No penalty for Suo-Motto Disclosure of Income before detection by revenue

ACIT Vs Chandrakant G. Patel (ITAT Ahmedabad)

Penalty u/s 271(1)(c) of the Act in the present case was levied on the assessee for failure to return income from sale of agricultural land, held as stock in trade, to tax. The charge of the Revenue being that the assessee had furnished inaccurate particulars of income to this effect. We do not find any infirmity in the order of Ld. CIT(A) who has, we find, after a careful consideration of the facts, which have remained uncontroverted and correct application of law, held that there was no furnishing of inaccurate particulars of income by the assessee so as to attract penalty u/s 271(1)(c) of the Act.

The finding of fact of the Ld.CIT(A) that the said transaction of sale of agricultural land was reflected in the audited profit and loss account of the assessee and the income therefrom disclosed in the return of income filed, though claimed as exempt u/s 2(14) of the Act, remains uncontroverted before us.

The explanation of the assessee for failing to return the said income to tax for the reason that it was under a false impression that the said lands constituted investments of the assessee and did not qualify as capital assets, as per section 2(14) of the Act, thus income earned thereon being exempt from tax, we find has not been found to be outrightly false by the Revenue. As per section 2(14) of the Act rural agricultural lands specified therein do not qualify as capital assets. It is not the case of the Revenue that the lands sold were not rural agricultural lands which did not qualify as capital assets as per section 2(14) of the Act. The contention of the assessee that it held land both as stock and as investments, has also not been controverted by the Revenue. Therefore, we agree with the Ld.CIT(A) that the explanation of the assessee that he mistakenly treated the said transaction as exempt from tax appears bonafide.

That the explanation is bonafide is, we find, supported by the fact that during assessment proceedings the assessee, realizing his mistake even before detection by the Revenue, returned the same to tax. The fact that the assessee surrendered the said income prior to detection by the Revenue is evident from the chronology of events pointed out to us by the Ld.Counsel for the assessee above showing that the income was surrendered on 16-11-16 before the assesses case was converted from limited to complete scrutiny on 28-11-16 and inquiry made for treating the said income as exempt vide questionnaire dated 02-12 -16, which fact has not been denied by the Revenue.

Therefore, the assessee having disclosed all particulars of his income from sale of agricultural land, having furnished a bonafide explanation for not returning the same to tax and having surrendered the said income suomoto before detection by the Revenue, we agree with the Ld. CIT(A) that the assessee cannot be said to have furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act. We therefore uphold the order of the Ld.CIT(A) deleting the penalty levied amounting to Rs.63,39,200/-

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

1. This is an appeal by Revenue against the order dated 26.02.2019 of CIT(A)-3, Ahmedabad in Appeal No.CIT(A)-3/Circle-3(3)/110/17-18, arising out of the penalty-order dated 16.06.2017 of ACIT, Circle-3(3), Ahmedabad u/s 271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2014-15.

2. The Revenue has raised following Grounds:

“1. The Ld. CIT(A) has erred in law and on facts in deleting the penalty of Rs. 63,39,200/- levied by the Assessing Officer u/s 271(1)(c) of the Act.

2. The Ld. CIT(A) has erred in law and on facts in considering the mistake by the assessee as bonafide even though it is clear from the facts of the case that the assessee tried to mislead on the facts of the case which amounted to furnishing inaccurate particulars of income.

3. On the facts and circumstances of the case, Ld. CIT(A) ought to have upheld the order of the Assessing Officer.

4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”

3. Brief facts of the case are that the assessee submitted his return of income for the impugned year on 23.09.2014. The assessment was completed at a total income of Rs. 1,90,64,868/- as against the returned income of Rs. 48,000/-. While completing assessment, the Ld. AO made an addition of Rs. 1,90,16,868/- on account of sale of agricultural lands. The Ld. AO observed that the agricultural lands sold by the assessee were part of stock-in-trade and therefore the exemption claimed by the assessee treating the lands as not being capital assets as per section 2(14) of the Act was not available. Thereafter, vide order dated 16.06.2017, the Ld. AO also imposed penalty u/s 271(1)(c) of Income-tax Act, 1961 treating the addition of Rs. 1,90,16,868/-as representing the income in respect of which inaccurate particulars have been furnished.

