Case Law Details
Ajaybhai I Gogia Vs ITO (ITAT Rajkot)
From the fact of the case ITAT observed that there are conflicting judicial precedents on the issue under consideration and therefore, it may be inferred that the issue before us is one in which two views are possible. Further, we note that the Hon’ble Gujarat High Court has also admitted the assessee’s appeal in quantum proceedings. In view of the above, we are of the considered view that the instant case is not a fit case for levy of penalty u/s 271(1)(c) of the Act. The issue is clearly debatable on which various Courts have taken conflicting views. The assessee’s view is also one which is a plausible view as held by various appellate forums. Therefore, in our considered view, the Ld. CIT(A) has erred in law and in facts in confirming penalty u/s 271(1)(c) of the Act.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
This assessee’s appeal for A.Y. 2011-12, arises from order of the CIT(A)-1, Rajkot dated 12-04-2018, in proceedings under section 271(1)(c) of the Income Tax Act, 1961; in short “the Act”.
2. The assessee has raised the following grounds of appeal:-
“1. The Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty under section 271(1)(c) of the Act.
2. Without prejudice to ground no. 1, the levy of penalty @ Rs. 5,54,678/- is too heavy arbitrary and not warranted by the facts of the case.”
3. The brief facts of the case are that property of the assessee, which was mortgaged with the bank as guarantor of loan had been taken over by the bank in view of default in loan re-payment by the creditors. The said property was sold in auction by the bank on 03-06-2010. The entire proceeds from the auction were taken by the bank and adjusted against the dues of the creditors. The assessee did not get any amount from the sale of property. The assessee did not declare the long term capital gain on transfer of property referred to above. The assessee’s contention was that he did not get any money from the auction price and that the assessee’s right in property was extinguished on 05-01-2009 as soon as the property was taken over by the bank. This contention was rejected by the Assessing Officer in quantum proceeding and action of the Assessing Officer was confirmed both by CIT(A) and ITAT in quantum proceedings in view of the express provision of section 2(47) r.w.s. 45 of the Act and in view of the decision of Hon’ble Supreme Court in the case of CIT vs. Attili N. Rao (2001) 119 taxman 1030 (SC).
4. In the penalty proceedings, the ld. Assessing Officer vide order u/s. 271(1)(c) of the Act dated 03-03-2015, levied penalty amounting to Rs. 5,54,678/- for the year under consideration. The Assessing Officer held that absence of any explanation regarding the receipt of money, which is in the exclusive knowledge of assessee, it leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of Explanation to section 271(1)(c) of the Act.
5. In appeal against the against the order u/s. 271(1)(c) of the Act, the assessee submitted that penalty cannot be levied in case two opinions are possible in respect of a certain transaction. In the instant case, there are divergent views whether capital gains can be levied in these set of facts. Secondly, the assessee submitted that as held in the case of CIT vs. Siddhartha Enterprise 322 ITR 80, unless there is deliberate default, penalty for concealment cannot be levied. Thirdly, the assessee submitted that since the appeal of the assessee against the quantum order of the ITAT stands admitted by the High Court, the issue is debatable one and therefore the penalty cannot be levied. The ld. CIT(A) dismissed the assessee’s appeal against the penalty order by holding that the Hon’ble Gujarat High Court in the case of CIT vs. Dharamshi B. Shah in ITA No. 189 of 2000 vide order dated 09-06-2014 has held that mere admittance by the High Court does not tantamount to issue being debatable. He further held that the scope of s. 271(l)(c) has also been elaborately discussed by the Supreme Court in UOI vs. Dharmendra Textile Processors 306 ITR 277 (SC) and CIT vs. Atul Mohan Bindal 317 ITR 1 (SC). The Explanations appended to section 271(l)(c) of the Income-tax Act, 1961, entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of section 271(l)(c) read with Explanation indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income-tax Act.
