2018 (3) TMI 1838 - HC - Income Tax

Penalty u/s 271(1)(c) - principal quantum additions pertains to the assessee's capital gain tax liability - computing such capital gain tax liability revolves around the ascertainment of the fair market value of the property as on 01.04.1981 - assessee relied on the report of the Government Approved Valuer who estimated the value of the property as on 01.04.1981 as ₹ 1950/per sq. mtr. and ₹ 1550/per sq.mtr. for two parcels of land - AO had disputed such valuation and assessed the value at ₹ 250 per sq. mtr. - CIT(Appeals) enhanced valuation of the land to ₹ 550/per sq. mtr. - Tribunal adopted a mean of the assessed market value by the Assessing Officer and that by the valuer of the assessee - HELD THAT - Having heard learned counsel for the parties and having perused the documents on record and in particular the impugned judgment of the Tribunal, we see no reason to interfere. As is well known, assessment proceedings and penalty proceedings are independent. Merely because a certain addition is made, would not automatically imply that the penalty must be levied. When the Tribunal found that the assessee had made full disclosures and relied on the report of the Government Approved Valuer in support of the claim of a certain estimated value as on 01.04.1981, the Tribunal's decision that no penalty should be levied, requires no interference. - Decided in favour of assessee.

Summary

Issues:
1. Whether the ITAT was justified in directing to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961?
2. Whether the ITAT was justified in granting relief based on a specific legal precedent?

Issue 1: Penalty Imposed under Section 271(1)(c) of the Income Tax Act:
The case involved an appeal challenging the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The penalty was partially confirmed by the Commissioner of Income Tax (Appeals) but ultimately deleted by the Tribunal. The primary issue revolved around the computation of the assessee's capital gain tax liability, specifically the fair market value of the property as on 01.04.1981. The Assessing Officer disputed the valuation provided by the assessee and assessed the value significantly lower. The Commissioner of Income Tax (Appeals) later increased the valuation but cross-appeals were filed by both parties before the Tribunal. The Tribunal adopted a mean value between the Assessing Officer's assessment and the valuer's estimate. Subsequently, penalty proceedings were initiated by the Assessing Officer on the grounds of misdeclaration of income.

Issue 2: Justification of ITAT's Decision and Legal Precedent:
Upon review, the High Court found no reason to interfere with the Tribunal's decision to delete the penalty. The Court emphasized the independence of assessment and penalty proceedings, highlighting that the mere addition to the tax liability does not automatically warrant the imposition of a penalty. The Tribunal's conclusion that the assessee had made full disclosures and relied on a government-approved valuer's report for the valuation was considered valid. Therefore, the Court upheld the Tribunal's decision not to levy a penalty, ultimately dismissing the Tax Appeals filed by both parties.

In conclusion, the High Court upheld the Tribunal's decision to delete the penalty imposed under section 271(1)(c) of the Income Tax Act, emphasizing the importance of full disclosure and reliance on expert valuation reports in tax proceedings.