Commissioner of Income Tax vs Navinchandra and Co.

M.R. Shah, J.—Feeling aggrieved and dissatisfied with the impugned judgment and order dated 19.04.2013 passed by the learned Income Tax Appellate Tribunal [hereinafter referred to as "ITAT"] in ITA No. 64/Ahd/2013 for Assessment Year 2005-06, by which the learned ITAT has deleted the penalty imposed u/s 271(1)(c) of the income tax Act, 1961 [hereinafter referred to as "the Act"], the Revenue has preferred the present tax appeal with the following proposed substantial question of law:

Whether on the facts and in the circumstances of the case and in law, the ITAT was correct in law in deleting penalty of Rs. 62,55,500/- levied u/s. 271(1)(c) of the Act without appreciating the fact that claiming speculation loss as business loss deliberately amount to filing of inaccurate particulars and adjusting the same against income from other sources, whereas the clause (d) inserted by the Finance Act, 2005 under sub-section (5) of section 43 is applicable w.e.f. 01.04.2006 i.e. from A.Y. 2006-07 conclusively proves that the derivative transactions are in the nature of speculative transactions till A.Y. 2005-06?

That the assessee filed his return of income for the year in consideration declaring total loss of Rs. 1,47,86,566/-. That during the assessment the assessee claimed a net loss of Rs. 1,52,23,713/- on account of derivative trading and the said loss was set-off with business and other sources of income. While finalizing the assessment, the AO treated the loss as speculative loss and consequently speculative loss of Rs. 1,70,95,625/- which was debited under normal business income was disallowed by the AO and penalty proceedings u/s 271(1)(c) of the Act were directed to be initiated by the AO. That the assessment order came to be confirmed by the Appellate Authority. That thereafter the penalty proceedings u/s 271(1)(c) of the Act came to be initiated and the AO levied/imposed the penalty of Rs. 62,55,500/- u/s 271(1)(c) of the Act by observing that the assessee deliberately furnished inaccurate particulars of his taxable income by treating speculation loss on derivatives transaction and set-off against income from other sources and evade tax.

1.1 Feeling aggrieved and dissatisfied with the order of penalty imposed u/s 271(1)(c) of the Act, the assessee preferred appeal before the learned CIT(A) and the learned CIT(A) allowed the said appeal and quashed and set aside the penalty imposed u/s 271(1)(c) of the Act observing that it was a bona fide claim on the part of the assessee by which the assessee treated the loss from derivative transactions as normal business loss and there were divergent views of various Tribunals at the relevant time.

1.2 Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A) deleting the penalty imposed u/s 271(1)(c) of the Act, the Revenue preferred appeal before the learned ITAT and by impugned judgment and order the learned ITAT has dismissed the said appeal preferred by the Revenue confirming the deletion of the penalty.

1.3 Feeling aggrieved and dissatisfied with the judgment and order passed by the learned ITAT in deleting the penalty imposed u/s 271(1)(c) of the Act, the Revenue has preferred the present Tax Appeal to consider the aforesaid proposed substantial question of law.

Shri Parikh, learned advocate appearing on behalf of the appellant has vehemently submitted that learned ITAT has materially erred in deleting the penalty imposed u/s 271(1)(c) of the Act. It is submitted that as such the assessee was very much aware and/or he know the fact that the derivative transactions were in the nature of speculative transactions and still he treated the speculative loss on derivative transactions as business loss and set-off/adjusted the same against income from other sources and tried to evade the tax. It is submitted that therefore the AO was justified in imposing the penalty u/s 271(1)(c) of the Act, which was not required to be and therefore, the learned ITAT is not justified in deleting the penalty imposed by the AO.

Heard Shri Parikh, learned advocate appearing on behalf of the appellant-Revenue. At the outset it is required to be noted that while submitting the return of income, the assessee claimed/treated the loss from derivative transactions as normal business loss. However, the AO did not accept the same and treated the same as speculative in nature and therefore, disallowed the same. Therefore, it was a bona fide claim made on behalf of the assessee which was not accepted by the AO. It is also required to be noted that at the relevant time there were divergent views of various Tribunals on the point and the assessee claimed/treated the loss from derivative transactions as normal business loss and adjusted the same against other business income. Considering the above and relying upon the decision of the Hon''ble Supreme Court in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., , when the learned CIT(A) has deleted the penalty which has been confirmed by the learned Tribunal by passing the impugned order, no error has been committed in deleting the penalty. While deleting the penalty in para. 4.3, the learned CIT(A) has observed and held as under:

4.3 I have given my careful consideration to the facts of the case as well as the observation of the AO and the arguments put forth by the AR. I am in agreement with the AR of the appellant that it is not a case of filing inaccurate particulars of income by the appellant. All particulars in respect of the loss were found to be correct. Only point of contention was that the appellant had treated loss from derivative transactions as normal business loss whereas the AO held it to be speculative in nature. It is a case of bona fide claim in respect of an item where the law was not very clear, this is evident from decisions of various tribunals quoted by the appellant which were in its favour. This is a case of difference of opinion and not a case of mala fide claim of wrong deduction. Ratio of decision of Hon''ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. is squarely applicable to the facts of the case. Therefore, penalty of Rs. 62,55,500/- levied by the AO u/s. 271(1)(c) of the I.T. Act is hereby deleted.

Considering the aforesaid facts and circumstances, it cannot be said that the learned CIT(A) and the learned ITAT have committed any error in deleting the penalty imposed u/s 271(1)(c) of the Act, which calls for interference of this Court. No question of law much less substantial question of law arises in the present appeal and the present appeal deserves to be dismissed and is, accordingly, dismissed.