Sagar Tex Creation P Ltd Mumbai v. Ito Wd 9 3 1 Mumbai

In The Income Tax Appellate Tribunal Mumbai Bench E Mumbai Before Shri D T Garasia Judicial Member And Shri N K Pradhan Accountant Member Ita No 6771 M 2014 Assessment Year 2010 11 M S Sagar Tex Creation Pvt Ltd A 303 Bhattad Tower Opp Kora Kendra Ground Borivali West Mumbai 400 092 Pan Aaics 5893 A Vs Ito Ward 9 3 1 Aayakar Bhavan Mumbai Appellant Respondent Present For Assessee By Shri Ajay R Singh A R Revenue By Shri U Justin D R Date Of Hearing 14 11 2017 Date Of Pronouncement 20 12 2017 O R D E R Per D T Garasia Judicial Member The Present Appeal Has Been Preferred By The Asses See Against The Order Dated 22 08 2014 Of The Commissioner Of I Ncome Tax Appeals Hereinafter Referred To As The Cit A R Elevant To Assessment Year 2010 11 2 The Only Ground Taken By The Assessee Is Against Levying The Penalty Under Section 271 1 C Of The Act Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 2 3 The Short Facts Of The Case Are That Assessing O Fficer Hereinafter Referred To As The Ao Has Levied The Penalty On The Ground That Assessee Has Wrongly Set Off Capital Lo Ss Of Rs 60 00 000 Against The Short Term Capital Gain Of Rs 62 77 613 During The Course Of Assessment Proceedings The Director Of Th E Company Shri Bipin Sanklecha Has Accepted That Company Has Wrong Ly Set Off The Loss Against The Short Term Gains The Background O F The Case Is That The Assessee Has Shown Short Term Capital Loss Of R S 60 00 000 On Sale Of Shares Of M S Gandhar Gautam Fabtex Pvt L Td The Shares Of Gandhar Were Sold By It To One M S Nozaki Finan Ce And Investment Pvt Ltd Both The Companies Are Not Li Sted Assessee Received Short Term Capital Gain Of Rs 62 77 613 On Sale Of Shares Of Listed Companies Thus By Claiming Short Term Capit Al Loss The Short Term Capital Gains Has Been Reduced With A View To Know The Fact Summon U S 131 Was Issued To M S Nozaki Finance An D Investment Pvt Ltd However Summon Was Received And Served As Party Was Not Available On The Given Address When Director Of The Company Was Examined His Statement Dated 17 1 2013 He Req Uested That Short Term Capital Loss Shown By Company Could Not Be Adj Usted Against The Short Term Capital Gain And Assessment Was Made According To The Ao Assessee Has Failed To Produce Buyer Howeve R M S Nozaki Finance And Investment Pvt Ltd Is One Of The Shar Eholder Of The Company Hence There Is No Reason Of Any Non Servic E Of Summon In Fact Assessee Has Failed To Establish The Genuinen Ess Of Share Transactions Shown In The Name Of M S Nozaki Finan Ce And Investment Pvt Ltd Such Loss Has Been Arranged O Nly With A View Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 3 To Reduce The Taxable Short Term Capital Gain Hence This Is The Case Where Assessee Has Filed Inaccurate Particular Of I Ncome And Thereby Has Suppressed The Taxable Income Hence Ao Has Cal Culated The Tax Sought To Be Evaded Of Rs 9 27 000 And Has Levied The Penalty U S 271 1 C Accordingly 4 The Ld Cit A Has Confirmed The Same 5 During The Course Of Hearing The Ld A R Submi Tted That Assessee Is A Closely Held Company Filed Its Return Of Income Which Include Short Term Capital Gain On Sale Of Investme Nt Of Rs 2 77 613 After Adjusting A Short Term Capital Loss Of Rs 60 Lakhs The Said Return Was Selected For Scrutiny And The Required D Etails Information Including The Details Of Short Term Cap Ital Gain As Well As Short Term Capital Loss Were Filed While Scrutini Zing The Details Ao Noticed That Assessee Has Incurred Loss Of Rs 60 La