2022 (2) TMI 392 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee for failure to return income from sale of agricultural land, held as stock in trade to tax - HELD THAT - The charge of the Revenue being that the assessee had furnished inaccurate particulars of income to this effect. No infirmity in the order of Ld. CIT(A) who has, we find, after a careful consideration of the facts, which have remained uncontroverted and correct application of law, held that there was no furnishing of inaccurate particulars of income by the assessee so as to attract penalty u/s 271(1)(c). The finding of fact of the CIT(A) that the said transaction of sale of agricultural land was reflected in the audited profit and loss account of the assessee and the income therefrom disclosed in the return of income filed, though claimed as exempt u/s 2(14) of the Act, remains uncontroverted before us. The explanation of the assessee for failing to return the said income to tax for the reason that it was under a false impression that the said lands constituted investments of the assessee and did not qualify as capital assets, as per section 2(14) of the Act,thus income earned thereon being exempt from tax, we find has not been found to be outrightly false by the Revenue. As per section 2(14) of the Act rural agricultural lands specified therein do not qualify as capital assets. It is not the case of the Revenue that the lands sold were not rural agricultural lands which did not qualify as capital assets as per section 2(14) - contention of the assessee that it held land both as stock and as investments, has also not been controverted by the Revenue. Therefore, we agree with the CIT(A) that the explanation of the assessee that he mistakenly treated the said transaction as exempt from tax appears bonafide. Explanation is bonafide is, we find, supported by the fact that during assessment proceedings the assessee, realizing his mistake even before detection by the Revenue, returned the same to tax. The fact that the assessee surrendered the said income prior to detection by the Revenue is evident from the chronology of events pointed out to us by the Ld.Counsel for the assessee above showing that the income was surrendered on 16-11-16 before the assesses case was converted from limited to complete scrutiny on 28-11-16 and inquiry made for treating the said income as exempt vide questionnaire dated 02-12 -16, which fact has not been denied by the Revenue. The assessee having disclosed all particulars of his income from sale of agricultural land, having furnished a bonafide explanation for not returning the same to tax and having surrendered the said income suomoto before detection by the Revenue, we agree with the Ld.CIT(A) that the assessee cannot be said to have furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act. We therefore uphold the order of the Ld.CIT(A) deleting the penalty levied. - Decided against revenue.

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of whether the mistake by the assessee was bona fide.
3. Consideration of whether the assessee furnished inaccurate particulars of income.
4. Examination of whether the penalty should be upheld or set aside.

Detailed Analysis:

Issue 1: Deletion of Penalty under Section 271(1)(c)
The Revenue appealed against the CIT(A)'s order dated 26.02.2019, which deleted the penalty of ?63,39,200/- levied by the Assessing Officer (AO) under Section 271(1)(c) for the Assessment Year 2014-15. The AO had imposed the penalty on the grounds that the assessee furnished inaccurate particulars of income by claiming exemption on the sale of agricultural lands treated as stock-in-trade.

Issue 2: Determination of Bona Fide Mistake
The CIT(A) observed that the assessee had classified agricultural land as stock-in-trade in the books of account but claimed it as exempt under Section 2(14) in the return of income, attributing this to a clerical mistake by the accountant. The CIT(A) found the mistake to be bona fide, noting that the assessee had consistently shown the land as stock-in-trade and had the accounts audited, which indicated no intention to conceal income.

Issue 3: Furnishing Inaccurate Particulars of Income
The CIT(A) held that the assessee did not furnish inaccurate particulars of income, as the profit from the sale of agricultural land was included in the audited financial statements and disclosed in the return of income. The claim for exemption was made under a mistaken belief, and once the mistake was realized, the assessee voluntarily offered the income to tax during the assessment proceedings.

Issue 4: Examination of Penalty
The CIT(A) relied on various legal precedents, including the Bombay High Court's decision in CIT vs. Bennett Coleman & Co. Ltd., and the Supreme Court's decision in Reliance Petroproducts (P.) Ltd., which held that a bona fide mistake does not justify penalty under Section 271(1)(c). The CIT(A) concluded that the assessee's explanation was bona fide and the mistake was unintentional, thus directing the deletion of the penalty.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty, agreeing that the assessee had not furnished inaccurate particulars of income and had provided a bona fide explanation for the mistake. The Tribunal noted that the assessee had disclosed all relevant particulars in the audited accounts and return of income, and had voluntarily offered the income to tax before detection by the AO. Consequently, the appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld.

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