4. Being aggrieved by the aforesaid penalty-order dated 16.06.2017, the assessee preferred appeal before Ld. CIT(A). The Ld. CIT(A) considered the submissions of assessee, referred to certain legal precedents and deleted penalty vide Para No. 2.3 to 2.6 of his order by observing as under:

2.3. I have carefully gone through the facts of the case and the penalty order of the AO and the submission of the appellant. In this case, the assessment was completed u/s.143(3) of the I.T. Act, on 23.12.2016 and total income was determined at Rs.1,90,64,868/- making addition of Rs.1,90,16,8687- on account sale of immovable property held as stock-in-trade. The assessee had claimed this land as agricultural land u/s 2(14) of the IT Act 1961 and hence claimed the profits on sale of such land as exempt. During the course of assessment proceedings, appellant has filed letter dated 16/11/2016 wherein profit arising on sale of land which was initially claimed as exempt was offered to tax and AO has passed the assessment order after making addition of Rs 1.90 crore being income offered to tax as business income as stated supra. The AO has subsequently levied penalty u/s 271(1)(c) on such addition and appellant has claimed that above mistake was not intentional and same was offered to tax in assessment proceedings on which penalty cannot be levied.

2.4. On careful consideration of entire facts, it is observed that appellant has classified agricultural land as stock in trade in books of account and profit on sale proceeds of agricultural land was shown as part of total profit on sale of lands of Rs 2,50,16,868/- in audited books of accounts. However, while filing the return of income, such profit on sale of agriculture land though forming part of Net Profit in audited annual accounts, was reduced while computing income from business & profession and claimed as exempt u/s 2(14) of the Act. The claim made in return of income is apparent from computation of total income wherein it is clearly stated that profit on sale of agricultural land is claimed as exempt u/s 2(14) of the Act. it is not the case that appellant has not disclosed any material information in return of income or not shown taxable or tax free computation of profit on sale of agricultural land in return of income. The appellant has in assessment proceedings has claimed that above mistake was made by accountant which was not accepted by AO while levying penalty u/s 271(1)(c) of the Act on ground that in penalty proceedings, it was stated that assesses has wrong impression about the nature of transaction which proves that different stand is taken by appellant. However, this contention cannot be accepted because though return of income is prepared by accountant, it was signed by appellant himself hence it might have happened that both persons due to inadvertence has shown profit on sale of agricultural land treated as stock in trade as exempt. It is observed that appellant has consistently shown land sold during the year as stock in trade in spite of the fact that it was agricultural land and has obtained tax audit report considering the fact that turnover being sale of lands has increased prescribed limit u/s 44AB of the Act. Normally, agricultural land is classified as exempt asset u/s 2(14) of the Act and any gain arising on sale of investment in such land is exempt hence due to inadvertence, appellant might have shown such profit as exempt ignoring the fact that land sold during the year was stock in trade.

2.5 The AO has not denied the fact that land sold during the year in agricultural land hence due to inadvertence, such gain was claimed as exempt. This mistake is bonafide mistake and cannot be held to be intentional mistake to conceal income because gain in present case has become taxable only because land sold during the year was classified as stock in trade in spite of the fact that it was agricultural land and even appellant was also holding certain lands as investments hence under bonafide impression, that appellant has sold land out of such investment, he claimed profit as exempt. The AO has not pointed out that such mistakes are recurring in nature. The nature of asset held by appellant might have created confusion at the time of filing of return of income which was later on rectified by appellant in assessment proceedings and addition made on account of disclosure of higher income in revised computation of income would not lead to levy of penalty u/s 271(1)(c) of the Act. If appellant would have intention of not disclosing correct income, he would not have got his books of account audited considering sale of agricultural land as part of total turnover. The appellant is an individual and though his books of account are audited by chartered accountant, he would not have received high level of professional assistance as is obtained by corporate entity and mistake on part of appellant for disclosing taxable gain as exempt u/s 2(14) would not lead to conclusion that appellant has conceal income.

2.6. The AO has also held that appellant has not voluntarily offered above income as taxable income but same is offered only after detection by AO. It is correct that case of appellant was subject to scrutiny and AO vide letter dated 27/06/2016 has asked appellant to submit details of purchase and sale of immovable properties and appellant has offered above income as taxable income vide letter dated 16/11/2016. It is matter of fact that notice u/s 142(1) of the Act was issued on appellant 02/12/2016 wherein it was asked to put justification for treating business profit as exempt but prior to such notice, appellant has already offered gain on sale of agricultural land as taxable income. The details called by AO vic{e letter dated 27/06/2016 is general details and in such letter, AO has not pointed out that appellant has claimed false claim u/s 2(14) and offered taxable income as exempt income which means that it cannot be said that disclosure made by appellant is only account of detection by AO. It is true that assessment proceedings have already started, appellant has submitted partial details but offer made in assessment proceedings was not on account of specific detection pointed out by AO. These facts also support the contention of appellant that there was no intention to conceal any income and mistake was unintentional as various legal complexity was involved in above transactions as discussed herein above and even on this ground penalty u/s 271(1)(c) cannot be levied. Reliance is placed on decision of Hon:ble Bombay High court in the case of CIT Vs Bennet Coleman & Co Ltd 215 Taxman 93 wherein it is held as under:

