TaxTMI 
TaxTMI 
2006 (5) TMI 168
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....s of the authorities below may be summarized as under. 3.3 In the return of income filed for the assessment year 1997-98, the assessee had declared income from salaries, income from other sources and income from capital gain. On going through the details of computation of capital gain, it was noticed by the Assessing Officer that assessee had not shown any capital gain on sale of agricultural land at Bakori, Distt. Pune. The assessee's contention was that the land was situated outside 8 kms. from municipal limits and as such, the land-in-question is not an asset as per the provisions of section 2(14) of Income-tax Act, and thus being agricultural land, the gain thereon was not liable to tax. The Assessing Officer stated that the land-in-question was purchased by the assessee on 17-10-1994 along with four other persons jointly for a sum of Rs. 12 lakhs. The Assessing Officer further stated that this land was given on lease immediately after to Weikfield Agro Products Pvt. Ltd. on 24-11-1994, and land was being used by the said company for the purpose of mushroom cultivation. The lease money received by the assessee from this land was treated as non-agricultural income by asse....
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....or the financial year 1997-98. It may further kindly be noted and appreciated that receipt and payment account the assessee has already shown receipt of Rs. 11,00,000/-. Thus the assessee has disclosed the transactions in the receipt and payment account forming part of the Statement of income. Thus there was no intention on the part of the assessee not to disclose this transaction. It may further kindly be noted and appreciated that the assessee had been carried bona fide belief that the transaction pertaining to such land is exempt under the provisions of the Income-tax Act, since the land is agricultural land. The assessee has submitted various documents and papers at the time of hearing in support of his claim that the land is agricultural land and has also discussed reasons as to why the transaction is not considered while computing the income for the purpose of Income-tax Act. The assessee was carrying bona fide belief that therefore the receipt from such transactions need to be considered in computation of the income. It may further be n6ted and appreciated that after discussing with your goodself and also arguing the matter at length in support of claim of ....
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....called as agricultural activity. The reason as to why the activity of M/s. Weikfield Agro Products Pvt. Ltd. cannot be treated as agricultural activity has also been discussed in para one of the Assessment Order. The relevant reasoning which has also been filed by various High Courts. 'The primary sense in which the term 'agriculture' is understood is agar = field and cultra = cultivation i.e., the cultivation of the field, and if the term is understood only in that sense agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of seeds, planting and similar operations on the land. They would be the basic operations and would required the expenditure of human skill and labour upon the land itself [CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 508 (SC)] 'If the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility either for consumption or for trade and commerce, it will be seen that the term 'agriculture....
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....en by you on lease to M/s. Weikfield Agro Products Pvt. Ltd. and the lease money has been offered for tax. In view of this, since income derived from this land is non-agricultural income, kindly explain how the land can be considered as a capital asset. You are also required to furnish 7/12 extract of this land for the years 1996-97, 1997-98 and 1998-99. Thus disclosure of income is not voluntary. The same has been made only when assessee had been left with no other option. There exist no reason to treat the land as agriculture land as already explained. 6. Having gone through these facts of the case, it is held that the assessee has concealed particulars of income by not disclosing capital gain on sale of land at Village Bakori amounting to Rs. 10,85,200/- in the return of income. Penalty under section 271(1)(c) is clearly leviable in this case. The amount liable is computed as under:- Income Concealed 10,85,200 Tax sought to be evaded 4,34,080 Minimum penalty leviable 4,34,080 Maximum penalty leviable 13,02,240 Penalty of Rs. 4,34,080/- is hereby imposed. 3.7 Being aggrieved with the Assessing Officer's order imposing ....
