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M/s Schrader Duncan Limited, LBS Marg, Mulund (W), Mumbai-400080 Vs. Additional Commissioner Of Income-tax (10)-3, Mumbai
January, 05th 2015
       ,  , Û,
                 MUMBAI BENCHES `E' MUMBAI
                ^  ,   
               ^ .. [,  ,  ¢
                 . / ITA    No.8223/MUM/2010
                 [ [ /Assessment Year: 2004-05
  M/s Schrader Duncan                 Additional Commissioner Of
  Limited,                        Vs. Income-tax (10)-3,
  LBS Marg, Mulund (W),               Mumbai
  ([ /Assessee)                              ( /Revenue)

          [    / Assessee by:              Shri Haresh G. Buch
             /Revenue by                       Shri Neil Philip

             /                                 17/12/2014
          Date of Hearing :
             /                                 01/01/2015
          Date of Pronouncement :


          The assessee is aggrieved by the impugned order dated
 15/09/2010 of the ld. First Appellate Authority, Mumbai. The
 assessee has raised the following grounds:

     I.     The Commissioner of Income Tax (Appeals)-22 ("the CIT(A)")
            erred in upholding the action of the Asst. Commissioner of
            Income tax-10(3) ("the AO") in levying penalty on the
                                    2          M/s Schrader Duncan Limited

           disallowance of Long term Capital Loss on repurchase of US
           64 units of Unit Trust of India, without giving adequate
           opportunity to the Appellant, on the alleged ground that no
           satisfactory evidence was furnished for the same.

     II.   The Appellant prays that it be held that no adequate
           opportunity had been given to it and hence the order passed
           u/s. 271 (1) (c) of the Act be held as ab-initio and/or
           otherwise void and bad-in-Law.



     1. On the facts and circumstances of the case and in law, the
     CIT(A) erred in upholding the action of the AO in levying penalty of
     Rs. 66,36,077/- u/s section 271(1)(c) of the Act on the alleged
     ground that there was concealment of income and that the
     Appellant had furnished inaccurate details of income with respect
     to the long term capital loss claimed by the Appellant.

     2.The Appellant prays that a mere difference in opinion would not
     amount to raising a question on the bonafide claim made by the
     Appellant with respect to the Long term capital Loss.

     3.The Appellant prays that the said penalty levied by the AO and
     confirmed by the CIT(A) be deleted.

2.   At the time of hearing, ld. Counsel for the assessee, Shri
Haresh G. Buch, contended that substantial question of law has
been admitted by the Hon'ble High Court, therefore, no penalty is
imposable u/s 271(1)(c) of the Act. Reliance was placed upon the
decision from Hon'ble jurisdictional High Court in the case of CIT
vs M/s Nayan Builders & Developers (ITA No.415/2012) order
dated 8th July, 2014. Our attention was invited to the case of the
assessee itself (ITA No.602/2012) order dated 19th September,
                                    3          M/s Schrader Duncan Limited

2014 admitting the substantial question of law. The ld. DR, Shri
Neil Philip has neither controverted the assertions of the assessee
nor brought on record any contrary material on record.

2.1. We have considered the rival submissions and perused the
material available on record. Before coming to any conclusion, we
are reproducing hereunder           the relevant portion from the
conclusion arrived at by the ld. Commissioner of Income tax
(Appeals) for ready reference:
     "2.3 I have considered the facts of the case, perused the
     penalty order and submissions made by the appellant and
     also discussed the case with the AIR of the appellant. A.O.
     in the penalty order has mentioned that in response to
     notice dated 08.03.2010 fixing the case for hearing on
     17.03.2010 neither anybody attended nor any submission
     have been filed. The appellant submits that the said notice
     was received by it on 23.03.2010. However, before me the
     appellant failed to furnish any evidence in support thereof.
     The order has been passed on 29.03.2010 and before that
     there was no communication from the appellant and hence
     in my opinion there is no discrepancy in the findings given
     by A.O. The appellant has relied on the decision of Hon'ble
     [TAT in the case of Mahesh Lunch Home (supra). However,
     on perusal of this judgment it is noted that the issue there
     relates to non recording of satisfaction for initiating penalty
     proceedings which is not the issue in the present case.
     Accordingly, the ratio of the judgment doesn't apply in this
     case. Thus, this ground of appeal is dismissed.

