TaxTMI 
TaxTMI 
1999 (10) TMI 733
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....hereinafter called the "Act"). Thus the income disclosed for the year was under two heads, viz. business loss and the profit under the head capital gains. The net taxable income worked out by the assessee-firm was at Rs. 26,16,299. 3. Before the AO, two questions were raised for his consideration : (i) "Whether the assessee's claim that the land in question disposed of by the assessee is a capital asset and not a business asset i.e. stock in trade? (ii) If the answer to Issue No. 1 is in the affirmative (it is the capital asset), then whether the assessee could bifurcate this sale consideration in respect of the capital asset into two parts'one in the nature of a capital receipt and the other in the nature of business receipts, thereby claiming deduction under s. 48(2) and also business loss." 4. The AO treated the entire receipt as a one composite receipt in respect of transfer of capital asset. Being aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) examined the nature of right in property by applying the various legal tenets and found that the receipt in question cannot be construed to be a 'capital receipt', since it ....
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....issuing a notice for enhancement of assessment during the appellants proceedings and after hearing the assessee. The assessment as enhanced by the CIT(A) has been finally upheld by the Tribunal in Appeal No. 3653/Bom/1994. The reference application of the assessee under s. 256(2) is pending before the Honourable Bombay High Court on this order of the Tribunal. 9. CIT(A) initiated penalty proceedings under s. 271(1)(c) and after giving the assessee an opportunity of being heard the above penalty has been imposed. It shall be pertinent to mention here that the assessee-firm is a group of firms and the other sister concerns are M/s Omega Associates and M/s Crescendo Associates etc. In these cases also the assessments were enhanced and penalty under s. 271(1)(c) was also imposed similar terms and circumstances. At the time of hearing the learned counsel for the assessee took us through chronology of events and facts of the case which are summarised as under. 10. On 28th Jan., 1984, the assessee-firm entered into an agreement with Shri C.B. Sharma, who was having rights in certain parcels of lands or ground situate laying and being at village Tirandaz admeasuring 52,925.27 sq. yds....
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....The relevant clauses of the agreement are as under : "(i) Shri C.B. Sharma, party of the second part was possessed and seized of the land prior to 12th May, 1983, (p. 4). This averment was made without considering the notification/order issued under s. 10 of the ULCR Act, 1976 because under s. 10 of the ULCR Act right in land might have vested in State Government earlier. (ii) The Government of Maharasthra published a Notification No. BMRDA/2076/1100/CR 84/Part II/UD-4 dt. 12th May, 1983, in Government Gazette to acquire such land in pursuance of sub-s. (1) to s. 32 of BMRDA Act and accordingly various lands including the land Shri C.B. Sharma vested in the State Government upon the publication of the said notification (p. 5). Under this agreement, Shri C.B. Sharma offered to the MTNL (assignees) to assign and transfer the benefits of the said agreement to lease dt. 19th Nov., 1986 in respect of the land in favour of MTNL (assignee) (p. 9). (iii) BMRDA (confirming party) approved the terms and conditions of agreement and undertook to execute a final lease in favour of MTNL (assignees) upon the full payment of the consideration at the rate Rs. 1,300 per sq....
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.... vehemently contended that all the above documents are in writing and are spread over a long period of time and constitute a series of events one leading to other. The conduct of the assessee clearly shows that what was contemplated to have purchased a bundle of rights including a right to get the conveyance of immovable property executed in favour of the assessee-firm. The agreements are valid agreements as per the canons of the law and no illegality can be attributed to them. The fact that the same was treated as transfer by the assessee is evident from the fact that it applied to the appropriate authority under s. 269UL of the IT Act which is a cumbersoms procedure and applicable only to transfers of immovable property. Had the assessee carried an impression that transactions entered into it with Shri C.B. Sharma is not transfer of immovable property it would not have applied for such proceedings which were applicable only to transfer of immovable property. Further, the Appropriate Authority after considering the contents of the agreements and other relevant facts came to a firm conclusion that the documents represent transfer of immovable property and they gave a no-objection c....
