2022 (5) TMI 296 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of capital gain and income from other sources being compulsory acquisition of land - On further appeal before Tribunal, the Tribunal held that addition of capital gain on account of transfer of land/ acquisition of land is not taxable as the said land / impugned land is not capital asset as defined under section 2(14)(iii)(a) - HELD THAT - The land transferred by individual assessee(s) does not falls in the Municipal Area. Hazira Notified area is not a Municipal area or deemed municipal area, therefore, the receipt/ gain on transfer of land is not taxable under Income tax Act - the assessee on their alternative pleas were also held eligible for exemption under section 10(37) of the Act as the land was compulsorily acquired by Government of Gujarat by completing statutory formalities under Land Acquisition Act, 1882. The land was used for agriculture purpose for two years prior to its acquisition. And the assessee(s) fulfilled all the requisite condition for seeking exemption under section 10(37) of the Act. The other addition made under the head capital gains against the cost of pucca structure, the assessee s was allowed 60% as cost of acquisition or cost of improvement, against the relief of 50% as allowed by Ld. CIT(A). Further, in some cases, the agricultural income offered by assessee(s) were treated as income from other sources has been held as income from agricultural activities . Thus, in quantum appeals all the assessee was granted substantial relief in deleting major part of additions and only part of capital gains only on account of cost of improvement on pucca structure was partly upheld on estimation basis. Therefore, all substantial additions were either deleted or upheld only on estimation basis. In our considered view no penalty under section 271(1)(c) of the Act is leviable on this assessee. In the result, the grounds of appeal raised by the assessee are allowed.

Summary

Issues:
1. Penalty under section 271(1)(c) of the Income Tax Act, 1961 on addition of capital gain and income from other sources due to compulsory land acquisition.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the penalty levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961. The Assessing Officer had made additions on account of Long Term Capital Gains (LTCG) on the transfer of land, treating certain amount received for a permanent structure as income from other sources, and considering agriculture income as unexplained cash credit under section 68, resulting in total additions of Rs. 23,09,700. The penalty was levied at 100% of the tax sought to be evaded, amounting to Rs. 6,13,500. The Commissioner upheld the Assessing Officer's action, leading to the appeal before the Tribunal.

The Tribunal heard the submissions from both parties and reviewed the orders of the lower authorities. The authorized representative for the assessee argued that in similar cases, additions had been deleted or sustained on an estimation basis, and penalties in other cases had been deleted. On the other hand, the Departmental Representative supported the orders of the Assessing Officer and the Commissioner.

Upon careful consideration of the submissions and lower authorities' orders, the Tribunal found that the addition of capital gain on the transfer of land was not taxable as the land did not qualify as a 'capital asset' under the Income Tax Act. The land was not in a Municipal Area, and therefore, the gain on its transfer was not taxable. Additionally, the assessee was eligible for exemption under section 10(37) of the Act as the land was compulsorily acquired for agricultural purposes, fulfilling all necessary conditions. The Tribunal also adjusted the cost of acquisition or improvement on the permanent structure and treated agricultural income as 'income from agricultural activities.' Consequently, substantial relief was granted to the assessee by deleting or upholding additions only on an estimation basis.

In conclusion, the Tribunal held that no penalty under section 271(1)(c) of the Act was leviable on the assessee due to the substantial relief granted in the quantum appeals. As a result, the grounds of appeal raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

This detailed analysis of the judgment highlights the key issues surrounding the penalty under section 271(1)(c) of the Income Tax Act, 1961 on additions related to capital gain and income from other sources arising from compulsory land acquisition.