Case Law Details
Bankimbhai Natverbhai Patel Vs ITO (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT) Ahmedabad has delivered a pivotal judgment in the case of Bankimbhai Natverbhai Patel vs. Income Tax Officer, ruling against the imposition of a penalty for discrepancies between sale consideration and stamp authority valuation. This decision underscores the tribunal’s stance on the application of Section 271(1)(c) of the Income Tax Act, 1961, which pertains to penalties for concealing income or furnishing inaccurate particulars of income. This article delves into the detailed analysis of the judgment, highlighting the ITAT’s rationale behind its decision and its implications for future cases.
Factual Background: The appellant filed an appeal against the order of the Commissioner of Income Tax (Appeals) (CIT(A)), which confirmed the Assessing Officer’s (AO) decision to levy a penalty under Section 271(1)(c) for an alleged concealment of income. The penalty was based on the AO’s finding that the appellant had declared a sale consideration for a property which was lower than its Fair Market Value (FMV) as determined by the stamp duty authority, leading to an addition to income under Section 56(vii)(b) of the Income Tax Act.
Tribunal’s Findings and Rationale
The ITAT analyzed several crucial aspects of the case:
1. Bona Fide Belief and Payment of Taxes: The appellant had made advance tax payments and the purchaser had deducted TDS, indicating a bona fide belief that the necessary taxes had been paid. This was a significant factor for the tribunal, suggesting that there was no intention to evade taxes.
2. Application of Deeming Provisions: The tribunal noted that the additions to income were based on “deeming provisions” under Section 56(2)(vii)(b), which do not necessarily imply concealment or inaccuracy of income particulars. The ITAT referenced the case of PCIT vs. Sun on Peak Hotel (P.) Ltd. to support the principle that penalty cannot be levied merely on the basis of deeming provisions.
3. Absence of Concealment or Inaccuracy: The tribunal observed that there was no concrete evidence to demonstrate that the appellant had concealed income or furnished inaccurate particulars. The penalty under Section 271(1)(c) was thus deemed inappropriate in this context.
Conclusion: The ITAT’s decision to remove the penalty imposed under Section 271(1)(c) in this case is a significant precedent, emphasizing the need for clear evidence of concealment or inaccuracy when applying penalties. It highlights the tribunal’s nuanced approach towards the interpretation of deeming provisions and their implications for tax liabilities. This judgment serves as a critical reference for taxpayers and practitioners alike, providing clarity on the limits of penal provisions in cases involving valuation discrepancies.
In essence, the ITAT Ahmedabad’s ruling reaffirms the principle that mere acceptance of stamp authority valuation without concrete evidence of concealment or inaccuracy does not warrant the imposition of penalties under Section 271(1)(c) of the Income Tax Act. This decision is likely to have far-reaching implications for similar cases, ensuring a more judicious application of penalty provisions.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2021-22/1038067064(1) vide order dated 23.12.2021 passed for Assessment Year 2015-16.
2. The assessee has taken the following grounds of appeal:-
“1. The Learned CIT(Appeals), NFAC, Delhi has erred in law and on facts of the case in confirming the order of the Assessing Officer of levying penalty of Rs.7,48,090/- u/s.271(1)(c) of the I.T. Act, 1961.
2. The Learned CIT(Appeals), NFAC, Delhi has erred in law and on facts of the case in confirming the order of the Assessing Officer of levying penalty though the initiation of penalty proceedings has been made vide notice dated 27.12.2017, which is defective in as much as the said notice was issued for furnishing inaccurate particulars of income or concealment of income, and hence, deemed to be null and void.
3. Your appellant prays to reserve right to add, alter, amend and/or withdraw any of the above grounds of appeal.”
3. The brief facts of the case are that the original return was filed on 08.03.2016 declaring total income of Rs. 1,36,270/-. During the course of assessment proceedings, the assessee filed revised statement of income declaring sale of assets on 18.06.2014 and accordingly, declaring total income at Rs. 23,01,894/-. Notably, the aforesaid sale of land was not disclosed in the original return of income. During the course of assessment, the Assessing Officer was of the view that the assessee had purchased the aforesaid property for a consideration which was less than the Fair Market Value (in short “FMV”) for the purpose of stamp duty valuation. Accordingly, the Assessing Officer added the difference to the total income of the assessee under Section 56(vii)(b) of the Act, to the tune of Rs. 8,18,717/-. Besides the above the Assessing Officer also made an addition of Rs. 20,000/- on the ground that the assessee has not explained the source of Rs. 20,000/- towards payment of stamp duty charges. Thereafter, the Assessing Officer levied penalty under Section 271(1)(c) of the Act on the ground that had the case of the assessee not be selected for scrutiny, then the assessee would not have disclosed the capital gains on account of sale of assets. Accordingly, the Assessing Officer levied penalty @ 100% of tax sought to be evaded amounting to Rs. 7,84,090/-.
