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Income Tax Appellate Tribunal, ‘’ C’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-6, Ahmedabad, dated 10/10/2018 arising in the matter of penalty order passed under s.271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-2013.
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The assessee has raised as many as 16 grounds of appeal but the interconnected effective issue is that the learned CIT-A erred in confirming the penalty levied by the AO for Rs. 55,51,059/- under the provisions of section 271(1)(c) of the Act on the reasoning that the assessee has furnished inaccurate particulars of income.
The facts are that the assessee in the present case is an individual and filed his return of income declaring income under the head other sources. The assessee in the return of income has claimed exemption under section 10(38) of the Act for Rs. 2,47,12,888/- on the sale of land. As per the assessee the land in question being agricultural land was not a capital asset as defined under section 2(14) of the Act. Therefore, the capital gain arose to him from the sale of such agricultural land was not chargeable to tax.
3.1 However, the AO during the assessment proceedings found that the land in question was situated within 2 kilometers from the Municipal limits. Thus, the conditions as specified under the provisions of section 2(14) of the Act for holding the land as agricultural land has not been complied. Accordingly the AO treated the impugned land as capital asset and framed the assessment by adding the long-term capital gain of Rs. 2,44,97,161/- to the total income of the assessee vide order dated 8 December 2017.
3.2 The AO in the assessment order has also initiated penalty proceedings under section 271(1)(c) of the Act for concealment of income by furnishing inaccurate particulars of income. The AO finally has confirmed the penalty of Rs. 55,51,059/- being 100% of the amount of tax sought to be evaded by the assessee under the provisions of section 271(1)(c) of the Act on account of furnishing inaccurate particulars of income.
Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.
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Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us submitted that the assessee being an agriculturist was not aware the provisions of law. Furthermore, the assessee was under the impression that the land in dispute was recorded as agricultural land in the records of the Revenue. Therefore, the assessee under the bona fides belief assumed that the income from the sale of such land is not subject to tax.
6.1 The learned AR also contended that the assessee has furnished all the details relating to the sale of land in question in the schedule EI (exempted income) of income tax return. Therefore, it cannot be said that the assessee has concealed or furnished inaccurate particulars of income. For this purpose, the learned AR drew our attention on the reply filed during the penalty proceedings which is placed on record.
On the contrary, the ld. DR before us contended that the assessee has furnished the inaccurate particulars of income. Furthermore, the assessee offered the income to tax only once it was detected by the Revenue. The ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 271(1)(c ) and the Explanation1 thereto deal with the scheme of penalty for concealment of income, furnishing inaccurate particulars of income and deemed concealment of income. Under the scheme it is sine qua non for imposition of penalty that the Assessing Officer or the Commissioner, during the course of any proceedings before them, should be satisfied that the assessee had (i) Concealed his income, or (ii) Furnished inaccurate particulars of income.
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iii) The third and most important feature of this provision is deeming provision regarding concealment of income under Explanation 1 to section 271(1)(c) of the Act.
8.1 This deeming fiction by way of an Explanation 1 to section 271(1)(c) envisages two situations: (a) first, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the Commissioner; and
(b) second, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and fails to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of total income.
8.2 In the first situation, the deeming fiction is triggered by the inaction of the assessee by his not giving the explanation with respect to any fact material to the computation of total income, or by action of the Assessing Officer or the Commissioner by giving categorical finding to the effect that the explanation given by the assessee is false.
8.3 In the second situation, the deeming fiction is triggered by the failure of the assessee leading to satisfaction of conditions laid down in clause (b) of the Explanation 1 to section 271(1)(c), namely, that the assessee is not able to substantiate an explanation in respect of any fact material to the computation of total income, and in addition to this, the assessee is also not able to prove that such an explanation was given bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by the assessee. When this deeming fiction comes into play, which can only happen in one of the
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above situations, the related addition or disallowance in computing the total income of the assessee, for the purposes of section 271(1)(c), is deemed to represent the income in respect of which inaccurate particulars have been furnished.
