2019 (3) TMI 729 - AT - Income Tax

Penalty u/s 271(1)(c) - bonafide belief - Taxability of capital gain arises on sale of land - claim of deduction u/s 54F against the capital gain - HELD THAT - As not in dispute that on sale of land to the developer, the assessee has not received any monetary consideration. Rather, as per agreement with the developer, the assessee was to receive constructed area in lieu of the land sold. Therefore, the explanation of the assessee that in absence of any monetary consideration she was under a bonafide belief that no capital gain arises on sale of land, is acceptable and benefit of doubt can be given to the assessee. Also in Gumanmal Jain 2017 (3) TMI 394 - MADRAS HIGH COURT held that if under a development agreement the assessee receives several flats constructed on the same piece of land, the assessee would be eligible to avail deduction under section 54F of the Act. Thus, as per the ratio laid down in the aforesaid decision, the assessee would have been eligible to claim deduction under section 54F of the Act against the capital gain. Therefore, merely because the assessee agreed for the addition of capital gain, the provisions of section 271(1)(c) of the Act do not get attracted automatically. - decided in favour of assessee

Summary

Issues:
Challenge to penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
The appeal was filed by the assessee against the penalty of Rs. 10,72,255 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer found discrepancies related to the sale of an immovable property by the assessee and another individual to a developer. The Assessing Officer computed the long term capital gain and initiated penalty proceedings alleging concealment of income and furnishing inaccurate particulars of income. The penalty was later revised to Rs. 10,72,255 from Rs. 16,51,290. The assessee challenged the penalty imposition before the Commissioner (Appeals) but was unsuccessful.

The main argument presented by the assessee was that she did not receive any monetary consideration for the land sold but only received constructed area, leading her to believe no capital gain arose. The assessee contended that once made aware of the tax liability, she offered the capital gain for taxation. The assessee also claimed eligibility for deduction under section 54F of the Act for the capital gain, as she received flats in lieu of the land. The Authorised Representative argued that the penalty order was invalid as the Assessing Officer did not specify the exact violation under section 271(1)(c) of the Act.

On the other hand, the Departmental Representative argued that the assessee knowingly furnished inaccurate particulars of income and concealed income, justifying the penalty under section 271(1)(c) of the Act. The Appellate Tribunal considered the submissions and held that since the assessee did not receive monetary consideration for the land sold and was to receive constructed area instead, her belief that no capital gain arose was justified. Referring to a decision by the Madras High Court, the Tribunal concluded that the assessee would have been eligible for deduction under section 54F of the Act. Therefore, the Tribunal found that the penalty imposition was not justified and deleted the penalty of Rs. 10,72,255.

In conclusion, the appeal filed by the assessee was allowed, and the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 was deleted. The Tribunal did not address the issue of lack of satisfaction recorded by the Assessing Officer while initiating penalty proceedings due to the decision on the penalty imposition.