4. In appeal, Ld. CIT(A) confirmed the additions with the following observations:-
“b) The Appellant has taken a very general stand that he had forgotten to declare STCG in the Original return filed. On one hand, the Appellant has maintained proper books of accounts and on other hand he is stating that he forget to declare STCG in the return. These are contradictory statements. Once the proper books of accounts are maintained then these sale and purchase transactions of the said asset, Housing Loan taken, Interest on Housing Loan etc must be duly recorded in the books of accounts maintained. Then, there is no question of forgetting to declare STCG in original return filed. These facts show that Appellant has tried to cover up this concealment of income in guise of forgetting to declare STCG.
c) In respect of addition made of Rs.818177/ u/s 56(2)(vii)(b) of the Act, the facts are very clear The Appellant purchased the property at a rate lower than the Stamp Duty Valuation/DVO’s valuation. As per Appellant’s contention, this addition is of deemed consideration received and deemed value of purchase is treated an Income, It was contended that mere deemed addition is not exigible for levy of penalty of concealment of Income This means that penalty u/s 271(1)(c) cannot be levied in respect of any addition of deemed income. This stand of Appellant is factually incorrect. The issue of addition u/s 56(2)(vii)(b) of difference in actual consideration and consideration as per Stamp Duty Valuation is not a new issue These provisions are applicable over a period of last few AY’s Appellant cannot take a stand that since it is a deemed addition so no penalty u/s 271(1)(c) can be levied. Penalty u/s 271(1)(c) can be levied wherever there is a concealment of Income or furnishing of inaccurate particulars of Income irrespective of the fact whether the addition is a normal addition or a deemed addition. Thus, this contention of Appellant is not acceptable.
d) In respect of third addition, the Appellant was not able to satisfactorily explain the source of payment of Rs.20,000/- for Stamp Duty.”
5. The assessee is in appeal before us against the order passed by Ld. CIT(A).
6. Before us, the Counsel for the assessee submitted that the assessee had inadvertently omitted to declare the sale of the aforesaid property in the original return of income for the reason that at the time of sale, the assessee had paid advance tax of Rs. 5,00,000/- (on 26.12.2014) and also the purchaser had deducted TDS on purchase of immovable property under Section 194IA of the Act amounting to Rs. 42,120/- on 26.12.2014. Therefore, the assessee was under the bona fide belief that since taxes have already been paid on sale of aforesaid immovable property, there was no requirement to reflect the sale of immovable property in the return of income. The Counsel for the assessee submitted that even during the course of original assessment proceedings, there was no additional tax liability on account of sale consideration of immovable property since total taxes, including TDS payable on sale of property had already been paid by the assessee at the time of sale on 26.12.2014. Accordingly, there was not intention to evade payment of taxes in respect of sale of aforesaid immovable property. The second contention of the Ld. Counsel for the assessee before us was that the additions to total income have been made by invoking the “deeming provisions” under Section 56(2)(vii)(b) of the Act and it was submitted that no penalty can be levied on “deemed addition” under Section 271(1)(c) of the Act.
7. In response, the Ld. D.R. argued that penalty can be levied even in “tax neutral” transactions, which have been declared in the original return of income. The Ld. D.R. placed reliance on the observation made by the Ld. CIT(A) and also placed reliance on the case of Hon’ble Supreme Court in the case of MAK Data Pvt. Ltd. 358 ITR 593 (SC), wherein it was held that Voluntary disclosure does not release the assessee from the mischief of penal proceedings under Section 271(1)(c) of the Act.
8. We have heard the rival contentions and perused the material on record. On going through the facts of the instant case, we are of the considered view that no penalty is leviable under Section 271(1)(c) of the Act, looking into the facts of the instant case. Firstly, we observe that at the time of sale of aforesaid immovable property the assessee had already made payment of taxes amounting to Rs. 5,42,120/- on 26.12.2014 (including tax deducted at source under Section 194 IA of the Act). Accordingly, it is evident that there was no intention of evading payment of taxes on short-term capital gain arising from sale of aforesaid property. Secondly, it is observed that the additions have been made by the Assessing Officer by adding the difference of Rs. 8,18,177/-by invoking the deeming provisions of Section 56(2)(vii)(b) of the Act by holding that the purchase price of the property was lower than the FMV of the property for stamp duty valuation purposes. Therefore, the addition was made by invoking the “deeming provisions” under Section 56(2)(vii)(b) of the Act and nothing has been brought on record to demonstrate that the assessee had concealed the particulars of income or had deliberately furnished inaccurate particulars of income. It would be useful to refer to the case of PCIT vs. Sun on Peak Hotel (P.) Ltd. 95 taxmann.com 310 (Gujarat HC), wherein the assessee had sold immovable property for a declared sale consideration of Rs. 2.75 crores. During the course of assessment proceedings, the Assessing Officer observed that for purpose of stamp duty valuation, the competent authority had valued the property at Rs. 3.40 crores. The assessee initially opposed the valuation adopted by the stamp valuation authorities but later on accepted liability to pay capital gains on the basis of stamp valuation and in fact filed a revised return of income. The Assessing Officer passed order of assessment in which, besides making appropriate additions, he also levied penalty under Section 271(1)(c) of the Act. In appeal, the Ahmedabad Tribunal opined that merely because assessee agreed to addition on the basis of valuation made by the stamp valuation authority, this could not be a conclusive proof that sale consideration as per sale agreement was deemed to be incorrect. The Tribunal thus held that penalty cannot be levied on the basis of deeming provision. In further appeal, the Gujarat High Court held that application of sub-Section (1) of Section 50C cannot automatically give rise to penalty proceedings. The Gujarat High Court held that whether once the assessee initially disputed stamp valuation and later on gave up the challenge and offered additional “deemed income” to tax, the impugned order passed by Ahmedabad Tribunal deleting penalty was to be upheld. Accordingly, looking into the ratio of the aforesaid decision rendered by the Gujarat High Court and the facts of the instant case, we are of the considered view that penalty under Section 271(1)(c) of the Act is liable to be deleted in the instant set of facts.
9. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 13/12/2023
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