“Section 271(1)(c) of the Income-tax Act, 1961 – Penalty – For concealment of income [Bona fide claim, disallowance of] – Assessment year 1999-2000 – Assessee claimed deduction of interest on tax free bonds – Assessing Officer asked assessee to give details of interest on tax free bonds – While preparing said details, assessee noticed that 6 per cent Government of India Capital Index Bonds purchased during year had been categorized as tax free bonds and, therefore, interest earned on such bonds had escaped tax – Thereupon Assessing Officer levied penalty under section 271(1)(c) upon assessee – Tribunal after recorded a finding of fact that there was aninadvertent mistake on part of assessee in claiming interest received on Government of India Capital Index Bonds as interest received on tax free bonds, deleted penalty levied upon assessee – Whether since it was not contended by revenue that above finding of fact by Tribunal was perverse, order of Tribunal deserved to be upheld -Held, yes [Para 2] [In favour of assessee].

The Hon’ble Agra ITAT in the case of Sarv Prakash Kapoor Vs DCIT 26 taxman.com256 has held as under:

“9. We have heard the Id. Representatives of the parties and records perused. The proceedings under section 271(1)(c) can be initiated only if the A.O. is satisfied in the course of any proceedings under the Act that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. The expression used in clause (c) of section 271(1) is ‘has concealed the particular of income’ or ‘furnished inaccurate particulars of such income1. The expression ‘has concealed the particulars of income’ and ‘has furnished inaccurate particular of such income’ have not been defined either in section 271(1)(c) of the Act or elsewhere in the Act. Under the circumstances, such cases are required to be decided considering the facts of the respective cases.

10. In the case under consideration, the CIT(A) heavily relied upon the judgement of Apex Court in the case of Dharamendra Textile Processors (supra). However, subsequent to this judgment, the Hon’ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) has considered the judgment in the case of Dharamendra Textiles Processors (supra). The fallout of the decision in Dharamendra Textile Processors (supra) questioning the correctness of the decision in Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 / 161 Taxman 218 (SC) has caused great uncertainty as to the penalty law for direct taxes. The decision in Dharamendra Textile Processors’ case (supra) has been explained by the Supreme Court itself in Union of India v. Rajasthan Spg. &Wvg. Mills [2009] 180 Taxman 609 , wherein the Supreme Court understood Dharamendra Textile Processors’ case (supra) to be not applicable, where section 11AC of the Central Excise Act is not applicable, especially since that was not even the stand of the Revenue in this case. The Supreme Court had further explained the decision in CIT v. Atul Mohan Bindal [2009] 317 ITR 1 / 183 Taxman 444 pointing out that Dharamendra Textile Processors’ case (supra) has been explained in Rajasthan Spg. &Wvg. Mills’ case (supra) and concluded in line with this decision that penalty under section 11 AC of the Central Excise Act could not be levied in every case of non-payment or short payment of duty and that penalty in respect of section 271(1)(c) of the Income-tax Act would be leviable, subject only to the conditions thereunder. It required the matter to be considered not solely with reference to Dharamendra Textile Processors’ case (supra) but along with the decision of Rajasthan Spg. &Wvg. Mills’ case (supra). In the case of Reliance Petroproducts (P.) Ltd. (supra) the Supreme Court further explained the matter and finally settled the controversy created in Dharamendra Textile Processors’ case (supra). The Supreme Court in this case has analysed the facts in Dilip N. Shroff’s case (supra) and found from the facts, that the explanation given by the assessee was bona fide nor did not assessee furnish any inaccurate particulars. It no doubt went on to observe that the element of mensrea was essential. The SupremeCourt in Dharamendra Textile Processors’ case (supra) had pointed out only to this aspect of the decision in that, there was no necessity to prove mensrea on a plain reading of the provisions of section 271(1)(c) in the context of a penalty being a compensation for loss of revenue likely to have been occasioned by the acceptance of the return. It was further pointed out by the Supreme Court, that the reasoning in the conclusion on the merits in Dilip N. Shroff’s case (supra) had not been questioned. It was only the inference that mensrea was an essential ingredient for penalty, that was overruled. Applying this understanding of law, the Supreme Court found that in the case of Reliance Petroproducts (P.) Ltd. (supra), the Assessing Officer had found that the assessee’s claim for deduction of the entire interest on a borrowing, which had been partly utilised for earning exempt income required disallowance of the proportionate part under section 14A. The claim of the assessee was that, being an investment company, the claim of interest need not be proportionately apportioned to exempt income from dividend, cannot justify penalty even if the disallowance itself was justified. This concurrent view of the Commissioner (Appeals), Tribunal and the High Court was upheld by the Supreme Court.

