2018 (6) TMI 1050 - AT - Income Tax

Penalty proceedings u/s 271(1)(c) - income by way of short term capital gain not included in the return of income but offered for taxation in the course of scrutiny proceedings - departure with the satisfaction formed in the assessment proceedings - Held that - The assessee herein is a technical person and may not necessarily know the complicated tax laws. A perusal of land sale agreement suggests that the land was in the nature of agricultural land the gain on sale of which, under the popular belief, is not taxable. On objective consideration, it was found that such agricultural land was also required to undergo agricultural operations, which was missing in the present case. In these circumstances, the assessee acting on legal advice, readily came forward and offered the capital gains without resorting to litigation. On weighing the circumstances, we are of the view that the onus of bonafide therefore, in our view, is broadly discharged. The satisfaction in the course of the assessment was formed for alleged furnishing of inaccurate particulars of income . The penalty notice does not specify the nature of default and thus suffers from vice of ambiguity. The AO, however, in departure with the satisfaction formed in the assessment proceedings, went on to impose penalty on a different ground i.e. concealment of particulars of income. Ostensibly, the original basis of initiation of penalty has been altered in a significant way - no penalty imposed - Decided in favour of assessee.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on short term capital gains not included in the return of income.

Analysis:

1. Imposition of Penalty by Assessing Officer (AO):
The AO imposed a penalty under section 271(1)(c) of the Act on the assessee for not including short term capital gains in the return of income. The AO alleged that the assessee furnished inaccurate particulars of income to conceal the actual income. The AO rejected the assessee's plea of inadvertent omission and imposed a penalty of ?22,08,500 along with interest income that was also not disclosed.

2. Challenge before CIT(A):
The assessee challenged the penalty order before the CIT(A) reiterating that the short term capital gains were offered for taxation before detection by the AO. The CIT(A) upheld the penalty citing the difference between the return filed and the assessed income, placing the onus on the assessee to rebut the inference of concealment.

3. Appeal before Tribunal:
The assessee appealed before the Tribunal, arguing that the inadvertent error should not attract penalty provisions. The legal plea was raised regarding the inconsistency in the nature of default specified in the penalty notice and the satisfaction formed by the AO during assessment.

4. Tribunal's Decision:
The Tribunal considered the circumstances and conduct of the assessee. It noted that the assessee, being a technical person, may not have been aware of the tax implications regarding the sale of agricultural land. The Tribunal found that the onus of bonafide was broadly discharged by the assessee. Additionally, it highlighted the inconsistency in the satisfaction of the AO between the assessment and penalty stages. Citing legal precedents, the Tribunal held that the penalty order was not sustainable in law and set it aside, canceling the penalty imposed by the AO.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the inadvertent nature of the omission, the assessee's compliance post-detection, and the ambiguity in the penalty imposition process.