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....nation offered by him was bona fide. In fact, this has been demonstrated by the appellant as brought out in the penalty order in page-S itself. The facts in this case are not similar to the decision of CIT v. K.P. Madhusudanan (246 ITR 218) relied upon by the Assessing Officer. In view of the above facts, the penalty levied is deleted." Hence, the revenue is in appeal against CIT(A)'s order in deleting the aforesaid penalty imposed by the Assessing Officer under section 271(1)(c) of the Act. 3.9 The learned Departmental Representative submitted that the Assessing Officer was very much justified in imposing the penalty under section 271(1)(c) of the Act inasmuch as that the conduct of the assessee in not offering the capital gain on the sale of land-in-question was not at all bona fide and honest one. She further submitted that since no agricultural activity were carried out by the assessee on the land-in-question, no question could or did arise to treat the land-in-question as agricultural land by the assessee and claimed the same as exempted on the ground that the agricultural land-in-question does not come within the ambit of capital asset defined under section 2(14) of....
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....nderstand that mushroom production is an agricultural activity in the light of the opinion of the authority of Agricultural Department of the State Government of Maharashtra. (v) That further evidences in the nature of a letter from the authorities of the Central Government also support the assessee's view that the mushroom production is an agricultural activity. These letters or papers are as follows- (a) The letter from Horticulture Commissioner, Government of India, Ministry of Agriculture, to the effect that mushroom production is an agricultural activity. (b) Letter from NABARD that Hi-tech floriculture is an agricultural activity. The assessee's belief is that floriculture is similar to mushroom inasmuch as in floriculture, flowers are cultivated in places kept in climate controlled green houses. (c) An income-tax assessment order in the case of floriculture in which the Income-tax Officer had treated floriculture as an agriculture activity. (vi) That the assessee had agreed to the addition to buy the peace with an understanding that no penalty under section 271(1)(c) would be imposed on the assessee. (vii) In the ....
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....aled the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to tax, if any, payable by him, sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of its income or furnishing of inaccurate particulars of such income. Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent t....
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....ssee must be accepted. It must be an explanation acceptable to the fact finding body. 3.17 It is also pertinent to note that that the Hon'ble Supreme Court in the case of K.P. Madhusudanan pointed out that where penalty is exigible with reference to the Explanation to section 271(1), the mere fact that the Assessing Officer has not specifically invoked the same would not justify cancellation of penalty. The decision of Hon'ble High Court in this case reported in K.P. Madhusudanan's case was affirmed. The Hon'ble High Court in this case had pointed out that the assessee had kept out certain entries relating to alleged hand loans and offered explanation for the same as fanciful and vague, so that the Tribunal was not justified in excusing penalty. It was in this context that the Hon'ble High Court found that the mere offer of income and the fact that the notice issued by the Assessing Officer did not invoke the Explanation to section 271(1)(c) cannot justify cancellation of penalty. In this case, the Hon'ble Supreme Court went further and held that the decision of the Supreme Court in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 is no l....
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....f assessment proceeding is completed by calling for an explanation from the assessee. On particular conclusion reached, the operative part of legal fiction comes to life and not otherwise. Thus, it is a deeming provision for reaching a conclusion and not for starting an enquiry with a presumption against the assessee. In this connection further distinction is clearly noticeable between the two clauses of Explanation 1. Clause (A) refers to case where no explanation is furnished by the assessee about such additions made or deductions disallowed, or if explanation is furnished by the assessee, it is found that to be false. Finding an explanation to be false is akin to a fact disproved in contrast to a fact "not proved" as defined in the Evidence Act. In such event the conclusion that is to be arrived at is that the amount added or disallowed in computation is deemed to represent the income in respect of which particulars have been concealed. Clause (13) comes into the picture only when some explanation is furnished by the assessee. It does not come into the picture where the assessee does not furnish any explanation because such a case is governed by clause (A). Cla....
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....on 271(1)(c) of the Act. (v) The explanation of the assessee, where offered, should not be found to be false, So that the penalty would not be exigible. In other words, the explanation of the assessee if found to be false would attract penalty as envisaged in clause (A) of Explanation 1 to section 271(1)(c) of the Act. (vi) Merely because the assessee is not able to substantiate its explanation, penalty would not automatically be attracted if (i) such explanation is found to be bona fide and (ii) all the facts relating and material to the computation of total income has been disclosed by the assessee. (vii) Where there is nothing to suggest, gross or wilful neglect or fraud and the explanation offered by the assessee is found to be bona fide, the Explanation 1 to section 271(1)(c) itself would not then help the revenue to justify the penalty. (viii) The burden placed upon the assessee to rebut the presumption raised under Explanation 1 to section 271 (1)(c) would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation by the assessee must be accepted. (ix) Mere offer of income by the a....
