9911796707
TMI Blog1999 (10) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... 1991 (hereinafter called the "Act"). Thus the income disclosed for the year was under two heads, viz. business loss and the profit under the head capital gains. The net taxable income worked out by the assessee-firm was at ₹ 26,16,299. 3. Before the AO, two questions were raised for his consideration : (i) "Whether the assessee's claim that the land in question disposed of by the assessee is a capital asset and not a business asset i.e. stock in trade? (ii) If the answer to Issue No. 1 is in the affirmative (it is the capital asset), then whether the assessee could bifurcate this sale consideration in respect of the capital asset into two parts'one in the nature of a capital receipt and the other in the nature of business receipts, thereby claiming deduction under s. 48(2) and also business loss." 4. The AO treated the entire receipt as a one composite receipt in respect of transfer of capital asset. Being aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) examined the nature of right in property by applying the various legal tenets and found that the receipt in question cannot be construed to be a 'capital receipt' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt during the appellants proceedings and after hearing the assessee. The assessment as enhanced by the CIT(A) has been finally upheld by the Tribunal in Appeal No. 3653/Bom/1994. The reference application of the assessee under s. 256(2) is pending before the Honourable Bombay High Court on this order of the Tribunal. 9. CIT(A) initiated penalty proceedings under s. 271(1)(c) and after giving the assessee an opportunity of being heard the above penalty has been imposed. It shall be pertinent to mention here that the assessee-firm is a group of firms and the other sister concerns are M/s Omega Associates and M/s Crescendo Associates etc. In these cases also the assessments were enhanced and penalty under s. 271(1)(c) was also imposed similar terms and circumstances. At the time of hearing the learned counsel for the assessee took us through chronology of events and facts of the case which are summarised as under. 10. On 28th Jan., 1984, the assessee-firm entered into an agreement with Shri C.B. Sharma, who was having rights in certain parcels of lands or ground situate laying and being at village Tirandaz admeasuring 52,925.27 sq. yds. equivalent to 44261.09 sq. mtrs. in the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "(i) Shri C.B. Sharma, party of the second part was possessed and seized of the land prior to 12th May, 1983, (p. 4). This averment was made without considering the notification/order issued under s. 10 of the ULCR Act, 1976 because under s. 10 of the ULCR Act right in land might have vested in State Government earlier. (ii) The Government of Maharasthra published a Notification No. BMRDA/2076/1100/CR 84/Part II/UD-4 dt. 12th May, 1983, in Government Gazette to acquire such land in pursuance of sub-s. (1) to s. 32 of BMRDA Act and accordingly various lands including the land Shri C.B. Sharma vested in the State Government upon the publication of the said notification (p. 5). Under this agreement, Shri C.B. Sharma offered to the MTNL (assignees) to assign and transfer the benefits of the said agreement to lease dt. 19th Nov., 1986 in respect of the land in favour of MTNL (assignee) (p. 9). (iii) BMRDA (confirming party) approved the terms and conditions of agreement and undertook to execute a final lease in favour of MTNL (assignees) upon the full payment of the consideration at the rate ₹ 1,300 per sq. mtr. to the appellant firm (party of first part) as authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver a long period of time and constitute a series of events one leading to other. The conduct of the assessee clearly shows that what was contemplated to have purchased a bundle of rights including a right to get the conveyance of immovable property executed in favour of the assessee-firm. The agreements are valid agreements as per the canons of the law and no illegality can be attributed to them. The fact that the same was treated as transfer by the assessee is evident from the fact that it applied to the appropriate authority under s. 269UL of the IT Act which is a cumbersoms procedure and applicable only to transfers of immovable property. Had the assessee carried an impression that transactions entered into it with Shri C.B. Sharma is not transfer of immovable property it would not have applied for such proceedings which were applicable only to transfer of immovable property. Further, the Appropriate Authority after considering the contents of the agreements and other relevant facts came to a firm conclusion that the documents represent transfer of immovable property and they gave a no-objection certificate working under a statutory provision which contemplates exercise of