11. In view of the development of law at the stage of the Supreme Court in Reliance Petroproducts (P.) Ltd. ‘s case (supra), one need not take the trouble of distinguishing Dilip N. Shroff’s case (supra), since it has not been overruled except for its mention of mensrea therein. Notwithstanding the ripple created by Dharamendra Textile Processors’ case (supra), the High Courts have followed the long-established law, that a bona fide omission cannot justify penalty in a number of decisions. Where an addition to an income was adjusted against the value of closing stock and explanation therefore was a/so found to be bona fide, penalty was found to have been rightly deleted in CIT v. Hindustan Computers Ltd. [2010] 322 ITR 88 (All.).

12.Cancellation of penalty for a wrong claim of deduction in computation of non­agricultural income bona fide made and for a wrong claim of relief under section SOP were found to be decisions on the facts on which no question of law would arise as held in CIT v. Shahabad Co-op. Sugar Mills Ltd. [2010] 322 ITR 73 (Punj. &Har.). In the case of CIT v. Sidhartha Enterprises [2010] 322 ITR 80 /[2009] 184 Tax/nan 460 (Punj. &Har.) it was held that “a wrong claim as business income of what should be treated as short term capital gains on the advice of the assessee’s Counsel, could not be treated as an instance of deliberate default. In the case of Chandra Pal Bagga (supra) the Hon’ble Rajasthan High Court has held that when the assessee has disclosed the transaction which is the basis for capital gains tax and though wrongly claimed exemption from the capital gains tax, but that cannot be a case of penalty under section 271(1)(c) of the Act. It if has claimed any exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act, and not offered that amount for tax, in such cases, penalty should not be imposed. In such cases rather it is the duty of the A.O. to ask for further details and tax the income if it is liable to tax. In the case under consideration, we noticed that during the assessment proceedings, the assessee has offered the tax as and when the mistake has come to the notice of the assessee. Similarly, in the case of Sumerpur Truck Operators Union (supra) wherein it has been held that merely because assessee’s claim of exemption under section 10(24) was not found to be tenable, penalty under section 271(1)(c) of the Act could not be levied. Similar view has been taken by the Hon’ble High Court of Calcutta in the case of Udayan Mukherjee (supra). The Apex Court whiledismissing the Departments! S.L.P. against the judgement of Madras High Court has held as under:- (313 ITR (statute) page no. 30)

“Mere addition not sufficient unless concealment established 20-4-2009 : Their Lordships S.H. Kapadia and AftabAlam JJ. dismissed the Department’s special leave petition against the judgement dated September 12, 2008 of the Madras High Court in T.C. No 1409 of 2008, whereby the High Court, following 291 ITR 519, dismissed the Department’s appeal against the order of the Tribunal which had confirmed the order of the Commissioner (Appeals) who had directed that the penalty imposed under section 271(1)(c) of the Income-tax Act be cancelled and held that an addition would not automatically lead to levy of penalty unless concealment was established. : CIT v. Spencer & Co. : S.L.P. (C) No. 10283 of 2009.”

13. The A.O. has also invoked explanation 1 to section 271(1)(c) of the Act. Explanation 1 to section 271(1)(c) of the Act have two parts, Part-A of the Explanation to section 271(1)(c) provides that if the assessee fails to offer an explanation or offers an explanation which is found by the A.O. to be false, penalty under section 271(i)(c) will apply. This Explanation can, therefore, be applied only where the assessee has either not offered any explanation or where he has offered any explanation, the same found to be false by A.O. In other words, where the assessee offers some explanation, it is only the proving by the A.O. that the explanation was false explanation, that part- A of the Explanation may be attracted. Mere non-existence of explanation offered by the assessee cannot form a basis for the satisfaction of the A.O. to the effect that the assessee has concealed particulars of his income. The A.O. must have some definite evidence for refusing the assessee’s claim or evidence or explanation.

