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TMI Blog2025 (2) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... gs, the Assessing Officer referred to the various questions put to the assessee especially question no.11 and 13, details of which are as under: "Q.11 "Please explain how the land on which the project has been constructed has been introduced into the books for the purpose of project development and explain the tax implication of the same as said land was a capital asset and when the same was introduced into business it becomes a business asset" Ans: This land was inherited by me i.e. Mr.Ramchandra Jadhavrao and was held as capital asset till F.Y. 2010-11. Then when the said land was introduced for the project Purvarang, this land was converted by me, as suggested by my Tax Consultant, into Stock in trade in financial year 2010-11 at the value of Rs. 93.15 crores (entire land) as determined in accordance to the valuation report dated 01/03/2011 obtained from Sh A.S.Nadgauda, registered Govt approved valuer. The resultant total Long term Capital Gain thereon will be offered to tax proportionately as and when it is sold in accordance with Section 45(2) of the Income Tax Act. Further, for A.Y.2016-17, the proportionate capital gain in respect of buildings C1, C2 and C3 (partial) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are different proceedings from each other and they have no impact on each other. Also if the stand of assessee is to be considered, it would encourage other taxpayers also to not to disclose the correct income in the return and if caught, to pay only the taxes and no penalty, on such detected income. 06. From the discussion above, it is evidently clear that the assessee has not furnished any explanation substantiating the circumstances and reasons leading to application of incorrect facts/law as applied by the assessee for computing lesser total income. Further the explanation of the assessee remained to be substantiated with any legitimate supporting evidentiary material and thus the explanation remained to be proved as bonafide. Hence, explanation 1 to section 271(1)(c) of the Act is clearly attracted in this case. 07. From the facts of the case it has been brought on record that the assessee has converted the land inherited by the assessee form capital asset to stock in trade. The reply given by the assessee in his statement is reproduced below: "This land was inherited by me i.e. Mr. Ramchandra Jadhavrao and was held as capital asset till F.Y. 2010-11. Then when the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land into stock-in-trade in the tax audit report for A.Y. 2011-12 does not arise. Further, there is no separate disclosure in the income tax return with respect to conversion of the land into stock-in-trade. 6. However, the Ld. CIT(A) was not satisfied with the arguments advanced by the assessee. Relying on the decision of Hon'ble Supreme Court in the case of MAK Data Pvt. Ltd., vs. CIT [2013] 358 ITR 593 (SC), decision of Hon'ble Delhi High Court in the case of PCIT vs. Dr. Vandana Gupta [2018] 92 taxmann.com 229 (Del.) and the decision of Hon'ble Rajasthan High Court in the case of Grassfield Farms & Resorts Pvt. Ltd., vs. DCIT [2016] 388 ITR 395 (Raj.) he held that penalty u/s 271(1)(c) of the I.T. Act, 1961 is leviable on the income disclosed during the survey proceedings unless the assessee files cogent explanation regarding not declaring the said income earlier. Since the assessee in the instant case has not filed any cogent explanation before the Assessing Officer, he upheld the action of the Assessing Officer levying penalty u/s 271(1)(c) of the Act holding that had there been no survey conducted, the assessee would not have declared any income against the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot contain any clause for showing the conversion of capital asset to stock in trade the assessee did not show the same. Relying on the following decisions, he submitted that when income filed incorporating the income surrendered during survey and the same has been accepted, no penalty u/s 271(1)(c) of the Act is leviable: i) CIT vs. SAS Pharmaceuticals (2011) 335 ITR 259 (Del) ii) Prakash Mithalal Oswal vs. ITO vide ITA No.327/PUN/2019, order dated 18.05.2022 9. