2014 (4) TMI 1215 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - Nature of land sold - assessee claimed that the land sold and subsequently purchased along with development rights is agricultural land and is liable for capital gain tax - AO rejected the claim as the land in question at Mohamawadi is within 8 Kms. of Pune Municipal Corporation - LTCG OR STCG - Held that - The assessee filed the return of income on 31st Dec., 2007 claiming the year of acquisition of the asset as 1999 instead of the correct year as 2004. The notice issued under s. 143(2) of the Act dt. 11th Sept., 2008 was issued and served on the assessee on 16th Sept., 2008 and the final order was passed on 30th Dec, 2009. Even though the period of holding of the asset sold was for less than 36 months and therefore the income does not fall within the long-term capital gain, we find the assessee never filed any revised return before the issue of notice under s. 143(2) Further, the assessee before the CIT(A) vide letter dt. 20th Jan., 2012 had stated that he had voluntarily accepted for the agreed addition in respect of deduction wrongly claimed by his consultant. Thus the asset purchased in the year 2004 has been taken as 1999 to treat the profit on sale of the asset as long-term capital gain and assessee has neither filed any revised return nor brought the mistake to the notice of the AO before the same was detected. We set aside the order of the CIT(A) and confirm the penalty levied by the AO. Grounds raised by the Revenue are accordingly allowed.

Summary

Issues Involved:
1. Whether the land sold by the assessee was agricultural land and subject to capital gains tax.
2. Whether the assessee's claim of long-term capital gain and deduction under section 54B was valid.
3. Whether the penalty under section 271(1)(c) for furnishing inaccurate particulars of income was justified.

Issue-Wise Detailed Analysis:

1. Agricultural Land and Capital Gains Tax:
The assessee, a civil contractor, sold land and claimed it was agricultural, thus eligible for capital gains tax benefits. The AO noted that the land was within 8 km of Pune Municipal Corporation, was barren since 2002-03, and was in a residential zone with development reservations. The AO determined the land was not agricultural and calculated a short-term capital gain of Rs. 63 lakhs. The assessee did not appeal this decision but penalty proceedings were initiated under section 271(1)(c).

2. Validity of Long-Term Capital Gain and Section 54B Deduction:
The assessee claimed a long-term capital gain and sought deduction under section 54B, which was disallowed by the AO. The AO found the property was sold within two years of purchase, making it a short-term capital gain. The assessee argued the deduction was claimed inadvertently by the consultant without mala fide intention. The CIT(A) accepted the assessee's explanation, noting that the mistake was typographical and the assessee voluntarily agreed to the addition during assessment proceedings. The CIT(A) deleted the penalty, citing that the assessee did not conceal income or furnish inaccurate particulars intentionally.

3. Justification for Penalty Under Section 271(1)(c):
The Revenue appealed against the CIT(A)'s decision to delete the penalty. The Revenue argued that the assessee's erroneous claim of deduction under section 54B was not bona fide and the penalty was justified. The Tribunal considered the arguments and relevant case laws, including decisions from the Supreme Court and High Courts. The Tribunal noted that the assessee had claimed the year of acquisition as 1999 instead of 2004, which was a significant error not corrected by a revised return before detection by the AO. The Tribunal found that the penalty was justified as the assessee had not voluntarily disclosed the mistake and only accepted the addition when confronted by the AO. The Tribunal distinguished the case from PricewaterhouseCoopers (P.) Ltd., where the error was a bona fide mistake disclosed in the audit report.

Conclusion:
The Tribunal held that the penalty under section 271(1)(c) was justified as the assessee had furnished inaccurate particulars of income by claiming long-term capital gain and deduction under section 54B without a valid basis. The Tribunal set aside the CIT(A)'s order and confirmed the penalty levied by the AO. The appeal filed by the Revenue was allowed.