2016 (8) TMI 462 - AT - Income Tax

Tribunal overturns penalties for inaccurate income particulars, deems share trading non-speculative

The Tribunal allowed all four appeals filed by the assessee, setting aside the penalties levied under Section 271(1)(c) for furnishing inaccurate ... Penalty u/s.271(1)(c) - assessee has maintained combined profit and loss account without bifurcating the income/loss of its share trading business and its normal share brokerage business - Held that:- From the various details furnished in the paper book we find the assessee has given full details of income from share trading activity and income from brokerage activity for all the years. The AO has allocated the expenses to the above income and therefore some element of estimation is definitely there while computing the income. Since the business of the assessee company is that of trading in shares, therefore, in view of the above decision of the Mumbai Bench of the Tribunal Fiduciary Shares & Stock P. Ltd. Versus ACIT, Circle 4 (2) , Mumbai [2016 (5) TMI 814 - ITAT MUMBAI] the assessee is out of the purview of Explanation to section 73. Although the quantum addition has been sustained by the Tribunal, however, it is the settled law that the penalty proceedings are independent proceedings and the assessee always can raise new plea during the penalty proceedings. The Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) has held that a mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. In view of the above discussion, we are of the considered opinion that this is not a fit case for levy of penalty. We therefore set aside the order of the CIT(A) and direct the AO to cancel the penalty levied u/s.271(1)(c) of the I.T. Act, 1961. The grounds raised by the assessee are accordingly allowed. Issues Involved:1. Penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income for Assessment Years 2000-01, 2002-03, 2003-04, and 2004-05.2. Applicability of Explanation to Section 73 of the Income Tax Act.3. Whether the amendment to Explanation to Section 73 by Finance (No.2) Act 2014 is retrospective.Issue-wise Detailed Analysis:1. Penalty levied under Section 271(1)(c) for furnishing inaccurate particulars of income:The primary issue in these appeals was the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income. The AO held that the assessee had claimed set-off of speculative loss against the income from normal brokerage business in shares, which was aimed at evading the correct tax liability. The AO bifurcated the income and expenses relating to speculative share transactions and normal business of share brokerage, redrawing the profit and loss account. The penalty amounts were Rs. 53,590 for A.Y. 2000-01, Rs. 35,683 for A.Y. 2002-03, Rs. 1,69,575 for A.Y. 2003-04, and Rs. 4,66,402 for A.Y. 2004-05. The CIT(A) upheld these penalties.2. Applicability of Explanation to Section 73 of the Income Tax Act:The assessee, a Private Limited Company engaged in share brokerage and share trading, argued that the AO had incorrectly applied Explanation to Section 73 of the Act, treating the share trading business as speculative. The assessee maintained combined accounts for share transactions and brokerage business, leading to the AO’s bifurcation of income and expenses. The assessee contended that all material particulars had been disclosed, and the bifurcation involved an element of estimation, thus penalty should not be levied.3. Retrospective application of the amendment to Explanation to Section 73 by Finance (No.2) Act 2014:The assessee argued that the amendment to Explanation to Section 73 by Finance (No.2) Act 2014, which clarified the real intention behind the insertion of the Explanation, should be applied retrospectively. This amendment excluded companies whose principal business is trading in shares from the purview of Explanation to Section 73. The Tribunal, in the case of Fiduciary Shares & Stock Pvt. Ltd., held that the amendment is clarificatory and should be applied retrospectively from the date of the original insertion of Explanation to Section 73.Tribunal's Findings:- The Tribunal found merit in the assessee's arguments. It noted that the assessee had provided full details of income from share trading and brokerage activities, and the AO’s allocation of expenses involved estimation.- The Tribunal cited the Delhi Bench's decision in S.R.J. Securities Ltd., which held that where the quantum of loss on account of share trading was undisputed and addition was made treating such loss as speculative, no penalty under Section 271(1)(c) could be levied.- The Tribunal also referred to the Mumbai Bench's decision in Fiduciary Shares & Stock Pvt. Ltd., which held that the amendment to Explanation to Section 73 by Finance (No.2) Act 2014 is retrospective and clarificatory, thus applicable from the original date of insertion.- The Hon’ble Supreme Court's decision in Reliance Petroproducts Pvt. Ltd. was also cited, which held that merely making a claim that is not sustainable in law does not amount to furnishing inaccurate particulars.Conclusion:The Tribunal concluded that the penalties levied under Section 271(1)(c) were not justified as the assessee had disclosed all material particulars and the allocation of expenses involved estimation. The amendment to Explanation to Section 73 was deemed retrospective, thus the assessee's share trading business should not be treated as speculative. Consequently, the Tribunal set aside the orders of the CIT(A) and directed the AO to cancel the penalties for all the assessment years in question.Result:All four appeals filed by the assessee were allowed.