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.... under bona fide belief that as far as the amount of contract with MTNL to the extent of land is concerned it has to be covered under the chapter 'capital gains' and as the assessee is doing the developmental work as per the specifications of MTNL the same is an adventure in the nature of trade and the same is to be treated under the head 'Profits from business and profession'. The return was accordingly prepared and valid return duly accompanied with audited accounts statement and all other necessary particulars complete in all respects were filed with the AO. Assessment proceedings were lengthy wherein all the aspects of the assessment were properly looked into by the AO. The AO in framing the assessment made certain findings and observations which shall be pertinent to mention in this behalf : "(4.5) The above judicial pronouncements have been gone through and the same found to be applicable to the facts and circumstances pertaining to the case of the assessee-firm and moreover, on the basis of the facts discussed in the preceding para regarding the nature of property, length of ownership and holding, conduct and subsequent dealings, as also absence of f....
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....land in developed condition....." From the above letter of MTNL, it is clear that it was the developed land which was always intended and was actually acquired by the MTNL from the assessee-firm. In the reply filed by the assessee it is claimed that the above letter dt. 13th May, 1988, shows that the land was acquired in the undeveloped land which is found to be factually incorrect. The other correspondence between the MTNL and the land officer of BMRDA vide letter dt. 2nd Sept., 1986, and further letter dt. 20th March, 1987, is of little consequence in deciding whether it was the developed land which was sought to be acquired by the MTNL or otherwise. Although the above letter has also been relied upon by the assessee, the same are found to be not applicable to the issues in question, which happens to be the condition in which the land was proposed to be acquired. (iii) Coming to the bifurcation of the total premium of Rs. 1,300 per sq. mtr. into two parts i.e. Rs. 900 and Rs. 400 per sq. Mtr. It is found that the entire controversy in this regard has been created by the assessee-firm, taking clue from the valuation reports of the Powai lands by the Dy. Director ....
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....would have floated a tender and agreement for the selection of the developer would have been made in this regard. This has not so been done. This is because at the very outset it was the developed land, which was sought to be purchased by the MTNL. It may be mentioned that it was because of such facts that the entire premium of Rs. 4,67,56,233 has been paid by 27th April, 1989. The meaning thereof is that the transaction of sale of the development of the capital asset is taken as complete and it is only an improvement in the complete and it is only an improvement in the condition of the land which is to be carried out by the assessee-firm subsequently." 15. "In view of the foregoing discussion regarding the facts of the case (para 5 to 5.4 and regarding the legal positions in para 5.5 and 5.6), the assessee's claim of the said bifurcation of the premium price on the transfer of land is found to be untenable and is accordingly rejected. As a result, the total sale consideration will be taken as one composite receipt in respect of the transfer of the capital asset (developed land), and the various expenses which have been shown in the so-called P&L a/c for the rejected b....
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....eld any information or concealed any paper. All the agreements are on record. All the receipts are on record, the same are duly reflected in the account books from time to time over a length of time. 15. The counsel of the assessee now came to the enhancement order of the CIT(A). It was however contended that the bona fides of the assessee is further proved by the fact that it was aggrieved by the orders of the AO to the extent of part of the consideration disclosed under the head 'Profits and gains from business'. Had the assessee an impression that the profits are chargeable under the head 'Profits from business and profession' it had got everything from the AO by treating the entire amount under the head 'Capital gains' even beyond the claim of the assessee in the return of income. The CIT(A) issued an enhancement notice and by a series of arguments/observations and technical interpretation came to the conclusion that the entire receipt is taxable under the head 'Income from profits & gains of business or profession'. The Tribunal also has upheld the view again on technical interpretation of the various terms and a very strict legal work out ha....
