TaxTMI 
TaxTMI 
2010 (1) TMI 870
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....he expenses related to speculation business is not allowable as deduction against the other business income. 3. On the facts and circumstances of the case and in law, the impugned order of the ld. CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored." 2. Briefly the facts of the case are that the assessee filed return of income declaring total income at 'NIL' after set-off of brought forward losses. The assessment was made by the Assessing Officer under section 143(3) determining the total income at Rs. 55,51,479. During the course of assessment proceedings, the Assessing Officer noticed that the assessee transacts in the stock exchange on its own account (regular trading and FandO segment) as well as on behalf of its clients for which the assessee derives brokerage income, during the assessment proceedings, it was noticed that the assessee had incurred loss on account of its trading in shares and had treated the same as speculation loss. The assessee was asked to bifurcate the expenses incurred by it for each of the said business individually, namely, brokerage and share trading/speculation loss. The assess....
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.... penalty on the amount of disallowance restricted by the CIT(A) of Rs. 39,23,891 (34,23,891 + 5,00,000) whereas as per the CIT(A) the addition restricted to Rs. 35,09,342. [There is a difference in figure in the order of CIT(A) against the quantum appeal in penalty order of Assessing Officer]. The relevant findings of the Assessing Officer is reproduced below:- "In view of the above given facts, it is very clear from the above that the assessee has not discharged the onus of establishing that the expenditure as indeed incurred for earning brokerage and no part of the same was incurred for carrying out Speculation business. Thus, clearly f ailing in its onus. Further it has been beyond any iota of doubt established that it has also debited and claimed expenses under the Legal and Profession amounting to Rs. 5,00,000 which is clearly not connected to its business. The document itself is clear evidence that the expense is not incurred for the business purposes, but still the same was claimed as an allowable expense. This leads to the most logical conclusion that the assessee has made a deliberate attempt to claim not only expenditure not related to business but also not apport....
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....to save its tax liability claimed the expense which were not claimable. The assessee did furnish inaccurate particulars of claim of legal and professional charges amounting to Rs. 5 lakhs with a view to conceal the particulars of income." 3. Both the assessee and the revenue were filed appeals before the ITAT. The present appeal before us is pertaining to revenue whereas the appeal of the assessee was decided by the ITAT in ITA No. 1080/Mum./2008 vide its order dated 6-8-2009, wherein the ITAT has restored the issue to the file of the Assessing Officer to decide the issue relating to penalty with reference to Rs. 5 lakhs afresh in accordance with law. 4. The learned DR submitted that the assessee is carrying out the business of share trading for self (speculation) as well as for clients. The assessee has carried out share trading business treating profit/loss for self as speculation business under section 73 of the Act and the income from share trading for clients received as brokerage is treated as business income. The learned DR further submitted that the assessee was having around 72.5 per cent share trading for self and 27.5 per cent share trading is for clients....
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.... a bona fide mistake. The learned DR further submitted that it is not a simple arithmetic calculation for disallowance of expenses. The assessee has completely disregarded the binding precedent of the decision in the case of Sind National Sugar Mills (P.) Ltd. (supra) where the assessee failed to prove that his explanation was bona fide and, therefore, Explanation 1 to section 271(1)(c) of the Act is directly applicable. The learned DR in support of his contention relied upon the decision in the case of Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244' (SC). It was also the submission of the learned DR that penalty under section 271(1)(c) is leviable even in case of income is assessed based on estimation. The learned DR in support of his contention relied upon the judgment of jurisdictional High Court in the case of CIT v. Yusuf Abdulla Patel [1994] 208 ITR 202 (Bom.) and Kerala High Court in the case of CIT v. T.J. Mathai[2004] 269 ITR 492. 5. The learned AR submitted that it is not the case of revenue that the expenses were not genuine. The issue under consideration is in respect of penalty under section 271(1)(c) on account of apportionment of the expenses between speculat....
