Commissioner of Income Tax vs Aretic Investment (P.) Ltd.

This appeal is directed against the Tribunals order dated 11-4-2008 in ITA No. 194/Delhi/2007 for the assessment year 2003-04. The appeal arises out of the penalty proceedings initiated by the assessing officer u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the said Act). The assessee had returned a loss of Rs. 1,26,43,952 which included purported business loss of Rs. 1,63,83,650 on account of trading in shares. However, the assessing officer, held that the said loss on account of trading in shares was liable to be treated as a speculative loss in terms of the Explanation to Section 73 of the said Act. At the time of assessment, the assessee had also agreed that the same be treated as speculative loss. Consequently, the assessing officer determined the total income of the assessee to be Rs. 45,44,381 as against the claimed loss of Rs. 1,26,43,954. Thereafter, the penalty proceedings u/s 271(1)(c) were also initiated by die assessing officer. In the penalty proceedings, the assessing officer imposed a penalty of Rs. 63,16,710. The said penalty was deleted by the Commissioner (Appeals) and the deletion was confirmed by the Income Tax Appellate Tribunal by the virtue of the impugned order.

The Tribunal was of the view that the loss was suffered by the assessee in the said activity of purchase and sale of shares and having regard to the nature of the said transactions as well as the nature of its own business, the assessee-company was under a belief that the said transactions were forming part of its business and the loss suffered in the said transactions was its business loss and not speculative loss. Consequently, the assessee claimed the same as business loss against the other business income in the current year. The Tribunal came to the conclusion that the mere fact that the assessment officer had treated the business loss as speculative loss did not automatically result in the inference of concealment of income justifying imposition of penalty u/s 271(1)(c). Reliance was placed on CIT v. Auric Investment & Securities Ltd. (2007) 163 Taxman 533 (Del) and Commissioner of Income Tax Vs. Excellent Commercial Enterprises and Investments Ltd., .

After referring to the said decisions the Tribunal was of the view that the mere change of nature of the loss from business loss to speculative loss was not enough to impose penalty on the assessee. The Tribunal held that the assessee had claimed the loss as business loss under a bona fide belief that he was entitled to do so.

It is well-settled that assessment proceedings and penalty proceedings are distinct and independent of each other. No doubt, the findings in the assessment proceedings would have significance in the penalty proceedings also but they are not decisive or determinative. This position has been established in several decisions which include The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, and Commissioner of Income Tax Vs. J.K. Synthetics Ltd., .

With respect to the fact that the assessee had accepted the view taken by the assessing officer that the loss due to trading in shares was in the nature of a speculative loss, the assessee contended that in the penalty proceedings, it can take up the plea that the claim made in the return was bona fide.

In view of the above, no substantial question of law arises for consideration. Accordingly, the appeal is dismissed.