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....xpenses from MTNL. Therefore, there is no justification for showing receipt of Rs. 1,43,55,764 on account of land development expenses. The assessee-firm has received only the composite receipt of Rs. 4,66,56,233 from MTNL on behalf of Shri C.B. Sharma, as compensation for acquisition of land of Shri C.B. Sharma. The fixation of price of developed land at the rate of Rs. 1,300 and undeveloped land at the rate of Rs. 900 by the Director of Town Planning does not provide any justification for bifurcating the compensation of land in two parts. The compensation of Rs. 4,66,56,233 was obviously bifurcated by the appellant for the purpose of tax evasion and such bifurcation was without any foundation in the case of assessee-firm." 17. After drawing above inference, the CIT(A) further held that : "The assessee has not declared the true nature of the receipt from MTNL. The assessee-firm bifurcated the receipt into two parts. The assessee-firm declared the receipt of Rs. 3,23,00,469 as receipt on account of sale of land and receipt of Rs. 1,43,55,764 on account of land development expenses. The MTNL has not given these amounts separately to the assessee and, therefore, the asses....
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....00% of tax sought to be evaded 1,94,27,265 (22) After taking into consideration all the facts of the case and gross and wilful neglect of the assessee-firm in furnishing inaccurate particulars of income, I impose penalty of Rs. 1.30 crores on the assessee which is equal to twice the amount of tax sought to be evaded. The AO is directed to issue demand notice and challan and collect the amount of penalty imposed." 19. The learned counsel further submitted before us that all relevant documents, accounts, agreements, receipts etc. necessary to support the claim of the assessee were enclosed along with the return. During the course of assessment whatever further information, documents, etc. were required by the AO, they were duly supplied. There is no observation by the AO/CIT that the assessee did not furnish or partially furnished or wrongly furnished and details either along with the return of income or as demanded thereafter. The learned counsel vehemently contended that : "It is argued by the learned counsel that the appellant has not concealed the particulars of income, or furnished inaccurate particulars of such income. It is stated that t....
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....urate particulars of income can be made against the assessee as both the AO and the CIT(A) have examined and accepted the figure of receipt and payment and expenses." 20. The learned counsel for the assessee relied on catena of decisions, the copies of which have been placed on record and relied on the same. Some of the important case laws along with the proposition are as under : "(1) Gopal C. Sharma vs. CIT (1994) 116 CTR (Bom) 377: (1994) 209 ITR 946(P.B. 1, p. 391-407) Lands purchased by assessee from his father, C.B. Sharma which were subject-matter of acquisition proceedings. Departmental authorities held the view that the acquisition compensation to be taxed as Revenue profits. Bombay High Court held that transaction of compulsory acquisition of land did not constitute adventure in the nature of trade. (2) CIT vs. Vijay Flexible Containers (1990) 81 CTR (Bom) 29: (1990) 186 ITR 693(Bom) (Vol. 5, p. 645) Dalmia case (Delhi) has been dissented with has been relied upon by CIT(A) in para 19.2 of penalty order. (3) J. Gala Enterprises Estate & Investment (P) Ltd. & Anr. vs. M. Hassan, CIT & Ors. (1994) 122 CTR (Bom) 160: (1995) 216....
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....ation was not accepted. (10) CIT vs. P.M. Shah (1993) 203 ITR 792(P.B. II p. 490) In penalty proceedings the provisions of the statute must be strictly construed. Penalty cannot be levied under the Expln. to s. 271(1)(c) in the absence of any specific intention under that Explanation. (11) CIT vs. Dharamchand Shah (1993) 113 CTR (Bom) 214: (1993) 204 ITR 462(Bom) (P.B. IV p. 495) In the absence of invoking the Explanation specifically the burden would remain on the Revenue to bring the assessee's case within the mischief of the main provisions. (12) CIT vs. Late G.D. Naidu & Anr. (1986) 51 CTR (Mad) 256: (1987) 165 ITR 63(Mad) (P.B. p. 414) No question of any liability to penalty would arise when the assessees were merely contending for a particular position contrary to the view taken by the ITO . (13) Burmah Sheel Oil Storage & Distributing Co. India Ltd. vs. ITO (1978) 112 ITR 592(Cal) (PB p. 416) The rejection of the contentions raised by the petitioner cannot lead to the conclusion that there has been any concealment of the particulars of income by the petitioner or that the petitioner has furnished ina....
