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2019 (5) TMI 617 - AT - Income TaxPenalty u/s. 271(1)(c) - addition on income on completion of project, in respect of cash deposit and Short term capital gain on sale of depreciable assets - HELD THAT - CIT(A) deleted the penalty levied by the AO u/s 271(1)(c) with respect to offering of aforesaid income from 27 flats constructed by the assessee in Project Carmel at Kamothe in three years by following decision of ITAT, Mumbai 2016 (6) TMI 171 - ITAT MUMBAI . Thus,in any case this issue is not before us in the appeal filed by the assessee of which we are presently seized of. Penalty on Cash deposits - We do not find any reasons to believe the contentions of the assessee that the said sum was received on the occasion of marriage of son of the assessee as there is no evidence before us to accept this explanation and we have no hesitation in rejecting the same as it is not supported by any evidence whatsoever. We hereby confirm penalty as levied by the AO u/s 271(1)(c) on the cash deposit of ₹ 3,00,000/- in bank account, which stood later confirmed by learned CIT(A). Defective notice - whether curable defect u/s 292B - as alleged notice is stereo typed printed notice in which either of the clauses as to whether penalty was invoked for furnishing of inaccurate particulars of income or for concealment of income was not struck off - HELD THAT - The assessee did not raise this legal ground before the learned CIT(A) and also before us, no such specific ground of appeal was taken in memo of appeal filed with tribunal nor any additional ground of appeal was taken challenging levy of penalty u/s 271(1)(c) on legal grounds. However , arguments were advanced by both the parties on legal ground. Thus, keeping in view the relevance and importance of the challenge on legal grounds as to defect in notice u/s 271(1)(c) r.w.s 274 which goes to the root of the matter , we have considered it appropriate and proper to adjudicate this issue in the interest of substantial justice. No prejudice caused to the assessee by non striking of the offences in the notice dated 28.12.2011 issued by the AO u/s 271(1)(c) r.w.s 274, keeping in view factual matrix of the case as discussed above. In our considered view decision of Hon ble Bombay High Court in the case of CIT v. Smt. Kaushalaya 1995 (1) TMI 25 - BOMBAY HIGH COURT is relevant. Principles of natural justice were adhered to by Revenue. In any case, if there was any defect in notice dated 28.12.2011 issued by the AO u/s 271(1)(c) r.w.s 274, that is a curable defect within meaning of Section 292B and 29BB of the 1961 Act. Thus, this legal ground is also adjudicated against the assessee. Thus, the assessee fails on both legal ground as well on merits of the issue with respect to deposit of cash of ₹ 3,00,000/- in bank account for which penalty as levied by the AO u/s 271(1)(c) Penalty on capital gains - additions made to the income of the assessee in quantum on account of capital gains on sale of depreciable assets - assessee merged lease premium paid to CIDCO on plot of land with cost of construction of the factory building as one asset under the same block of asset viz. Building and claimed depreciation - HELD THAT - The computation of income so made by the assessee of capital gains earned on sale of land and factory building at Nerul as merged asset while filing its return of income with Revenue was clearly erroneous dehors provisions of the 1961 Act. No doubt the assessee showed lower w.d.v. as on 31.03.2009 which was carried to succeeding years on which it continued to take lower depreciation in succeeding years as wdv of Block of asset was lower but the fact remains that the assessee could not have a formed belief that land would form part of the cost of factory building for claiming depreciation or for computing capital gains chargeable to tax . This is completely an erroneous action on the part of the assessee who is supported by a qualified chartered accountant and whose accounts are audited to treat land as part of block of asset viz. building and is against the basic fundamentals of the accounting as the land could not be a depreciable asset which could form part of the Block of Asset viz Building. The Revenue on its part did not get the Revenue which it was legitimately entitled to on long term gains arising on sale of land component by the erroneous accounting done by the assessee. Explanation offered by the assessee cannot be considered to be a bonafide and it will not take the assessee out of clutches of penalty provisions as are contained in Section 271(1)(c) of the 1961 Act read with Explanation 1 to Section 271(1)(c) - Decided against assessee.
Issues Involved:
1. Penalty on long-term capital gain of ?40,79,195. 2. Penalty on income from other sources of ?3,00,000. 3. Quantum additions related to income on completion of the project, cash deposit, and short-term capital gain on the sale of depreciable assets. Issue-wise Detailed Analysis: 1. Penalty on Long-Term Capital Gain of ?40,79,195: The assessee sold factory premises for ?1,16,00,000, which included a depreciable asset. The assessee claimed to have acquired three shops for ?53,00,000 and added these to the block of assets, showing a closing WDV of ?19,85,359. The AO rejected this, treating it as a sham transaction, and imposed a penalty for not offering the capital gains to tax. The Tribunal allowed the cost of improvement of ?48,22,390 subject to verification. The CIT(A) upheld the penalty for long-term capital gains on the sale of land component, stating that the assessee's computation was erroneous and against fundamental accounting principles. The Tribunal confirmed the penalty, noting that the assessee, supported by a qualified chartered accountant, should not have merged lease premium with the factory building's cost. 2. Penalty on Income from Other Sources of ?3,00,000: The AO made an addition of ?3,00,000 as the assessee failed to provide a plausible explanation for the cash deposit during the assessment proceedings. The assessee claimed the amount was received as a gift on his son's marriage but provided no evidence. The CIT(A) confirmed the penalty, and the Tribunal upheld it, stating that no explanation or evidence was provided by the assessee to substantiate the claim of receiving the amount as a gift. The Tribunal also addressed the legal challenge regarding the defect in the penalty notice, concluding that the assessee was aware of the charges and participated in the penalty proceedings, thus no prejudice was caused. 3. Quantum Additions Related to Income on Completion of the Project, Cash Deposit, and Short-Term Capital Gain on Sale of Depreciable Assets: - Income on Completion of Project: The AO added ?77,99,056 to the income for the project Carmel at Kamothe, which was not offered for taxation by the assessee. The Tribunal accepted the percentage completion method followed by the assessee, subject to verification by the AO. - Cash Deposit: The AO added ?3,00,000 for cash deposited in the bank, as the assessee failed to provide a plausible explanation. The CIT(A) and the Tribunal upheld the penalty. - Short-Term Capital Gain on Sale of Depreciable Assets: The assessee claimed short-term capital gains of ?33,14,640 on the sale of factory premises, which was not offered for tax. The AO treated the transaction of acquiring three shops as a sham and imposed a penalty. The Tribunal allowed the cost of improvement subject to verification, reducing the short-term capital gain to nil but confirmed the penalty on the long-term capital gain component. Conclusion: The Tribunal dismissed the appeal, confirming the penalties imposed by the AO and upheld by the CIT(A) on both the long-term capital gain and the cash deposit issues. The Tribunal found no merit in the assessee's explanations and legal challenges, concluding that the penalties were rightly levied under Section 271(1)(c) of the Income Tax Act.
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