quas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MTNL to the extent of land is concerned it has to be covered under the chapter 'capital gains' and as the assessee is doing the developmental work as per the specifications of MTNL the same is an adventure in the nature of trade and the same is to be treated under the head 'Profits from business and profession'. The return was accordingly prepared and valid return duly accompanied with audited accounts statement and all other necessary particulars complete in all respects were filed with the AO. Assessment proceedings were lengthy wherein all the aspects of the assessment were properly looked into by the AO. The AO in framing the assessment made certain findings and observations which shall be pertinent to mention in this behalf : "(4.5) The above judicial pronouncements have been gone through and the same found to be applicable to the facts and circumstances pertaining to the case of the assessee-firm and moreover, on the basis of the facts discussed in the preceding para regarding the nature of property, length of ownership and holding, conduct and subsequent dealings, as also absence of frequency, multiplicity of transactions, the assessee's claim that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the above letter of MTNL, it is clear that it was the developed land which was always intended and was actually acquired by the MTNL from the assessee-firm. In the reply filed by the assessee it is claimed that the above letter dt. 13th May, 1988, shows that the land was acquired in the undeveloped land which is found to be factually incorrect. The other correspondence between the MTNL and the land officer of BMRDA vide letter dt. 2nd Sept., 1986, and further letter dt. 20th March, 1987, is of little consequence in deciding whether it was the developed land which was sought to be acquired by the MTNL or otherwise. Although the above letter has also been relied upon by the assessee, the same are found to be not applicable to the issues in question, which happens to be the condition in which the land was proposed to be acquired. (iii) Coming to the bifurcation of the total premium of ₹ 1,300 per sq. mtr. into two parts i.e. ₹ 900 and ₹ 400 per sq. Mtr. It is found that the entire controversy in this regard has been created by the assessee-firm, taking clue from the valuation reports of the Powai lands by the Dy. Director of Town Planning, Greater Bombay, Vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the developer would have been made in this regard. This has not so been done. This is because at the very outset it was the developed land, which was sought to be purchased by the MTNL. It may be mentioned that it was because of such facts that the entire premium of ₹ 4,67,56,233 has been paid by 27th April, 1989. The meaning thereof is that the transaction of sale of the development of the capital asset is taken as complete and it is only an improvement in the complete and it is only an improvement in the condition of the land which is to be carried out by the assessee-firm subsequently." 15. "In view of the foregoing discussion regarding the facts of the case (para 5 to 5.4 and regarding the legal positions in para 5.5 and 5.6), the assessee's claim of the said bifurcation of the premium price on the transfer of land is found to be untenable and is accordingly rejected. As a result, the total sale consideration will be taken as one composite receipt in respect of the transfer of the capital asset (developed land), and the various expenses which have been shown in the so-called P&L a/c for the rejected business activity, have to be treated as cost of improvem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements are on record. All the receipts are on record, the same are duly reflected in the account books from time to time over a length of time. 15. The counsel of the assessee now came to the enhancement order of the CIT(A). It was however contended that the bona fides of the assessee is further proved by the fact that it was aggrieved by the orders of the AO to the extent of part of the consideration disclosed under the head 'Profits and gains from business'. Had the assessee an impression that the profits are chargeable under the head 'Profits from business and profession' it had got everything from the AO by treating the entire amount under the head 'Capital gains' even beyond the claim of the assessee in the return of income. The CIT(A) issued an enhancement notice and by a series of arguments/observations and technical interpretation came to the conclusion that the entire receipt is taxable under the head 'Income from profits & gains of business or profession'. The Tribunal also has upheld the view again on technical interpretation of the various terms and a very strict legal work out has been made. The assessee is in reference petition in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for