2016 (9) TMI 497 - AT - Income Tax

Penalty levied under S.271(1)(c) - chargeability of capital gain tax - Held that - We find that the assessee has filed the return of income on 24.5.2005, declaring income of ₹ 1,98,687, whereas the there was a search and seizure operation in the case of M/s. Om R.S. Wines on 12.4.2005. Even before the issuance of notice under S.153C of the Act, the assessee has declared the said transaction in the computation of income. The assessee has never taken the ground that the said land does not belong to the assessee herein, though it has raised such a ground before the CIT(A) in the first appeal preferred against the penalty order of the Assessing Officer. Thus, it is seen that the land belongs to the assessee and the transaction of development agreement and supplemental agreement was disclosed by the assessee to the Revenue authorities. Therefore, there cannot be a case of concealment of income. As regards furnishing of inaccurate particulars of income, it has been the stand of the assessee that the capital gains is chargeable to tax in the year in which the developer has given the possession of the developed area to the assessee. Though the Assessing Officer has recorded that the assessee has filed a letter stating that the built up area has been handed over to the assessee on 8.3.2004, it is not understandable as to how a building could have been completed within a period of three months of entering into the development agreement. It appears that the Assessing Officer has taken the supplemental agreement into consideration for presuming that the built up area has been apportioned to the assessee on 8.3.2004, as the supplemental agreement is entered for apportioning the developed area. Supplemental agreement alone cannot be taken as the proof of handing over of the built up area to the assessee. The Assessing Officer has accepted the assessee s contention that the capital gains is chargeable to tax in the year of handing over of possession to the assessee. The Assessing Officer has come to the conclusion that capital gains have arisen in this year without proper verification of facts. Since the assessee has disclosed all the relevant facts to the Revenue authorities in is computation of income, we are of the opinion that there is no furnishing of inaccurate particulars of income or concealment or income. In the result, penalty levied under S.271(1)(c) is not sustainable - Decided in favour of assessee Undisclosed loan - Held that - The assessee has disclosed the fact of advancing of loan to M/s. Om R.S. Wines in his return of income filed prior to issuance of notice under S.153C of the Act. Further, the assessee has also explained the availability of funds of ₹ 18,75,022 for assessment year ending on 31.3.2003 which fact has been considered by the Assessing Officer. The Assessing Officer has only presumed the property income to be ₹ 57,000 per year without taking into consideration the other sources of income. Since the assessee has disclosed the loan in the computation of income for the relevant assessment year, it is clear that there is no concealment of income or furnishing of inaccurate particulars of income.Since it has not been proved that the assessee has either furnished inaccurate particulars of income or concealed his income, the impugned penalty imposed by the Assessing Officer is not sustainable.- Decided in favour of assessee

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2004-05.
2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2005-06.

Issue-wise Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2004-05:

The assessee, a Hindu Undivided Family (HUF), faced a search and seizure operation under Section 132 of the Income Tax Act, 1961, revealing deposits of ?21,32,000 in a bank account. The Karta of the HUF, during the assessment, explained that ?15,75,000 of this amount was an unaccounted cash loan. The Assessing Officer (AO) issued a notice under Section 153A read with Section 153C, and the assessee filed a return declaring an income of ?1,98,687. During the assessment proceedings, it was found that the assessee had entered into a development agreement for land, receiving built-up area from the builder. The AO held that this transaction constituted a transfer of land, resulting in capital gains taxable in the assessment year 2004-05 and initiated penalty proceedings under Section 271(1)(c).

The assessee's appeal to the CIT(A) and ITAT was dismissed. During penalty proceedings, the assessee argued that there was no concealment, only a difference of opinion. The AO and CIT(A) disagreed, maintaining that the income would not have been disclosed without the search operation, thus constituting concealment. However, the ITAT found that the assessee had disclosed the transaction in the return of income and that the AO had not properly verified the facts regarding the completion of the building. The ITAT concluded there was no concealment or furnishing of inaccurate particulars, and thus, the penalty under Section 271(1)(c) was not sustainable. The appeal for assessment year 2004-05 was allowed.

2. Penalty under Section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2005-06:

For assessment year 2005-06, the AO observed that the assessee had advanced a loan of ?15,75,000 to a firm. During the search, the Karta admitted that this amount was unaccounted. However, in the return filed, the assessee did not offer this amount to tax. The AO, finding the explanation unsatisfactory, treated the amount as unexplained and brought it to tax. The penalty proceedings were initiated, and the AO levied a penalty under Section 271(1)(c), which was confirmed by the CIT(A).

The assessee argued that the loan was disclosed in the return and that there were sufficient funds available to explain the source of the loan. The ITAT noted that the assessee had indeed disclosed the loan in the return filed before the issuance of notice under Section 153C and had explained the availability of funds. The ITAT found that the AO had not considered other sources of income and had presumed the property income to be ?57,000 per year. The ITAT held that there was no concealment or furnishing of inaccurate particulars and cited judicial precedents that not every addition warrants penalty. Consequently, the penalty imposed was cancelled, allowing the appeal for assessment year 2005-06.

Conclusion:

Both appeals of the assessee were allowed, and the penalties under Section 271(1)(c) for the assessment years 2004-05 and 2005-06 were found unsustainable and cancelled.

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