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TMI Blog2010 (11) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... & brevity we will take up the facts from appeal in ITA No.2128/Ahd/2010 for the assessment year 2002-03 and decide the issue. The assessee has raised the following ground No.01:- ITA No.2128/Ahd/2010 "01. On the facts and circumstances of the case as well as law on the subject, the learned CIT(Appeals) has erred in confirming the action of the Assessing Officer in levying the penalty U/s. 271(1)© of Rs.8,18,251/-" 3. The brief facts leading to the above issue are that the assessee is an individual and filed its return of income for the assessment year 2002-03 on 09-08- 2002 declaring total income at Rs.98,259/-. The assessee is regular income tax assessee and is filing returns of income since past several years and is assessed with ITO Ward-2(4), Surat in individual status. The assessee has earned income from sources such as textile business, rental income etc. and the same is duly reflected in the regular return of income filed. The returns of income filed for each of the assessment years 2002-03 to 2005-06 have been accepted u/s.143(1)(a) of the Act. The assessee filed an application u/s.273A of the Act for the assessment years 2002-03 to 2005-06 before CIT, Surat on 07- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,47,281 1,75,941 7,23,222 26,22,287 53,63,354 27,41,067 2003-04 4,30,007 6,36,932 10,66,939 26,31,812 42,,14,064 15,82,252 2004-05 1,56,366 3,17,161 4,73,527 10,78,074 15,32,387 5,54,313 (RS No.64) Table-B F.Y. Purchase cost Development Cost Total Cost Index Cost Sale Value LTCG 2002-03 4,95,040 1,11,899 6,06,939 17,75,680 34,11,135 16,35,455 2003-04 4,18,880 4,35,570 8,54,450 18,93,776 28,86,345 9,89,180 2004-05 1,90,400 2,71,542 4,61,942 9,67,566 13,11,975 3,44,409 5. The Assessing Officer in view of the above submissions worked out the capital gain for the year under consideration as under:- A.Y. R.S. Total cost Index Cost Sale Value LTCG 2002-03 57/1,57/2,58,62& 63 7,24,014 30,84,300 70,95,337 40,11,037 Total 40,11,037 He further noted that the assessee failed to offer this longer term capital gain of Rs.40,11,037/- in the original return of income. Therefore, this long term capital gain (LTCG for short) was to be added to the total income of the assessee and accordingly notice u/s.148 was issued. The assessee offered this amount of LTCG in the return of income filed in response to Notice u/s.148 of the Act. The Assessing Officer accepted this LTCG offered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is of the considered view that the assessee is liable to be penalized u/s 271(1)(c) of the Act as the assessee has committed mistake by not offering an amount of Rs.40,11,037/- being LTCG in the original return furnished and for this he placed reliance on the decision of Hon'ble Kerala High Court in the case of Anand Liquors v. CIT (1998) 232 ITR 35 (Ker). Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) confirmed the levy of penalty by giving following findings in para-6 to 6.2 of his appellate order:- 6. I have carefully considered both the positions. The fact remains that the Assessee had failed to disclose the LTCG earned by him over a period of four years including the year under consideration, which meant that his case was squarely covered by clause© to section 271(1) of the IT Act. He had thus "concealed the particulars of income or furnished inaccurate particulars of such income, …" Penalty therefore, was clearly leviable on the LTCG concealed by the Assessee during the year. It has been argued by the AR that the LTCG had been disclosed voluntarily and in good faith through the petition filed u/s.273A of the IT Act before the CIT-I, Surat. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to an agreed addition. The Hon'ble Supreme Court , while deciding the case of K.P.Madhusudan V/s CIT (2001) 251 ITR 99 reversed the view taken in Shadilal Sugar & General Mills. In the case of K.P. Madhusudan, the Assessee had taken certain loans which he could not prove with sufficient evidence. He therefore, offered the same sum as addition al income. Penalty u/s.271(1)© was levied. The ITAT deleted the penalty but the High Court held that the imposition of penalty was valid. "The Explanation to section 271(1)(c) is a apart of section 271. When the AOO or the Appellate Assistant Commissioner issues a notice under section 271, he makes the Assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under section 271 the Assessee is put to notice that, if does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his since or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section. No express invocation of the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scenario, there ought to be no question of levy of penalty and the penalty thus levied is without any justification and liable to be deleted. The Ld counsel for the assessee referred to various case laws of Hon'ble High Courts and of Hon'ble Supreme Court, which we will deal with when we will give our findings on this issue. 