Khs On Sale Of Shares Of Private Limited Company And As Such He Ca Lled For Details In This Connection Assessee Has Furnished Complete Details Of Buyers Of The Shares And Also Filed Copy Of Bank Statement In Support Of Transaction The Ao Had Also Issued Summons To M S Nozaki But Same Were Returned Unserved As M S Nozaki Was Merg Ed With Some Other Company This Prompted The Ao To Call The Di Rector Of The Assessee Company Who In Order To Buy The Peace And Avoid Litigation Agreed For Non Adjustment Of The Short Term Capital Loss On Sale Of Shares Of Private Limited Companies Against The Short Term Capital Gains The Ld A R Has Drawn Our Attentio N To The Statement Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 4 Recorded By The Ao During The Assessment Proceeding Wherein The Ao Asked Why You Have Sold The Shares Of Short Te Rm Capital Gains Below The Cost Of Acquisition The Assessee Replie D That Gandhar Gautam Fab Tex Pvt Ltd Ggf Has Not Performed On Par Of The Expectations The Investment Was A Bad Decision Therefore Sagar Has Sold The Shares Of Ggf To M S Nozaki At The Na V Thereby Booked The Lloss Of Rs 60 Lakhs We Have Tried To L Ocate The Directors Of M S Nozaki And Given Its Last Known Address W E Have Come To Know That This Company Is Merged With Some Other Co Mpany We Are Unable To Contact The Current Shareholders Of T He Company Under These Circumstances The Assessee Requested T O Adjust Against Loss Against Short Term Capital Gains For A Y 2010 11 The Ld A R Submitted That The Ao Has Levied The Penalty On The Ground That Assessee Has Sold The Shares Of Ggf And Received Th E Sale Consideration And Support The Loss The Assessee F Ailed To Produce The Buyer Before The Ao During The Assessment Proce Edings Since The Assessee Was Not Able To Produce The Buyer Befo Re The Ao The Genuineness Of The Transaction Could Not Be Proved Therefore Ao Was Of A View That Assessee Has Filed Inaccurate Pa Rticulars Of Income And Levied The Penalty The Ld A R Submitted Tha T The Assessee Has Replied To Show Cause Notice That M S Nozaki Compa Ny Is In Existence And That Company Is Merged With Another C Ompany Therefore Assessee Was Not Able To Collect The Inf Ormation Regarding This Company For Existence Of This Company The As Sessee Has Produced The Copy Of High Court Order Wherein It Ha S Been Mentioned That The Nozaki Finance And Investment Pv T Ltd Was Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 5 Merged With Another Company Therefore Assessee W As Not Able To Produce This Party Therefore Assessee Did Not Pr Ove The Claim Of Loss But No Penalty Can Be Levied Because The Pa Rty Is In Existence And Assessee Has Not Filed Any Inaccurate Particula Rs Of Income Therefore No Penalty Can Be Levied The Ld A R Relied Upon The Following Cases 1 Virtual Soft System Limited Vs Cit 289 Itr 83 2 Cit Vs Ram Commercial Enterprises Ltd 2000 246 Itr 568 3 S Sundaram Pillai Vs V R Pattabiraman Air 19 85 Sc 582 4 Cit Vs S Sankaran 2000 241 Itr 825 6 On The Other Hand The Ld D R Relied Upon The Order Of Revenue Authorities 7 We Have Heard The Rival Contentions Of Both The P Arties Looking To The Facts And Circumstances Of The Case We Find That The Ao Has Levied The Penalty On The Ground That Assess Ee Has Sold Shares Of M S Gandhar Gautam Fabtex Pvt Ltd And Receive D The Sale Consideration The Assessee Failed To Produce The Buyers Before The Ao During The Assessment Proceedings The Summons Issued Under Section 131 Of The Act To M S Nozaki Finance And I Nvestment Pvt Ltd At Given Address But Were Not