     3.1 Ground of appeal No.2 is against the levying penalty of
     Rs.66,36,077/- u/s 271(1)(c) of the I.T.Act. During the
     course of assessment proceedings A.O. made the addition of
     Rs.6,34,72,767/- on account of disallowance of long term
     capital loss, During the course of assessment proceedings
                             4          M/s Schrader Duncan Limited

A.O. noted that assessee has claimed long term capital loss
of Rs.6.34,72,767/- on account of repurchase of units of
mutual funds of Unit Trust of India. A.O. observed the
details and noted that the units valued at Rs.7,14,42,394/-
were purchased during A.Yrs. 1992-1993 to 2001-2002 and
have been sold by way of repurchase by UTI and after
repurchase the same were invested in tax free bonds. A.O.
referred to Sub section 6 of section 45 and noted that non
obstante clause which mentions that the difference between
the repurchase price of the units and capital value of units
shall be deemed to be capital gains arising to the assessee
in the previous year in which such a repurchase takes place
and will be taxed accordingly. In view of these facts A.O.
disallowed the claim of long term capital loss of
Rs.6,34,72,767/- and allowed short term capital loss at
Rs.97,17,302/-.    On     appeal,    the   Ld.CIT(A)   made
enhancement of Rs.97, 17,302/- which had been allowed
by the A.O. as short term capital loss and was allowed to be
carried forward. Accordingly. the A.O. levied minimum
penalty of Rs.66,36.077/- treating that the assessee has
deliberately furnished inaccurate particulars of its income
and sought to evade income to the extent of

3.2 During the course of appellate proceedings the appellant
has furnished written submissions wherein it has been
submitted that capital gains on the conversion of subject US
64 units into US 64 tax free bonds should be computed
under normal provisions u/s45( I) and not u/s.4S(6) of the
I.T.Act. Appellant further submitted that US 64 units are
capital asset to the appellant within the meaning of section
2( 14) of the Act which exc1udes from the ambit thereof six
types of assets. Appellant also relied on the following

(i) Addl.CIT Vs. Trustees of H.E.H. The Nizams Second
Supplementary Family Trust, 102 ITR 248.
                               5           M/s Schrader Duncan Limited

(ii) Kirloskar AsiaLtd. Vs. CIT, 117 ITR 82 (Kar.)

(iii) Anarkali Sarabhai, 224ITR 422.

Appellant further submits that statement showing the
calculation of the long term capital loss arising from the
conversion of units into bonds was attached with the return
of income and same was also provided 'during assessment
proceedings, therefore, there was no concealment of any
particulars or furnishing of any inaccurate particulars,
justifying invoking of the penal provisions. Appellant also
submitted that actual state of affairs presented to the
department does not contain any error and no discrepancy
is found in any of the material facts, hence it is established
beyond that proceedings u/s. 271 (1 )(c) for alleged default
of concealment of income or furnishing inaccurate
particulars thereof is unwarranted and unjustified and does
not stand a moment's scrutiny. Appellant further submitted
that it is a settled law that before penalty could be levied,
the entirely of circumstances must reasonably point the A.O.
to conclusion that the disputed amount represented income
and that it had consciously concealed the particulars of his
income or had deliberately furnished inaccurate particulars.
Appellant also submitted that view taken by the A.O. which
formed the basis of levying the penalty was in any case not
accepted by the CIT(A)-X in quantum appeal, hence even in
such case there was no question of levying any penalty. In
this respect appellant relied on the following decisions:

