2014 (10) TMI 291 - AT - Income Tax

Penalty u/s 271(1)(c) Inaccurate particulars furnished or not Bonafide belief - Held that - There is a bonafide claim made by assessee that sale of agricultural lands does not yield any taxable income by virtue of provisions of section 2(14) relying upon Raghotham Reddy vs. ITO 1987 (10) TMI 47 - ANDHRA PRADESH High Court - the profit or gain resulting from sale of agricultural land is a revenue derived from land i.e., agricultural income within the meaning of clause (1) in section 2 of the I.T. Act - assessee was under bonaifde impression that gain resulting from sale of agricultural land was exempt from tax - It was only AO on interpretation of the information available considered that assessee is indulging in adventure in nature of trade the agricultural land is registered as such in Revenue Records - There was payment of land revenue, leasing of land for agricultural purpose and also assessment under wealth tax returns exempting the asset for the purpose of wealth tax - assessee has bonafide belief in making the claim that gain arising out of sale of agricultural land is exempt from tax thus, there is no scope for levy of any penalty u/s 271(1)(c) Decided in favour of assessee.

Issues Involved:
1. Legitimacy of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars.
2. Classification of Income from Sale of Agricultural Land as Business Income or Capital Gains.
3. Bona Fide Belief and Intent of the Assessee in Treating Income from Sale of Land as Exempt.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) for Furnishing Inaccurate Particulars:

The primary issue revolves around whether the penalty imposed under Section 271(1)(c) for furnishing inaccurate particulars of income is justified. The Assessing Officer (A.O.) levied a penalty of Rs. 23,22,615 on the assessee for furnishing inaccurate particulars of income by claiming exemption on capital gains from the sale of agricultural lands. The Ld. CIT(A) upheld this penalty, citing that the appellant's conduct was not bona fide and involved deliberate tax evasion strategies, including false evidence and misleading pleas.

The Tribunal, however, considered the facts and the legal precedents, including the Hon'ble Punjab & Haryana High Court's decision in CIT vs. Rajeev Bhatara and the Supreme Court's judgment in CIT vs. Reliance Petro Products. It concluded that the penalty proceedings are penal in nature, and the revenue must establish that the assessee consciously concealed particulars of income or deliberately furnished inaccurate particulars. The Tribunal found that the assessee had a bona fide belief that the income from the sale of agricultural land was exempt based on jurisdictional High Court judgments and the facts presented. Therefore, the Tribunal canceled the penalty, stating that it was a case of difference of opinion on a debatable issue rather than furnishing inaccurate particulars.

2. Classification of Income from Sale of Agricultural Land as Business Income or Capital Gains:

The A.O. classified the income from the sale of agricultural land as business income, arguing that the assessee was engaged in an adventure in the nature of trade. This classification was based on the assessee's memorandum of association, which indicated that the company was formed to conduct business in real estate. The ITAT upheld this classification, stating that the assessee's activities of buying and selling land were consistent with business operations and not mere investment activities.

The Tribunal noted that the assessee had purchased agricultural lands and shown them as assets in the balance sheet. The lands were leased out, and the lease income was accepted as agricultural income in earlier years. The lands were not converted to non-agricultural use and were situated in areas not covered by urban municipalities. Despite these facts, the ITAT concluded that the assessee's primary intent was to deal in real estate, and the income from the sale of land should be treated as business income.

3. Bona Fide Belief and Intent of the Assessee in Treating Income from Sale of Land as Exempt:

The assessee contended that it had a bona fide belief that the income from the sale of agricultural land was exempt from tax under Section 2(14) of the Income Tax Act. This belief was supported by the fact that the lands were shown as assets, lease income was accepted as agricultural income, and the lands were not within urban limits. The assessee also provided certificates from the Tahsildar indicating that the lands were agricultural and not covered by the Urban Land Ceiling Act.

The Tribunal acknowledged these facts and the assessee's reliance on jurisdictional High Court judgments. It concluded that the assessee's claim was based on a bona fide belief and not an attempt to evade taxes. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings, and mere rejection of the assessee's claim does not automatically justify the imposition of penalty.

Conclusion:

The Tribunal allowed the appeal of the assessee, canceling the penalty imposed under Section 271(1)(c). It held that the assessee had a bona fide belief in claiming exemption on the income from the sale of agricultural land, and the issue was one of difference of opinion rather than furnishing inaccurate particulars. The Tribunal's decision was based on the facts presented, legal precedents, and the principle that penalty proceedings require clear evidence of deliberate concealment or furnishing of inaccurate particulars.

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