ITAT directs deletion of additions under section 50C & penalty under 271(1)(b)

The ITAT directed the AO to delete the addition made under section 50C and the penalty imposed under section 271(1)(b), allowing both appeals of the assessee.

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Issues:
1. Computation of long term capital gains under section 50C of the Income Tax Act, 1961.
2. Imposition of penalty under section 271(1)(b) for non-compliance with notice u/s 142(1) of the Act.

Issue 1: Computation of Long Term Capital Gains under Section 50C:
- The assessee claimed long term capital gains of Rs. 12,60,561, but the Assessing Officer calculated it at Rs. 41,04,732 under section 50C of the Act.
- The dispute arose from the variance between the sale consideration reported by the assessee and the Fair Market Value (FMV) determined by the Stamp Valuation Authority.
- The assessee argued that the FMV was a deemed consideration under section 50C and was influenced by litigations attached to the property.
- The ITAT referred to a similar case where it was held that the provisions of section 50C do not apply to the transfer of limited rights in land or building.
- Consequently, the ITAT directed the AO to delete the addition of Rs. 41,04,732 under section 50C, following the precedent set in the referenced case.

Issue 2: Imposition of Penalty under Section 271(1)(b):
- The AO imposed a penalty of Rs. 10,000 under section 271(1)(b) for non-compliance with the notice u/s 142(1) of the Act, which was upheld by the CIT(A).
- The assessee contended that the penalty was arbitrary and that there were valid reasons for non-compliance with the notice.
- The ITAT noted that the assessment was completed under section 143(3) without recording any satisfaction for imposing the penalty.
- Citing a relevant decision, the ITAT held that if the assessment order is passed under section 143(3), the penalty under section 271(1)(b) cannot be imposed.
- Consequently, the ITAT directed the AO to delete the penalty of Rs. 10,000 imposed under section 271(1)(b) in accordance with the legal precedent.

In conclusion, the ITAT allowed both appeals of the assessee, directing the AO to delete the addition made under section 50C and the penalty imposed under section 271(1)(b). The judgments were pronounced on 30th August 2021 by the ITAT Hyderabad.

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