2015 (11) TMI 1129 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has taken excessive cost value of the land without any evidence in order to reduce its capital gain tax liability - CIT(A) deleted the penalty - Held that - Both of the lower authorities have determined the rates of land by adopting some basis. The AO had accepted the claim of the assessee in the original assessment order. He changed his stand in the reassessment order. Thus there are three different opinions with respect to rates of land i.e. one as formed by AO in original assessment order two- as formed by the AO in reassessment order and three- as adopted by Ld CIT(A). The Tribunal has approved the opinion of the Ld CIT(A) which is again subject to review before Hon ble High Court. In these circumstances the element of guesswork cannot be ruled out therein. The quantum of income determined is certainly not beyond the shadow of doubts. Under these circumstances we have strong doubts if it can be said that with certainty that there was any concealment of income or furnishing of inaccurate particulars of income on the part of the Assessee. Under the income tax law parameters for determination of taxable income and levy of penalty are different from each other. Both should not be mixed or interchanged. The penal provisions are quasi criminal in nature therefore these have to construed and applied strictly. Penalty can be levied by the AO only and only if the AO is able to establish that case of the Assessee falls within the framework of the penal provisions and as per the given parameters. If we examine the facts of this case we can say that even if a duty may be enjoined on the assessee to make correct disclosure of income but if such disclosure is based on the opinion of an expert who is otherwise also a registered valuer having been appointed in terms of a statutory scheme then only because his opinion is not accepted or some other expert gives another opinion the same by itself may not be sufficient for arriving at a conclusion that the assessee has furnished inaccurate particulars of income. Hence in our considered opinion penalty cannot be levied in the facts and circumstances of this case especially when the quantification of the income itself does not have strong pillars to stand. - Decided in favour of assessee.

Issues Involved:
1. Justification of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 for AY 2004-05 and AY 2005-06.
2. Determination of the fair market value of land as on 01.04.1981.
3. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
4. The role of the Registered Valuer's Report in determining capital gains.
5. The impact of the High Court admitting the appeal on the imposition of penalty.

Issue-wise Detailed Analysis:

1. Justification of Penalty Levied under Section 271(1)(c) for AY 2004-05 and AY 2005-06:
The Revenue filed appeals against the orders of the CIT(A) deleting the penalties levied under Section 271(1)(c) for AY 2004-05 and AY 2005-06. The penalties were imposed by the AO on the grounds that the assessee had taken an excessive cost value of the land without evidence to reduce its capital gain tax liability. The CIT(A) had recomputed the taxable amount of capital gain, which was subsequently confirmed by the Tribunal. However, the penalty was contested by the assessee on the grounds that the additions were based on guesswork and that the AO had not obtained a DVO's report before making the addition. The Tribunal found that the necessary conditions for invoking explanation 1 of Section 271(1)(c) were missing and that the penalty could not be levied merely because the addition was confirmed by the Tribunal in quantum proceedings.

2. Determination of the Fair Market Value of Land as on 01.04.1981:
The dispute centered around the fair market value of the land as on 01.04.1981. The assessee had adopted the value based on a Registered Valuer's Report, which was initially accepted by the AO in the original assessment order. However, in the reassessment order, the AO adopted a different value based on general inquiries and without obtaining a DVO's report. The CIT(A) recomputed the value, which was confirmed by the Tribunal. The Tribunal noted that there were three different opinions regarding the value of the land, indicating an element of guesswork, and thus, the quantum of income determined was not beyond doubt.

3. Validity of the Reopening of Assessment under Section 148:
The assessee contested the reopening of the assessment under Section 148, arguing that it was based on a change of opinion and that the market value as on 01.04.1981 had been verified during the original assessment proceedings. The High Court admitted the appeal on the question of law regarding the validity of the notice issued under Section 148, indicating that the issue was debatable and involved a substantial question of law.

4. Role of the Registered Valuer's Report in Determining Capital Gains:
The assessee relied on a Registered Valuer's Report to determine the fair market value of the land as on 01.04.1981. The Tribunal noted that the valuation was done by a recognized expert and that the AO had initially accepted this valuation in the original assessment order. The Tribunal emphasized that the mere fact that the AO did not accept the valuer's report in the reassessment order did not automatically imply that the assessee had furnished inaccurate particulars of income.

5. Impact of the High Court Admitting the Appeal on the Imposition of Penalty:
The Tribunal observed that the High Court had admitted the appeal on the substantial question of law regarding the determination of capital gains and the validity of the reopening of the assessment. This admission indicated that the issue was debatable and involved a question of law. The Tribunal held that when the High Court admits a substantial question of law, it lends credence to the bona fides of the assessee's claim, and thus, the mere confirmation of the addition would not per se lead to the imposition of penalty.

Conclusion:
The Tribunal confirmed the orders of the CIT(A) deleting the penalties levied under Section 271(1)(c) for both AY 2004-05 and AY 2005-06, dismissing the appeals filed by the Revenue. The Tribunal emphasized that the assessment and penalty proceedings are independent and that the penalty could not be levied merely because the addition was confirmed in the quantum proceedings. The Tribunal also noted that the High Court's admission of the appeal on substantial questions of law indicated that the issue was debatable and involved a question of law, further supporting the deletion of the penalty.

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