NATH HOLDING & INVESTMENT P. LTD, MUMBAI v. CIT(A)-2, MUMBAI

ITA 95/MUM/2010 | 1995-1996
Pronouncement Date: 25-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 9519914 RSA 2010
Bench Mumbai
Appeal Number ITA 95/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 19 day(s)
Appellant NATH HOLDING & INVESTMENT P. LTD, MUMBAI
Respondent CIT(A)-2, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 25-03-2011
Date Of Final Hearing 14-03-2011
Next Hearing Date 14-03-2011
Assessment Year 1995-1996
Appeal Filed On 06-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGH AVAN (JM) ITA NO.95/MUM/2010 ASSESSMENT YEAR-1995-96 M/S. NATH HOLDING & INVESTMENT PVT. LTD. 1 CHATEU WINDSOR 86 VEER NARIMAN ROAD MUMBAI-400 020 PAN-AAACN 1196K VS. CIT (A) - 2 MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.R. AGRAWAL RESPONDENT BY: SHRI SURENDRA KUMAR O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 6.10.2009 PASSED BY THE LD. CIT(A)-2 FOR THE ASSESSMENT YEAR- 1995-96. 2. THE ONLY GROUND RAISED BY THE ASSESSEE RELATES T O THE LD. CIT(A) CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) FOR AS ST. YEAR 1995-96 OF RS. 14 23 620/-. 3. THE FACTS ARE THAT IN THE RETURN OF INCOME ASSES SEE CLAIMED A LOSS OF RS 30 94 824/- UNDER SHARE TRANSACTIONS WHICH WA S SET OFF AGAINST OTHER INCOME EARNED DURING THE YEAR. THIS LOSS WAS DISALLOWED BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT ON THE GROUND THAT THE TRANSACTIONS UNDERTAKEN IN SHARES WERE SHAM. THE CONCLUSION OF THE ASSESSING OFFICER WAS BASED ON THE FOLLOWING OBSERV ATIONS. ITA NO. 95/M/2010 2 1. ALL TRANSACTIONS ARE BETWEEN AND AMONGST GROUP CONC ERNS ONLY. 2. ACTUAL TRANSFER OF MONEY IS NOT INVOLVED AND ONLY D EBIT AND CREDIT NOTES HAVE BEEN ISSUED ON DIFFERENT DATES. EVEN TH ESE ARE NOT AS PER SCHEDULE OF PAYMENTS AGREED UPON. 3. THE PAYMENTS ARE ON SIMPLE PIECES OF PAPER 4. DELIVERY OF SHARES IS THROUGH INTER OFFICE MEMO. 5. THE REGISTERED OFFICE AND ADMINISTRATIVE OFFICES OF THE GROUP CONCERNS ARE THE SAME. 6. NO BROKERAGE HAS BEEN PAID 7. NO STAMP DUTY HAS BEEN PAID 8. THE CONTENTION THAT THE TRANSACTIONS WERE AT THE L ISTED PRICES OF SHARES IN THE STOCK EXCHANGE WAS DISMISSED BY ASSESSING OF FICER ON THE GROUND THAT TRANSACTIONS OF THE STOCK EXCHANGE WERE NEGLIGIBLE IN VOLUME AND COULD NOT BE YARDSTICK OF THE ACTUAL VAL UE OF TRANSACTIONS UNDERTAKEN BETWEEN GROUP CONCERNS WHICH WERE IN THE RANGE OF SEVERAL CRORES OF RUPEES. ASSESSING OFFICER HELD THAT THESE TRANSACTIONS WERE SHAM AND WERE UNDERTAKEN ONLY TO GENERATE AN ARTIFICIAL LOSS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND DISALLOWED THE LOSS CLA IMED. THE DISALLOWANCE OF LOSS WAS UPHELD BY THE FIRST APPELL ATE AUTHORITY IN APPEAL BEFORE HONBLE ITAT THE CONCLUSION OF ASSESS ING OFFICER THAT THE TRANSACTIONS IN SHARES IS SHAM HAS BEEN UPHELD AND IN DOING SO HONBLE TRIBUNAL HAVE OBSERVED AS UNDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND OF TH E VIEW THAT THE ASSESSEE DOES NOT DESERVE TO SUCCEED. THE CHAIN OF EVENTS IN THE FACTS BROUGHT ON RECORD INDICATE THA T IT IS A COLOURABLE DEVICE BY WHICH LOSS IS CREATED TO BE SE T OFF AGAINST THE DIVIDEND INCOME. THE SHARE TRANSACTIONS ARE OF THE GROUP CONCERNS AND THE DELIVERY IS MADE THROUGH INTER OFF ICE MEMO. NO MONEY IS PAID NO STAMP DUTY IS PAID NO BROKER IS IN VOLVED. THE CHART GIVEN BY THE ASSESSEE AT PAGE 25 OF THE PAPER BOOK IS FOR THE YEAR 2004 AND 2005 WHEREAS THE RELEVANT FINANCI AL YEAR IS 1994-95. THE ASSESSEE HAS NOT BEEN ABLE TO BRING AN YTHING ON RECORD TO PROVE THAT THESE ARE ACTIVELY TRADED SHAR ES IN THE RELEVANT PERIOD AND THE ASSESSEE HAS ALSO NOT BEEN ABLE TO PROVE THAT THE TRANSACTIONS HAD BEEN DONE AT MARKET VALUE . THE ASSESSING OFFICER HAS RIGHTLY HELD THE TRADING OF N OMINAL VALUE OF HUNTED SHARES IN THE STOCK EXCHANGE CANNOT BE TREAT ED AS THE YARDSTICK FOR THE SHARES WORTH RS 9.5 CRORES AND 9. 6 CRORES. ITA NO. 95/M/2010 3 THE ASSESSEE HAS ADMITTED THAT IN VIEW OF THE PROVI SIONS OF SECTION 13 OF THE SECURITIES CONTRACT (REGULATIO N ACT) THE SAID TRANSACTIONS WERE ILLEGAL. THE CLAIM S THAT THE LO SS HAS TO BE ALLOWED FOR INCOME TAX PURPOSES EVEN IF THE TRANSAC TIONS WERE ILLEGAL. HE HAS ALSO RELIED ON VARIOUS CASE LAWS ASS NOTED ABOVE IN SUPPORT OF THIS CLAIM. THE PLEA OF THE AS SESSEE CANNOT BE ACCEPTED AS THEY ARE IN AGREEMENT WITH THE FINDI NG OF LOWER AUTHORITIES THAT THE SAID TRANSACTIONS WERE SHAM IN NATURE IN VIEW OF THE ABOVE DISCUSSIONS THE FIRST GROUND IS D ISMISSED. 4. IN THE ORDER LEVYING THE PENALTY ASSESSING OFFIC ER HAS RELIED UPON THE ORDER OF ASSESSMENT AS CONFIRMED BY HONBLE TRI BUNAL AS ALSO THE FACT OF THE SHARE TRANSACTIONS RESULTING INTO LOSS BEING A SHAM WHICH FACT HAS BEEN CATEGORICALLY CONFIRMED BY HONBLE TRIBUNAL. ACCORDING TO HIM ASSESSEE MADE A CALCULATED AND CONSCIOUS ATTEMPT TO MISLEAD THE REVENUE BY ENTERING INTO TRANSACTIONS IS WITH THE P URPOSE OF CREATING EVIDENCE FOR JUSTIFYING THE RATE AT WHICH THESE SHA RES WERE PURCHASED AND SOLD ULTIMATELY AND BY FURNISHING INACCURATE PA RTICULARS OF DISTINCTIVE NUMBERS OF SHARES PURCHASED AND SOLD. B EFORE THE ASSESSING OFFICER IN THE PENALTY PROCEEDINGS NO ARGUMENTS ON MERITS OF IMPOSITION OF PENALTY WERE TAKEN BY APPELLANT. IT WAS ONLY CON TENDED THAT APPELLANT HAD PREFERRED AN APPEAL BEFORE HONBLE HIGH COURT O F BOMBAY AGAINST THE ORDER OF THE TRIBUNAL AND NOTHING NO MERITS WAS STATED. ASSESSING OFFICER HAS IMPOSED PENALTY AT A RATE OF HUNDRED PE RCENT OF TAX SOUGHT TO BE EVADED. 5. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE TH E LD. CIT(A). BEFORE THE LD. CIT(A) DETAILED WRITTEN SUBMISSIONS HAVE BE EN FILED WHICH ARE ON RECORD. THE SUBSTANCE OF THE ARGUMENTS OF THE ASSE SSEE BEFORE THE LD. CIT(A) WAS AS UNDER: 1. IT WAS CONTENDED THAT THE APEX COURT IN THE CASE O F DILIP N. SHROFF REPORTED IN 291 ITR 519 HAS HELD THAT EVEN THOUGH T HE WORD MENSREA HAS BEEN DELETED IT CONTINUES TO BE AN ESSE NTIAL CONDITION FOR IMPOSITION OF PENALTY ITA NO. 95/M/2010 4 2. IN PENALTY PROCEEDINGS ALL FACTS ARE REQUIRED TO BE CONSIDERED AFRESH AND ASSESSEE IS ALSO FREE TO PROVIDE ADDITIONAL EVI DENCE DURING PENALTY PROCEEDINGS EVEN IF THE QUANTUM ADDITION HA S BEEN CONFIRMED IN THIS CONNECTION RELIANCE WAS PLACED UPON THE DECISION OF APEX COURT IN THE CASE OF THE DILIP SHROFF (SUPR A). 3. IT WAS ALSO CONTENDED THAT THE DIVIDEND INCOME WAS TAXABLE AS BUSINESS INCOME AND IT SO DONE THE BENEFIT OF SET O FF WOULD BE AVAILABLE TO ASSESSEE AND ASSESSED INCOME AS WELL A S RETURNED INCOME SHALL BE THE SAME CONSEQUENTLY NO PENALTY CO ULD HAVE BEEN IMPOSED IN THE FACTS OF THE CASE. 4. DIVIDEND HAS BEEN EARNED FROM THE SAME SHARES IN WH ICH LOSS HAS RESULTED AND IF CONCEALMENT WAS THE MOTIVE WHY ASSE SSEE IN FIRST PLACE WILL PURCHASE THE SHARES AND EARN DIVIDEND IN COME. ON THIS GROUND IT HAS BEEN ARGUED THAT NO MENSRES HAS BEEN ESTABLISHED IN THE FACTS OF THE CASE. 5. IT IS FURTHER CONTENDED THAT ALTHOUGH THE LOSS IN S HARE TRANSACTIONS HAS BEEN DISALLOWED IT DOES NOT GO TO ESTABLISH THA T IT IS BOGUS OR DELIBERATE OR WITH A GUILTY MIND BECAUSE OF THE FOL LOWING REASONS: A. DELIVERY OF SHARES WITH BLANK TRANSFER IS A VALID SALE B. THERE IS NO VIOLATION OF SEBI C. REQUIREMENT OF PAYMENT FOR PURCHASE AND SALE OF SHA RES IS NOT REQUIRED SINCE THERE WERE OTHERWISE BALANCES IN THE NAME OF THE SELLER D. THE TRANSACTION WAS DONE AT MARKET PRICE E. DETAIL OF ALL PURCHASES AND SALES WERE FURNISHED F. IDENTITY OF PURCHASER AND SELLER ESTABLISHED IT WAS SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE A ND FINDING IN QUANTUM APPEAL IS NOT BINDING IN PENALTY PROCEEDINGS. IT IS ALSO CONTENDED THAT ASSESSEE HAS GIVEN BONAFIDE EXP LANATION AS PER EXPLANATION (1) WHICH HAS BEEN SUBSTANTIATED AS WEL L AND ACCORDINGLY NO PENALTY SHOULD HAVE BEEN LEVIED. LA ST IT IS ARGUED THAT MERE REJECTION OF EXPLANATION IS NOT A GROUND FOR PENALTY AND REVENUE MUST GO FURTHER AND ESTABLISH THAT THERE HA S BEEN CONSCIOUS CONCEALMENT. RELIANCE HAS BEEN PLACED UPON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF JEEVANLAL SAH REPORTED IN 205 ITR 244. 6. THE LD. CIT(A) HELD AS FOLLOWS: IN VIEW OF THE DETAILED DISCUSSION CONTAINED IN TH E PRECEDING PARAGRAPHS AND KEEPING IN MIND THE ORDER OF ASSESSMENT AS CONFIRMED BY HONBLE MUMBAI ITAT I AM CONVINCED THAT THIS IS A FIT CASE FOR PENALTY. AN A RTIFICIAL LOSS ITA NO. 95/M/2010 5 HAS BEEN GENERATED SO AS TO REDUCE LIABILITY TO TAX . THAT ARTIFICIAL LOSS IS BOUND UPON CONCOCTED DOCUMENTS O F TRANSACTION IN SHARES AMONGST GROUP CONCERNS WHICH ON ANALYSIS OF TOTALITY OF FACTS HAS BEEN CONCLUSIVEL Y HELD TO BE A SHAM. ARTIFICIAL EVIDENCE WERE ALSO CREATED TO JUS TIFY THE RATES AT WHICH TRANSACTIONS IN SHARES HAVE BEEN SHOWN. T HE APPELLANT HAS PROCEEDED IN A WELL PLANNED MANNER WI TH A CULPABLE MIND AND HAS CREATED DOCUMENTARY EVIDENCE OF TRANSACTIONS IN SHARES WHICH IS NOTHING BUT SHAM. THERE HAS BEEN A DELIBERATE CONSCIOUS ATTEMPT TO EVADE TAXES WHICH DEFINITELY CALL FOR PENALTY. 