8.4 Thus, even on the first principle, a penalty under section 271(1)(c ) is not simply as a consequence of an addition being made to the income of the assessee. The penalty under section 271(1)(c) is a penalty for concealment of income or for furnishing of inaccurate particulars or under the extended definition by virtue of the Explanation 1 to section 271(1)(c), for a deemed concealment of income. As a corollary to this legal position, unless it is established that there is concealment of income or furnishing of inaccurate particulars or it is established that, on the facts of the case, concealment of income can be deemed in accordance with the provisions of law, the penalty provisions cannot be invoked at all.
8.5 In the light of the above discussion, we analyzed the facts of the present case. Admittedly, the AO has levied the penalty for an amount of Rs. 55,51,059/- being 100% of the amount of tax sought to be evaded by the assessee after invoking the explanation 1 attached to section 271(1)(c) of the Act. This fact can be verified from the finding of the AO which is reproduced as under:
ln the light of the above discussion, the explanation of the assessee is not accepted. Further, it is imperative to mention here that after the insertion of Explanation 1 below sec. 271(l)(c), the onus of proving that the assessee has not committed any concealment is squarely reposed on the assessee. Thjs explanation in fact travels on two limbs viz., (1) the assessee's failure to give a cogent explanation and (2} even if he gives an explanation which is not upto the satisfaction of the A.O. then the implication of Explanation 1 definitely come into play against the assessee. In the instant case, the assessee has not discharged the onus cast upon him under Explanation 1 and whatever explanation assessee had given was not acceptable to the satisfaction of the A.O. In the circumstances, the assessee's submission against levy of penalty falls flat.
8.6 From the above, there remains no ambiguity to the fact that the penalty has been levied under explanation 1 to section 271(1)(c) of the Act which is deeming provisions. Under such provision, it is deemed that the assessee has concealed the particulars of income. However, before invoking the deeming provisions, the AO has
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to satisfy the conditions mentioned therein. The conditions provided under explanation 1 to section 271(1)(c) of the Act projects two situations which have been elaborately discussed in the preceding paragraph. In the present case, the situations as described in clause A of the explanation 1 to section 27(1)(c) of the Act has been invoked which reads as under: 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 explana- tion which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner to be false, or (B) ***** 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 the income in respect of which particulars have been concealed.
8.7 Admittedly the assessee in the present case has offered an explanation vide letter dated 18 June 2018 for not levying the penalty under the provisions of section 271(1)(c) of the Act. In the said letter, it was stated that the assessee under the bona fides belief assumed that the land in dispute is an agricultural land on the reasoning that such land was recorded as agricultural land in the land revenue records.
8.8 Likewise, the assessee has furnished the details of the exempted income in the income tax return and therefore there was no inaccurate particulars of income furnished so as to invite the provisions of section 271(1)(c) of the Act.
8.9 The above explanation furnished by the assessee was not disbelieved by the AO in the penalty proceedings. In fact, it was the duty of the AO to reject the contention of the assessee based on cogent reasons that the explanation furnished was not true. However, we note that the AO has not done so.
8.10 It is the settled law that the penalty proceedings are not automatic. In other words, the provisions of the penalty cannot be triggered automatically merely on making the addition by the AO during the assessment proceedings. As such the AO
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has to adhere the provisions of law for levy of the penalty. Once the AO has invoked the provisions of explanation 1 to section 271(1)(c) of the Act. The AO was duty- bound to fulfil the conditions specified therein. But the AO without proving that the contention of the assessee is false based on the documentary evidence has levied the penalty in a mechanical manner which is not permissible under the provisions of law. Once explanation furnished by the assessee was not held to be false by the AO, the penalty under explanation 1 to section 271(1)(c) of the Act cannot be invoked. Thus we delete the penalty. Hence, the ground of appeal of the assessee is allowed.
In the result the appeal filed by the assessee is allowed.
Order pronounced in the Court on 27/07/2021 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/07/2021 Manish