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2022 (5) TMI 729 - AT - Income TaxPenalty u/s 271(1)(c) - Gain on sale of land - AO noted that the agricultural income was shown as exempt and but for scrutiny notice, the assessee would not have come forward to file a revised working of its income - claiming the taxable income to be agricultural income clearly denotes furnishing of inaccurate particulars of income - HELD THAT - Transaction has happened in AY 2010-11, going by the version of Ld. AO that the Joint Development Agreement (JDA) would crystallize capital gains liability on the assessee, the said transaction would have been taxable in the year of entering into JDA i.e. AY 2010-11. Nevertheless, the assessee has offered the transaction in AY 2012-13 which would lend credence to the argument that the assessee made sincere efforts to put a quietus to the possible litigation by accepting the proposal of Ld. AO. Another fact to be noted is that this land was purchased in the year 1995 and the deed of purchase clearly mentioned that the land was agricultural land only. In fact that assessee incurred development expenditure and initially planted fodder and seasonal crops. But due to non-viability of the project, the assessee in the year 2007, planted mango trees and coconut trees. All these facts would lend credence to assessee s belief that the land under consideration was an agricultural land only and any income arising there from would be agricultural income only which is exempt from tax. On the basis of said belief, the assessee separately disclosed sale of agricultural land in the financial statements as well as in the computation of income. Upon perusal of these documents, it could be well said that the transaction was duly disclosed in the financial statement as well as in the return of income and it could not be said that there was any concealment of particulars of income by the assessee. No mala-fide intention could be attributed on the part of the assessee to conceal the income or to furnish inaccurate particulars of income. The assessee made a claim in the return of income which was not accepted by Ld. AO. However, this fact alone would not necessarily justify imposition of penalty as per the decision of Hon ble Supreme Court in the case of CIT V/s Reliance Petro Products Private Ltd. 2010 (3) TMI 80 - SUPREME COURT Defective notice - non specification of charge - Show cause notice issued to the assessee does not specify the limb for which the penalty was being initiated i.e. for furnishing of inaccurate particulars of income or for concealment of income. This issue, though raised before Ld. CIT(A), has been decided against the assessee wherein it has been held that both the limbs of Sec.271(1)(c) were applicable. However, we find that it is settled position of law that exact charge should be framed against the assessee in the show cause notice and in the absence of such specific charge, the penalty proceedings become null and void as held by larger bench of Hon ble High Court of Bombay in the case of Mohd. Farhan A.Shaikh V/s DCIT 2021 (3) TMI 608 - BOMBAY HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Validity of the penalty order under Section 271(1)(c) of the Income Tax Act. 2. Specificity of the charge in the show-cause notice. 3. Classification of land as agricultural or non-agricultural. 4. Determination of capital gains and business income. 5. Bona fide belief and disclosure of income. 6. Applicability of judicial precedents. Detailed Analysis: 1. Validity of the Penalty Order under Section 271(1)(c): The assessee appealed against the penalty levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act for the Assessment Year 2012-13. The penalty was imposed for allegedly furnishing inaccurate particulars of income. The Tribunal noted that the penalty proceedings were initiated in the assessment order, and the show-cause notice was issued to the assessee. The AO concluded that the assessee furnished inaccurate particulars of income, leading to the imposition of a penalty of Rs. 372 Lacs. 2. Specificity of the Charge in the Show-Cause Notice: The assessee contested that the show-cause notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars of income. The Tribunal highlighted that the exact charge should be framed against the assessee in the show-cause notice. The absence of a specific charge renders the penalty proceedings null and void, as supported by the decision of the Hon’ble High Court of Bombay in Mohd. Farhan A. Shaikh V/s DCIT (125 Taxmann.com 253). The Tribunal found that the penalty was levied for furnishing inaccurate particulars of income only, not for concealment of income. 3. Classification of Land as Agricultural or Non-Agricultural: The assessee claimed the land sold was agricultural and thus exempt from tax. However, the AO noted that the land was subject to a Joint Development Agreement (JDA) with a developer, changing its nature to non-agricultural. The AO opined that the land was a capital asset and the income arising from its sale was chargeable to capital gains tax. The Tribunal observed that the land was purchased as agricultural land in 1995, and the assessee incurred development expenditure, initially planting fodder and seasonal crops, later planting mango and coconut trees. These facts supported the assessee’s belief that the land was agricultural. 4. Determination of Capital Gains and Business Income: The AO bifurcated the sale consideration into business income and capital gains, redetermining the assessee’s income. The assessee accepted the AO’s proposal to avoid litigation, offering the transaction in AY 2012-13. The Tribunal noted that the transaction was disclosed in the financial statements and the return of income, indicating no concealment of particulars of income. 5. Bona Fide Belief and Disclosure of Income: The assessee contended that it acted on a bona fide belief that the land was agricultural and the income was exempt. The Tribunal found no mala fide intention to conceal income or furnish inaccurate particulars. The assessee’s claim was not accepted by the AO, but this alone did not justify the imposition of a penalty, as per the decision of the Hon’ble Supreme Court in CIT V/s Reliance Petro Products Private Ltd. (322 ITR 158). 6. Applicability of Judicial Precedents: The Tribunal referred to various judicial precedents, including the Hon’ble High Court of Madras in Babuji Jacob Vs. ITO (430 ITR 259), which held that penalty proceedings under Section 271(1)(c) were invalid if the notice did not specify the exact charge. The Tribunal also cited decisions from the Hon’ble High Courts of Bombay and Karnataka, supporting the requirement for a specific charge in the show-cause notice. Conclusion: The Tribunal concluded that the penalty was not sustainable on legal grounds and merits. The assessee had disclosed all relevant particulars, and the claim was made under a bona fide belief. The absence of a specific charge in the show-cause notice rendered the penalty proceedings invalid. Consequently, the Tribunal allowed the appeal, deleting the penalty imposed on the assessee. The order was pronounced in open Court on 04th May 2022.
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