7. IN THE COURSE OF APPELLATE PROCEEDINGS A SHOW CA USE WAS ISSUED TO ASSESSEE VIDE LETTER DATED AUGUST 10 2009 PROPOSIN G TO ENHANCE THE PENALTY FROM 100% OF TAX SOUGHT TO BE EVADED AS ADO PTED BY ASSESSING OFFICER TO 300% OF TAX SOUGHT TO BE EVADED BEING TH E MAXIMUM POSSIBLE PENALTY IMPOSABLE. THIS ENHANCEMENT SHOW CAUSE WAS BASED UPON THE OBSERVATION THAT IN CONFIRMING THE QUANTUM APPEAL H ONBLE ITAT MUMBAI HAD CATEGORICALLY HELD THAT THE CLAIM OF EVENTS AND THE FACTS OF THE MATTER UNDER CONSIDERATION WERE A COLOURABLE DEVICE BY WHI CH AN ARTIFICIAL LOSS WAS CREATED TO BE SET OFF AGAINST INCOME AND HONBL E ITAT HAS SPECIFICALLY HELD THESE TRANSACTIONS TO BE SHAM. IN THE SUBSEQU ENT PROCEEDINGS BEFORE THE CIT(A) DETAILED WRITTEN SUBMISSIONS WERE FILED AND THE MATTER WAS DISCUSSED WITH THE COUNSEL OF THE ASSESSEE. THE LD.CIT(A) THEREFORE HELD THAT IN THE PRESENT FACTS OF THE CASE THE GRAVITY IS OF THE HIGHEST ORDER A CONSCIOUS DELIBERATE ATTEMPT HAS BEEN MADE WITH A CULPABLE MIND OF DEFRAUDING THE REVENUE BY CONCOCTING DOCUME NTS TO IMPART A COLOUR OF GENUINENESS TO THE TRANSACTIONS IN SHARES WHICH ARE OTHERWISE A SHAM AND ESTABLISHED TO BE SO. MENSREA HAS BEEN ESTABLISHED BEYOND DOUBT. IT IS A WORST SCENARIO C ASE. THEREFORE LOOKING TO THE GRAVITY ALONE MAXIMUM PENALTY IS CAL LED FOR. THE MAGNITUDE OF OFFENCE THAT IS THE QUANTUM OF TAX SOUGHT TO BE EVADED WILL ALSO BE CONSIDERED IN DECIDING THE QUAN TUM OF PENALTY TO ITA NO. 95/M/2010 6 BE IMPOSED. TO MY MIND THIS IS AN EXTREMELY IMPORTA NT FACTOR BECAUSE HIGHER THE QUANTUM OF TAX SOUGHT TO BE EVAD ED HIGHER WOULD LOGICALLY BE THE CAPACITY OF THE TAX PAYER AN D CONSEQUENTLY THEREFORE HIGHER PENALTY WOULD BE CALLED FOR. IN SO DRAWING THE CONCLUSION IVE BEEN GUIDED BY THE FACT THAT THE PE NALTY MUST NECESSARILY BE COMMENSURATE WITH THE PERSONS CAPAC ITY TO PAY. ELSE THE PURPOSE OF PENALTY SHALL GET DEFEATED. IN THE PRESENT FACTS OF THE CASE THE QUANTUM OF TAX SOUGHT TO BE EVADE D IS MORE THAN 10 LAKHS IN FACT CLOSE TO FIFTEEN LAKHS RUPEES. THAT CORRESPONDS TO AN INCOME LEVEL OF NEARLY FORTY LAKHS RUPEES. IN THE INDIAN SCENARIO THIS IS A VERY LARGE AMOUNT THE CAPACITY OF APPELLANT I S UNDISPUTEDLY THE HIGHEST AND CONSEQUENTLY MAXIMUM PENALTY IS CALLED FOR. REPEATED OFFENCE IS NOT AVAILABLE ON RECORDS ATL EAST IT IS NOT APPARENT. THE FACT OF LIMITED SCRUTINY IS SUGGESTIVE OF M AXIMUM PENALTY AND THAT WOULD ALWAYS BE SO IRRESPECTIVE OF THE FACTS O F THE CASE. LOOKING INTO THE TOTALITY OF FACTS AND CIRCUMSTAN CES OF THE CASE AND THE ARGUMENTS CONTAINED HEREINABOVE AND GIVING CR EDIT FOR ABSENCE OF REPEATED NATURE OF OFFENCE I AM OF THE VIEW THAT IMPOSITION OF PENALTY @ 250% OF TAX SOUGHT TO BE EVADED WOULD BE JUSTIFIED IN THE PRESENT. ASSESSING OFFICER IS DIRECTED ACCORDINGLY . 8. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. E VEN BEFORE US THE AR OF THE ASSESSEE REITERATED THE ARGUMENTS/ SUBMIS SIONS MADE BEFORE THE LOWER AUTHORITIES AND CONTENDED THAT THERE WAS NO MENS REA CALLING FOR LEVY OF PENALTY. WE FIND THAT THERE IS NOTHING ON RECORD TO SUBSTANTIATE THE ACTUAL TRANSACTIONS IN SHARES. IN THE APPEAL AGAINST THE QUANTUM THE TRIBUNAL HAS CLEARLY HELD THAT THE TRAN SACTIONS RESULTING IN A LOSS APPEAR TO BE SHAM. WHEN THE BASIC TRANSACTI ON ITSELF HAS BEEN TREATED AS SHAM AND ASSESSEE IS NOT ABLE TO ESTABLI SH ANY CREDIBLE PROOF FOR TAKING A DIFFERENT VIEW THE LEVY OF PENALTY IS JUSTIFIED. HOWEVER THE LD. COUNSEL FOR THE ASSESSEE SHRI N.R. AGRAWAL POI NTED OUT AT PAGE 16 OF THE PAPER BOOK AND PAGES 18 TO 21 OF THE PAPER B OOK IN SUPPORT OF HIS CONTENTION THAT DIVIDEND INCOME WAS TAXABLE AS BUSI NESS INCOME AND IF SO THE ASSESSED INCOME WOULD HAVE BEEN THE SAME AS RETURNED INCOME ITA NO. 95/M/2010 7 AND CONSEQUENTLY NO PENALTY IS LEVIABLE ON THE FAC TS OF THE CASE. WE ARE OF THE OPINION THAT THE ISSUE RAISED RELATES TO DET ERMINATION OF TOTAL INCOME OF THE ASSESSEE WHICH SHOULD HAVE BEEN DECID ED IN THE QUANTUM APPEAL. IT WAS HOWEVER BROUGHT TO OUR NOTICE AT PA GE 18 OF THE PAPER BOOK THAT THE ITAT HAD REJECTED THE ADDITIONAL GROU ND OF APPEAL DUE TO CLERICAL MISTAKE ON THE PART OF THE ASSESSEE. THE ADDITIONAL GROUND BEING THAT DIVIDEND EARNED FROM SHARES OF RS. 37 13 412/ - SHOULD BE TREATED AS BUSINESS INCOME AND TRADING LOSS SHOULD BE REDUC ED FROM DIVIDEND EARNINGS OF RS. 30 94 824/-. THUS THE DISALLOWANCE OF LOSS SHALL BE REDUCED TO THE EXTENT OF DIVIDEND EARNED FROM THOSE SHARES AMOUNTING TO RS. 6 18 588/-. 9. TAKING INTO CONSIDERATION THE CIRCUMSTANCES OF T HE CASE WE FIND THAT ENHANCEMENT OF PENALTY TO 250% OF THE TAX AVOI DED IS ON THE HIGH SIDE. THE ASSESSEE HAD MADE THE ENTRIES IN THE BOOK S AND THAT WOULD HAVE RESULTED IN ACTUAL LOSS TO THE ASSESSEE AND TH E ASSESSEE SUBMITS THAT THE ENTRIES WERE REFLECTED IN THE BOOKS OF THE ASSOCIATE CONCERNS. ONLY THE PROOF THAT THE TRANSACTIONS REPRESENTED TR ANSFER OF SHARES WAS NOT FURNISHED. IN THE CIRCUMSTANCES WE HOLD THAT L EVY OF MINIMUM PENALTY AT 100% OF THE TAX AVOIDED BY MEANS OF THES E TRANSACTIONS AS HAS BEEN DONE BY THE AO IS REASONABLE. TO THAT EXTE NT WE SET ASIDE THE ORDER OF THE LD.CIT(A) AND CONFIRM THE ORDER OF THE AO. 10. IN THE RESULT THE ASSESSES APPEAL IS PARTLY AL LOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF MARCH 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 25 TH MARCH 2011 RJ ITA NO. 95/M/2010 8 C OPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 95/M/2010 9 DATE INITIALS 1 DRAFT DICTATED ON: 22 .0 3 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 3. 0 3 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______