2023 (1) TMI 516 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - Computation of capital gain - whether any addition made because of legal fiction created under the Act i.e. to say addition made u/s 50C will amount furnishing inaccurate particular of income? - HELD THAT - In this connection, we note that the Hon ble Courts have held that there cannot be any penalty on the amount representing the deemed consideration. In this regard, we find support and guidance from the judgment in case of PCIT vs. Sun on Peak Hotel (P) Ltd 2018 (6) TMI 1055 - GUJARAT HIGH COURT We are of the opinion that the assessee cannot be made subject levy of penalty under section 271(1)(c) of the Act merely for reason that the consideration shown in the computation of capital was less than the value adopted for stamp duty or the value determined by the DVO under the provision of section 50C. Therefore, we hereby set aside the finding of the CIT(A) and direct the AO to delete the penalty levied under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is hereby allowed.

Summary

Issues:
Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 based on inaccurate particulars of income.

Analysis:

Issue 1: Levy of Penalty under Section 271(1)(c)
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) sustaining the penalty under section 271(1)(c) of the Act. The Assessee transferred an office space for Rs. 4 lakh, declaring a capital gain of Rs. 1,19,286 only. However, the AO valued the property at Rs. 5,51,000 under section 50C(2) of the Act, resulting in a recomputed capital gain of Rs. 3,17,517. The AO initiated penalty proceedings as the Assessee failed to respond to the notice. The CIT(A) confirmed the penalty, leading to the appeal before ITAT.

Issue 2: Legal Fiction under Section 50C
The Assessee argued that no penalty should be imposed due to the legal fiction created under section 50C, which led to the additional capital gain. The AO adopted the value determined by the DVO, which was less than the stamp duty value. The CIT(A) upheld the penalty, stating that the AO was justified in imposing it as per the Act's provisions. The Assessee's contention that only the document price was declared, ignoring section 50C, was dismissed.

Issue 3: Judicial Precedents
ITAT referred to judgments by the Gujarat High Court and Bombay High Court, emphasizing that the application of section 50C does not automatically warrant penalty proceedings. The courts highlighted that discrepancies between actual sale consideration and deemed consideration do not amount to furnishing inaccurate particulars of income. Following these precedents, ITAT set aside the CIT(A)'s finding and directed the AO to delete the penalty under section 271(1)(c).

In conclusion, ITAT allowed the Assessee's appeal, citing the legal precedents and the distinction between actual and deemed consideration under section 50C. The judgment emphasized that discrepancies in values for stamp duty or DVO determination do not justify penalty imposition under section 271(1)(c).