Commissioner Of Income Tax Delhi ... vs Usha Marketing (Pvt.) Ltd.
2008 Latest Caselaw 1828 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


+                        ITA No.211/2008


%                                   Date of decision: 17.10.2008


COMMISSIONER OF INCOME TAX
DELHI (CENTRAL) II                                 ...APPELLANT
                   Through:           Mr. R.D. Jolly, Advocate.


                                  Versus


USHA MARKETING (PVT.) LTD.                       ...RESPONDENT
                   Through:           Mr. Prakash Kumar, Advocate.



CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE MOOL CHAND GARG

1.        Whether the Reporters of local papers
          may be allowed to see the judgment?          No

2.        To be referred to Reporter or not?           No

3.        Whether the judgment should be               No
          reported in the Digest?

SANJAY KISHAN KAUL, J. (Oral)

1. The respondent-company is dealing in sale and transfer

of shares. In the assessment year 1986-87, the

Assessing Officer permitted the conversion of certain

shares from investment to stock-in-trade. In the

Assessment Year 1987-88 (Assessment Year in question),

the respondent-company booked certain business loss.

The Assessing Officer, however, came to the conclusion

that the loss could not be treated as a business loss and

this Order was upheld by the CIT(A) as also by the

Tribunal.

2. The Tribunal in its Order dated 31.10.2001 in the

quantum proceedings came to the conclusion that

merely because the Assessing Officer in the Assessment

Year 1986-87 had permitted the conversion of shares

from investment to stock-in-trade could not ipso facto

imply that the Assessment Officer for the year 1987-88

would be precluded from going into the real facts about

the shares and determining whether the shares were

held as investment or stock-in-trade. It was held that

the shares could not be treated as stock-in-trade but had

to be treated as investment.

3. The material observations of the Tribunal are that the

transaction in shares which resulted in loss were not

necessitated on account of any business requirement or

any business decision but were the exigencies of the

group companies determined by the group strategy.

The respondent as an Assessee-Company was thus held

as a tool of the group and the transfer of shares was

made in pursuance thereto. It is in these circumstances

that the loss was not held to be genuine and was held to

be simply a book loss and not a real loss.

4. The present appeal arises from the impugned Order of

the Tribunal dated 01.06.2007 in the penalty proceedings

where the Tribunal has held that the present case is not

one for imposition of penalty. The transactions which

resulted in the loss have been looked into to come to the

conclusion that each of the transactions was at market

value, shares were transferred and money received. It is

in these circumstances, that the Tribunal has observed

that the explanation 1 to Section 271(1)(c) of the Income

Tax Act, 1961 („the said Act‟ for short) was not attracted.

5. The sub stratum of the plea of the learned counsel for

the appellant/Department is that a substantial question

arises in the present appeal on account of the fact that

the two aforesaid Orders of the Tribunal have come to

completely different conclusions on the same set of facts.

6. We are unable to accept the plea of the learned counsel

for the appellant/Department for the reason that we are

unable to derive the aforesaid conclusion on a reading of

the two Orders. The Order in the quantum proceedings

of the Tribunal shows that the only conclusion reached is

that the transfer of shares could not be booked as a

business loss as this was not necessitated by any

business necessity but on account of a decision of the

group as a whole and as a group strategy. The order of

the Tribunal in the penalty proceedings has come to the

conclusion that the transactions in respect of the shares

on the basis of which business loss was caused were

genuine inasmuch as they were at market value and

actual transfer of shares took place with the money

passing. Learned counsel for the appellant/Department

cannot seriously dispute that it is not as if every addition

made by the Assessing Authority would result in a

penalty being imposed. Unless the parameters of

explanation 1 to Section 271(1)(c) of the said Act are

attracted, the penalty would not be the result. The

observations of the Tribunal in the impugned order which

have cogently dealt with this aspect are re-produced as

under:

" No person to save a tax of 30% will choose to lose 100% of the capital. Whether the loss is allowable or not depends upon the facts of the case but whether from the same facts it can be concluded that the assessee has furnished inaccurate particulars of income so as to levy penalty under Section 271(1)(c), the answer is clearly no. The concealment can be of the particulars of income and no conclusion to be drawn from the very same particulars furnished. If on the basis of furnishing necessary particulars, adverse view is drawn i.e. to disallow the same, it does not result into penal action for levy of penalty for concealment of particulars of income. As per Explanation 1 to Section 271(1)(c), penalty is leviable only in a case where (a) such person fails to offer an explanation; or (b) offers an explanation which is found to be false or (c) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by

him. In the present case, it is seen that the assessee has offered an explanation. The same is substantiated also. The explanation offered by the assessee is not found to be false by the Assessing Officer. When the explanation was offered, the assessee filed all the relevant details of the transaction in sale of shares and debentures and when the claim was made, the same was bona fide as all the facts relating to such loss and material to the computation have been disclosed by him. Thus Explanation 1 to Section 271 (1)(c) is not attracted herein. If on the facts furnished by the assessee the view adopted is that such loss is not allowable without any finding that the explanation offered by the assessee is false, the assessee cannot be visited with penalty by invoking Explanation 1 to Section 271(1)(c). Since there is no other allegation that the assessee has furnished inaccurate particulars of income except invoking Explanation 1 to Section 271(1)(c) for levy of penalty, in our opinion, since Explanation 1 is not attracted, penalty under Section 271(1)(c) is to be cancelled."

7. We are in full agreement with the aforesaid observations

of the Tribunal and thus no question of law arises in the

present appeal.

8. Dismissed.

SANJAY KISHAN KAUL, J.

OCTOBER 17, 2008                         MOOL CHAND GARG, J.
dm