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2006 (5) TMI 168 - AT - Income TaxPenalty for Concealment Of Income u/s 271(1)(c) of IT Act - whether the explanation offered by the assessee for not disclosing the capital gain on the land-in-question was false or bona fide one and whether the assessee has disclosed all the material facts and particulars relating thereto as contemplated under Explanation 1 to section 271(1)(c) of the Act? - HELD THAT - So long as the assessee gives a bona fide explanation and unreservedly gives all the documents and information without withholding any information relating to the computation of assessee s total income the assessee s explanation unless found to be false would deserve acceptance for the purpose of penalty imposable under section 271(1)(c) so that penalty should not be exigible. In other words if an assessee offers an explanation which is not found to be false he can save himself from penalty even if he were not able to substantiate his case as long as the explanation of the assessee is bona fide and as long as he places all the relevant facts material to the computation of his total income irrespective of the fact that the same explanation was not accepted for the purpose of assessment. Whether the assessee s explanation was found to be false by the Assessing Officer or even if the assessee were not able to substantiate his case whether the assessee s explanation was bona fide and the assessee has disclosed all material facts and information relating to the capital gain arising from sale of land-in-question so that penalty should be imposed or not? - HELD THAT - As the Assessing Officer was of the view that there was no agricultural operation carried out on the land in question and mere plantation of tree itself cannot be a basis for treating the use of land as for agricultural purposes. The Assessing Officer further stated that immediately after the purchase the land was given on lease to M/s. Weikfield Agro Products (P.) Ltd. on and from 24-11-1994 for production of Mushroom. The Assessing Officer also stated that the dominant purpose for acquiring this land was not to use the same for agricultural purposes but for other purposes - The certificate issued by the Commissioner of Agriculture Pune certifying that Mushroom is an agricultural activity was also not accepted by the Assessing Officer in view of the decisions of various Courts that in order to constitute agricultural income the land must be used for growing all or any of the commercial crops and the income should be derived from such land by way of agriculture. Mushroom activity was not treated to be of agricultural activity by the Assessing Officer. The Assessing Officer therefore computed the capital gain arising from the sale of the land-in-question and added the same to the total income of the assessee. Whether the assessee had disclosed all the facts material to the computation of his total income as far as the issue involved in this appeal is concerned? - HELD THAT - The assessee has not been able to substantiate his claim that the land sold during the year under consideration was in the nature of agricultural land. We have already stated above that mere failure to substantiate the claim or explanation is by itself not sufficient to attract penalty under section 271 (1)(c) unless it is proved that the explanation offered by the assessee is false and not bona fide and the assessee has failed to disclose or furnish all the facts material to the computation of his income. Therefore now we have to see as to whether the assessee s claim that the land sold was an agricultural land was a bona fide one or otherwise a false so that penalty would be imposed or not - Mere rejecting the assessee s claim of treating the land-in-question as agricultural land for the reason that it was not found to be satisfactory and then assessing the gain arising therefrom to tax in the assessment is by itself not sufficient to attract penalty under section 271(1)(c) of the Act when the assessee s claim has not been established to be false and non-bona fide one and it is not established as well that the assessee has failed to place all the facts material to the computation of capital gain arising from the sale of the land-in-question. The CIT(A) was justified in deleting the penalty levied by the Assessing Officer under section 271(1)(c) in respect of the addition of short-term capital gain arising to the assessee from the sale of land-in-question. Addition of Rs. 20 lakh being short-term capital gain arising from sale of a land situated at village Bakori was added to the assessee s total income by the Assessing Officer in the assessment completed under section 143(3) of the Act - HELD THAT - The facts and circumstances of the case in the assessment year 1998-99 are identical as to that of