   i.   CIT Vs. Mithalal Ramachandra, 82 ITR 470
  ii.   CIT Vs. Indo American Electricals Ltd. 45 CTR 146
iii.    Hindustan Steel Ltd. Vs. State of Orissa, 83 ITR 26
 iv.    Yasmin Properties (P) Ltd. 46 ITD 331
  v.    D.M. Dahanukar Vs. CIT, 65 ITR 280
 vi.    ITO Vs. H.A. Sodhan (Greater HUF) 17 ITD 479 (Ahd.)
vii.    CIT Vs. Indian Metals & Ferro Alloys Ltd. 211 ITR 35
viii.   Nuchem Ltd. Vs. DCIT. 47 ITD 487 (Del.)
                                      6            M/s Schrader Duncan Limited

ix.    Associated Cement Companies Ltd. Vs. DCIT, 40 ITD
       70 (80m.)

In view of these submissions, appellant prayed that penalty
levied u/s.271 (I )(c) amounting to Rs.66,36,077/- may be

3.3 I have considered the facts of the case, perused the
penalty order and submissions made by the appellant and
also discussed the case with the A/R of the appellant. The
A.O. made disallowance of long term capital loss on sale of
units of UTI but allowed the short term capital loss
(difference between purchase price & sale price of units) to
be carried forward. While considering the issue during first
appellate proceedings, the Ld.CIT(A) in Para 1.13 of his
order No.CIT(A)-XIIT/275/2006-07 dated 28.11.2008
observed as under:

"1.13 However, in the course of appellate proceedings, it was noticed
that the capital gains accruing on US 64 were specifically exempted
from taxation u/s. l0(33). Therefore, vide order sheet entry dated
18.ll.2008, the assessee was specifically asked to show cause as to why
the capital loss should not also be disallowed on transfer of US 64. In
other words, it would lead to an enhancement as envisaged u/s 251(2).
In this regard the assessee has submitted as follows:

(a) As per section 10 only positive income is exempt and not loss.

(b) Capital loss is not included in total income and is carried forward.

(c) Section 10(35) deals with positive income and therefore, section
10(33) is also confined to positive income.

(d) That the intention of section 10(33) was to give relief to investors. Its
intention was not to deprive.

1.14 I have examined the provisions of low in this case Section 10
begins with the clause that in computing the total income of a previous
year of any person, any income falling within any of the following
clauses shall not be included. Now, clause (33) specifically refers to
income arising from transfer of capital assets, being units of US 64.
                                     7             M/s Schrader Duncan Limited

Thus, section 10 is an exemption clause and not a deduction. Any
income of the type defined in clause (1) to (36) of that section will not be
included in the total income. Now it is a well accepted proposition that
under the Income Tax Act, the word "income" includes "loss". In other
words, any income/loss on transfer of US 64 assets would be exempted
from being included in the computation of total income. In the
circumstances, I fail to understand how the assessee can argue that
section 10(33) is confined to only positive income and not losses. In the
circumstances, the assessee will not be entitled to claim of capital loss
on transfer of us 64. The A.O. is directed to exclude the entire loss from
the computation of total income. This would result in an enhancement
Rs.97,17,302/-. For statistical purposes this ground of appeal is treated
as dismissed.

      From the above it may be noted that an amount of
Rs.97,17,302/- have been disallowed by the CIT(A) and
accordingly the penalty has been computed by the A.O.
including the amount disallowed by the A.O. Before me it
was stated that no particulars were concealed and CIT(A)
has confirmed the disallowance following the enhancement
procedure. However, I do not agree with the contention of
the appellant since CIT(A) has been given specific power to
make enhancement which is coterminus to the jurisdiction
appellant further submits that the details were attached
with the return of income. However, this is not correct since
the appellant did not suo moto offer the disallowance of
u/s.10(33) in its return of income and hence the claim or
loss was not bonafide. The appellant has further stated that
the A.O. has no where concluded the disputed amount were
consciously concealed or had deliberately furnished
inaccurate particulars. This argument of the appellant is
unfounded in view of the judgment of Hon'ble Supreme
Court in the case of Union of India Vs· Dharmendra Textile
Processors (2008) 306 ITR 277, where in order dated
29.9.2008 it was held that the object behind enacting
section 271(1)(c) read with explanation indicates that the
said section has been enacted to provide a remedy for loss
of revenue. Penalty u/s. 271(1)(c) is a "civil liability". Willful
                                       8             M/s Schrader Duncan Limited

