2011 (11) TMI 496 - AT - Income Tax

Penalty u/s 271(1)(c) - omission of addition of capital gain on sale of fixed asset in computation of total income under the head Capital Gains after deducting the same from the head Business Income - assessee has not filed any computation voluntarily showing STCG on sale of fixed assets till the mistake was pointed out by the department - Held that - C.I.T.(A) has recorded that in the P/L Account filed along with the return of income, the sale of fixed assets has been duly disclosed under the head Other Income by narration Profit/loss on sale of fixed Assets . Also the details of the sale of the fixed assets along with the amounts and date of sale were duly mentioned in the audit report u/s. 44AB which was filed along with the return of income. Subsequently during 148 proceeding when the mistake was detected, the assessee filed revised computation of income rectifying the mistake and the assessment was completed on such revised computation. The above factual position and observation of the C.I.T.(A) could not be controverted by the DR. As assessee has given the explanation for omission and the same was not proved to be false. There was no dispute that all the relevant facts material to the computation of total income were duly furnished by the assessee and no deficiencies in furnishing of such facts has been pointed out by the A.O. There was thus no cause of action, for deeming fiction being triggered by the conduct of the assessee. Therefore, none of conditions stipulated in Section 271(1)(c) were satisfied - Decided in favor of assessee.

Issues Involved:

1. Deletion of penalty imposed under Section 271(1)(c) for not reflecting capital gains and paying the due tax.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c):

The appeal by the department challenges the order of the Commissioner of Income Tax (Appeals) [C.I.T.(A)], which deleted the penalty of Rs.1,54,84,193/- imposed under Section 271(1)(c) of the Income Tax Act for not reflecting capital gains and paying the due tax.

The Assessing Officer (A.O.) initiated penalty proceedings under Section 271(1)(c) based on the observation that the sale of a building for Rs.5,40,42,750/- resulted in a profit of Rs.4,21,33,856/- (after accounting for the opening Written Down Value (WDV) of Rs.1,19,08,894/-). This profit was not reflected as short-term capital gains under Section 50 of the Act. The assessee had deducted Rs.3,56,72,413/- from business income as profit on the sale of fixed assets without mentioning any capital gains in the computation of taxable capital gains. The A.O. reopened the assessment and issued a notice under Section 148. The assessee admitted that the income of Rs.4,21,33,856/- was not accounted for due to a clerical mistake and added the sum under Section 50 in the reassessment.

During penalty proceedings, the assessee explained that the mistake was apparent from the records and was a clerical error. The sale consideration was disclosed in the Profit and Loss (P/L) Account but not separately taken under the head 'capital gains'. The A.O. rejected this explanation, stating that the assessee did not voluntarily disclose the short-term capital gain and only admitted the mistake after it was detected by the department. Consequently, the A.O. imposed the penalty under Section 271(1)(c).

On appeal, the C.I.T.(A) considered the assessee's detailed submissions and judicial precedents, concluding that the facts of the case did not justify the penalty. The C.I.T.(A) noted that the sale of fixed assets was disclosed in the P/L Account and the audit report, and the omission to add the profit as deemed capital gain was an inadvertent error. The C.I.T.(A) emphasized that there was no suppression of facts or concealment of income, and the assessee rectified the mistake once it was communicated. The C.I.T.(A) held that the conditions for imposing penalty under Section 271(1)(c) were not satisfied since the assessee provided a bona fide explanation and disclosed all relevant facts.

The department contended that the assessee did not voluntarily disclose the short-term capital gain and only admitted the mistake after detection. However, the assessee argued that the profit on sale of fixed assets was shown in the computation of income, but due to oversight, it was not separately shown as capital gains. The assessee maintained that there was no intention to conceal income or furnish inaccurate particulars.

The Tribunal, after considering the rival submissions and material on record, found that the sale of fixed assets was disclosed in the P/L Account and the audit report. The mistake was not detected during the initial assessment and only came to light during reassessment proceedings. The Tribunal agreed with the C.I.T.(A) that there was no suppression of details or concealment of income. The Tribunal referred to the Supreme Court judgment in CIT vs. Reliance Petrochemicals Pvt. Ltd., which held that penalty under Section 271(1)(c) requires the conditions to be satisfied before imposition. The Tribunal concluded that the assessee's explanation was bona fide, and the conditions for imposing penalty under Section 271(1)(c) were not met. Therefore, the Tribunal upheld the C.I.T.(A)'s order deleting the penalty.

Conclusion:

The Tribunal dismissed the department's appeal, confirming the C.I.T.(A)'s order that deleted the penalty of Rs.1,54,84,193/- imposed under Section 271(1)(c) of the Income Tax Act, as the conditions for imposing such penalty were not satisfied.

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