* 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
ITA No.211/2008 Page 1 of 5
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.
ITA No.211/2008 Page 2 of 5
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
ITA No.211/2008 Page 3 of 5
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
ITA No.211/2008 Page 4 of 5
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
ITA No.211/2008 Page 5 of 5