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....the sale consideration. The capital gain arising from sale of this land was not disclosed by the assessee in the return of income filed by him. After purchasing the said land on 17-10-1994, this land was given on lease by all the joint owners to M/s. Weikfield Agro Products (P.) Ltd. with effect from 24-11-1994. The lease income derived by the assessee has been duly reflected in the taxable income of the assessee. Since capital gain arising from the sale of this land was not shown by the assessee in the return of income, the Assessing Officer issued a notice to the assessee to show cause as to why gain on sale of land in question should not be taxed as capital gain in his hand. The assessee submitted a written submission on 28-2-2000 to the Assessing Officer, which is extracted as under: "The land at village Bakori has been used for carrying on Agriculture operation which is evident from 7/12 extract enclosed separately. It may also kindly be noted and appreciated that assessee along with order co-owners has also entrusted the work of plantation of various trees as is evident from the bill dated 4-10-1995 issued in the name of Weikfield Agro Products. We are enclosing copy....
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....en in the year under consideration of such land on receiving of such advance and as such there is no income accrued or earned by the assessee pertaining to such transaction. It is submitted that since the land is agricultural land the same is not taxable since it is situated beyond the prescribed limit stated in terms of provisions of section 2(14) of the Act. At the time of hearing before your honour the issue regarding claim of exemption pertaining to the consideration of Rs. 11 lakhs has been discussed in detail. It has been brought to the kind notice of your honour that the exemption is claimed in terms of provisions of section 2(14) of the Act. It is, however, felt that your honour is not satisfied with the details submitted in support of such claim. On discussion it has been decided by the assessee to surrender the claim of exemption on the condition that no penalty would be initiated by the department under section 271(1)(c) and except imposing the relevant amount of tax and interest if any payable thereon, no other action will be taken by the deptt. The assessee has decided to surrender the claim with a view to buy peace of mind and to avoid possible litigation in ....
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....is concerned. In the assessment order itself, the Assessing Officer had stated that the assessee had attached a Note along with the statement of taxable income, reading as under:- "During the year the assessee has sold agricultural land situated at village Bakori, Distt. Pune for Rs. 11 lakhs. Since this was agricultural land and such land is situated outside 8 Kms. from municipal limit (notified area/town) the gain arising therefrom is treated as exempt. (The copy of sale deed is enclosed). When above referred land was purchased in assessment year 1995-96 the capital gain exemption was claimed in terms of provisions of section 54B of the Act. As the land at Bakori was sold within a period of three years the exemption claimed earlier in assessment year 1995-96 is revoked and offered for taxation as per provisions of section 54B." 3.26 On reading the said note as well as the assessee's written submissions filed before the Assessing Officer on 28-2-2000, it is clear that the transaction of selling the land-in-question has been disclosed by the assessee to the Assessing Officer. The consideration amount for which the land was sold was also furnished. In the No....
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....or otherwise a false, so that penalty would be imposed or not. 3.28 At this stage, it is first necessary to see as to how capital gain has been computed by the Assessing Officer. The capital gain computed by the Assessing Officer is as under:- "Sale consideration received Rs. 11,00,000/- Less: Cost of acquisition (1/5th share) Rs. 14,800/- Short-term capital gain Rs. 10,85,200/-" This sum of Rs. 10,85,200/- was included in the assessee's total income on account of short-term capital gain arising to the assessee from the sale of land in question. On perusal of the said computation of capital gain, we find that the Assessing Officer has taken the cost of acquisition at Rs. 14,800/- being 1/5th share of the assessee. It is not in dispute that this land was purchased for a sum of Rs. 12 lakh jointly along with four other persons and the assessee's share in the purchase consideration including other expenses was of Rs. 2,56,000/-. As against the actual cost of acquisition of Rs. 2,56,000/-, the Assessing Officer has deducted cost of acquisition of Rs. 14,800/- only. The reason given by the Assessing Officer for taking the cost of acquisition at Rs. 14,800....
