No penalty on disallowance of Deduction U/s. 54B claimed under a bona fide belief

Nitinkumar Desai Vs ACIT (ITAT Ahmedabad)

 The case of the assessee is that he has made investment in Gota land to the extent of Rs. 1,09,82,400/-. This investment was made by the assessee within two years of sale of agriculture land. Thus, case of the assessee was that capital gain arose to him on sale of agriculture land was invested in purchase of agriculture land. According to the assessee he was entitled for deduction under section 54B. The AO has cut short his claim by a sum of Rs.85,67,400/- on the ground that this payment was made after due date of filing of return. Thus, the question which arose is whether the assessee has made any deliberate attempt for concealment of income. Whether the assessee could harbor a belief that since he has made an investment of Rs. 1,09,82,400/- in purchase of agriculture land which could have been purchased within two years from the sale of agriculture land and after such an investment no capital gain liability would be upon him. If we compare this belief haboured by the assessee with addition of Rs.84,76,976/- then it would reveal that this Rs.84,76,976/- addition has been resulted on account of not accepting claim of assessee of payment amounting to Rs.85,77,400/-, which is more than the addition made by the AO. In order to show his bona fide the assessee has produced details of payment made to the vendors. The assessee has produced their identity, copy of sale deed and copies of receipts executed by the vendors. To our mind, a layman could easily habour a belief that since he has already invested total capital gain in purchase of new agriculture land, therefore, there might not be any liability of tax qua alleged capital gain. It is a different matter that he has not challenged additionas well as the ld.AO has adopted a different methodology for denying benefit to the assessee. But his explanation was not proved to be false by the Revenue. He has substantiated his explanation with the help of details of payments, copies of sale deed as well as receipts of payments executed by vendors. As far as case law referred by the ld.DR is concerned, it is altogether on different facts. In that case, the assessee had short term capital gain on sale of land which was wrongly claimed as long term capital gain by substituting year of acquisition as 1999 instead of 2004 and said mistake was not brought to the notice of AO suo moto. In this background penalty was confirmed. Here question was whether at the time of filing of return, the assessee could harbor a belief that there is no long term capital gain tax liability upon the assessee. In the given facts and circumstances discussed above, we are of the view that the assessee could easily harbor a belief that there was no long term tax liability upon him. It is a different matter that a belief did not meet approval of the AO. In view of the above discussion, we are of the view that assessee does not deserves to be visited with penalty. We allow appeal of the assessee and delete penalty.

FULL TEXT OF THE ITAT JUDGMENT

Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-20.7 .2017 passed for Asstt.Year 2013-14.

2. Solitary issue involved in this appeal is whether the assessee deserves to be visited with penalty under section 271(1)(c) of the Income Tax Act, 1961 or not.

3. Brief facts of the case are that the assessee has filed his return of income on 25.2.2014 declaring total income at Rs.31,30,820/-. This return was processed under section 143(1) of the Act. Subsequently, case of the assessee selected for scrutiny assessment and notice under section 143(2) of the Act was issued and served upon the assessee. On scrutiny of accounts it revealed to the AO that the assessee has sold agriculture land for consideration of Rs.3,53,48,750/-. The assessee did not disclose long term capital gain on sale of agriculture land. Hence, the ld.AO has invited his explanation as to why he failed to disclose long term capital gain. In response to the query of the AO, the assessee submitted reply wherein he has filed details of transactions in tabular form exhibiting serial number, date, particulars etc. Such details have been reproduced by the AO in para 3 of the assessment order. In order to appreciate the controversy in more scientific way, we deem it appropriate to take note of relevant details, which reads as under:

4. Stand of the assessee was that he has invested alleged long term capital gain on purchase of agriculture land as well as on house. He claimed deduction under section 54B and 54F of the Act. With respect to claim under section 54B the assessee contended that investment in land at Ognaj was made to the extent of Rs.94.50 lakhs and investment at Gota was made to the extent of Rs. 1,09,82,400/- . The ld.AO accepted the claim of assessee under section 54F of the Act i.e. investment made for purchase of a house. However, with regard to claim under section 54B, the AO has accepted investment of land at Ognaj at Rs.95.50 lakhs. With regard to the investment of land at Gota, the AO has accepted claim of the assessee to the extent of Rs.24. 15 lakhs and did not accept balance amount of Rs.85,67,400/-. The reasons assigned by the AO is that he accepted investment upto the payments made by the assessee before filing of the returns. The balance payment was made by the assessee after filing of return but to the same parties. In this way, he computed long term capital gain assessable in the hands of the assessee at Rs.84,76,976/-. The ld.AO has initiated penalty proceedings under section 271(1)(c). He issued show cause notice under section 271(1)(c) r.w.s section 274 of the Act. The ld.AO has observed that income of the assessee has been determined at Rs.1,16,05,796/- as against returned income of Rs.31,30,820/-. The assessee filed written submissions to the show cause notice received under section 271(1)(c) r.w.s section 274. However, the ld.AO was not satisfied with the explanation of the assessee, and he imposed penalty of Rs. 17,45,845/- which is equivalent to taxes sought to be evaded on the addition of Rs.84,76,976/-. Appeal to the ld.CIT(A) did not bring any relief to the assessee.

