2022 (5) TMI 363 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - AO held that absence of any explanation regarding the receipt of money, which is in the exclusive knowledge of assessee, it leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of Explanation to section 271(1)(c) - HELD THAT - As in case of transfer of mortgaged property, if the consideration does not flow to the assessee, then the same would not amount to transfer of asset and no capital gains tax would accrue in the hands of the assessee. The case of CIT v. Smt. Thressiamma Abraham 1996 (9) TMI 60 - KERALA HIGH COURT has held that since purchasers paid entire sale consideration directly to creditors and it was only thereafter mortgaged property was released, it could be said that sale consideration was diverted to creditors by overriding title and, in such circumstances, no capital gains accrued to assessee. We see that there are conflicting judicial precedents on the issue under consideration before us and therefore, it may be inferred that the issue before us is one in which two views are possible. Further, we note that the Hon'ble Gujarat High Court has also admitted the assessee's appeal in quantum proceedings. We are of the considered view that the instant case is not a fit case for levy of penalty u/s. 271(1)(c) of the Act. The issue is clearly debatable on which various Courts have taken conflicting views. The assessee's view is also one which is a plausible view as held by various appellate forums. Therefore, in our considered view, the Ld. CIT(A) has erred in law and in facts in confirming penalty u/s. 271(1)(c) of the Act. We accordingly direct the Revenue to delete penalty u/s. 271(1)(c) of the Act imposed on the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Whether penalty can be levied when two opinions are possible in a certain transaction and if the issue is debatable.

Detailed Analysis:
Issue 1:
The case involved an appeal regarding the levy of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2011-12. The assessee's property, mortgaged with a bank as a guarantor, was taken over by the bank due to default in loan repayment by the creditors. The property was sold in auction by the bank, and the proceeds were used to settle the creditors' dues, with the assessee receiving no amount from the sale. The Assessing Officer imposed a penalty for non-disclosure of income, considering it as concealment under the Act. The CIT(A) upheld the penalty, emphasizing the strict liability on the assessee for concealment or inaccurate particulars while filing the return, as per section 271(1)(c) of the Act. The Tribunal, however, noted that the issue was debatable, with conflicting views in judicial precedents, and ruled in favor of the assessee, directing the Revenue to delete the penalty.

Issue 2:
The second issue revolved around whether penalty could be levied when two opinions were possible in a transaction and if the issue was debatable. The Tribunal highlighted conflicting judicial precedents on the transfer of mortgaged property and the realization of consideration by the assessee. It noted that the Hon'ble Gujarat High Court had admitted the assessee's appeal in quantum proceedings, indicating the debatable nature of the issue. Considering the conflicting views and the plausibility of the assessee's stance, the Tribunal concluded that the case was not suitable for the imposition of a penalty under section 271(1)(c) of the Act. The Tribunal allowed the assessee's appeal, directing the deletion of the penalty imposed.

In conclusion, the judgment by the Appellate Tribunal ITAT Rajkot addressed the issues of penalty imposition under section 271(1)(c) of the Income Tax Act, emphasizing the debatable nature of the case due to conflicting judicial precedents. The Tribunal ruled in favor of the assessee, highlighting the possibility of two views on the matter and directing the deletion of the penalty.