6. Aggrieved by the order Ld. CIT(A), the assessee is in appeal before
7. Before us, the Ld. counsel for the assessee reiterated the submissions made before Ld. CIT(A). He submitted that in quantum appeal, the issue has been admitted by High Court, which itself proves that the issue is debatable one. Once, the issue is debatable, then there is no question of levy of penalty u/s 271(1)(c) of the Act. On merits, the assessee relied on the decision of Kerala High Court in the case of CIT v. Smt. Thressiamma Abraham (No. 1) [1997] 227 ITR 802 (KER.) in which assessee stood as a guarantor for loan given by ‘K’ Financial Corporation to ‘N’ Ltd. and in pursuance of said position, assessee’s property was mortgaged in favour of ‘K’ Financial Corporation. As ‘N’ Ltd. defaulted in making payment of loan, ‘K’ Financial Corporation sold property so mortgaged and appropriated sale proceeds towards loan taken by ‘N’. The High Court held that since purchasers paid entire sale consideration directly to ‘K’ Financial Corporation and it was only thereafter mortgaged property was released, sale consideration was diverted to ‘K’ Financial Corporation by overriding title and, in such circumstances, no capital gains accrued to assessee. The assessee submitted that in the instant case, there was no deliberate default on part of the assessee to conceal income and relying on the case of CIT vs. Siddhartha Enterprise 322 ITR 80, the Ld. counsel for the assessee submitted that unless there is deliberate default on part of the assessee, penalty for concealment cannot be levied. The Ld. DR in response placed reliance on the case of Hon’ble Gujarat High Court in the case of CIT vs. Dharamshi B. Shah in ITA No. 189 of 2000 where it has held that mere admittance by the High Court does not tantamount to issue being debatable. He further submitted that on merits, the issue has been conclusively decided against the assessee by the Supreme Court in the case of CIT vs. Attili N. Rao (2001) 119 taxman 1030 (SC) and hence in the instant case, there is a clear case of concealment of income. The Ld. counsel for the assessee, in response submitted that the Supreme Court in the case of CIT vs. Attili N. Rao (supra) has not overruled the Kerala High Court decision in the case of CIT v. Smt. Thressiamma Abraham (supra).
8. We have heard the rival contentions and perusal the material on record. In the present case, search was carried out at the premises of the assessee on 24-06-2010 and pursuant thereof he filed return of income on 30-07-2011. In the said return, there was no disclosure with regards to capital gains on account of shops sold under auction to realize the debt for which the assessee stood Guarantor. The shops which were transferred belonged to the assessee. The issue for consideration is firstly, whether penalty can be levied for non-disclosure of capital gains on the ground that the assessee has not received sales proceeds since the same were appropriate towards settlement of dues of the bank for which the assessee stood guarantor. The second issue for consideration is that if appeal of the assessee against the quantum order of the ITAT stands admitted by the High Court, can it be said that the issue is debatable one and therefore the penalty cannot be levied. We will begin by answering the second issue first. Since the issue is covered by Hon’ble Gujarat High Court in the case of CIT vs. Dharamshi B. Shah in ITA No. 189 of 2000 vide order dated 09-06-2014 wherein it has been held that mere admittance by the High Court does not tantamount to issue being debatable, respectfully following the above decision, we are of the view that mere admission of appeal on quantum would not ipso facto absolve the assessee from penalty u/s 271(1)(c) of the Act.
7.1 Now, on the first issue, in various cases it has been held that if asset mortgaged has been transferred, it would amount to capital gains in hands of the owner of asset, even if no consideration has been received on such transfer. In the case of CIT vs. Attili N. Rao (2001) 119 taxman 1030 (SC), on which reliance has been placed by the Revenue, the facts were that the assessee mortgaged his immovable property to the State Excise Department to provide security for the amounts of ‘kist’ which were due by him to the State. The State sold the immovable property by public auction to realize its dues. A sum of Rs. 5,62,980 was realized at the auction. Out of that, the State deducted the amount of Rs. 1,29,020, due to it towards ‘kist’ and interest and paid over the balance to the assessee. It was the assessee’s contention that the amount due to the State Excise Department, i.e., Rs. 1,29,020, should be deducted while computing capital gains besides allowing other deductions. Neither ITO nor the appellate authority agreed with the assessee. The Tribunal upheld the assessee’s claim. The High Court upheld the Tribunal’s order. In appeal, the Supreme Court held that what was sold by the State at the auction was the immovable property that belonged to the assessee. The price that was realised, therefrom, belonged to the assessee. From out of that price, the State deducted its dues towards ‘kist’ and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it was on the full price realised that the capital gain and the tax thereon had to be computed. Therefore, the High Court was not correct in holding that amount realised by the sale of the assessee’s interest in the property was only Rs. 4,33,960, i.e., Rs. 5,62,980 minus Rs. 1,29,020. Again, the Mumbai ITAT (TM) Bench in the case of Perfect Threads Mills V. DCIT [2020] 113 taxmann.com 384 (Mumbai – Trib.) (TM) held that where on account of non-payment of corporate loan as per agreed terms, a charge on mortgaged property was created by assessee in terms of section 13(2) of SARFAESI Act, 2002, in such a case, upon sale of property so mortgaged, assessee could not claim deduction of principal amount of loan either as expenditure under section 48 or as ‘diversion of income by overriding title’. The Madras High Court in the case of Smt. D. Zeenath v. ITO [2019] 1taxmann.com 298 (Madras) held that where property was mortgaged by assessee after he had acquired property, amount paid by assessee to discharge mortgage debt by sale of said property could not be treated as cost of acquisition so as to allow same as deduction under section 48 of the Act.