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.... The penalty was cancelled where the assessee had made a claim for depreciation and investment allowance which was not allowed. The Tribunal cancelled the penalty holding at p. 373 that simply because the legal claim has not been averted it cannot be said that assessee concealed any income." 21. The learned counsel for the assessee summarised the arguments by saying that the transactions of immovable property have been entered into by valid contracts in which the transactions have been referred to as pertaining to immovable property. No illegalities have been found with the agreement. The assessee has accounted for the cost of land in the account books as an asset thereby treating the same to be the investment in an asset. These accounts have been submitted by the assessee from time to time along with the earlier returns of income which have been accepted by the Department without any question. In the impugned year the assessee has divided the receipts from MTNL, a portion into capital gains and portion into development activities based on the bona fide belief of the assessee and the interpretation as per the assessee which resulted from the transactions. The assessee's inte....
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.... the document submitted that the assessee has furnished complete details of the expenditure incurred against the receipt shown from the MTNL against development charges. Besides the MTNL Tariff clearly suggests that the contracts made with various parties constituted two parts'one was of purchase of rights in land and the other was towards the cost of development. The rates were given. All these details are of public knowledge in the form of tender clauses agreements etc. The assessee was diligent to file all the necessary documents to substantiate its claim. Therefore as far as charge of inaccurate particulars against the assessee is concerned, the same does not survive as the assessee submitted every piece of paper relevant to compute the income therefrom. On the basis of the material supplied by the assessee if there are two opinions possible and if the assessee computes the income on the one which is beneficial to do, it cannot be charged as an act of furnishing inaccurate particulars. There is no ban under the Income-tax law to say that the assessee should recourse to the interpretation which entails a higher levy of taxes. Having furnished all the relevant details and ....
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....unt of income disclosed but because of the change in heads of taxability, the assessment has finally upheld by the Tribunal has resulted into increase in tax. None of the authorities below has discovered new material, documents or any information beyond what the assessee had submitted. Therefore, the entirety of the situation clearly shows that the assessee has neither concealed income nor furnished any inaccurate particulars of income and there was no intention to commit any of such defaults as have been contemplated in the penalty order. 22. The learned Departmental Representative on the other hand, vehemently argued that after considering all the documents and agreements and aspects of the matter, the CIT(A) has given an unmistakable finding which has been upheld by the Tribunal that the contracts entered into by the assessee ab initio transfers no right of immovable property in the hands of the assessee. The observations of the CIT(A) in this behalf are as under : "(14.2) I have carefully considered the facts of the case and argument of the learned counsel as mentioned in the preceding paras the appellant has shown the amount of Rs. 3,23,00,469 on account of sale of....
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....sq. mtr. The business receipts were furnished by the assessee at the rate of Rs. 400 per sq. mtr. This amount of Rs. 400 was worked out by the assessee on the basis of difference in the value of the land in undeveloped condition. There was no justification for bifurcating the amount received by the assessee in the two separate receipts because the appellant was never the owner of the land. For all practical purpose the assessee-firm has declared itself the owner of the land in the return of income as well as statement of income by declaring the receipt of Rs. 3,23,00,469 on account of sale of land and calculated capital gain thereon whereas the fact subsequently found clearly revealed that the assessee was never the owner of the land and the assessee had no right, title or interest in the land at any time. The assessee could never have acquired any right, title or interest in the land also because Shri C.B. Sharma was not the owner of the land on 28th Jan., 1984. From the dt. 28th Jan., 1984 (date of execution of agreement by the assessee with Shri Sharma) to the date of filing the return of income the assessee never became the owner of the land or acquired any right, title or inte....