8. On the other hand, the Ld SR-DR, Smt. Shilaja Rai supported the orders of the lower authorities and stated that the assessee has concealed the capital gain earned from land transactions for four years as the original return filed by him, the assessee has not declared these transactions. She stated that in case of voluntary offer the assessee ought to have included the same in the original return of income or could have revised the return of income within the stipulated time. According to her, the assessee was under constant fear of detection by the Investigation Wing of the Department, who during the relevant period has conducted inquiries and investigations into under valuation of land transactions emerging from Stamp Valuation Authority i.e. the Registrar or Sub-register registering the land transactions. She further stated that the assessee made an attem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 FOR ASSESSMENT YEARS 2002-03 TO 2005-06 MOST RESPECTFULLY SHEWETH; 1. The Applicant is regular income tax assessee and is filing return of income since past several years and is assessed to Income tax with ITO ward 2(4), Surat having PAN No.ACYPC3171A in the capacity of individual. 2. The Applicant has earned income from sources such as Textile Business, Rental Income etc. and the same is duly reflected in the regular return of income filed. The return of income filed for each of the assessment years 2002-03 to 2005-06 have been accepted u/s.143(1)(a) of the Act accepting the returned income. The details of filing of the return of income for each of the above assessment years and subsequent years is as under:- Asst. Year Date of Filing Return Returned Income Returned filed with ITO 2002-03 02.08.2002 98,259 Ward 2(4) 2003-04 25.03.2004 1,00,866 Ward 2(4) 2004-05 24.03.2005 1,26,900 Ward 2(4) 2005-06 28.03.2006 1,25,340 Ward 2(4) 2006-07 02.01.2008 14,72,124 (Revised) Ward 2(4) 2007-08 02.01.2008 8,13,974 Ward 2(4) Back ground & history of the Applicant: 3. The Applicant is an individual aged 56 years, residing at 2/716, Bhandariwad, Sagrampura, Sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contractor expired on 11.07.2002 and thus, his share in RS No.63 was then given to his sons Shri Paresh & Shri Devendra. The respective share in the land is worked out as under:- Division of share As certain piece of land i.e. RS No.57/1, 57/2, 58 & 62 are owned by the applicant Balvantrai solely and other land RS No.63 jointly with applicants brother Harshadrai and that the development work of the land was under taken as a combined single entity for the whole land for all above R.S. Nos. the respective share in the land has been determined in the ratio of their respective holding in the total volume of the land. Name RS No.57/1, 57/2m 58 & 62 RS No 63 Total Land B.S. Contractor 28,021 sq.mt. 16,895 44,916 H.S. Contractor - - 16,895 16,895 28,021 33,790 61,811 After the death of Harshadbhai Contractor on 11.07.2002 his share of land has gone to his two sons Paresh & Devendra in equal ratio. Accordingly the year-wise ownership ratio will be as follows:- F.Y. 2001-02 735 Balvantrai 27% Late Harshadrai From F.Y. 2002-03 73% Balvantrai Contractor Onwards 13.5% Paresh Contractor 13.5% Devendra Contractor D) Majaura (Surat) Land: 10319 sq.mt. RS No.64 was owned by one Gamanbhai P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 55(2) of the I.T Act. The applicant submits that the fair market value as at 1/4/1981 as per the Approved Valuer is Rs.225/- per sq.mtr. Thus, the applicant has considered the said value as cost of acquisition of the plots of land for the land owned prior to 1981 and @ Rs.320 p.s.m. being the actual cost of acquisition in the year 1985 for the land bearing RS No.64. 8. The applicant further submits that certain expenses were incurred for the improvement of land towards the development of the plots and for electricity from assessment year 2003-04, per putting necessary infrastructure in place at the site which is also taken into consideration while determining and computing the total capital gains. The details of thee total cost of land along with details of cost of improvement are enclosed as per Annexure-I. 9. The applicant submits that possession of different plots was given in the above assessment years and the agreements to sale were made with each party for these plot @ Rs,.6500/- to Rs.8500- per plot. Over and above this, the development charges and electricity charges were also recovered separately. 10. The applicant submits that in the regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions for the waiver of the penalty as per the provision of section 273A i.e. i) The non-exercise of the power for waiver of penalty would cause genuine hardship to the applicant; ii) The applicant has always co-operated with the department; iii) The applicant has willingly paid the entire tax with interest and has always cooperated and there is no amount of tax due and recoverable from the applicant; iv) The applicant has as stated above, voluntarily and in good faith prior to any detection by the Assessing Officer made full and true disclosure of income. 16. The applicant submits that he is an individual and old aged and poor health and the non-waiver of penalty imposable u/s.271(1)© would cause genuine hardship to the assessee. 