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TMI Blog2016 (1) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/Mum/13 & ITA No. 179/Mum/13 for A.Y. 2010-11. 3. These are the appeals filed by the assessee against two separate orders of ld. CIT(A) - 25 dated 3-12-2012 and 29-11-2012 for the A.Y. 2010-11 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961. 4. Common grounds are involved in both these appeals, therefore, these were heard together and disposed of by this consolidated order for the sake of convenience. 5. Facts in brief are that assessee is an individual and derives income from capital gains and other sources. During the year under consideration, return was filed declaring total income of Rs. 10,35,810/-. Along with return of income, assessee filed a letter dated 20th September, 2010 with the A.O. disclosing the fact of long term capital gain on surrender of lease hold rights not liable to tax as per the decision of Hon‟ble Supreme Court in the case of K.P. Varghese. Advance tax was also paid on such capital gains. The return was processed u/s 143(1) of the Act determining refund of Rs. 1,98,47,869/- thereafter return was taken under scrutiny and during the course of scrutiny proceedings, the A.O. observed that the assessee had paid advance tax of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self-generated assets to the ambit of capital gains taxable u/s 45 of the Act. The A.O. did not accept the assessee‟s contention that leasehold rights are not akin to the tenancy right, therefore, capital gain arose on sale of leasehold rights was held to be taxable u/s 55(2)(a) of the Act. The A.O. also observed that the wording of leasehold right must have been embedded in the word tenancy right specially mentioned in section 55(2)(a) of the Act. By the impugned order the ld. CIT(A) confirmed the action of A.O. against which assessee is in further appeal before us. 8. Contention of ld. AR was as under :- 1.1 Section 55(2)(a) is a deeming provision and hence, has to be strictly construed 1.2 Interpretation of legal terms used in statute - (1958) 9 STC 353 (SC); AIR 1958 (SC) 560 - refer written submissions, para 1.12. The words "lease" , "leasehold rights" "tenancy rights" have been used separately in the Income-tax Act at different places - thereby meaning that the two words have different meaning - (a) Section 55(2)(a) - "tenancy rights" (b)Section 1941, Explanation (i) uses both words - lease and tenancy (c)Section 33A - Explanation 5eiow sub-section (8) =lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enancy rights" , cost of acquisition of which is deemed to be 'nil' and does not refer to leasehold rights (c) Leasehold rights not mentioned in the said section (d) Basis of claim - refer letter to AO dated 8.8.2011 - page nos 62 to 66 of paper book (e) Leasehold rights - no cost no capital amount paid, only annual payments. Decisions 128 ITR 294 (SC) - B.c. Srinivasa Shetty - ratio of the decision 307 ITR 75 (SC) - PNB Finance Ltd - ratio of the decision 1.6 Refer section 55(1)(b) -leasehold rights not mentioned 137 ITR 493 (Bom) Refer page no 66 of paper book for submissions. The value of leasehold rights may fluctuate The value of the rights may fluctuate with - (i) the area of the land, development in the vicinity, future prospect, (ii) any Government notification - declaring Special zone (iii) any Government notification derecognising a particular area for any future developments and so on Thus, the value may fluctuate with every factor relating to business. There can be no account in value of factors creating fluctuation. Thus, as the "leasehold rights" is not mentioned in section 55(1 )(b), the "cost of improvement" cannot be ascertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that leasehold right which is a capital asset is not stated in section 55(2)(a) of the Act, therefore, it is not applicable. However, the A.O. did not accept the assessee‟s contention and came to the conclusion that "leasehold right" as claimed by the assessee is in the nature of "tenancy right". The A.O. also discussed the judicial pronouncements cited by the A.R. and concluded that provisions of section 55(2)(a) (ii) of the Act are applicable and computed the capital gains on transfer of leasehold rights. Even though "tenancy right" and "leasehold right" is not defined under Income Tax Act, but one has to understand the meaning of these terms in common parlance as well as legal parlance. In common parlance, both the terms are interchangeable and has same meaning. The statutory definitions in other legislations explained that tenancy right includes lease right. Thus tenancy right is a wider and broader term capable of conceiving similar and such rights. Accordingly, we do not find any infirmity in the order of lower authorities for taxing the capital gains earned on transfer of leasehold rights. So far as expenses incurred on improvement is concerned, we direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 - Letter dated August 8, 2011 giving detailed reasons why receipt on sale of leasehold rights is not chargeable to capital gains tax. - Letter dated August 11, 2011 giving details of various letters filed during the course of assessment proceedings. - Letter dated September 12,2011 furnishing the Approved Valuer's Report. However, the A.O. did not agree with the contention of the assessee on the ground that leasehold rights is different from tenancy right so as to make the assessee eligible to claim exemption from long term capital gain. Accordingly by declining the assessee‟s claim, the A.O. added the amount of capital gains in the income of the assessee and also levied penalty u/s 271(1)(c) of the Act. 14. By the impugned order, the ld. CIT(A) confirmed the action of the A.O. in respect of levy of penalty u/s 271(1)(c). However, the CIT(A) deleted the penalty attributable to the amount of exemption available u/s.54EC. Aggrieved by this order of ld. CIT(A), both the assessee and revenue are in appeals before us. 15. It was contended by the ld. A.R. that it is well-settled by now that provisions dealing with penalty must