the assessment year 1997-98 and that position has been accepted by the Assessing Officer in the assessment order as well as in the penalty order. Therefore in the light of the view taken by us in the assessment year 1997-98 and particularly in view of the fact that this land was treated as land for being used for agricultural purposes in the year of its purchase by the Assessing Officer himself while granting deduction under section 54B of the Act and the assessee s claim that the land in question was of agricultural land is supported by the view expressed by the Agricultural Department of the State Government of Maharashtra Horticulture Commissioner Government of India Ministry of Agriculture New Delhi and further by classification of the same as agricultural land in revenue record being 7/12 extracts - no penalty under section 271(1)(c) is exigible in the present case as the assessee s explanation is found to be bona fide and all the material facts were produced by the assessee. We uphold the order of the CIT(A) in deleting the penalty levied under section 271 (1)(c) of the Act for this assessment year 1998-99 also. Deletion of penalty for Shri Malhotra Baldevraj Satpal and Shri Malhotra Mukesh Satpal - HELD THAT - The explanation offered is found to be bona fide in these two assessees case also and the assessees explanation in these cases also cannot be said to be false and mala fide. Therefore following our order given hereinabove in the case of Shri Malhotra Satpal Sitaram for assessment year 1997-98 we hold that the CIT(A) was justified in deleting the penalty under section 271(1)(c) in the case of these two assessees also for the assessment year 1997-98 and we do not find any infirmity in the order of the CIT(A). Appeal of Revenue dismissed.
Issues Involved:
1. Penalty under Section 271(1)(c) of the Income-tax Act. 2. Classification of land as agricultural or non-agricultural. 3. Bona fide belief and disclosure of material facts by the assessee. 4. Application and interpretation of Explanation 1 to Section 271(1)(c). Detailed Analysis: 1. Penalty under Section 271(1)(c) of the Income-tax Act: The primary issue revolves around the penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) for concealing particulars of income. The AO levied penalties on three assessees for not disclosing capital gains from the sale of land at Bakori, Pune, treating the land as non-agricultural. The penalties were Rs. 4,34,080 and Rs. 6,00,000 for the assessment years 1997-98 and 1998-99, respectively. 2. Classification of Land as Agricultural or Non-agricultural: The assessees contended that the land was agricultural, situated outside 8 km from municipal limits, and thus not a capital asset under Section 2(14) of the Income-tax Act. They supported their claim with 7/12 extracts and a certificate from the Commissioner of Agriculture. The AO, however, argued that the land was leased to Weikfield Agro Products Pvt. Ltd. for mushroom cultivation, which he did not consider an agricultural activity. Consequently, the AO treated the income from the land as non-agricultural and imposed penalties for not disclosing the capital gains. 3. Bona Fide Belief and Disclosure of Material Facts by the Assessee: The assessees argued that they had a bona fide belief that the land was agricultural based on the revenue records and expert opinions. They had disclosed the transaction in their receipt and payment account and believed the income to be exempt. The CIT(A) accepted this explanation, noting that the assessees had demonstrated their bona fide belief and disclosed all material facts, thus deleting the penalties. 4. Application and Interpretation of Explanation 1 to Section 271(1)(c): The Tribunal examined whether the assessees' explanations were bona fide and whether all material facts were disclosed. Explanation 1 to Section 271(1)(c) shifts the burden to the assessee to prove that the explanation is bona fide. The Tribunal found that the assessees had provided sufficient evidence, including the 7/12 extracts and certificates from agricultural authorities, to support their claim. The Tribunal concluded that the assessees' explanations were bona fide, and they had disclosed all material facts, thus upholding the CIT(A)'s decision to delete the penalties. Conclusion: The Tribunal dismissed the revenue's appeals, holding that the assessees had bona fide beliefs regarding the agricultural nature of the land and had disclosed all relevant facts. The penalties under Section 271(1)(c) were not justified as the assessees' explanations were found to be bona fide and all material facts were disclosed. The Tribunal emphasized that mere rejection of the assessees' claims in assessment proceedings does not automatically warrant penalties under Section 271(1)(c).
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