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....sessee also relied upon the following decisions:- 1. Income Tax Appeal No. 9 of 2009 vide order dated 30-3-2009 in case of CIT v. Suresh Choudry Bonsai Calcutta High Court. 2. CIT v. Ravail Singh and Co. [2002] 254 ITR 191 (Punj. and Har.). 3. Harigopal Singh v. C/r[2002] 258 ITR 852 (Punj. and Har.). 5.3 The learned AR submitted that it is a case apportionment of expenses, therefore, under the circumstances penalty under section 27 1(1)(c) is not leviable, therefore, the CIT(A) has rightly cancelled the penalty. 5.4 The learned AR submitted that the assessee filed SLP before the Hon'ble Supreme Court against the judgment of Punjab and Haryana High Court in the case of in Income-tax Appeal No. 470 of 2007 - CIT v. Sangrur Vanaspati Mills Ltd. [2008] 303 ITR 53 whereby the High Court dismissed departmental appeal filed against the order of ITAT where the ITAT cancelled the penalty following the decision of Punjab and Haryana High Court in the case of Ravail Singh and Co. (supra) wherein it was held that provisions of section 271(1)(c) are not attracted where the income of the assessee assessed on estimate basis and additions are made therein. ....
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.... of the learned DR as under:- 7.1 The first contention of the learned Departmental Representative is that under section 73 of the Act, the onus lies on the assessee to show that it did not spend any money to earn income from its own trading, which is treated as speculation business. He submitted that it cannot be accepted that the assessee did not spend any money to carry on the speculation business. We find from the assessment order that before the Assessing Officer the assessee has taken a stand that the entire expenses debited to the Profit and Loss Account were incurred for earning income from brokerage, which the Assessing Officer has found difficult to accept on the ground that the infrastructure facilities were being utilized also for trade on its own account (speculation business). What the assessee has stated before the Assessing Officer is that such use for own trade was very negligible. It is quite possible that the assessee thought that the expenses attributable to the speculation business were so negligible that it was not worth the trouble to try to find out the exact quantum of the expenditure. By saying that it did not incur any worthwhile expenditure for ca....
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....erent view for the year under appeal when there is no change in the facts. It is expected of the department to be consistent in its approach on same facts. 7.3 Now coming to the merits of the case, we noticed that the Assessing Officer levied penalty under section 271(1)(c) on the ground that the assessee has filed inaccurate particulars of income. What is inaccurate particulars of income within the meaning of provisions of section 271 (1)(c) of the Act has been discussed in details by the IT AT Mumbai Bench in the case of Mimosa Investment Co. (P.) Ltd v. ITO [2009] 28 SOT 470 in ITA No. 2983/Mum./07 for assessment year 2004-05 order dated 15-1-2009. The said order has been followed by the ITAT in the case of GACL Finance Ltd. (supra) the decision cited by the learned AR. The facts of the case of GACL Finance Ltd. (supra) were that the assessee claimed loss as loss from trading of shares. The Assessing Officer treated the said loss under Explanation to section 73 and treated the same as deemed speculation loss. The Assessing Officer has apportioned the interest and other expenses attributable to speculation business income. Penalty under section 27 1(1)(c) levied by the As....
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....e. In other words, the Assessing Officer cannot invoke provision of section 271(1)(c) on the basis routine and general presumptions. Whether it be a case of only concealment or of only inaccuracy of particulars or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the ITO, who on being satisfied about each concealment or inaccuracy of particulars of income would be in a position to initiate the penalty proceedings on one or both of the grounds of default as may have been specifically and directly detected. 7.4 It was also held that from the scheme of the Act, two important things come out are that it is the duty of the assessee to furnish particulars of income which should be accurate particulars, simultaneously he has right to claim all exemptions and deductions provided in the Act, according to the assessee for which he is entitled. The duty of the Assessing Officer is to assess real and correct income in accordance with law. The CBDT in its Circular No. 14(XL35) of 1955, dated 11-4-1955 stated that officers of the department must not take advantages of ignorance of an assessee as to his rights, it is o....