2024 (10) TMI 348 - AT - Income Tax

Levying penalty u/s 271(1)(c) - capital gain is arisen on account of re-computation of capital gain on sale of land at Pujanahalli on which according to the AO, there was furnishing of inaccurate particulars of income and concealment of income as assessee has furnished the wrong valuation as on 1.4.19981 - whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and in the circumstances of the Appellant s case? HELD THAT - Value adopted for determining the cost of acquisition so as to compute the capital gain is the stamp duty value for registration of the said property as on 17.11.1980. In our opinion, the valuation adopted by the assessee is only on the estimation basis and that cannot be basis for levy of penalty u/s 271(1)(c) of the Act. Capital gain has been computed by assessee on the basis of estimation of cost of acquisition as on 1.4.1981 and in the opinion of ld. AO, it was excessive and not based on any positive material and he has adopted the fair market value on the basis of value mentioned in the sale deed of that impugned property as on 17.11.1980 without referring the matter to the DVO and thus the computation of capital gain has been made on the basis of material furnished by assessee itself and already available on record, this was not fit case for imposition of penalty u/s 271(1)(c) of the Act. Impugned penalty has been levied by the ld. AO merely on the basis of findings in the quantum proceedings and have not independently examined the matter in the penalty proceedings u/s 271(1)(c) of the Act, even on this procedural count, the penalty levied cannot be sustained though the addition has been sustained by the Tribunal, that by itself does not prove that there is any conclusive and absolute material to suggest the assessee has concealed any income and or furnished inaccurate particulars of income. In our opinion, penalty cannot be levied in this kind of situation as there was no evidence to suggest that claim of assessee was bogus or malafide and disallowance of the claim itself cannot be reason to levy penalty. The addition of capital gain is computed on account of difference in estimation of cost of acquisition between the claim made by assessee and the value adopted by the ld. AO. The ld. AO not able to prove that there was any willful or gross negligence on the part of assessee resulting thereby either any concealment of income and or furnishing inaccurate particulars of income. To levy penalty for concealment, it is necessary that there must be either concealment of income and or furnishing inaccurate particulars of income by the assessee. As the AO or appellate authority arrived at different estimates of income of the assessee, that itself cannot be said that assessee concealed particulars of income and or furnished inaccurate particulars of income so as to attract penalty. Penalty u/ 271(1)(c) was not imposable in relation to estimated additions because the factum of either concealment of income or furnishing inaccurate particular of income, were not proved. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act.
2. Alleged Concealment of Income and Furnishing of Inaccurate Particulars.
3. Estimation of Fair Market Value (FMV) for Capital Gains Calculation.
4. Procedural Lapses in Issuance of Penalty Notices.
5. Applicability of Judicial Precedents on Penalty Imposition.

Detailed Analysis:

1. Validity of Penalty Proceedings under Section 271(1)(c) of the Income Tax Act:
The core issue revolves around the validity of the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. The appellant contended that the penalty order was bad in law because the Assessing Officer (AO) did not record any satisfaction regarding the concealment of income or furnishing of inaccurate particulars in the assessment order. The initiation of penalty proceedings was argued to be invalid due to the absence of a clear direction in the assessment order, as mandated by the law and supported by the Karnataka High Court's decision in CIT Vs. Manjunatha Cotton & Ginning Factory.

2. Alleged Concealment of Income and Furnishing of Inaccurate Particulars:
The AO alleged that the assessee had concealed particulars of income and furnished inaccurate particulars, primarily related to the re-computation of capital gains on the sale of land. The penalty was imposed on the assumption that the assessee had provided a wrong valuation of the property, which led to the understatement of income. However, the assessee argued that the valuation was based on a professional valuer's report and that any discrepancies were not intentional but rather a result of estimation differences.

3. Estimation of Fair Market Value (FMV) for Capital Gains Calculation:
The dispute over the FMV estimation as of 01/04/1981 was central to the penalty issue. The assessee relied on a registered valuer's report to determine the FMV, which the AO challenged, arguing it was excessively high compared to the Sub-Registrar's guideline value. The tribunal noted that FMV is inherently subjective and can vary between valuers. The absence of a reference to the Departmental Valuation Officer (DVO) by the AO was also highlighted, suggesting that the AO's reliance solely on the Sub-Registrar's value was insufficient to establish concealment or inaccuracy.

4. Procedural Lapses in Issuance of Penalty Notices:
The appellant challenged the procedural correctness of the penalty notices issued under Section 274 read with Section 271(1)(c). It was argued that the notices were vague and did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The tribunal, referencing the jurisdictional High Court's decisions, found that the lack of specificity in the notices rendered the penalty proceedings unsustainable.

5. Applicability of Judicial Precedents on Penalty Imposition:
The tribunal considered various judicial precedents, including the Supreme Court's ruling in Reliance Petroproducts, which held that mere disallowance of a claim does not automatically lead to penalty unless there is evidence of concealment or inaccuracy. The tribunal also referred to the case of Dharmendra Textile Processors, emphasizing that penalty is not automatic and must be based on concrete evidence of wrongdoing. The tribunal concluded that the AO failed to independently establish concealment or inaccuracy beyond the findings in the assessment proceedings.

Conclusion:
The tribunal allowed the appeal, holding that the penalty under Section 271(1)(c) was not justified. The decision was based on the lack of clear evidence of concealment or furnishing of inaccurate particulars, procedural lapses in the issuance of penalty notices, and the reliance on judicial precedents that require a higher threshold of proof for penalty imposition. The tribunal emphasized that estimation differences and reliance on expert opinions do not constitute grounds for penalty unless accompanied by evidence of intent to evade taxes.