14. The essence of part-B of the explanation is that the person must provide an explanation which is bonafide and he should substantiate that explanation by some evidence with him. If he fails to do so, his explanation may be treated as untenable. But when the assessee is able to offer a reasonable explanation based on some evidence, the A.O. cannot invoke Part-B of the explanation unless he has given finding based on some contrary evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.

15. In the light of above discussion, if we consider the facts of the case under consideration, we find that the assessee has furnished complete facts regarding computation of capital gain, total sale consideration, calculation of long term capital gain, investment in residential house and others. The mistake on the part of the assessee is that the assessee invested a part amount of sale consideration/ capital gain in residential house instead of gross sale consideration and claimed deduction under section 54F. It is relevant to note that for claiming deduction under section 54 of the Act investment of capital gain is the requirement whereas for claiming dedication under section 54F investment of sale consideration is the condition. From the facts of the case it is a clear cut case of bona fide calculation mistake. Such mistakes are rectifiable during the course of assessment proceedings. Rectifications of such mistakes are not concealment of the Act. The A.O. though has invoked explanation-1 to section 271(1)(c) but he did not find that the explanation furnished by the assessee was a false explanation. Contrary to that the assessee has substantiated his explanation by submitting complete facts regarding calculation of capital gain misunderstanding of deduction under section 54 and 54 F of the Ac. Thus, the explanation of the assessee was bonafide and under that facts and circumstances, section of 271(1)(c) is not applicable. We are, therefore, of the considered view that under the facts and circumstances of the case, and in the light of the above discussion, the A.O. is not justified in levying penalty of Rs. 2,78,6607- under section 271(1)(c) of the Act. Therefore, the same is cancelled. As one of the grounds has been decided in favour of the assessee, as discussed above, therefore, other ground whether the return filed by the assessee was a voluntary return or not, we are not expressing any opinion on that ground/ issue.

16. In the result, appeal of the assessee is allowed.”

Reliance is also placed on decision of Hon’ble Madhya Pradesh High court in the case of CIT Vs Skyline Auto Products Pvt Limited 142 taxman 558 wherein it is held as under:

“2. The only question which is involved in the appeal is whether the Tribunal was justified in holding that the penalty imposed upon the assessee by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961, was not proper. In the opinion of the Tribunal and in our opinion rightly, it was a case of a bona fide mistake rather than a deliberate mistake on the part of the assessee while calculating depreciation on the assets of the assessee. It was found that the assessee is a new businessman and he could only claim depreciation for a fraction of the year and not for the full year—that being the first year of starting the production as claimed by the assessee. We do not find that such can be a good ground for imposition of a penalty by the taxing authorities. It has been said long back by their Lordships of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, that merely because taxing provisions provide for a power to impose penalty that does not entitle the authorities to impose a penalty for every breach howsoever venial or technical it may be. In order to impose penalty the authorities must see the conduct and deliberate intention on the part of the assessee in concealing his true income. In our view no such case seems to have been made out. We thus concur with the view so recorded by the Tribunal and hold that this does not involve any substantial question of law. The appeal is accordingly dismissed, as being devoid of any substance.”

Further, reliance is also placed on ratio of decision of Hon’ble Ahmedabad ITAT in the case of SmtIndiraben H Patel v/s ACIT ITA no 3286/Ahd/2015 dated 27/02/2018 wherein it is held as under:

“4. We have heard rival submissions. Case file perused. Both the parties reiterate their respective stands against and in support of the impugned penalty imposed by the Assessing Officer as upheld in lower appellate proceedings. We revert back to the relevant facts once again. We have sufficiently indicated that the assessee resides mostly in USA and her caretaker manages all of her domestic chorus including tax matters. It is evident that she had not declared the third transaction, proportionate cost of acquisition and interest income at the first instance. The fact however remains that the impugned sale deeds pertain to the very survey numbers. We observe in these facts that possibility of overlapping in such an instance cannot be completely ruled out. So is the case that once the assessee is not managing her affairs on her own, the possibility of an inadvertent error is clearly indicated in even claiming double cost of acquisition added back later. We take into account all these facts to quote hon’ble apex court’s landmark judgment in Price Water-house Coopers Pvt. Ltd. vs. CIT [2012] 348 1TR 306 (SC) that such inadvertence cannot be termed as an instance attracting the impugned penalty provision in Section 271(1)(c) of the Act. We repeat that the assessee’smultifolded errors hereinabove inter alia in not having declared only two sale transactions instead of three, not adjusting cost of indexation on proportionate basis, not declaring interest income in 1000s of rupees and not being able to prove cost of improvement which were admitted latter on being pointed out jointly read lead us to a conclusion that it was a silly mistake on her part on all these issues. We thus draw support from hon’ble apex court’s abovestated judgment to conclude that both lower authorities have erred in imposing the penalty in question of Rs.14,71,190/- u/s. 271(1)(c) of the Act. The same is therefore deleted. 5. This assessee’s appeal is allowed. “