Served M S No Zaki Finance And Investment Pvt Ltd Is One Of The Shareholders Of The Assessee Therefore Assessee Was Not In A Position To Produc E The Buyers Before The Ao Assessee Failed To Establish The Ge Nuineness Of Sale Of Transaction Of M S Gandhar Gautam Fabtex Pvt L Td To M S Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 6 Nozaki Finance And Investment Pvt Ltd Therefore Ao Has Come To A Conclusion That Assessee Has Entered Into Transac Tion Of Shares Of M S Gandhar Gautam Fabtex Pvt Ltd And Shown Loss To Adjust The Short Term Capital Gain Accrued It On The Sale Of Q Uoted Shares The Ao Has Imposed The Penalty On The Ground That Asses See Has Shown The Loss Of Rs 60 Lakhs By Filing Inaccurate Partic Ulars Of Income And Avoided The Tax We Find That During The Course Of Assessment Proceeding The Assessees Statement Was Recorded By Question No 23 And The Answer Which Reads As Under Q No 23 Please Inform As To Why You Have Sold The Shares Of Ggf Below The Cost Of Acquisition Ans The Ggf Has Not Performed On Par Of The Expect Ations The Investment Was A Bad Decision Therefore Sagar Has Sold The Shares Of Ggf To M S Nozaki At The Nav Thereby Booked The Lloss Of Rs 60 Lakhs We Ha Ve Tried To Locate The Directors Of M S Nozaki And Given Its Last Known Address W E Have Come To Know That This Company Is Merged With Some Other Company We Are Unable To Contact The Current Shareholders Of The Company Under These C Ircumstances The Assessee Requested To Adjust Against Loss Against Short Term Capital Gains For A Y 2010 11 8 From The Above Question And Answer It Can Be Gat Hered That Assessee Had Come To Know That M S Nozaki Finance And Investment Pvt Ltd Is Merged With Another Company In Suppo Rt Of This Claim Assessee Has Produced The Copy Of Decision Of Honb Le Bombay High Court Wherein The M S Nozaki Finance And Investmen T Pvt Ltd Is One Of The Parties From These Above Facts It Can Be Shown That Assessee Was Not Able To Produce The Party Theref Ore The Ao Was Of A View That Transaction With M S Nozaki Finance And Investment Pvt Ltd Was Non Genuine Transaction Therefore Penalty Was Levied We Find That In This Case The Assessee Has Given All The Facts Before Assessment Proceeding Assessee Could Not P Roduce The Party Ita No 6771 M 2014 M S Sagar Tex Creation Pvt Ltd 7 On The Ground That Last Address Of The Party Was No T Known To The Assessee We Find That The Assessee Company Has Fu Rnished Complete Details Of Income Which Was Not Found To Be Incorre Ct The Explanation Offered By The Assessee Was Not Found T O Be False Hence Under These Circumstances No Presumption Of Furnishing Of Inaccurate Particulars Of Income Can Be Drawn We Find That Penalty Proceeding Is Criminal In Nature Since The Burden O F Proof In Penalty Proceeding Varies From That Of Assessment Proceedin G If Finding In The Assessment Proceeding Cannot Be Automatically A Dopted Though The Finding In Assessment Proceeding Constitute Goo D Evidence In The Penalty Proceeding We Find That The Assessee Has F Urnished All The Details And Only On The Basis Of Non Production Of Party Automatically Does Not Attract The Penalty Therefore We Allow The Appeal Of The Assessee 9 In The Result Appeal Of The Assessee Is Allowed Order Pronounced In The Open Court On 20 12 2017 Sd Sd N K Pradhan D T Garasia Accountant Member Judicial Member Mumbai Dated 20 12 2017 Kishore Sr P S Copy To The Appellant The Respondent The Cit Concerned Mumbai The Cit A Concerned Mumbai The Dr Concerned Bench True Copy By Ord Er Dy Asstt Registrar Itat Mumbai