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....ention. The plain and simple reading of the various agreements will go to show that the documents did not propose transfer in right in the immovable property as contemplated by the assessee and for this there can be no second opinion. The findings of the Tribunal in quantum assessment clearly show that no such right or interest in the immovable property could have acquired by the assessee by these agreements. The agreements have been conveniently drafted. The vendor had no property to transfer. Therefore, the assessee could not have purchased any interest in the immovable property from a vendor without title. The learned Departmental Representative on the decision in the case of CIT vs. P.M. Shah (supra) and in the case of CIT vs. Dharamchand Shah (supra) regarding invoking of the proviso. The learned Departmental Representative was further justified for invoking of Expln. 1. It was further argued that onus of proof lies squarely on the assessee to prove that it has not concealed/furnished any inaccurate particulars of income. Reliance was placed on the decision of Supreme Court in the case of Jeevanlal Shah (1995) 214 ITR 244(SC). The sum and substance of the learned counsel for t....
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....ke of enhancement notices served by the CIT(A), the assessee supplied all the required information. The penalty as finally imposed, assessment as finally framed and the basis of penalty is having the foundation of the material, which has been supplied by the assessee as referred to above. No new information or discovery has been made by the lower authorities. The assessee filed a return of income spliting the receipt from MTNL into two parts. A portion declared under the head 'Income from capital gains' and portion declared under the head 'income from business and profession'. The basis of working of receipts and bifurcation thereof was supplied by the assessee. All the necessary agreements, correspondence, etc. were duly furnished. The accounts of the assessee were prepared over a period of time wherein the land purchased from Shri C.B. Sharma has been shown as asset. The subsequent accounts and returns have been prepared accordingly and the Department did not raise any objection thereon at the earlier occasion. The AO while framing the assessment came to a conclusion that the portion of the receipts shown by the assessee as chargeable under the head 'Income fr....
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....tion was assessable under the head 'Capital gains' was accepted by the Department. In fine, the transactions pertaining in these lands created a right in the immovable property was agreed in principle by the AO although on part of income a different interpretation was applied. 25. Now we have another picture under the same circumstances and on the basis of same material. The CIT(A) enhances the income in appellant proceedings after following the due procedure of law and comes to conclusion that the assessee would not have bought any right in the immovable property as it has claimed, by arriving at the finding based on perusal of the material supplied by the assessee and arriving at a different interpretation of the same material. The Tribunal upholds the order of the CIT(A) in quantum assessment. 26. The CIT(A) goes to support from the findings of the Tribunal that the assessee could not have purchased interest in the immovable property on the basis of agreements which have been supplied by the assessee and goes further to say that as the agreements are not capable of transferring any right in immovable property thereby assessee's claim that it purchased the land ....
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....ther head still, it was not deemed to be fit for initiation of penalty proceedings for the reasons whatever may have existed in the minds of the AO who was acting under the quasi-judicial authority. The CIT(A) enhances the assessment on the same material which is upheld by the Tribunal. While levying penalty no further material or information has been brought by the CIT(A) on record. He has based the imposition of penalty solely on the interpretation of the documents as finally upheld by the Tribunal and thereby presuming that the action of the assessee in filing the computation was intentionally false. We are of the view that looking into the state of affairs, the maintenance of accounts by the assessee over a period of time, proceeding under s. 269UL filing of the return and the treatment of the AO, the charge of falsity of the accounts cannot be attributed to the assessee. Besides the charges of the CIT(A) that the assessee by bifurcating the receipts has furnished inaccurate particulars also cannot be sustained because what the assessee believed to be state of affairs that was duly returned and it was a question of interpretation which can vary from an authority to authority as....