The Hon’ble Mumbai ITAT in the case of DCIT Vs Shah Rukh Khan 93 Taxman.com 320 (2018) has held as under:

“28. We find that the assessee though had in his return of income for the year under consideration furnished the complete particulars in respect of the transaction under consideration, but however, had inadvertently computed the LTCG after the indexing the cost of acquisition of the same. At this stage, we may herein observe that admittedly, no part of the details furnished by the assessee as regards either the cost of acquisition or the sale proceeds of the structured product, viz. 0% debentures issued by Deutsche Investments India Pvt. Ltd. were found to be false or incorrect. Rather, the A.O had only dislodged the computation of LTCG by the assessee, on the basis of facts and figures disclosed by the assessee, only for the reason that as the same was liable to be computed as per the proviso to Sec. 112 of the Act, therefore, the assessee would not be entitled towards indexation of the cost of acquisition of the same. We may herein observe that the bonafides of the assessee can safely be gathered from the fact that the moment he learnt about his mistake in computing the LTCG, he by his letter dated 26/02/2013 submitted before the A.O that he had no objection to the reworking of the LTCG as per Sec. 112 of the Act. We have given a thoughtful consideration to the issue before us and are of the considered view that admittedly, as the “particulars” furnished by the assessee as regards the 0% debentures of Deutsche Investments India Pvt. Ltd, sold by him during the year under consideration were not found to be inaccurate, but however, there was an inadvertent mistake in computation of LTCG by him, therefore, it can safely be concluded that the assessee cannot besubjected to penalty under Sec. 271(1)(c) for furnishing of inaccurate particulars of income. We are of the considered view that raising of an incorrect claim in law cannot be construed as furnishing of inaccurate particulars of income. As it remains an admitted position that no information given by the assesses in its return of income in respect of either the amount of sale proceeds or the cost of acquisition of the structured product, viz. 0% debentures of Deutsche Investments India Pvt. Ltd. is found to be incorrect or inaccurate, therefore, the wrong computation of the LTCG can by no means be characterised as furnishing of inaccurate particulars of income by the assessee. We find that our aforesaid view that where no information given in the return of income was found to be incorrect or inaccurate, the assessee cannot be held Quiitv of furnishing, inaccurate particulars, for the reason that he had on the basis of said facts made an incorrect claim in law, is fortified by the judgment of the Hon’bie Apex Court in the case of Reliance Petrooroducts (P.) Ltd, (supra).Alternatively, as in the case before us, it clearly emerges that the assessee had inadvertently erred in not computing the LTCG under Sec. 112 of the Act, therefore, even otherwise, as held by the Hon’bie Apex Court in the case of Price Waterhouse Coopers (P.) Ltd. (supra), now when the assessee had not attempted to either conceal its income or furnish inaccurate particulars, no penalty would be warranted in his hands. We thus, in terms of our aforesaid observations conclude that no penalty under Sec. 271(1)(c) was liable to be imposed in respect of the LTCG of Rs. 20,60,0007- assessed by the A.O under Sec. 112 in the hands of the assessee. We thus uphold the order of the CIT (A) in context of the issue under consideration. The Grounds of appeal Nos. (Hi) and (iv) raised by the revenue are dismissed.”

Considering the facts discussed herein above and relying upon decisions referred supra, penalty u/s 271(1)(c) levied by AO for Rs. 63,39,2007- is directed to be deleted. This ground of appeal is allowed.

