2017 (3) TMI 1872 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of undisclosed long term capital gains - AO found that assessee had not shown long term capital gain according to provision of section 50C - HELD THAT - On the analysis of the provisions of section 50C, we observed that section 50C is a deeming provision to tax the difference as capital gain where the consideration received as a result of transfer of capital assets, being land or building or both if less than the value adopted by the stamp valuation authority. It is only on account of deeming provisions of section 50C, the AO has made the addition after considering the valuation report of the valuation officer u/s 50C(2) of the act and determined the long term capital gain. The fact remains that the actual amount received was offered for taxation. It is only on the basis of the deemed consideration that the proceedings under Section 271(1)(c) of the act has been started. The revenue has failed to produce any iota of evidence that the assessee actually received one paise more than the amount shown to have been received by him. We observed that in terms of deeming provisions of section 50C, higher sales consideration of property determined by the DVO did not by itself amount to furnishing inaccurate particulars of income so as to levy penalty under section 271(1)(c) of the act The revenue has also not shown as to how the assessee could be held to have actually received this amount which is in excess of the amount of mentioned in the sale deed . It has also not been shown as to whether any corresponding addition has been made in the hands of the buyer. We further notice that the addition was made totally by invoking the provision contained in section 50C of the act, therefore, penalty cannot be imposed on the income determined on the basis of deeming provision of section 50C as this solitary does not lead to concealment of income or furnishing of inaccurate particulars of income - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Application of section 50C of the Income Tax Act, 1961 regarding the valuation of property.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The primary issue in this appeal was whether the penalty of ?41,46,960/- imposed under section 271(1)(c) of the Income Tax Act, 1961, was justified. The assessee had filed a return declaring an income of ?55,53,770/-. During the scrutiny assessment, the Assessing Officer (AO) found that the assessee had not disclosed long-term capital gains according to the provisions of section 50C of the Act. Consequently, the AO made an addition of ?2,01,30,880/- to the total income of the assessee and levied a penalty under section 271(1)(c).

The CIT(A) upheld the penalty, stating that the assessee did not furnish any explanation during the penalty proceedings and that section 50C is a deeming provision to tax the difference as capital gain. The CIT(A) emphasized that the assessee's duty is to disclose all income fully and truly, and any omission or inaccurate disclosure attracts penalty under section 271(1)(c). The CIT(A) also noted that the assessee did not bring any evidence to show that the valuation done by the DVO was incorrect.

2. Application of Section 50C of the Income Tax Act, 1961:

Section 50C is a deeming provision that taxes the difference as capital gain where the consideration received from the transfer of capital assets is less than the value adopted by the stamp valuation authority. The AO made an addition based on the valuation officer's report under section 50C(2), determining the long-term capital gain after reducing the amount already disclosed by the assessee.

The Tribunal observed that the addition was made solely on account of the deeming provisions of section 50C. It was noted that the actual amount received by the assessee was offered for taxation, and the addition was based on deemed consideration. The Tribunal found that the revenue failed to produce any evidence that the assessee received more than the amount shown in the sale deed. The Tribunal emphasized that higher sales consideration determined by the DVO under section 50C did not amount to furnishing inaccurate particulars of income for the purpose of levying penalty under section 271(1)(c).

The Tribunal concluded that penalty cannot be imposed on the income determined based on the deeming provisions of section 50C, as it does not lead to concealment of income or furnishing inaccurate particulars of income. Therefore, the Tribunal allowed the appeal of the assessee, setting aside the penalty imposed by the AO and upheld by the CIT(A).

Conclusion:

The Tribunal allowed the assessee's appeal, ruling that the penalty under section 271(1)(c) was not justified as the addition was based on the deeming provisions of section 50C, and there was no evidence of actual receipt of an amount higher than what was disclosed.