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TMI Blog2008 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was more than what was declared in the relevant agreement and this being the undisputed position, we are of the view that the action of the Assessing Officer in adopting the fair market value on the basis of the District Valuation Officer s report as sale consideration for computing the higher income under the head Capital gain itself was not tenable in law and the addition made on the basis of such action cannot be treated as concealed income of the assessee to attract the penalty. Moreover, as held by the hon ble Madras High Court in the case of Apsara Talkies [ 1981 (11) TMI 2 - MADRAS HIGH COURT] and by the hon ble Supreme Court in the case of Dilip N. Shroff [ 2007 (5) TMI 198 - SUPREME COURT] , the valuation made by the District Valuation Officer is an estimate which can be a basis for making addition to the income of the assessee for the purpose of assessment, but the same alone cannot be the basis to construe concealment for the purpose of imposing penalty under section 271(1)(c). Therefore, we are of the view that considered from any angle, the penalty imposed by the Assessing Officer u/s 271(1)(c) was not sustainable and the ld CIT (A) was fully justified in cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years. He held that even though the main object of the assessee company was defined in the memorandum and article of association, the same by itself was not sufficient to confirm that it was actually engaged and had carried out such business activity. He, therefore, held that the land and building sold by the assessee was its capital asset and the income arising from sale thereof was chargeable to tax as capital gain and not as business income. He also made a reference under Section 55A to the DVO to estimate the market value of the said property as on the date of sale i.e. 10.3.2003 as well as the cost of construction of the building. In his valuation report submitted to the AO, the DVO estimated the market value of the said property as on 10.3.2003 at Rs. 2,44,16,000/- and the cost of construction of the building at Rs. 62,65,852/-. Adopting these values estimated by the DVO, capital gain arising from the said property sold by the assessee during the year under consideration was worked out by him at a negative figure i.e. loss of Rs. 64,41,983/- as per the working given below: Rs. Rs. Sale consideration 2,44,16,000 Less : Indexed cost of land 2,45,92,131 (Rs. 1,62,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made for ascertaining FMV of the assets or for determining the cost of construction incurred by the assessee. 5. The assessing officer with a prejudice mind has taken the FMV of the property estimated by the valuation cell as sales consideration while on the other hand has ignored the cost of construction which was incurred by the assessee in the pervious year and accepted by the department. There by denying the assessee its legitimate right deducting the actual cost from the sales realization. 6. For the sake of argument even if it is presumed that the matter has been rightly referred to the valuation cell for determining the fair market value then the assessee should have been given the following benefits: a) The matter has been referred to the valuation cell for determining the fair market value of the assets sold. In such circumstances only sales consideration declared by the assessee which was Rs. 1.25 crores should be supplemented with the fair market value as estimated by the valuation cell without disturbing the actual cost of construction adjusted to benefit of indexation. b) The cost of construction as declared by the assessee should be given the benefit of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty proceedings can not be imposed, same also stand rejected because of amendments brought in the Explanation 4 to Section 271(1)(c) and also omission of the Sub-clause (iii) of Section 271(1)(c) of the Income-tax Act, 1961. My view has found support from the decision of jurisdictional Delhi High Court in the case of CIT v. Aditya Chemicals Ltd. However, on the merits of the facts I find that it is not a case of either furnishing inaccurate particulars of income or concealment of its income. It could be true that the assessee had not filed initially an appeal against the quantum additions but same can not be foundation for levying the penalty under Section 271(1)(c). Concealment proceedings and assessment proceedings are independent to each other. The consideration for not preferring an appeal against the quantum addition could be totally different because there is no tax liability on the assessed income and also there is no further continuation of the business and, therefore, there was no justification to bear the cost of legal expenses. The principle laid down for imposing the penalty under Section 271(1)(c) of the Income-tax Act, 1961 by various courts of law including Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Valuation Officer for the purpose of capital gain as there is no provision in the Income-tax Act. Moreover, in the case of the appellant, the cost of construction has been disclosed by the assessee in its return of income for last many years which was never disputed by the Department. Therefore, the cost of acquisition of the asset should have been adopted by the Assessing Officer by giving the indexation on the cost of land and also on the cost of construction as disclosed in its return of income. Therefore, the working of the