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A). He submitted that the assessee never disclosed to the Department that the land was converted into stock in trade in financial year 2010-11 and due taxes on such conversion were paid. The conversion of land was discovered during the survey proceedings only which was conducted on 14.09.2016 and the said fact was kept hidden by the assessee for more than 5 years. Since the capital asset was converted into stock in trade in assessment year 2011-12 and the assessee never disclosed this fact to the department till the survey, therefore, the penalty u/s 271(1)(c) of the Act is clearly leviable on the income disclosed during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose such conversion from capital asset to stock in trade, the assessee could not do the same. Further, the accounts of the assessee were also not subject to any audit for which the assessee was not in a position to do the needful as per the Act. However, the assessee had paid sufficient advance taxes and TDS which covers the liability and the due date for filing of the return has not expired. Therefore, it is not correct to say that the assessee would not have disclosed the conversion of capital asset into stock in trade to the department had there been no survey. Further, the returned income has been accepted without any addition. 12. We find some force in the above arguments of the Ld. Counsel for the assessee. We find the assessee in his statement recorded u/s 131 of the Act during the survey u/s 133A of the Act on 14.09.2016 in his reply to question Nos.11 and 13 has stated the reasons for non disclosure of such conversion of capital asset to stock in trade which have already been reproduced in the preceding paragraphs. Further, during the course of assessment proceedings, on being asked by the Assessing Officer as to whether the fact of conversion of land into stock in trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be strictly construed. Unless the case falls within the four-corners of the said provision, penalty cannot be imposed. Sub-section (1) of Section 271 stipulates certain contingencies on the happening whereof the AO or the Commissioner (Appeals) may direct payment of penalty by the assessee. We are concerned herewith the fundamentality provided in Clause (c) of Section 271 (1) of the Act, which authorizes imposition of penalty when the AO is satisfied that the assessee has either; (a) Concealed the particulars of his income; or (b) Furnished inaccurate particulars of such income. 13. It is not the case of furnishing inaccurate particular of income, as in the income tax return, particulars of income have been duly furnished and the surrendered amount of income was duly reflected in the income tax return. The question is whether the particulars of income were concealed by the assessee or not. It would depend upon the issue as to whether this concealment has reference to the income tax return filed by the assessee, viz., whether concealment is to be found in the income tax return. 14. We may, first of all, reject the contention of the learned counsel for the Revenue relying upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmises, conjectures and possibilities. Section 271 (1) (c) of the Act has to be construed strictly. Unless it is found that there is actually a concealment or non-disclosure of the particulars of income, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the income tax return and offered the surrendered amount for the purposes of tax. 17. We, thus, answer the questions as formulated above, in favour of the assessee and against the Revenue finding no fault with the decisions of the CIT (A) as well as the Tribunal. As a result, this appeal is dismissed." 16. We find the Co-ordinate Bench of the Tribunal in the case of Prakash Mithalal Oswal vs. ITO vide ITA No.327/PUN/2019, order dated 18.05.2022 while deleting the penalty under identical circumstances has observed as under: "3. Having heard the rival submissions and gone through the relevant material on record, it is observed that the assessee was subjected to survey on 13-09-2013. During the course of survey proceedings, the assessee surrendered income of Rs. 50.00 lakh and odd which was promptly included in the return of income filed afterwards. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of survey and as such nothing was included in the return filed after the date of survey on that count. It was during the course of assessment proceedings and in reply to show cause notice filed on 22-11-2006 that the assessee made an offer of surrendering a sum of Rs. 40.74 lakh. The AO accordingly completed the assessment by making this addition and thereafter imposed penalty. It was in this backdrop of the facts that the Hon'ble Supreme Court held that the penalty u/s.271(1)(c) was rightly imposed because the disclosure of the assessee was immaterial. The Hon'ble Supreme Court observed that "Explanation to section 271(1) raises a presumption of concealment, when difference is noted by the AO, between reported and assessed income". It was in this factual scenario where the income reported by the assessee in the return of income was lower than the income finally assessed by the AO, that the Hon'ble Supreme Court held that the penalty was rightly leviable. 5. Turning to the facts of the extant case, it is found that the reported income and the assessed income of the assessee remain same except for minor disallowance of expenses. The AO has imposed penalty only with reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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