5. Being aggrieved by the order of Ld. CIT(A), the revenue has now come in this appeal.

6. Before us, the Ld. D/R placed reliance on the penalty-order and broadly advanced the same submissions as contained therein. Referring to the penalty-order, the Ld. D/R emphasized that it was not a case of voluntary offer of income by the assessee because the assessee revised his return of income only after the issue of incorrect particulars in Return of Income was detected by Ld. AO. He further argued that the assessee is regularly doing business of sale/purchase of land and also having professional guidance, therefore the assessee cannot claim that he was under an impression that the sale of the rural agricultural lands held as stock-in-trade were exempt u/s 2(14) of the Act. He further submitted that the revenue was able to tax the impugned income of Rs. 1,90,16,868/-only because of scrutiny and had there been no scrutiny, this income would have escaped taxation. With these submissions, the Ld. D/R claimed that it’s a clear case wherein the assessee has furnished inaccurate particulars of income and therefore the Ld. AO has rightly imposed penalty. He, therefore, prayed that the order of Ld. CIT(A) be set aside and that of the Assessing Officer be restored.

7. Per contra, the Ld. A/R drew our attention to the various documents placed in the Paper-Book filed by him. Referring to them, the Ld. A/R demonstrated the chronological events of scrutiny-proceedings conducted by Ld. AO as under:

8. The Ld. A.R. invited our attention to Para No. 4.1 of the assessment-order placed at Page No. 3 of the Paper-Book wherein the Ld. AO has quoted the following response submitted by the assessee in the Reply-letter dated 16.11.2016:

“as regards the claim of the exemption u/s 2(14) i.e. rural agricultural land is concerned, he would like to submit that assessee was having some properties in his Stock-in-trade and also was having some properties in his investment which can be visible from the Balance-Sheet of the assessee. Through an over-sight assessee was under the impression that the property sold during the year were the part of the investment and hence claimed the deduction u/s 2(14), due to clerical mistake on the part of the accountant. Further, at the time of assessment proceeding assessee came to know that the same was not the part of the investment but was the part of the Stock-in-trade, hence, the assessee voluntary offer the same for the taxation and would request your goodself not to initiate penalty on the same.”

9. Thereafter the Ld. A/R invited our attention to Para No. 4.2 of the assessment-order placed at Page No. 3 of the Paper-Book wherein the Ld. AO has quoted the following response submitted by the assessee in the Reply-letter dated 16.12.2016:

“Through an oversight assessee was under the impression that the property sold during the year were the part of investment and hence claimed the deduction u/s 2(24), due to clerical mistake on the part of the accountant. Further, at the time of preparing the assessment proceedings details, assessee came to know that the same was not the part of the Investment but was the part of the Stock-in-trade, hence the assesseevoluntary offer the same for the taxation and would request your goodself not to initiate penalty on the same.”

10. Thus, the Ld. A/R submitted that the assessee made offer for taxation of impugned income on two occasions, (i) firstly vide letter dated 16.11.2016 and (ii) secondly vide letter dated 16.12.2016. Referring to the chronological events, the Ld. A/R submitted that the first offer was made in the letter dated16.11.2016, which was even before 28.11.2016 i.e. the day on which the Ld. AO converted the assessee’s case into Complete Scrutiny. In fact, the case was converted into complete scrutiny only after the assessee himself has offered the impugned income to the Ld. AO vide letter dated 16.11.2016. The Ld. A/R further argued that having converted case into Complete Scrutiny on the basis of offer made by the assessee, it is thereafter on 02.12.2016 that the Ld. AO issued notice u/s 142(1) requiring the assessee as under:

“You are requested to furnish as under:

10. Justification for claiming Profits and Gains of Business or Profession of rs. 1,90,16,868/- as exempt u/s 2(14) in Computation of Income.”

11. In view of this, the Ld. A/R argued that it is the suomoto offer made by the assessee in his letter dated 16.11.2016 that prompted the Ld. AO firstly to convert the case into Complete Scrutiny on 28.11.2016 and secondly to confront the assessee in respect of impugned income on 02.12.2016. Thus, the Ld. A/R established that it was a voluntary offer made by the assessee on 16.11.2016, much prior to detection by Ld. AO.

12. Thereafter, the Ld. A/R argued that it is not a case of furnishing inaccurate particulars of income as understood by Ld. AO. He submitted that the assessee has got his accounts audited u/s 44AB and furnished audited financial statements alongwith audit report. He further drew our attention to Page No. 18 of the Paper-Book where audited P&L A/c is placed, which was also filed alongwith the return of Income, and submitted that the a total sale proceed of Rs. 2,50,16,868/- is credited to the P&L A/c which includes the impugned sale of Rs. 1,90,16,868/-. Thereafter, he also carried us to Page No. 15 of the Paper-Book where the working of Total Income is given and deduction of exempted income of Rs. 1,90,16,868/- u/s 2(14) is clearly reported. According to the Ld. A/R, these all details were furnished by the assessee himself in the audited accounts and Return of Income filed and there is no inaccuracy in the facts and particulars furnished.