7.2 However, we equally note that in several cases, including the one cited by the assessee, it has been held that in case of transfer of mortgaged property, if the consideration does not flow to the assessee, then the same would not amount to transfer of asset and no capital gains tax would accrue in the hands of the assessee. the case of CIT v. Smt. Thressiamma Abraham (No. 1) [1997] 227 ITR 802 (KER.) the Kerala High Court has held that since purchasers paid entire sale consideration directly to creditors and it was only thereafter mortgaged property was released, it could be said that sale consideration was diverted to creditors by overriding title and, in such circumstances, no capital gains accrued to assessee. Again, in the case of Glad Investments (P.) Ltd. [2006] 8 SOT 612 (Delhi) the Delhi ITAT held that revenue has to establish that certain consideration was either received by or accrued to assessee in whose hands income under head ‘Capital gains’ is sought to be assessed. In this case, the assessee-company did not offer for assessment capital gains arising from sale of certain shares on ground that it did not receive any money on sale of such shares as same had been pledged with credit companies as collateral security for loan taken by ‘P’ and ‘S’ from credit companies and credit companies had sold those shares for repayment of loan when ‘P’ and ‘S’ failed to repay same. The Assessing Officer held that capital gain tax was leviable on sale of such shares in hands of assessee. The ITAT held that by appropriation of sale proceeds by credit institutions, it was liability of ‘P’ and ‘S’ that was discharged and no consideration was either received by or accrued to assessee. Further, ITAT held that even if notionally any consideration on sale of shares accrued to assessee, there was diversion of entire consideration at source before it became income in hands of assessee and therefore, profits or gains arising from sale of shares could not be charged to tax in hands of assessee. In the case of Rajasthan Petro Synthetics Ltd. [2014] 49 taxmann.com 599 (Delhi – Trib.), the Delhi Tribunal held that where secured creditor took over possession and control of assets of assessee due to default committed in repayment of loan, it did not amount to transfer of assets within meaning of section 2(47) of the Act. The Calcutta High Court in the case of Gopee Nath Paul & Sons v. DCIT [2005] 147 taxman 629 (Cal.) that if without removing any encumbrance, sale or transfer could not be affected, amount paid for removing that encumbrance will fall under clause (i) of section 48(1).
7.3 Thus, we see that there are conflicting judicial precedents on the issue under consideration before us and therefore, it may be inferred that the issue before us is one in which two views are possible. Further, we note that the Hon’ble Gujarat High Court has also admitted the assessee’s appeal in quantum proceedings. In view of the above, we are of the considered view that the instant case is not a fit case for levy of penalty u/s 271(1)(c) of the Act. The issue is clearly debatable on which various Courts have taken conflicting views. The assessee’s view is also one which is a plausible view as held by various appellate forums. Therefore, in our considered view, the Ld. CIT(A) has erred in law and in facts in confirming penalty u/s 271(1)(c) of the Act. We accordingly direct the Revenue to delete penalty u/s 271(1)(c) of the Act imposed on the assessee.
8. In the result, the assessee’s appeal is allowed.
Order pronounced in the open court on 18-04-2022