Assessing Officer even if it is presumed that the said transaction is a capital gain transaction, working out the long term capital loss is patently incorrect. Furthermore, appellant has vehemently objected the treatment of the whole of the transaction as a capital gain transaction instead of business transaction because the assessee had consistently been filing its return of income and showing the said transaction as business transaction in last several years. The Assessing Officer had not brought anything on record to prove that the cost of construction has been inflated by the assessee or there has been any suppression in its sale considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that the returned as well as assessed income being loss, the penalty Under Section 271(1)(c) was not leviable by relying on Explanation (4) to Section 271(1)(c) inserted in the statute w.e.f. 1.4.2003. He, however, accepted the contentions raised on behalf of the assessee company before him challenging the imposition of penalty on merits and cancelled the penalty so imposed by the AO Under Section 271(1)(c). Aggrieved by this relief allowed by the learned CIT(A) to the assessee, the Revenue has preferred this appeal before the Tribunal. 9. Before us, the learned DR strongly supported the order of the AO imposing penalty Under Section 271(1)(c). He submitted that as noted by the AO in the assessment order, there was no evidence to show that the assessee company had been engaged in the business of real estate. He submitted that as further pointed out by the AO, the land and building in question was shown by the assessee company as its fixed asset in the balance sheet and not as stock-in-trade which clearly fortified the fact that the said property was not developed by the assessee company during the course of its business but the same was acquired and held as a capital asset. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of construction incurred by the assessee on the said building was to the tune of Rs. 2,12,18,084/- as recorded in its books of account and the AO was not justified in referring the matter of valuation of the said construction to the DVO without pointing out any defect in the books of account of the assessee regularly maintained. He contended that there was also no evidence brought on record by the AO to show that any consideration over and above what was shown in the relevant agreement had been actually received by the assessee from the purchaser of the property in question. He submitted that there was no doubt a mistake committed by the assessee company in showing the said property as fixed assets in its balance sheet for the year under consideration, but the same was not conclusive or even sufficient to change the head under which the resultant loss was claimed from business income to capital gain. He contended that change of such head of income, in any case, cannot be treated as concealment for levy of penalty Under Section 271(1)(c). In support of this contention, he relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Aurick Investment & Securities L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the penal provisions contained therein. 12. It is also observed that while computing the profit/loss arising from the sale of the aforesaid property under the head "capital gain", the fair market value of the said property as on the date of sale as valued by the DVO at Rs. 2,44,16,000/- in a report obtained by making a reference Under Section 55A was adopted by the AO as sale consideration in place of the sale consideration of Rs. 1,62,00,000/- shown in the relevant agreement. As is evident from the order of the AO, there was, however, no material available on record before him to show that something more than what was shown in the agreement as sale consideration had been actually received by the assessee. In the case of Mamta Mahajan and Ors. v. ITO 86 TTJ 120, this Tribunal has held that the AO is not competent to make a reference Under Section 55A to determine fair market value of the asset in order to use the same as a sale consideration unless he brings the material on record to prove that the assessee has received more consideration than what he has declared. Relying, inter alia, on the decision of Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee before the learned CIT(A) and accepted by the latter vide his impugned order, even if such indexation benefit is appropriately allowed in respect of cost of construction, the resultant income would be less than what was shown by the assessee. 14. Moreover, as held by the Hon'ble Madras High Court in the case of Apsara Talkies (supra) and by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) cited by the learned Counsel for the assessee, the valuation made by the DVO is an estimate which can be a basis for making addition to the income of the assessee for the purpose of assessment, but the same alone cannot be the basis to construe concealment for the purpose of imposing penalty Under Section 271(1)(c). 15. As such, having regard to all the facts of the case as discussed above, we are of the view that considered from any angle, the penalty imposed by the AO Under Section 271(1)(c) was not sustainable and the learned CIT(A) was fully justified in cancelling the same. The impugned order of the learned CIT(A) is, therefore, upheld dismissing this appeal filed by the Revenue. 16. In the result, the appeal of the Revenue is dismissed. Decision pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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