2015 (12) TMI 1897 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - changing the heads of income due to difference of opinion - as per AO assessee has treated the Guest house as his business asset and accordingly, he was claiming depreciation thereon - assessee explained that the mistake has occurred due to wrong understanding of the accountant - CIT(A), deleted the penalty by holding that there was difference of opinion about the nature of Capital gain, i.e., whether it was long term capital gain or short term capital gain and it appears that the assessee was under bona fide belief that it was a long term asset as he was owning the property over a period of three year HELD THAT - The admitted facts are that the Guest house sold by the assessee is a business asset on which depreciation has been allowed. Hence, there is no dispute that the gain arising on sale of the same would be assessable as Short term capital gain as per the provisions of sec. 50 of the Act. However, the assessee has treated the same as non-business asset at the time of filing return of income and accordingly computed the long term capital gain. The total income of an assessee for a particular assessment year is computed in accordance with the provisions of the Act by having regard to the accounts of the assessee. Hence, it is imperative on the part of the assessee to compute the total income in accordance with the provisions of the Act. In case of assessee, on which depreciation has been allowed, the provisions of sec. 50 mandate that the gain should be computed as Short term capital gain only. The assessee has tried to defend his action by drawing support from the decisions rendered in the case of ACE Builders Pvt Ltd 2005 (3) TMI 36 - BOMBAY HIGH COURT and Smita Conductors Ltd. 2013 (9) TMI 1056 - ITAT MUMBAI In our view both the decisions cannot come to the support of the assessee, since they have been rendered in a different context. It is not a case where the assessee has made a claim on some plausible basis, but the same became unacceptable in the eyes of law. It is also not simple case of changing the heads of income due to difference of opinion. On the contrary, the assessee himself has accepted that the gains arising on sale of guest house is assessable as Short term Capital gain. Hence, in our view, the facts of the case show that the assessee furnished inaccurate particulars of income and the explanations furnished by the assessee in that regard were not substantiated. We are not able to agree with the view taken by the CIT(A). We notice that the assessing officer has levied penalty @ 200% of the tax sought to be evaded. In our view, the same appears to be on the higher side. Accordingly, we set aside the order of CIT(A) and direct the AO to sustain the penalty to the extent of 100% of the tax sought to be evaded. Decided in favour of revenue.

Summary

Issues:
1. Whether penalty under section 271(1)(c) of the Income Tax Act was rightly deleted by the CIT(A) for assessment year 2010-11.
2. Whether the assessee furnished inaccurate particulars of income justifying the penalty imposed by the assessing officer.

Analysis:
1. The appeal before the Appellate Tribunal ITAT Mumbai concerned the deletion of a penalty of Rs. 3.44 crores imposed by the assessing officer under section 271(1)(c) of the Income Tax Act for assessment year 2010-11. The assessee, an architect and director in various companies, sold a Guest House and declared long term capital gain. The assessing officer found discrepancies in the computation of capital gain and issued a penalty notice. The CIT(A) deleted the penalty, citing a genuine belief by the assessee that the property was a long term asset. The revenue challenged this decision.

2. The assessing officer argued that the explanation provided by the assessee for the mistake was insufficient and the inaccurate particulars of income led to concealment. The revenue contended that the assessee, being part of a well-known business group, should have computed the gain correctly. The CIT(A) based the deletion of the penalty on the belief that the property was a long term asset and relied on relevant case law. The Tribunal noted that the Guest House was a business asset, and the gain should have been treated as short term capital gain as per the Act. The Tribunal found the explanation given by the assessee regarding the mistake to be unreliable, considering the available records of depreciation claimed on the property.

3. The Tribunal emphasized the importance of accurately computing total income as per the provisions of the Act. It rejected the assessee's reliance on previous court decisions, stating they were not applicable to the current case. The Tribunal observed that the revised computation of income was submitted after detection by the assessing officer, indicating a lack of voluntary disclosure. It distinguished the case from precedent regarding claim acceptability, highlighting that the assessee admitted the gain should be treated as short term capital gain. The Tribunal set aside the CIT(A)'s decision and directed the assessing officer to uphold a penalty of 100% of the tax sought to be evaded, considering the initial penalty amount as excessive.

In conclusion, the Appellate Tribunal upheld the penalty under section 271(1)(c) but reduced it to 100% of the tax sought to be evaded, disagreeing with the CIT(A)'s decision to delete the penalty.