showing receipt of ₹ 1,43,55,764 on account of land development expenses. The assessee-firm has received only the composite receipt of ₹ 4,66,56,233 from MTNL on behalf of Shri C.B. Sharma, as compensation for acquisition of land of Shri C.B. Sharma. The fixation of price of developed land at the rate of ₹ 1,300 and undeveloped land at the rate of ₹ 900 by the Director of Town Planning does not provide any justification for bifurcating the compensation of land in two parts. The compensation of ₹ 4,66,56,233 was obviously bifurcated by the appellant for the purpose of tax evasion and such bifurcation was without any foundation in the case of assessee-firm." 17. After drawing above inference, the CIT(A) further held that : "The assessee has not declared the true nature of the receipt from MTNL. The assessee-firm bifurcated the receipt into two parts. The assessee-firm declared the receipt of ₹ 3,23,00,469 as receipt on account of sale of land and receipt of ₹ 1,43,55,764 on account of land development expenses. The MTNL has not given these amounts separately to the assessee and, therefore, the assessee purposely furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the facts of the case and gross and wilful neglect of the assessee-firm in furnishing inaccurate particulars of income, I impose penalty of ₹ 1.30 crores on the assessee which is equal to twice the amount of tax sought to be evaded. The AO is directed to issue demand notice and challan and collect the amount of penalty imposed." 19. The learned counsel further submitted before us that all relevant documents, accounts, agreements, receipts etc. necessary to support the claim of the assessee were enclosed along with the return. During the course of assessment whatever further information, documents, etc. were required by the AO, they were duly supplied. There is no observation by the AO/CIT that the assessee did not furnish or partially furnished or wrongly furnished and details either along with the return of income or as demanded thereafter. The learned counsel vehemently contended that : "It is argued by the learned counsel that the appellant has not concealed the particulars of income, or furnished inaccurate particulars of such income. It is stated that the assessee has disclosed the income in the following manner by the assessee : Chart to show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR (Bom) 377: (1994) 209 ITR 946(P.B. 1, p. 391-407) Lands purchased by assessee from his father, C.B. Sharma which were subject-matter of acquisition proceedings. Departmental authorities held the view that the acquisition compensation to be taxed as Revenue profits. Bombay High Court held that transaction of compulsory acquisition of land did not constitute adventure in the nature of trade. (2) CIT vs. Vijay Flexible Containers (1990) 81 CTR (Bom) 29: (1990) 186 ITR 693(Bom) (Vol. 5, p. 645) Dalmia case (Delhi) has been dissented with has been relied upon by CIT(A) in para 19.2 of penalty order. (3) J. Gala Enterprises Estate & Investment (P) Ltd. & Anr. vs. M. Hassan, CIT & Ors. (1994) 122 CTR (Bom) 160: (1995) 216 ITR 110(Bom) (Vol. 1 p. 368) Held by Bombay High Court that even though lands were subject to ULC Act however an agreement to transfer is not contrary to law or avoid. (4) The Fruits & Vegetable Merchants Union vs. The Delhi Improvement Trust AIR 1957 SC 344 (P.B. Vol. 5, p. 590) That the word vest is a word of variable impart. It does not have a fixed connotation. It may vest in title or it may vest in possession or it may vest in a limited sense. (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Late G.D. Naidu & Anr. (1986) 51 CTR (Mad) 256: (1987) 165 ITR 63(Mad) (P.B. p. 414) No question of any liability to penalty would arise when the assessees were merely contending for a particular position contrary to the view taken by the ITO . (13) Burmah Sheel Oil Storage & Distributing Co. India Ltd. vs. ITO (1978) 112 ITR 592(Cal) (PB p. 416) The rejection of the contentions raised by the petitioner cannot lead to the conclusion that there has been any concealment of the particulars of income by the petitioner or that the petitioner has furnished inaccurate particulars of income. The act of raising the legal contention which the petitioner raised before the ITO and which according to the petitioner are sound and tenable are still being pursued by the petitioner in appropriate proceeding could not constitute fraud of gross or wilful neglect on its part. (14) ITO vs. Burmah Shell Oil Storage & Distributing Co. (1987) 163 ITR 496(Cal) at p. 503 (PB p 420 at 427) Raising of legal pleas or urging question of law for getting relief to which a person might be entitled to or which a person might consider himself to be entitled could never constitute fraud or gross o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. These accounts have been submitted by the assessee from time