TaxTMI 
TaxTMI 
2006 (5) TMI 169
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. 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 AO 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 s. 2(14) of IT Act and thus being agricultural land, the gain thereon was not liable to tax. The AO stated that the land in question was purchased by the assessee on 17th Oct., 1994 along with four other persons jointly for a sum of Rs. 12 lakhs. The AO further stated that this land was given on lease immediately after to M/s Weikfield Agro Products (P) Ltd. on 24th Nov., 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 assessee himself. Therefore, during the course of assessment proceedings, the assessee was asked by the AO to explain as to why the land in question should not (sic) b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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 carried bona fide belief that the transaction pertaining to such land is exempt under the provisions of the IT 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 IT 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 noted and appreciated that after discussing with your goodself and also arguing the matter at length in support of claim of such exemption pertaining to such transaction the assessee has surrendered the said claim in order to buy the peace of mind and to avoid possible future litigation in that respect. It may kindly be noted that as per knowledge and belief of the assessee, the income which is not qualifying for exemption under s. 2(14) or under s. 54 of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 require the expenditure of human skill and labour upon the land itself. [CIT vs. Raja Benoy Kumar Sahas Roy (19571 32 ITR 466 (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' receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless, there is present all throughout the basic idea that there must be at the bottom of its cultivation of land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself [CIT vs. Raja Benoy Kumar Sahas Roy]. In order to constitute agricultural income, under s. 2(1A) (b) of the 1961 Act two conditions have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture 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 s. 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 AO's order imposing penalty under s. 271(1)(c), t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itself. The facts in this case are not similar to the decision of CIT vs. K.P. Madhusudanan (2001) 165 CTR (Ker) 353 : (2000) 246 ITR 218 (Ker) relied upon by the AO. 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 AO under s. 27l(1)(c) of the Act. 3.9 The learned Departmental Representative submitted that the AO was very much justified in imposing the penalty under s. 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 was 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 s. 2(14) of the Act. She further contended that the activity of growing mushroom could not by any stretch of imagination be treated as agricultural activity. The capital gai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Commr., 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 in as much 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 ITO had treated floriculture as an agriculture activity. (v)(a) That the assessee had agreed to the addition to buy the peace with an understanding that no penalty under s. 271(1)(c) would be imposed on the assessee. (vi) In the light of the aforesaid explanation, the assessee has been able to discharge its burden that lay upon it u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 AO or the CIT(A) or the CIT 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 cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 3.14 As to the scope and effect of the Expln. 1 to s. 271(1)(c), we may refer to the following decisions: 3.15 The Hon'ble Supreme Court in the case of B.A. Balasubramaniam & Bros. Co. vs. CIT (1999) 157 CTR (SC) 556 : (1999) 236 ITR 977 (SC) has held that after the incorpora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t specifically invoked the same would not justify cancellation of penalty. The decision of Hon'ble High Court in this case reported in CIT vs. K.P. Madhusudanan 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 AO did not invoke the Explanation to s. 271 (1)(c) cannot justify cancellation of penalty. In this case, the Hon'ble Supreme Court went further and held that the decisions of the Supreme Court in Sir Shadi Lal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) is no longer good law after the insertion of Explanation to s. 271(1)(c) of the Act. In this case, the Hon'ble Supreme Court has overruled the decisions of Hon'ble Bombay High Court in CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom) and CIT vs. Dharamchand L. Shah (1993) 113 CTR (Bom) 214 : (1993) 204 ITR 462 (Bom). 3.18 In Addl. CIT vs. Jeevan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arly noticeable between the two clauses of Expln. 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 (B) 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 cl. (A). Clause (B) comes into operation, where the explanation furnished by the assessee in respect of the additions or disallowance of any amount, he is unable to substantiate the same that is to say where the explanation furnished by the assessee is placed in the category of a fact 'not proved', which denotes that the fact in enquiry is neither proved nor disproved. This 'not proved' state by it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l to the computation of total income has been disclosed by the assessee. (vii) Where there is nothing to suggest gross or willful neglect or fraud and the explanation offered by the assessee is found to be bona fide, the Expln. 1 to s. 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 Expln. 1 to s. 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 assessee cannot justify cancellation of penalty. Though it cannot be laid down as a principle of universal application that whenever an addition is made on a concession, penalty is not to be levied, the factual position in each case has to be considered and the background in which the agreement is made for the addition has to be taken note of. (x) Where penalty is exigible with reference to the Explanation to s. 271(1)(c), the mere fact that the AO has not specifically invoked the same would not justify cancellation of penalty. 3.21 In this view of the matter, it is thus clear that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gain in his hand. The assessee submitted a written submission on 28th Feb., 2000 to the AO, 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 dt. 4th Oct., 1995 issued in the name of Weikfield Agro Products. We are enclosing copy of the same for your honour's kind perusal and ready reference. It may also kindly be noted and 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 that the receipted were just sufficient to meet the expenses. In fact, there was negligible income earned by the assessee in the initial year. In this respect, elaborate note has already been brought on your record at the time of hearing under the head 'Note on Bakori land purchase/leased/sell'. We are enclosing the said copy for your....