TaxTMI 
TaxTMI 
2016 (1) TMI 448
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....up assessee‟s appeals in ITA No. 1250/Mum/13 & ITA No. 179/Mum/13 for A.Y. 2010-11. 3. These are the appeals filed by the assessee against two separate orders of ld. CIT(A) - 25 dated 3-12-2012 and 29-11-2012 for the A.Y. 2010-11 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961. 4. Common grounds are involved in both these appeals, therefore, these were heard together and disposed of by this consolidated order for the sake of convenience. 5. Facts in brief are that assessee is an individual and derives income from capital gains and other sources. During the year under consideration, return was filed declaring total income of Rs. 10,35,810/-. Along with return of income, assessee filed a letter dated 20th September, 2010 with the A.O. disclosing the fact of long term capital gain on surrender of lease hold rights not liable to tax as per the decision of Hon‟ble Supreme Court in the case of K.P. Varghese. Advance tax was also paid on such capital gains. The return was processed u/s 143(1) of the Act determining refund of Rs. 1,98,47,869/- thereafter return was taken under scrutiny and during the course of scrutiny proceedings, the A.O. observe....
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....hat the intention of the legislature was to bring almost all the self-generated assets to the ambit of capital gains taxable u/s 45 of the Act. The A.O. did not accept the assessee‟s contention that leasehold rights are not akin to the tenancy right, therefore, capital gain arose on sale of leasehold rights was held to be taxable u/s 55(2)(a) of the Act. The A.O. also observed that the wording of leasehold right must have been embedded in the word tenancy right specially mentioned in section 55(2)(a) of the Act. By the impugned order the ld. CIT(A) confirmed the action of A.O. against which assessee is in further appeal before us. 8. Contention of ld. AR was as under :- 1.1 Section 55(2)(a) is a deeming provision and hence, has to be strictly construed 1.2 Interpretation of legal terms used in statute - (1958) 9 STC 353 (SC); AIR 1958 (SC) 560 - refer written submissions, para 1.12. The words "lease" , "leasehold rights" "tenancy rights" have been used separately in the Income-tax Act at different places - thereby meaning that the two words have different meaning - (a) Section 55(2)(a) - "tenancy rights" (b)Section 1941, Explanation (i) ....
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....llows that the 2 carry different meanings. 1.5 (a) There is no cost of acquisition of leasehold rights - Cadell Weaving - 249 ITR 265 (Born) at page 270 - under the heading "Facts" and 273 ITR 1 (SC) (b) Section 55(2)(a) only refers to "tenancy rights" , cost of acquisition of which is deemed to be 'nil' and does not refer to leasehold rights (c) Leasehold rights not mentioned in the said section (d) Basis of claim - refer letter to AO dated 8.8.2011 - page nos 62 to 66 of paper book (e) Leasehold rights - no cost no capital amount paid, only annual payments. Decisions 128 ITR 294 (SC) - B.c. Srinivasa Shetty - ratio of the decision 307 ITR 75 (SC) - PNB Finance Ltd - ratio of the decision 1.6 Refer section 55(1)(b) -leasehold rights not mentioned 137 ITR 493 (Bom) Refer page no 66 of paper book for submissions. The value of leasehold rights may fluctuate The value of the rights may fluctuate with - (i) the area of the land, development in the vicinity, future prospect, (ii) any Government notification - declaring Special zone (iii) any Government no....
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.... placed on the decision of Hon‟ble Supreme Court in the case of CIT vs. B.C. Shinivasan Shetty, 128 ITR 294. It was held by the A.O. that the rulings of Hon‟ble Supreme Court in the case of B.C. Shinivasan Shetty (supra) is no more applicable because necessary amendments have been made in the statute u/s 55(2)(a) of the Act w.e.f. 1-4-1995. It was the contention of the assessee that leasehold right which is a capital asset is not stated in section 55(2)(a) of the Act, therefore, it is not applicable. However, the A.O. did not accept the assessee‟s contention and came to the conclusion that "leasehold right" as claimed by the assessee is in the nature of "tenancy right". The A.O. also discussed the judicial pronouncements cited by the A.R. and concluded that provisions of section 55(2)(a) (ii) of the Act are applicable and computed the capital gains on transfer of leasehold rights. Even though "tenancy right" and "leasehold right" is not defined under Income Tax Act, but one has to understand the meaning of these terms in common parlance as well as legal parlance. In common parlance, both the terms are interchangeable and has same meaning. The statutory definitions....
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....sessee also paid advance tax on the impugned gains so that he does not have to bear the burden of interest under section 234B in the eventuality of his claim not being accepted. The assessee during the course of assessment proceedings furnished among other details, the following:- - Lease Agreement dated 8th February, 1952 - Sale Agreement dated 18th December, 2009 - Conveyance Deed dated 13th March, 2010 - Letter dated August 8, 2011 giving detailed reasons why receipt on sale of leasehold rights is not chargeable to capital gains tax. - Letter dated August 11, 2011 giving details of various letters filed during the course of assessment proceedings. - Letter dated September 12,2011 furnishing the Approved Valuer's Report. However, the A.O. did not agree with the contention of the assessee on the ground that leasehold rights is different from tenancy right so as to make the assessee eligible to claim exemption from long term capital gain. Accordingly by declining the assessee‟s claim, the A.O. added the amount of capital gains in the income of the assessee and also levied penalty u/s 271(1)(c) of the Act. 14. By ....