13. The Ld. A/R further submitted that since the assessee was having two types of lands, one held as investment and another held as stock-in-trade, both types being agricultural lands and also falling within rural areas, a clerical error was made on the part of accountant under the wrong impression about the nature of transaction to the effect that the assessee was entitled to exemption u/s 2(14). However, while preparing details for scrutiny, as soon as this point came to the knowledge, the assessee took no time in making offer to the Ld. AO for taxation. Thus, according to Ld. A/R, there was no attempt or act by the assessee to furnish inaccurate particulars.

14.. The following decisions were referred by Ld. A/R in support its contention:

(i) CIT-I, Mumbai Vs. Bennett Coleman & Co. Ltd. (2013) 33 com 227 (Bombay High Court)

(ii) CIT, Ahmedabad Vs. Reliance Petroleum (P) Ltd. (2010) 189 Taxmn 322 (Supreme Court)

(iii) CIT Vs. Pricewaterhouse Coopers Pvt. Ltd. 348 ITR 306

(iv) Ashok Pai Vs. CIT (2007) 161 Taxmann 340 (SC)

(v) CIT Vs. Societex 259 CTR 325 (Delhi)

(vi) ITAT Delhi Bench in ACIT Vs. Ashok Raj Nath (2013) 33 com 588

With these submissions, the Ld. A/R prayed that the Ld. CIT(A) has rightly deleted the penalty and the action of Ld. CIT(A) must be upheld.

15. We have considered the rival contentions of both sides, the material on record, the mandate of section 271(1)(c) and the legal precedents cited above. We have also gone through the orders of the authorities below.

16. Penalty u/s 271(1)(c) of the Act in the present case was levied on the assessee for failure to return income from sale of agricultural land, held as stock in trade, to tax. The charge of the Revenue being that the assessee had furnished inaccurate particulars of income to this effect. We do not find any infirmity in the order of Ld. CIT(A) who has, we find, after a careful consideration of the facts, which have remained uncontroverted and correct application of law, held that there was no furnishing of inaccurate particulars of income by the assessee so as to attract penalty u/s 271(1)(c) of the Act.

17. The finding of fact of the Ld.CIT(A) that the said transaction of sale of agricultural land was reflected in the audited profit and loss account of the assessee and the income therefrom disclosed in the return of income filed, though claimed as exempt u/s 2(14) of the Act, remains uncontroverted before us.

18. The explanation of the assessee for failing to return the said income to tax for the reason that it was under a false impression that the said lands constituted investments of the assessee and did not qualify as capital assets, as per section 2(14) of the Act,thus income earned thereon being exempt from tax, we find has not been found to be outrightly false by the Revenue. As per section 2(14) of the Act rural agricultural lands specified therein do not qualify as capital assets. It is not the case of the Revenue that the lands sold were not rural agricultural lands which did not qualify as capital assets as per section 2(14) of the Act. The contention of the assessee that it held land both as stock and as investments, has also not been controverted by the Revenue. Therefore, we agree with the Ld.CIT(A) that the explanation of the assessee that he mistakenly treated the said transaction as exempt from tax appears bonafide.

19. That the explanation is bonafide is, we find, supported by the fact that during assessment proceedings the assessee, realizing his mistake even before detection by the Revenue, returned the same to tax. The fact that the assessee surrendered the said income prior to detection by the Revenue is evident from the chronology of events pointed out to us by the Ld.Counsel for the assessee above showing that the income was surrendered on 16-11-16 before the assesses case was converted from limited to complete scrutiny on 28-11-16 and inquiry made for treating the said income as exempt vide questionnaire dated 02-12 -16, which fact has not been denied by the Revenue.

20. Therefore, the assessee having disclosed all particulars of his income from sale of agricultural land, having furnished a bonafide explanation for not returning the same to tax and having surrendered the said income suomoto before detection by the Revenue, we agree with the Ld.CIT(A) that the assessee cannot be said to have furnished inaccurate particulars of income so as to levy penalty u/s 271(1)(c) of the Act. We therefore uphold the order of the Ld.CIT(A) deleting the penalty levied amounting to Rs.63,39,200/-       .

21. Grounds of appeal raised by the Revenue are accordingly dismissed.

22. In effect, appeal of the Revenue is dismissed.

Order pronounced in the open court on 08 -02-2022