       concealment is not essential ingredient for attracting a civil
       liability as in the matter of prosecution u/s. 276C. Thus, it
       may be noted that the appellant has failed to offer an
       explanation before the A.O. by way of not responding to
       penalty notice u/s.271(1)(c). Even during the course of
       appellate proceedings it failed to prove that its action to
       claim loss was bonafide. In view of these facts and legal
       position. I am of the considered opinion that the penalty
       u/s.271(1)(c) has rightly been imposed by the A.O. which is

       4 Ground of appeal No. III is general in nature, hence not
       adjudicated upon.

       5.     In the result, appeal is dismissed."

2.2.        Without going into much deliberation and merits of the
case, now question arises since the substantial question of law
"whether on the facts in the circumstances of the case and in law,
the Tribunal was justified in holding that the appellant was not
entitled to claim the loss of Rs.6.34 crore arising on conversion of
UTI US 64 units in to 6.75% Tax Free Bonds of UTI?"                   has been
admitted by the Hon'ble jurisdictional High Court, vide order dated
19th September, 2014, now question arises whether penalty u/s
271(1)(c) of the Act survives when the addition has become
debatable? We note that the Hon'ble jurisdictional High court vide
order dated 08/07/2014 in the case of CIT vs M/s Nayan Builders
& Developers (ITA No.415/2012) held that no penalty is imposable
u/s 271(1)(c) of the Act. Likewise, the Tribunal, in the case of M/s
Nayan Builders & Developers Pvt. Ltd. (ITA No.2379/Mum/2009)
order dated 18th March 2011, deleted the penalty.                   In another
case Advaita Estate Development (P.) Ltd. vs ITO (2013) 40
                                     9         M/s Schrader Duncan Limited

                                                                         . 142 (Mumbai-Trib.) vide order dated 27/08/2013
deleted the penalty.         In view of these facts, when the Hon'ble
jurisdictional High Court has admitted substantial question of law
on the addition, it becomes apparent that the addition so made
has become debatable. The penalty was imposed on the basis of
addition so made, therefore, when the addition on the basis of
which the penalty was imposed has become doubtful/debatable,
therefore, penalty imposed u/s 271(1)(c) of the Act cannot survive.
Respectfully following the Hon'ble jurisdictional High Court, the
appeal of the assessee is allowed. However, it is made clear that if
at any stage, the order of the Tribunal on quantum addition is
upheld by the Hon'ble High Court, the Department is free to
proceed in accordance with law on penalty proceedings.

     Finally, appeal of the assessee is allowed.

        This order was pronounced in the open court in the
     presence of ld. Representatives from both sides at the
     conclusion of the hearing on 17/12/2014.

                 Sd/-                                    Sd/-
          (R.C.SHARMA)                             (JOGINDER SINGH)
        ACCOUNTANT MEMBER                           JUDICIAL MEMBER

MUMBAI, DATED -         01/01/2015
f{x~{tÜ? P.S/...
    /Copy of the Order forwarded to :
1.      / The Appellant
2.     × / The Respondent.
3.      () / The CIT(A)-
4.       / CIT
                        10         M/s Schrader Duncan Limited

5.    ,   ,  / DR, ITAT, Mumbai
6.   [  / Guard file.

                                            / BY ORDER,
×  //True Copy//
                              /  (Dy./Asstt. Registrar)
                               ,   / ITAT, Mumbai
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