2025 (3) TMI 830 - AT - Income Tax

Short Term Capital Gain STCG - taxability related to transfer of share/interest on an ancestral immovable property (scheduled property) sold by assessee and ten (10) co-owners for a consideration of Rs 9.08 crores - transfer of property after reducing ad-hoc 10% of the consideration received towards cost of acquisition from the entire income from sale of immovable property HELD THAT - Assessment order passed in the case of the present assessee based on CIB information that the assessee has sold immovable property along with ten (10) other co-owners for a consideration of Rs.9, 08, 95, 000/- and the assessee s share out of the above was Rs.82, 62, 181/- (Rs.9.08 crores/11) the AO s action perse of computing the STCG at Rs.74, 36, 863/- cannot be legally sustained for the simple reason that very same transfer of immovable property had been subjected to scrutiny after reopening the assessment in the case of assessee s sister (Smt P.Yasodha) and other heir Shri Parthasarathy Varadhan and similar additions made by the AO in the hands of both persons have been deleted by the CIT(A)-10 which has been accepted by the Department. Hence the STCG computed on the transfer of property which took place on 17.02.2014 i.e. in AY 2014-15 in the relevant year i.e. AY 2016-17 is per-se erroneous and therefore cannot be added in AY 2016-17. Therefore action of the CIT(A) brushing aside the relevant documents filed by the assessee cannot be countenanced and therefore we set aside the impugned order of the Ld.CIT(A); and restore it to the file of the JAO for a limited purpose i.e. to examine the veracity of the assesse s contention that she has not made any sale/transfer of any immovable property in the relevant year i.e. AY 2016-17; and if it is found that the assessee didn t undertake any transfer/sale of immovable property in AY 2016-17 then no capital gain to be taxed in the hands of the assessee for AY 2016-17; and if it is found that the assessee along with ten (10) co-owners have sold immovable property for Rs 9.08 Crs in AY 2016-17 then AO to assess the capital gains from such transfer of property in accordance to law; after giving opportunity to assessee. Penalty u/s.271(1)(c) for concealment of income - HELD THAT -Nassessee which emanates from the Assessment order u/s.147 r.w.s.144 of the Act dated 27.03.2022 which has been set aside back to the file of the JAO for limited purpose to examine whether assessee had carried out any transfer of immovable property in AY 2016-17; and if the answer is in the affirmative then AO to assess the capital gains from such transfer of property and thereafter the AO to proceed against the assessee in accordance to law for levy of penalty. then AO to assess the capital gains from such transfer of property; and if it is found that the assessee didn t undertake any transfer/sale of immovable property in AY 2016-17 then no capital gain to be taxed in the hands of the assessee for AY 2016-17 then no penalty to be initiated against the assessee for AY 2016-17. Therefore impugned penalty confirmed by the Ld.CIT(A) is set aside back to the file of JAO with the liberty to proceed against the assessee (levy penalty) after the assessment if any framed against the assessee. Penalty u/s.271F - non-disclosure and non-filing of returns by the assessee - HELD THAT - Penalty u/s.271F can be imposed only if the AO is able to show that assessee had in the first-place taxable income beyond the threshold limit then only the fault can be attributed on the assessee for failure to file return of income u/s.139(1). And since we have set aside the assessment back to the JAO to find an answer to the said question the penalty levied u/s.271F of the Act cannot be sustained and therefore it is set aside back to the JAO and he is at liberty to take action in this regard after assessment is made as ordered. Therefore we set aside the impugned order of the CIT(A) and restore the same back to the file of the AO to take action after the assessment is made as directed for AY 2016-17.

1. ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

Whether the Short Term Capital Gain (STCG) addition for the Assessment Year (AY) 2016-17 was justified given the alleged sale of immovable property by the assessee.
Whether the penalty imposed under sections 271(1)(c), 271(1)(b), and 271F of the Income Tax Act for the AY 2016-17 was valid.
Whether the assessee's failure to file a return of income for AY 2016-17 was justified based on the claim of not having taxable income above the threshold.

2. ISSUE-WISE DETAILED ANALYSIS

Short Term Capital Gain (STCG) Addition

Relevant Legal Framework and Precedents: The reopening of the assessment was based on Section 50C of the Income Tax Act, which deals with the valuation of immovable property for capital gains purposes. The key legal question was whether the sale of property occurred in AY 2016-17 or AY 2014-15.
Court's Interpretation and Reasoning: The Tribunal found that the property sale occurred on 17.02.2014, falling in AY 2014-15, not AY 2016-17. This conclusion was supported by contemporaneous evidence, including assessment orders for co-owners.
Key Evidence and Findings: Evidence included the partition deed, revenue records, and assessment orders for co-owners, which indicated the property was agricultural land sold in AY 2014-15.
Application of Law to Facts: The Tribunal held that the AO's action to reopen the assessment for AY 2016-17 was based on incorrect information, rendering the STCG addition erroneous.
Treatment of Competing Arguments: The Tribunal dismissed the AO's argument that the assessee failed to produce documents before the AO, noting that the first appellate authority has co-terminus powers with the AO.
Conclusions: The Tribunal set aside the Ld.CIT(A)'s order and remanded the case to the AO to verify the facts regarding the sale in AY 2016-17.

Penalty under Sections 271(1)(c), 271(1)(b), and 271F

Penalty under Section 271(1)(c):
- Legal Framework: This section pertains to penalties for concealment of income or furnishing inaccurate particulars of income.
- Reasoning and Conclusion: The penalty was set aside as the assessment was remanded to verify the occurrence of the sale in AY 2016-17. The AO was given liberty to reassess the penalty post-verification.
Penalty under Section 271(1)(b):
- Legal Framework: This section deals with penalties for failure to comply with notices.
- Reasoning and Conclusion: The penalty was partly upheld, reduced to Rs.10,000, considering the assessee's participation in appellate proceedings.
Penalty under Section 271F:
- Legal Framework: This section involves penalties for failure to furnish a return of income.
- Reasoning and Conclusion: The penalty was set aside as the AO needed to establish if the assessee's income exceeded the threshold, necessitating a return.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "In order to reopen an assessment, the AO should have reason to believe, assessment of income as stipulated by Sec.147 of the Act. 'Reason to believe' postulates foundation based on information and belief based on reason."
Core Principles Established: The Tribunal emphasized the necessity of accurate information as a foundation for reopening assessments and the importance of co-terminus powers of appellate authorities.
Final Determinations on Each Issue:
- The STCG addition for AY 2016-17 was set aside, with the case remanded to the AO for verification of the sale transaction's timing.
- The penalties under sections 271(1)(c) and 271F were set aside, contingent upon the AO's findings on the sale transaction.
- The penalty under section 271(1)(b) was partly upheld, with a reduction in the penalty amount.