to time along with the earlier returns of income which have been accepted by the Department without any question. In the impugned year the assessee has divided the receipts from MTNL, a portion into capital gains and portion into development activities based on the bona fide belief of the assessee and the interpretation as per the assessee which resulted from the transactions. The assessee's interpretations reinforced by the fact that the AO not only accepted the version of the assessee about the capital gains as returned but however went further to hold after elaborate examination of documents and arguments that the portion attributed to income from profits and gains of business represents capital gain. This statutory order passed by statutory authority goes to show that the belief harboured by the assessee that its investment in immovable property and the income from other part of it falls under the head 'Capital gains'. This is reintroduced by order of Tribunal under s. 269UL. The conduct of the assessee in challenging the order of the AO further shows that the bona fides and belief reposed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per relevant to compute the income therefrom. On the basis of the material supplied by the assessee if there are two opinions possible and if the assessee computes the income on the one which is beneficial to do, it cannot be charged as an act of furnishing inaccurate particulars. There is no ban under the Income-tax law to say that the assessee should recourse to the interpretation which entails a higher levy of taxes. Having furnished all the relevant details and having furnished computation in accordance with the provisions of IT Act assessee has to invoke some interpretation, its account books, the state of affairs as it believes to be and the expert guidance. After undertaking all these exercise if the assessee on the basis of material furnished formulates the interpretation which is filed with the return and open to the scrutiny of the Department and in fact the scrutiny of the first instance substantially accepted the stand of the assessee, by no stretch of imagination it can be presumed that the assessee has concealed the particulars or furnished inaccurate particulars merely because heads of taxability of income has been changed by the CIT(A) thereby resulting in higher ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an unmistakable finding which has been upheld by the Tribunal that the contracts entered into by the assessee ab initio transfers no right of immovable property in the hands of the assessee. The observations of the CIT(A) in this behalf are as under : "(14.2) I have carefully considered the facts of the case and argument of the learned counsel as mentioned in the preceding paras the appellant has shown the amount of ₹ 3,23,00,469 on account of sale of land. No such amount was separately received by the assessee on account of sale of land. In fact the assessee was never the owner of the land. The land was never purchased by the assessee from Shri C.B. Sharma. The facts and circumstances and legal position were such that even Shri C.B. Sharma could never have sold the land to the assessee despite the agreement dt. 28th Jan., 1984, executed by the assessee with Shri C.B. Sharma. This fact has been confirmed by the Hon'ble Tribunal also. All the facts relevant to the acquisition of the land i.e. that the land was under acquisition and notice under s. 10 of the ULCR Act was issued by the Competent Authority. It was also brought to the notice of the assessee by Shri C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as never the owner of the land and the assessee had no right, title or interest in the land at any time. The assessee could never have acquired any right, title or interest in the land also because Shri C.B. Sharma was not the owner of the land on 28th Jan., 1984. From the dt. 28th Jan., 1984 (date of execution of agreement by the assessee with Shri Sharma) to the date of filing the return of income the assessee never became the owner of the land or acquired any right, title or interest. But the assessee chose to declare the amount of ₹ 3,23,00,469 as receipt on account of sale of land which clearly shows the intention of assessee to evade income-tax by furnishing inaccurate particulars. In view of the various facts and circumstances discussed in my order dt. 25th Feb., 1994, and the order of the Hon'ble Tribunal (dt. 27th Feb., 1994) (para 25 to 29 on p. 14 to 18) it is clear that even Shri C.B. Sharma did not have any right, title or interest in land as claimed by the assessee because Shri C.B. Sharma has no power or right to transfer the land to any person. Therefore the description of sale of land and receipt of ₹ 3,23,00,469 on account of sale of land was absol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah (supra) and in the case of CIT vs. Dharamchand Shah (supra) regarding invoking of the proviso. The learned Departmental Representative was further justified for invoking of Expln. 