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.... of India - (1967) 64 ITR 664, 667 (Raj) CIT v. Smt. Veerawali - (1976) 104 ITR 679 (Ori) The word "may" in section on 271`(1) indicates that the authority concerned has a discretion either to levy penalty or not to levy a penalty, for this proposition reliance was placed on following pronouncements. CIT vs. Maya Rani Punj - (1973) 92 ITR 394 (Del) Poorna Biscuit Factory v. CIT - (1975) 99 ITR 41 (AP) CIT vs. Prafulla Kumar Malik - (1976) 104 ITR 648 (Ori) CIT vs. V.M. Modi & Sons- (1976) 102 ITR 548 (MP) B. Muniappa Goundere vs. CIT - (1976) 102 ITR 787 (Mad) The power to impose penalty has to be exercised judicially with due regard to all facts and circumstances of each case and cannot be exercised mechanically. M.P. Laxman v. Agri. ITO - (1986) 157 ITR 1, 9 (Karn Imposition of penalty is not mandatory - It is not mandatory under section 271 that a penalty must be imposed in every case. If the conditions laid down in the said section are established, then the authority concerned "may direct" that the person committing the default within the meaning of the said section pay the penalty imposed and for this purpose relia....
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.... appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside". 19. He further invited our attention to the penalty order and contended that the A.O. has initiated the penalty proceedings for furnishing inaccurate particulars of income, however, in the entire order of penalty, the A.O. does not specify which particulars are inaccurate and, hence, the A.O. has not discharged his burden, hence, the impugned order is bad in law. As per the ld. A.R. the A.O. has levied the impugned penalty also for the reasons that since the assessee has paid advance tax, there was no reason available with the assessee for nurturing a belief that the amount received is a capital receipt not chargeable to tax. On absolutely similar facts, the Hon‟ble Delhi High Court in the case of Ravindra Bahl (42 taxmann.com 404) has deleted the penalty under section 271(1)(c). The ld. CIT(A) also in para 4.4 of his order considers the aforesaid issue and states ....
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.... the rival contentions and carefully gone through the orders of authorities below and deliberated on the judicial pronouncements referred by lower authorities in their respective order as well as cited by ld. A.R. and ld. D.R. during the course of hearing before us. We have also carefully gone through the justifications filed by the ld. A.R. during the quantum proceeding so as to distinguish the leasehold rights from the tenancy rights. For the year under consideration, the assessee has filed his return of income on 20th September, 2010. On the very same date, the assessee has filed a letter with the A.O. giving the relevant information to the effect that capital gain accruing on account of sale of leasehold rights in the property situated at Goregaon was not included in the computation on the plea of self generated assets. Furthermore, a note was given at the end of the computation of total income placed in the return of income so filed to the effect of sale of leasehold rights and the claim of the assessee that the same is not exigible to tax. Such note was as per the advice of the Chartered Accountant of the assessee and the assessee has also paid advance tax on the transactions....
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....lars to the effect that leasehold rights are different than the tenancy right. Even though the A.O. was not agreeing with the justification given by the assessee for not offering the capital gain arose on sale of self generated asset but the assessee has tried to justify its claim on the basis of decision of Hon‟ble Supreme Court in the case of B.C. Srinivasa Shetty (supra). Merely because the assessee‟s claim on the impugned receipts is not chargeable to tax which claim was not accepted by the A.O. by itself would not attract the penalty u/s 271(1)(c) of the Act. If the contention of the Revenue was accepted, then the case of every return where the claim made is not accepted by the A.O. for any reason, the assessee would be slapped with penalty u/s 271(1)(c) of the Act. That would clearly not be the intendment of the legislature. Furthermore, nowhere the A.O. has stated what is false in the claim of the assessee. However, the taxability of receipt on surrender of leasehold rights is not an "open-and-shut case", it is an arguable caseand debatable matter and it cannot be termed as „false claim‟. Even during the quantum proceedings before the Tribunal, the as....
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....ce Co. Ltd. v. Smt. Nirmala Devi [1979] 118 ITR 507, has held that legal advice given by the members of the legal profession may sometimes be wrong and even as pronouncement on questions of law by Courts are sometimes wrong. An amount of latitude is expected in such cases for, to err is human and laymen, as litigants are, may legitimately lean on expert counsel in legal as well as in other departments, without probing the professional competence of the advice. The Court must, of course, see whether, in such cases there is any taint of mala fides or element of recklessness or ruse. If neither is present, legal advice honestly sought and actually given, must be treated as sufficient cause for deletion of penalty. The Court went on to hold that assessee ought not to be made to suffer penalty for having acted upon an advice of its chartered accountant and not filing the income-tax returns in time. The Court should not be understood as laying down a general proposition that in all cases where the assessee fails to file returns in time and attributes the failure to an advice by its chartered accountant, that by itself constitutes a sufficient cause. Each case would have to be tested on i....