17. As the applicant satisfies the requisite conditions, it is submitted that the Commissioner in exercise of the powers conferred upon him my in the circumstances of the case kindly waive the penalty leviable u/s 27(1)© of the Income-tax Act. 18. The applicant submits that no application u/s.273A of the Act was made earlier and thus no benefit whatsoever was obtained under provisions of Section 273A of the Act earlier. 19. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst penalty imposed U/s.271(1)© for A.Y 2002-03 to 2005-06 by ITO Ward 2(4) before C.I.T. (Appeals)II. We wish to withdraw the application filed by us u/s.273A. Thanking You Yours faithfully, Sd/- (BALVANTRAI CONTRACTOR)" 12. Now, we have to go to the assessment order framed by the Assessing Officer u/s.143(3) r.w.s. 147/148 of the Act. The very basis of the assessment order and reasons for reopening u/s.148 of the Act are that, the assessee has filed an application u/s 273A for waiver of penalty on land transactions which gave rise to LTCG to the assessee and not disclosed in the regular returns of income, the CIT, Surat passed on the information to the Assessing Officer. The relevant para-2 and 3 of the assessment order reads as under:- I"2. In this case an application U/s.273A of the Income-Tax Act for the Assessment Years 2002-03 to 2005-06 was filed by the assessee before the Commission of Income Tax-I, Suat on 07.01.2008 for waiver of penalty to be leviable u/s.271(1)(© of the Act. With the application assessee had filed revised computation of total income. The same was field due to the land transaction carried out by the assessee during F.Y 2001-02 to 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase on merits, any facts said to be disclosed in such offer have altogether to be excluded and then it becomes incumbent on the department to resort to the usual assessment or the best judgment assessment, as the case ma be, and in that event the department would be empowered to impose the minimum penalty impossible under the section. The attempt of the department was on the lines "heads I win tails you lose". Such an interpretation of section 271(4A) of the Act can evidently not be permitted and we feel that the Appellate Assistant Commissioner and he appellate Tribunal were correct in holding that in the event of there being no settlement, the disclosures made in the offer ought to be excluded from consideration altogether. If the department's contention were to be accepted, it would defeat the very purpose of enacting section 271(4A) of the Act. We may observe that unless the offer is accepted and acted upon by the department, the other sub-sections of section 271 will be attracted in the matter of imposition of penalty and the two provisions cannot be allowed to be mixed up to the entire advantage of the department and disadvantage of an assessee. We, therefore, do not think th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion report, it was clearly pointed out that no materials relating to the money lending business was found out. This fact was admitted even by the Departmental Representative. It was also admitted by the Department that the information came from the assessee without any suggestion or detection from the Department. A notice under s. 143(2) was issued fixing the date of hearing on 7th Oct.1972 which is long after the settlement petition to the CIT. This would show that no enquiry was made with reference to the return filed and no question was asked by the ITO as to the basis he is going to adopt for distributing the total income of Rs.4 lakhs for determining the income for the respective assessment years. The Explanation was acting as a rule of evidence. Simply because there is an arithmetical difference between the returned income and the assessed income, penalty under s. 271(1)© is not warranted. It is always open to the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or willful neglect on this part. In the present case, the ITO did not detect any concealment while completing the assessment. So also the inspection report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disclosure is liable to be treated as voluntary having been made without any compulsion or constraint of exposure to adverse action by the Department. In a case where the assessee has disclosed not only the income regarding which the Department has incriminating material, but has also disclosed the income with regard to which no incriminating material was seized by the Department, the disclosure of the income with regard to which the Department has no incriminating material, is liable to be treated as voluntary. For example, if an assessee is having five accounts and the Department has incriminating material with regard to one of those accounts only, the disclosure of income relating to four accounts with regard to which the Department has no incriminating material, is voluntary, because it was made without any constraint or compulsion, even though the disclosure of the income relating to the account regarding which the Department has incriminating material, is liable to be treated as non-voluntary. The same principle will apply to the disclosure made under s. 18B of the WT Act, because under the said section also the disclosure must be made voluntarily and in good faith. Word ..... X X X X Extracts X X X X X X X X Extracts X X X X
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