2016 (1) TMI 708 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of agricultural income - CIT(A) deleted the penalty - Held that - It is an undisputed fact that the assessee has claimed any expenditure having incurred for carrying out the agricultural operation for earning agricultural income. During the course of assessment proceedings, the assessee was not able to produce any evidence of having engaged in agricultural activities and agreed to offer the said income for taxation. Once the assessee has agreed to pay tax for the said income, the income so declared by the assessee under the head Agricultural Income has no locus standi and it is nothing but undisclosed income under section 68 of the Act claimed under the head Agricultural Income to evade tax. Any evidence furnished for having carried out agricultural operation by incurring any expenditure, the income so earned shall be treated as Agricultural Income , which is exempt under the Act. In the present case, the assessee has not admitted any gross agricultural income showing expenses towards earning of such agricultural income and agreed to pay tax. CIT(A) has failed to consider the facts in proper perspective and accordingly, we confirm the penalty levied by the Assessing Officer - Decided against assessee Levy of penalty for the disallowance of development liability - CIT(A) deleted the penalty - Held that - In the present case, the assessee has made an erroneous claim of deduction, which indeed pointed out by the Assessing Officer during the course of 147 assessment proceedings and the assessee has not given proper explanation. Therefore, the claim was added back to the returned income of the assessee. It is not the case that the assessee has furnished true particulars of income in the returned filed by the assessee. Therefore, the decision of the Hon ble Supreme Court in the case of Mak Data P. Ltd., vs. CIT (supra) relied on by the Department in the grounds of appeal squarely applies to the facts of the present case in hand. Accordingly, we find that there is no illegality in initiating penalty proceedings. In view of the above, we set aside the order passed by the ld. CIT(A) and confirm the penalty levied by the Assessing Officer.- Decided against assessee

Summary

Issues Involved:
1. Disallowance of agricultural income and related penalty under section 271(1)(c) of the Income Tax Act.
2. Levy of penalty for the disallowance of development liability under section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Agricultural Income and Related Penalty:
The first issue pertains to the disallowance of agricultural income claimed by the assessee. The Assessing Officer (AO) observed that the assessee did not produce complete evidence for the agricultural activities and agreed to offer the agricultural income for taxation. The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income. The assessee failed to prove that agricultural operations were carried out to earn the claimed income, leading the AO to levy a penalty.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty. However, the Tribunal noted that the assessee, primarily a real estate agent, did not engage in regular agricultural activities and failed to provide evidence of agricultural operations or related expenses. The Tribunal concluded that the income declared as agricultural was actually undisclosed income under section 68 of the Act, and thus, the penalty under section 271(1)(c) was justified for furnishing inaccurate particulars. The Tribunal confirmed the penalty levied by the AO, overruling the CIT(A)'s decision.

2. Levy of Penalty for Disallowance of Development Liability:
The second issue involves the disallowance of a provision for development expenditure amounting to Rs. 96,75,000/-. The AO observed that the assessee had only incurred actual development expenses of Rs. 8,75,000/- and added back the remaining provision to the returned income, as it was not allowable under the Income Tax Act. The AO initiated penalty proceedings under section 271(1)(c) for making a wrong claim.

During the penalty proceedings, the assessee argued that the provision was created based on commitments to provide infrastructure facilities to purchasers, as advised by their Chartered Accountants. The AO found no written agreements or proof of such commitments and levied the penalty.

On appeal, the CIT(A) deleted the penalty, citing various case laws where mere additions to income did not warrant a finding of concealment. However, the Tribunal noted that the assessee furnished inaccurate particulars to reduce taxable income and failed to provide a proper explanation for the erroneous claim. The Tribunal referenced the Supreme Court decision in MAK Data Pvt. Ltd. v. CIT, which held that voluntary disclosure does not absolve an assessee from penalty if inaccurate particulars were furnished. Consequently, the Tribunal set aside the CIT(A)'s order and confirmed the penalty levied by the AO.

Conclusion:
The Tribunal allowed the Revenue's appeal and dismissed the Cross Objection filed by the assessee, thereby upholding the penalties levied by the AO under section 271(1)(c) for both disallowance of agricultural income and development liability provisions.