2023 (12) TMI 643 - AT - Income Tax

Penalty under Section 271(1)(c) not applicable when land sale addition made through deeming provisions without concealment intent

ITAT Ahmedabad held that penalty u/s 271(1)(c) was not leviable where assessee failed to disclose land sale in original return. Despite AO adding ... Penalty u/s 271(1)(c) - sale of land was not disclosed in the original return of income - as per DR if 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 - AO was of the view that the assessee had purchased the aforesaid property for a consideration which was less than the Fair Market Value for the purpose of stamp duty valuation, thus AO added the difference to the total income of the assessee u/s 56(vii)(b) - HELD THAT:- No penalty is leviable u/s 271(1)(c) looking into the facts of the instant case as at the time of sale of aforesaid immovable property the assessee had already made payment of taxes 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 AO by adding the difference 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. [2018 (6) TMI 1055 - GUJARAT HIGH COURT] 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. AO 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, 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. - Decided in favour of assessee. Issues involved:The issues involved in this case are the confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961 by the Ld. CIT(A) for non-disclosure of capital gains, the validity of the notice initiating penalty proceedings, and the explanation of the source of payment for stamp duty charges.Confirmation of Penalty under Section 271(1)(c):The appellant filed an appeal against the order of the Ld. CIT(A) confirming the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act. The Assessing Officer added the difference in property value to the total income of the assessee under Section 56(2)(vii)(b) of the Act and also made an addition for unexplained payment of stamp duty charges. The Ld. CIT(A) upheld the additions, stating that the appellant's claim of forgetting to declare short-term capital gains (STCG) was contradictory as proper books of accounts were maintained. The Ld. CIT(A) also rejected the argument that penalty cannot be levied on deemed additions, emphasizing that penalty can be imposed for concealment of income regardless of it being a normal or deemed addition.Validity of Penalty Notice:The appellant contended that the notice initiating penalty proceedings was defective as it was issued for furnishing inaccurate particulars of income or concealment of income, which was deemed null and void. However, the Ld. CIT(A) confirmed the penalty, stating that the appellant failed to explain the source of payment for stamp duty charges, leading to the penalty under Section 271(1)(c) of the Act.Explanation of Source of Payment for Stamp Duty Charges:During the appeal, the appellant argued that the non-disclosure of the property sale in the original return was inadvertent, as taxes had already been paid on the sale and no additional tax liability arose during the assessment proceedings. The appellant also contended that penalty cannot be imposed on deemed additions under Section 56(2)(vii)(b) of the Act. In response, the Ld. D.R. argued that penalty can be levied even in tax-neutral transactions, citing a Supreme Court case. However, the Tribunal held that no penalty was justifiable as there was no intention to evade taxes, and the additions were made based on deeming provisions without evidence of deliberate concealment of income.Separate Judgment:The Order was pronounced by Judicial Member Shri Siddhartha Nautiyal on December 13, 2023, allowing the appeal of the assessee and deleting the penalty under Section 271(1)(c) of the Act based on the facts and legal principles discussed in the judgment.