5. The ld.counsel for the assessee while impugning orders of Revenue authorities contended that section 54B would authorise an assessee to make investment in a capital asset within two years from the date of sale of concerned agriculture land. He pointed out that agriculture land was sold by the assessee on 24.5.2012. Hence, he could have invested the funds in new agriculture land till 3 1.5.2014. The assessee has made investment and made payments to vendors. He took us through details compiled in the paper book at page no.19 wherein he showed complete details of payments made to six vendors starting from 11.9.2012 upto 26.12.2013. He pointed out that identity of vendors is not in dispute. The AO has accepted the claim of the assessee qua payments made upto serial no.9 i.e. payments made upto 20.9.2013. This payment was accepted by the AO on the ground that these were made before due date of filing of return, whereas, the ld.AO ought to have examined the case of the assessee for the payments upto 3 1.5.2014. According to the ld.counsel for the assessee, even if the assessee has not challenged addition made by the AO, that does not mean that he would be visited with penalty. The addition itself is not sustainable. He also took us through evidence exhibiting receipt of payment by all six vendors. On the strength of details, he submitted that there is no mala fide at the end of the assessee. He has not shown capital gain on sale of agriculture land because he remained under bona fide belief that since he has made investment in new agriculture land no capital gain liability is available upon him.

6. The ld.DR, on the other hand, relied upon orders of the Revenue authorities below. He pointed out that the assessee has not disclosed long term capital gain in return of income. Had the case been not taken up for scrutiny assessment, no addition could have been made in the hands of the Therefore, he deserves to be visited with penalty. In support of his contentions, he relied upon the order of the ITAT, Pune Bench in the case of ACIT Vs Vinay A Joneja, 51 taxmann.com533 (Pune-Trib.). He pointed out that this order has been relied upon by the ld.CIT(A). He took us through head-note reproduced by the ld.CIT(A) on page no.8 of the impugned order.

7. We have duly considered rival contentions and gone through the record Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

“271. Failure to furnish returns, comply with notices, concealment of income, etc.

(1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) and (b)** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.

He may direct that such person shall pay by way of penalty.

(i)and (Income-tax Officer,)** ** **

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”

8.  A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

9. In the light of the above, let us examine explanation of the assessee. The case of the assessee is that he has made investment in Gota land to the extent of Rs. 1,09,82,400/-. This investment was made by the assessee within two years of sale of agriculture land. Thus, case of the assessee was that capital gain arose to him on sale of agriculture land was invested in purchase of agriculture land. According to the assessee he was entitled for deduction under section 54B. The AO has cut short his claim by a sum of Rs.85,67,400/- on the ground that this payment was made after due date of filing of return. Thus, the question which arose is whether the assessee has made any deliberate attempt for concealment of income. Whether the assessee could harbor a belief that since he has made an investment of Rs. 1,09,82,400/- in purchase of agriculture land which could have been purchased within two years from the sale of agriculture land and after such an investment no capital gain liability would be upon him. If we compare this belief haboured by the assessee with addition of Rs.84,76,976/- then it would reveal that this Rs.84,76,976/- addition has been resulted on account of not accepting claim of assessee of payment amounting to Rs.85,77,400/-, which is more than the addition made by the AO. In order to show his bona fide the assessee has produced details of payment made to the vendors. The assessee has produced their identity, copy of sale deed and copies of receipts executed by the vendors. To our mind, a layman could easily habour a belief that since he has already invested total capital gain in purchase of new agriculture land, therefore, there might not be any liability of tax qua alleged capital gain. It is a different matter that he has not challenged additionas well as the ld.AO has adopted a different methodology for denying benefit to the assessee. But his explanation was not proved to be false by the Revenue. He has substantiated his explanation with the help of details of payments, copies of sale deed as well as receipts of payments executed by vendors. As far as case law referred by the ld.DR is concerned, it is altogether on different facts. In that case, the assessee had short term capital gain on sale of land which was wrongly claimed as long term capital gain by substituting year of acquisition as 1999 instead of 2004 and said mistake was not brought to the notice of AO suo moto. In this background penalty was confirmed. Here question was whether at the time of filing of return, the assessee could harbor a belief that there is no long term capital gain tax liability upon the assessee. In the given facts and circumstances discussed above, we are of the view that the assessee could easily harbor a belief that there was no long term tax liability upon him. It is a different matter that a belief did not meet approval of the AO. In view of the above discussion, we are of the view that assessee does not deserves to be visited with penalty. We allow appeal of the assessee and delete penalty.

10. In the result, appeal of the assessee is allowed.

Order pronounced in the Court on 13^th April, 2018 at Ahmedabad.