT IS A DEBATABLE ONE. ONCE TH E ISSUE IS DEBATABLE NO PENALTY U/S 271(1)(C) WOULD BE LEVIABLE SO FAR AS DISALLOWANCE OF PART OF ADMINISTRATIVE EXPENSES U/S 14A IS CONCERNED THE ASSESSMENT ORDER SHOWS TH AT ASSESSING OFFICER HAS RESORTED TO AN ESTIMATE OF 2.5% OF TOTAL ADMINISTRATIVE EXPE NSES FOR DISALLOWANCE. ON SUCH AN ESTIMATION NO PENALTY CONCEALMENT SHOULD BE LEVIED . IN VIEW OF THE ABOVE PENALTY LEVIED BY THE ASSESSING OFFICER IS CANCELLED. 3. WE HAVE HEARD LD. DR AND THE LD. AR. IN OUR CONS IDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT (A). THE REASONS ARE THAT WHETHER LOSS INCURRED IN DEALING IN SHARES WOULD BE SPECULATION WITHIN THE MEANING OF EXPLANATION TO SECTION 73 IS DEBATABLE. IT WOULD DEPEND UPON WHETHER INCOME FROM OTHER SOURCES IS MORE THAN LOSS FROM DEALING IN SHARES. FURTHER WHETHER FOR COMPARING INCOME FROM O THER SOURCES WITH THE LOSS FROM DEALING IN SHARES ONE SHOULD TAKE ONL Y THE POSITIVE FIGURE OR ALSO THE NEGATIVE FIGURE OF INCOME IS AGAIN DEBATAB LE. IF IT IS HELD THAT INCOME FROM OTHER SOURCES IS MORE THAN LOSS (IN ABS OLUTE TERMS) FROM DEALING IN SHARES THEN IT WILL NOT BE SPECULATIVE B UT WHERE ABSOLUTE TERMS ARE IGNORED THEN INCOME FROM OTHER SOURCES WOULD A LWAYS BE HIGHER THAN THE NEGATIVE FIGURE OF LOSS. IF INCOME FROM OTHER SOURCES IS LESS THAN LOSS (ABSOLUTE FIGURES) FROM DEALING IN SHARES THEN LOSS ARISING FROM DEALING IN SHARES WOULD BE SPECULATIVE. FOR COMPARING THESE FI GURES ONE HAS TO TAKE DATA FOR EVERY YEAR INDEPENDENTLY. IN ONE YEAR INCO ME FROM OTHER SOURCES MAY BE HIGHER AS COMPARED TO LOSS FROM DEALING IN S HARES AND IN OTHER YEAR IT MAY BE LESS. IN THE YEAR WHEN INCOME FROM O THER SOURCES IS HIGHER 4 LOSS FROM DEALING IN SHARES WILL NOT BE SPECULATIVE BUT IN OTHER YEAR WHERE INCOME FROM OTHER SOURCES IS LESS IT WOULD BECOME S PECULATIVE. SUCH COMPLICATED SITUATION CANNOT BE EASILY UNDERSTOOD B Y THE TAX PAYERS AND IT REQUIRES EXPERT GUIDANCE FROM ADVOCATES/CHARTERED A CCOUNTS AS TO WHETHER CASE OF THE ASSESSEE IS COVERED UNDER EXPLA NATION TO SECTION 73 OR NOT IN A PARTICULAR YEAR. UNDER THESE CIRCUMSTANCES IF ASSESSEE ADOPTS A VIEW AVAILABLE TO HIM BUT IS NOT ACCEPTED BY THE RE VENUE THEN IT WILL NOT BECOME A CASE OF CONCEALMENT OF INCOME OR FILING IN ACCURATE PARTICULARS OF INCOME. THE CASE CANNOT BE SAID TO BE COVERED WI THIN THE MEANING OF EXPLANATION 1 TO SECTION 271(1)(C) ALSO. UNDER THES E CIRCUMSTANCES NO PENALTY CAN BE LEVIED ON THE ASSESSEE IF HE HAS ADO PTED A VIEW WHICH IS SUPPORTED BY THE DECISIONS OF THE COURT AND ONE OF THE POSSIBLE VIEWS. ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL OF REVENUE. 4. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 22/1/2010 MAHATA/- ORDER PRONOUNCED IN OPEN COURT ON 22/01/2010 5 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD