TaxTMI 
TaxTMI 
1985 (8) TMI 92
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....levant to the assessment year under consideration in respect of which, according to him, capital gains was exigible to tax. He, accordingly, initiated the proceedings under section 148 of the Act, requiring the assessee to file its return of income. 4. In compliance with the notice issued under section 148, the assessee filed its return of income on 17-3-1972 showing therein total income of Rs. 13,067 in which additional interest income of Rs. 923 was also disclosed. On 10-9-1975, the ITO framed the assessment on a total income of Rs. 82,329 which included capital gains of Rs. 69,262 on account of sale of land amounting to Rs. 1,76,495. The cost of acquisition of the said land admeasuring 3,209 sq yds. was taken at Rs. 30 per sq. yd. as on 1-1-1954. The assessee went up in appeal against the said order of the ITO. The AAC, vide his order dated 5-10-1977, set aside the assessment and directed the ITO to frame the assessment afresh. On 17-1-1979, the ITO framed a fresh assessment on a total income of Rs. 1,46,499 which included capital gains of Rs. 1,33,432. The main reason for assessing the capital gains of Rs. 1,33,432 as against the original figure of capital gains of Rs. 69,262 ....
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....have to state that I have not concealed the particulars of income read with explanation and hence the penalty proceedings are illegal and bad in law. I further submit that the proceedings are time barred and as such should be dropped. Without prejudice to the above, I have to state that the issue under dispute as to whether the land was agricultural or otherwise, was highly debatable and hence there was no mens rea in not including the capital gain on sale of agricultural land as per our bona fide belief. In view of the above facts, the penal proceedings are not applicable and hence the same be dropped." 6. The ITO, however, was not satisfied with the assessee's explanation. He, therefore, vide his order dated 30-3-1983, imposed penalty of Rs. 2,68,712 with the following remarks : "The submission is not acceptable. It is true that the question is debatable but at the same time the assessee was not prevented to show the income. When the department issued notices under section 148 then also no disclosure came from the assessee. When the ITO treated the land as N.A. land then the debate started. Further the tax assessment of the assessee and, therefore, it is very clear that ther....
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....f their Lordships : 'The Explanation to section 271(1)(c) adds to the rigour of a highly penal provision and must be construed in a fair and reasonable manner. The legal fiction enacted in the Explanation can be displaced if the assessee proves that the failure to return the correct income, that is the total income assessed, did not arise from any fraud or gross or wilful neglect on his part. This burden is not of the same nature as the burden which rests on the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income. It is a burden akin to that in a civil case where the determination is made on a preponderance of probabilities. It is not necessary that any positive material should be produced by the assessee in order to discharge the burden by relying on the material which is on record in the penalty proceedings irrespective of whether it was produced by him or the revenue. The only question to which the income-tax authority has to address itself is whether on the materia....
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....peal to the Tribunal and the Tribunal vide its order dated 17-8-1982 allowed the appeal of the revenue after relying on the decision of the Gujarat High Court in the case of CIT v. Sarifabibi Mohmad Ibrahim [1982] 136 ITR 621. The ITO while levying penalty, has not brought any new facts on record. His main contention is that the appellant has not disclosed all the facts in this case and if he wanted to claim exemption from capital gains, then he should have at least claimed such an exemption in Part IV of the return. 2.8 In my opinion, there is considerable weight in the submission of the learned counsel of the appellant, viz., that it is a highly debatable issue as to whether a particular land is agricultural or non-agricultural. The Gujarat High Court has given a catena of decisions on this point. The decision in the case of Sarifabibi Mohmad Ibrahim was rendered on 17-4-1981. The decision in the case of CIT v. Siddharth J. Desai [1983] 139 ITR 628 was given on 18th, 21st and 22nd September, 1981. There is another decision in the case of Arundhati Balkrishna v. CIT [1982] 138 ITR 245 which was rendered on 14th and 17th August, 1981. The Gujarat High Court has laid down certain b....
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....id not disclose the facts of sale, etc., of the land. According to him, it was very clear that 'there was mens rea in not disclosing the capital gains'. The ITO, has further opined in the penalty order that at no stage did the assessee come forward for 'disclosing material facts necessary for assessment'. 2.9 I have quoted extensively from ITO's order with a view to highlighting his warped thinking. On the other hand, he concedes that the question as to whether the land was agricultural or non-agricultural was a 'debatable' one. On the other hand, he expected the appellant to disclose capital gains in the return. The law does not enjoin on an assessee to disclose all things whether relevant or irrelevant in return of income. If an assessee entertains a genuine belief that a particular receipt is not income then he need not make a specific mention of it in the exemption column in the return. Non-disclosure of certain material facts may be relevant for reopening of assessment proceedings but that cannot be a spring-board for charging the assessee with concealment of income. 2.10 In view of the foregoing discussion, I am satisfied that the ITO has not been able to establish a case o....
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....g any information in section F of the return. He further submitted that since the land in question was sold to a non-agriculturists, it was not an agricultural land and, therefore, the assessee should not have avoided giving information in section F of the return. Thereafter, he invited our attention to the order of the Commissioner (Appeals) (reproduced above) and submitted that in order to impose penalty under section 271(1)(c) the ITO has not to bring any fresh facts in the penalty proceedings other than that already brought in the quantum proceedings. He further submitted that in order to decide the point at issue all the facts and circumstances commencing with the filing of the original return and ending with the assessment should be taken into account for considering whether the assessee was liable to penalty under section 271(1)(c)---D.V. Patel & Co. v. CIT [1975] 100 ITR 524 (Guj.). In the instant case, according to the learned representative for the department, if we were to keep in mind the facts and circumstances commencing with the filing of the original return and ending with the assessment, it is quite apparent that the assessee's case clearly fell within the mischief....
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....tter for quite some time in the Court. We make this observation as the learned representative for the department was fair enough to state in the beginning that the revenue is not disputing the fact that the assessee was under bona fide belief that the land in question was an agricultural land and, therefore, no capital gains tax could be attracted. In fact, the Commissioner (Appeals) in his order (reproduced above) has also pointed out that the ITO himself had no doubt in his mind that the question regarding exigibility of the capital gains tax was 'debatable'. It appears that the ITO initiated penalty proceedings and imposed penalty under section 271(1)(c), mainly on the ground that the assessee had failed to show in section F of the return that he had sold the land in question. In fact, as it would appear from the above that the entire line of argument of the revenue before the Tribunal was that the penalty under section 271(1)(c), could be imposed on the assessee for his failure to disclose the fact about the sale of land in question in section F of the return. We are not prepared to accept the stand taken on behalf of the revenue, which is to say the least, has no foundation wh....