1. It was further argued that onus of proof lies squarely on the assessee to prove that it has not concealed/furnished any inaccurate particulars of income. Reliance was placed on the decision of Supreme Court in the case of Jeevanlal Shah (1995) 214 ITR 244(SC). The sum and substance of the learned counsel for the Revenue was that it is incumbent on the assessee not only to furnish proper accounts but the computation of income as well shall be furnished in such a way that it represents the correct nature of the transactions and their assessability under the correct head. The assessee had maintained the accounts in such a way by drawing such interpretation from the agreements which do not exist from plain reading of the agreement. Therefore, the accounts submitted by the assessee were intentionally made up to suit the interest of the assessee. Besides the assessability under the head 'Capital gains' and bifurcation of receipts by taking a part into income from business and profession has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements, correspondence, etc. were duly furnished. The accounts of the assessee were prepared over a period of time wherein the land purchased from Shri C.B. Sharma has been shown as asset. The subsequent accounts and returns have been prepared accordingly and the Department did not raise any objection thereon at the earlier occasion. The AO while framing the assessment came to a conclusion that the portion of the receipts shown by the assessee as chargeable under the head 'Income from capital gains is correct. However, he converted part of receipts shown by the assessee as income from business and profession also into capital gains. Thereby clearly holding that all the receipts of the assessee in this behalf were to be taxed under the head 'Capital gains'. We shall mention here while framing the assessment the AO is discharging a statutory function and proceeding of a quasi-judicial authority. As far as assessment is concerned, the mistakes committed by such authority may have bearing on the quantum assessment but we should not forget that while imposing penalty the objective finding given by quasi-judicial authority has some importance in penalty proceedings. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent interpretation of the same material. The Tribunal upholds the order of the CIT(A) in quantum assessment. 26. The CIT(A) goes to support from the findings of the Tribunal that the assessee could not have purchased interest in the immovable property on the basis of agreements which have been supplied by the assessee and goes further to say that as the agreements are not capable of transferring any right in immovable property thereby assessee's claim that it purchased the land from Shri B.S. Sharma is false. As far as further charge of furnishing inaccurate particulars is concerned, the same is concluded on the basis that by bifurcating the receipts from the MTNL the assessee has done the same without justification and the same was done for the purpose of tax evasion. Penalty has been levied mainly on these ingredients. We have considered the rival submissions and perused the materials available on record. As we have mentioned in the foregoing paragraph that on the same material the AO in original assessment held that the income from 'Capital gains' shown by the assessee has to be taxed under the head and went further ahead that the business receipts shown by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee over a period of time, proceeding under s. 269UL filing of the return and the treatment of the AO, the charge of falsity of the accounts cannot be attributed to the assessee. Besides the charges of the CIT(A) that the assessee by bifurcating the receipts has furnished inaccurate particulars also cannot be sustained because what the assessee believed to be state of affairs that was duly returned and it was a question of interpretation which can vary from an authority to authority as is in the present case, the AO in the original assessment holding it to be capital gains and in enhancement of assessment the CIT(A) held it not to be capital gains. The CIT(A) has further held that when the land was never purchased by the assessee declaration of sale in the return of income and the documents enclosed in the return of income has to be considered as false. We are unable to subscribe to these findings of the CIT(A) as we find merit in the counsel of the assessee that assessee believed and was acting under bona fides while harbouring under the belief that the transactions constituted purchase of land and purchase of interest in the land. On this belief, the accounts were prepared over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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