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.... for agricultural purposes is sold, and the assessee has within a period of two years after the date of the transfer of this agricultural land purchased any other land for being used for agricultural purposes. It is, thus, Hear that the former asset as well as the new asset being the land are to be used for agricultural purposes. In the assessment year 1995-96, the Assessing Officer has allowed benefit of exemption under section 54B on the purchase of the land-in-question, which has been sold during the year under consideration, implying thereby that this land purchased by the assessee on 17-10-1994 was treated as a land for being used for agricultural purposes. In other words, the Assessing Officer has recognized the land-in-question as the land for being used for agricultural purposes and has allowed the exemption under section 54B of the Act in the year of its purchase. Since the land has now been sold in the year under consideration within a period of three years of its purchase, the cost of acquisition of this land has been reduced by the Assessing Officer from Rs. 2,56,000/- to Rs. 14,800/- as per clause (i) or (ii) of sub-section (1) of section 54B of the Act. It is not in d....
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....n arising from the sale of the land-in-question. 3.29 Moreover, in the light of the fact that the land-in-question was classified as agricultural land in revenue records being 7/12 extracts and the assessee's claim of treating the land as of agricultural in nature is supported by the certificate given by one Dr. S.K. Goyal, Commissioner of Agriculture, Government of Maharashtra, Pune and the Horticulture Commissioner, Government of India, Ministry of Agriculture, certifying that mushroom production is an agricultural activity, we are of the considered view that the assessee's claim of treating the land of agricultural in nature and thus not offering the gain arising on sale thereof cannot be said to be false and non-bona fide one. It is the case where the assessee's claim is found to have not been substantiated without there being any material or evidence on record to show and establish that the assessee's claim was false and not a bona fide one. We do not find that the assessee has given any fantastic or fanciful explanation, which do not deserve to be accepted as bona fide one. Therefore, on this count also, we hold that the assessee has been able to rebut the ....
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....f plantation of various trees as is evident from the bill dated 4-10-1995 issued in the name of Weikfield Agro Products. We are enclosing copy of the same for your honours kind perusal and ready reference. It may also kindly be noted appreciated that no accounts have been maintained by the assessee in this respect and as such details cannot be furnished in respect of receipt and expenses incurred for carrying out such activities. It may however kindly be noted and appreciated the receipts were just sufficient to meet the expenses. This land however has been given on lease to Weikfield Agro Products Pvt. Ltd. for carrying out the agriculture production namely Mushroom. In this respect, it has been clarified that as per the certificate issued by Dr. S.K. Goyal, Commissioner of Agriculture, MS Pune dated 21-2-2000 the mushroom are an agricultural produce classified as vegetables. We are enclosing copy of the said certificate for your kind perusal and record. It has also been clarified that as per the dictionary meaning of Agriculture it is the science or art of cultivating the soil, harvesting crops and raising live stock. It is also the science or art of production of plants....
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.... total income of the assessee has been disclosed by him. 4.2 We have heard both the parties and have carefully perused the orders of the authorities below and the materials on record. 4.3 In the assessment, the Assessing Officer has stated that the land in question was sold for Rs. 20 lakh and the whole of the sale consideration was treated as capital gain because for the reason that the cost of this land was allowed as deduction under section 54B of the Act from the capital gain arising from the sale of some other land for being used for agricultural purposes and sold during the assessment year 1995-96. In the order of penalty under section 271(1)(c), the Assessing Officer has stated that this land was purchased by the assessee on 9-1-1995 through three purchase agreements for a sum of Rs. 4,89,000/- and the cost of acquisition in the hands of the assessee for the purpose of capital gab1 was taken to be Nil as per provisions of section 54B of the Act. It is, thus, clear that at the time of purchase of this land, the land was treated for being used for agricultural purpose by the Assessing Officer and he, thus, allowed the deduction under section 54B of the Act. The facts and....