1975 (10) TMI 40 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Determination of whether the land was agricultural.
3. Assessment of capital gains.
4. Filing of return and disclosure of income.
5. Jurisdiction of ITO and IAC in penalty proceedings.
6. Burden of proof and explanation under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c) of the IT Act, 1961:
The case revolves around the imposition of a penalty of Rs. 3,23,000 on the assessee for the assessment year 1965-66 under Section 271(1)(c) of the IT Act, 1961. The ITO determined that the land was not agricultural and the compensation received resulted in a capital gain of Rs. 3,27,994, which was included in the total income of the assessee. The ITO initiated penalty proceedings for concealment of income, stating, "Issue a notice under s. 274/271(1)(a) for late filing of the return for default of s. 139(1), and default of s. 274/273 for non-payment of advance-tax and s. 274/271(1)(c) for concealment or the income."

2. Determination of Whether the Land was Agricultural:
The assessee contended that the land in question was agricultural and thus exempt from taxation. The learned IAC, however, found that the land had ceased to be agricultural long ago and was situated in a developed urban area. The IAC stated, "It has been amply established by the order of ITO and the AAC both that the land was many many years ago agricultural land and it had ceased to be so long ago."

3. Assessment of Capital Gains:
The ITO and the AAC determined that the compensation received for the acquisition of the land resulted in a taxable capital gain. The assessee argued that the compensation was a casual income or a windfall not liable to tax under the IT Act. The IAC concluded that the assessee had concealed the capital gains, stating, "It is the duty of the assessee to state a definite amount of profits or loss in respect of the each source of income in the return of income."

4. Filing of Return and Disclosure of Income:
The assessee filed the return on 4th March, 1970, showing income from salary, house property, and interest but did not show any income under the head "Capital gains." The IAC found that no letter was annexed to the return, as claimed by the assessee, and concluded that the assessee had not disclosed the capital gains in the return. The IAC stated, "Thus it is clear that no letter was annexed as stated in Part-IV of the return."

5. Jurisdiction of ITO and IAC in Penalty Proceedings:
The assessee raised an objection that the show cause notice under Section 274/271(1)(c) was issued by both the ITO and the IAC, arguing that the Act does not provide concurrent jurisdiction to two officers over one proceeding. The IAC dismissed this objection, stating, "The learned ITO was satisfied during the course of penalty proceedings that there was concealment of income and accordingly he initiated penalty proceedings."

6. Burden of Proof and Explanation under Section 271(1)(c):
The IAC held that the assessee failed to discharge the initial onus of proving that the failure to return the correct income did not arise from any fraud or gross or willful neglect. The Tribunal, however, found that the assessee had disclosed all relevant facts and was under a bona fide belief that the land was agricultural and the compensation was not taxable. The Tribunal stated, "There is no evidence worth the name from which it could be established that there was any fraud or gross or wilful neglect on the part of the assessee in not disclosing the amount in question as capital gains."

Conclusion:
The Tribunal allowed the appeal, canceling the penalty order, and concluded that the assessee had not concealed income or furnished inaccurate particulars of income. The Tribunal emphasized the bona fide belief of the assessee regarding the nature of the land and the compensation received, stating, "Looking to the entire facts, probability of the case and hard facts of life, in our opinion there were preponderance of probabilities which go to prove that there was no fraud or gross or wilful neglect on the parts of the assessee in not returning the capital gains in the return."