be strictly construed. Penalties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76) 102 ITR 548 (MP) B. Muniappa Goundere vs. CIT - (1976) 102 ITR 787 (Mad) The power to impose penalty has to be exercised judicially with due regard to all facts and circumstances of each case and cannot be exercised mechanically. M.P. Laxman v. Agri. ITO - (1986) 157 ITR 1, 9 (Karn Imposition of penalty is not mandatory - It is not mandatory under section 271 that a penalty must be imposed in every case. If the conditions laid down in the said section are established, then the authority concerned "may direct" that the person committing the default within the meaning of the said section pay the penalty imposed and for this purpose reliance was place don CIT vs. Bengal Iron Galvanising Works - (1987) 165 ITR 249,252-53 (Cal) 17. As per the ld. A.R. although penalty has been regarded as an additional tax in a certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed (Jain Bros. v. Union of India, (1970) 77 ITR 107, 116 (SC)). For all practical purposes, proceedings for imposition of penalty, though emanating from proceedings for assessment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars are inaccurate and, hence, the A.O. has not discharged his burden, hence, the impugned order is bad in law. As per the ld. A.R. the A.O. has levied the impugned penalty also for the reasons that since the assessee has paid advance tax, there was no reason available with the assessee for nurturing a belief that the amount received is a capital receipt not chargeable to tax. On absolutely similar facts, the Hon‟ble Delhi High Court in the case of Ravindra Bahl (42 taxmann.com 404) has deleted the penalty under section 271(1)(c). The ld. CIT(A) also in para 4.4 of his order considers the aforesaid issue and states that "I feel that certainly the assessee had envisaged that in case his return is selected for scrutiny, he would get a saving grace from penalty on the basis of said letter filed with A.O. and the payment made of the advance tax including on the likely addition to be made in assessment. The assesee submitted that the ld. CIT(A) is absolutely right in observing thus. It was further contended by the ld. A.R. that the A.O. wrongly applied the decision of Hon‟ble Apex Court in the case of Dharmendra Textiles (306 ITR 277) in so far as the A.O. has relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has filed a letter with the A.O. giving the relevant information to the effect that capital gain accruing on account of sale of leasehold rights in the property situated at Goregaon was not included in the computation on the plea of self generated assets. Furthermore, a note was given at the end of the computation of total income placed in the return of income so filed to the effect of sale of leasehold rights and the claim of the assessee that the same is not exigible to tax. Such note was as per the advice of the Chartered Accountant of the assessee and the assessee has also paid advance tax on the transactions of sale of leasehold rights and on the advice of Chartered Accountant the same to be not chargeable to tax, accordingly advance tax was claimed as refund. Even during the course of assessment proceedings, the assessee has furnished following details:- - Lease Agreement dated 8th February, 1952 - Sale Agreement dated 18th December, 2009 - Conveyance Deed dated 13th March, 2010 - Letter dated August 8, 2011 giving detailed reasons why receipt on sale of leasehold rights is not chargeable to capital gains tax. - Letter dated August 11, 2011 giving detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue was accepted, then the case of every return where the claim made is not accepted by the A.O. for any reason, the assessee would be slapped with penalty u/s 271(1)(c) of the Act. That would clearly not be the intendment of the legislature. Furthermore, nowhere the A.O. has stated what is false in the claim of the assessee. However, the taxability of receipt on surrender of leasehold rights is not an "open-and-shut case", it is an arguable caseand debatable matter and it cannot be termed as „false claim‟. Even during the quantum proceedings before the Tribunal, the assessee has given detailed arguments regarding his claim and has distinguished all the case laws cited by the A.O./CIT(A). 24. The Hon‟ble Delhi High Court in the case of Ravindra Bahl (42 taxmann.com 404) has deleted similar penalty u/s 271(1)(c) of the Act by observing as under:- "I feel that certainly the assessee had envisaged that in case his return is selected for scrutiny, he would get a saving grace from penalty on the basis of said letter filed with A.O. and the payment made of the advance tax including on the likely addition to be made in assessment. The assessee submitted that the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient cause for deletion of penalty. The Court went on to hold that assessee ought not to be made to suffer penalty for having acted upon an advice of its chartered accountant and not filing the income-tax returns in time. The Court should not be understood as laying down a general proposition that in all cases where the assessee fails to file returns in time and attributes the failure to an advice by its chartered accountant, that by itself constitutes a sufficient cause. Each case would have to be tested on its merits by the authorities concerned or the Court, as the case may be, for coming to a conclusion that sufficient grounds have been made out for not imposing a penalty for the failure. 27. With regard to the ld. D.R.‟s contention that the assessee has paid advance tax to cover up the liability that may be fastened on him in the eventuality of the contention not finding favour of the Department, we found that the assessee was alive to the fact that his contention may not sail through and hence, paid advance tax to keep the chargeability of interest under the Act good bay. Furthermore, we find that had there been no refund, the case would not have been selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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