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 s. 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 Department. The assessee has decided to surrender the claim with a view to buy peace of mind and to avoid possible litigation in this respect. The amount of Rs. 11 lakhs claimed as exempt may be treated as forming part of the income subject to the conditions mentioned above." 3.24 The aforesaid submission of the assessee was not found acceptable to the AO. As the AO was of the view that there was no agricultural operation carried out on the land in question and mere plantation of tree itself cannot be a basis for treating the use of land as for agricultural purposes. The AO further stated that immediately after the purchase, the land was given on lease to M/s Weikfield Agro Products (P) Ltd. on and from 24th Nov., 1994 for production of mushroom. The AO also stated that the dominant purpose for acquiring this land was not to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as the assessee's written submissions filed before the AO on 28th Feb., 2000, it is clear that the transaction of selling the land in question has been disclosed by the assessee to the AO. The consideration amount for which the land was sold was also furnished. In the note, the assessee has claimed that since this land was agricultural land and is situated outside 8 kms. from municipal limit, the assessee is claiming capital gain arising from the sale of this land as exempted. The assessee further stated that as the land in question has been sold within the period of 3 years from the date of its acquisition, the exemption claimed earlier in asst. yrs. 1995-96 against purchasing the said land under s. 54B is withdrawn or revoked and offered for taxation as per the provisions of s. 54B of the Act. From the explanation submitted by the assessee before the AO on 28th Dec., 2000, it is also clear that the assessee had submitted a certificate issued by one Dr. S.K. Goyal, Commr. of Agriculture, MS, Pune, dt. 21st Feb., 2000 in support of the contention that mushrooms are agricultural produce classified as vegetables. From the written submission filed by the assessee on 28th Feb., 2000, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ---------- 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 AO 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 lakhs 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 AO has deducted cost of acquisition of Rs. 14,800 only. The reason given by the AO for taking the cost of acquisition at Rs. 14,800 as against actual cost of acquisition of Rs. 2,56,000 is that this land was purchased by the assessee out of capital gain of Rs. 24,33,313 that arose to the assessee in the asst. yr. 1995-96. At this stage, it is pertinent to note that the assessee had a capital gain of Rs. 24,33,313 in the asst. yr. 1995-96 out of which the assessee had purchased this land in questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the land in question, which has been sold during the year under consideration, implying thereby that this land purchased by the assessee on 17th Oct., 1994 was treated as a land for being used for agricultural purposes. In other words, the AO has recognized the land in question as the land for being used for agricultural purposes and has allowed the exemption under s. 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 AO from Rs. 2,56,000 to Rs. 14,800 as per cl. (i) or (ii) of sub-s. (1) of s. 54B of the Act. It is not in dispute that the deduction allowed under s. 54B on account of purchase of this land in question has not been withdrawn by the Department, but rather the AO has invoked cls. (i) or (ii) of s. 54B(1) by reducing the cost of acquisition of the land in question while computing the short-term capital gain at Rs. 10,85,200 arising from the sale consideration of Rs. 11 lakhs in the year under appeal. In other words, the AO even in the year under consideration has acted upon the provisions of s. 54B of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 does 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 presumption of concealment of income or of furnishing inaccurate particulars of income drawn against him under Expln. 1 to s. 271(1)(c) of the Act. It is further to be noted that a view that no penalty under s. 271(1)(c) is exigible in the present case has been taken by us not for the reason that the assessee has agreed for the addition in the course of assessment proceedings after an explanation was sought for by the AO, but we have taken this view for the reason that the assessee's claim, though not found to be acceptable for the purpose of assessment, is not a false and non bona fide one. We have considered the factual position of the case and find that the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Goyal, Commr. of Agriculture, MS, Pune, dt. 21st Feb., 2000, the mushrooms 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 livestock. It is also the science or art of production of plants and animals useful to man and in varying degrees. The preparation of these products for man's use and their disposal (as by marketing). We are enclosing the relevant page of the dictionary from Webster's at p. 44 giving such meaning. We may further bring to your notice that the said land was given on lease to M/s Weikfield Agro Products (P) Ltd. only upto 21st March, 1997. It is also 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 s. 2(14) of the Act." After considering the assessee's explanation, the AO held that in view of the matter already discussed by him in the assessee's case in the asst. yr. 1997-98 and in view of the fact that the la....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... s. 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 AO and he, thus, allowed the deduction under s. 54B of the Act. The facts and circumstances of the case in the asst. yr. 1998-99 are identical as to that of the asst. yr. 1997-98 and that position has been accepted by the AO in the assessment order as well as in the penalty order. Therefore, in the light of the view taken by us in the asst. yr. 1997-98, and particularly in view of the fact that this land was treated as land for being used for agricultural purposes in the year of its purchase by the AO himself while granting deduction under s. 54B of the Act and the assessee's claim that the land in question was of agricultural land is supported by the view expressed by the Agricultural Department of the State Government of Maharashtra, Horticulture Commr., Government of India, Ministry of Agriculture, New Delhi and further by classification of the same as agricultural land in Revenue record being 7/12 extracts. In this view of the matter, therefore, we are of the considered view that no penalty under s. 271(1)(c) is exigible in the pr....