NADELLA MUNIKANNAIAH ,TIRUPATI vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), TIRUPATI

Per Shri Laliet Kumar, JM.

1. The penalty order u/s. 271(1)(c) passed by the learned Commissioner of Income tax (Appeals), in the facts and circumstances, is not justified both on facts and in law.

2. The learned Commissioner of Income tax (Appeals), in the facts and circumstances of the case, is not justified in initiating penalty proceedings u/s. 271(1)(c) of the Income-tax Act, 1961

3. The learned Commissioner of Income tax (Appeals), in the facts and circumstances of the case, is not justified in levying the penalty u/s. 271(1)(C) of the I.T.Act, 1961

4. The learned Commissioner of Income tax (Appeals) is not justified in not considering the fact that the year of taxability of capital gain in the case of Joint Development Agreement is controversial issue

2 ITA 444/Hyd/2019 and this was a reasonable cause for non-disclosure of such capital gain by appellant in the assessment year under appeal. 5. The appellant craves leave to add, amend, delete or substitute any ground or grounds during the course of hearing.

4.4 On plain reading of the documents No. 2819/2013 registered on 17 April 2013 and applying the ratio of the decision of the Hon’ble Supreme Court of India in the case cited supra and Punjab and Haryana High Court decision in the case cited supra, I’m of the considered view that the capital gain does not arise in a by 2013 – 14 and appropriate action is being taken in appeal proceedings pending for 2014 – 15

In the circumstances, the appellant beg to submit that the entire land and its value has to be taken for deriving capital gains at the time of entering of JDA and this may kindly be considered and direct the AO."

5.3. On consideration of the submissions made by the appellant, I find that the contention of the Assessing Officer to increase capital gains by Rs.8,35,535/- has no basis. Since the total land of 6933 sq. ft. was given for development under Joint Development Agreement, the hypothetical calculation made by the Assessing Officer is Incorrect. Hence, the recomputation or capital gains of Rs.32,39,000/- excluding an amount of Rs.8,35,535/- as worked out by the AR of the appellant below in the course of appellate proceedings is legally correct.

Sale consideration on JDA 53,28,785 (Total cost of the project) 2,66,42,720 Including car parking Land owner's share 40% thereof 26642720 x 40/100 1,06,57,088 Assessee's share 50% 53,28,785 Deduct: Cost of acquisition 20,89,785 (Total Cost = Rs.41 ,79,570 assessee's share 50% Rs.20,89,785) 32,39,000 Sate of two flats during the F.Y.2013-14 relevant to A.Y.2014-15 Sale consideration (11,20,000 + 10,70,000) as per registered documents 21,90,000 Cost of acquisition as per JDA as adopted by Assessing Officer 17,08,672 4,81,328

4 ITA 444/Hyd/2019 Total short term capital gains 37,20,328 However, the indexation benefit shall be made available to the appellant as per the law. The Assessing Officer is directed to recompute the capital gains as directed above and enhance the assessable income accordingly.

5.4 Penalty proceedings are initiated separately u/s.271(1)( c) read with explanation 1of the I.T.Act for concealment of income of Rs.32,39,000/-

The assessee was given opportunity of being heard due to change in incumbent. The explanations submitted by the assessee are also considered. The material facts as available on record have also been considered. The assessee. entered into an agreement with M/s. Srija Constructions on 30.3.2013 and the same was registered on 17.4.2013. By virtue of this agreement, the assessee has to get 40% of the "super built up area", on account of transfer of land belonging to the assessee, along with another co-owner. Smt.O. Nalini is co-owner and party to the said JDA. The assessee has not offered capital gains on account of transfer of land in view of the JDA for AY 2013-14 or 2014-15. The assessee offered short term capital gains on account of sale of flats received in consideration of transfer of said land to the developer for AY 2014-15, but not offered capital gains on the transfer of land. As discussed above, while disposing appeals, notice has been given for enhancing the income for AY 2014- 15 and the same was consented accordingly appellate order was passed. The assessee all through in the assessment proceedings and before the appellate authority during the proceedings for AY 2013-14, contended that capital gains will not arise in that AY, which means the assessee is aware that capital gain is chargeable to tax in the AY2014-15, as the JDA is registered in the FY 2013- 14. The assessee in the submissions, contended that the AO considered the JDA in the assessment proceedings and stated that as the super built up area was received during the FY 2013-14, in the year in which the JDA was entered and hence, capital gains separately does not arise on account of JDA. It was also contended that possession was not given to the builder as per clauses and the project was carried out jointly with the builder, the assessee being also a contractor. The assessee relied on the decision of Hon'ble ITAT, Hyderabad, in the case of ABVS Prakash for proposition that a symbolic possession given to the developer, is not a transfer as per Sec.2(47)(v) of the Act. The assessee claimed that he has not concealed any particulars or documents at any time during the course of regular assessment itself. The assessee also contended that only on the basis of computation sheet furnished, while disposing the appeal for AY 2013-14, enhancement notice has been given. Hence, the details

5 ITA 444/Hyd/2019 of capital gains was worked out and submitted voluntarily and finally consented for enhancement with an intention to purchase peace. Hence, requested to drop the proceedings.

The assessee mainly contended that he has not concealed the particulars of income and voluntarily consented for enhancement though possession was not given to the developer as per the clauses. The contention of the assessee is strange. Without giving possession to the developer, how come the assessee got super built up area and sold two flats out of the same and also offered short term capital gains for AY 2014-15. This itself shows the hollowness in the arguments of the assessee that no possession was given to the builder/ developer. As per Explanation 1 of Sec.271 (1 )(c) of the Act, penalty is leviable. Explanation 1 is 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 explanation which is found by the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the [Principal Commissioner or] Commissioner] 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 clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

In the light of the above provision, it has to be seen whether the assessee disclosed the particulars and material facts for the computation of total income. It has to be seen that the explanation offered by the appellant is substantiated or not. Further, one has to see the explanation offered is bona fide or not. The assessee has not disclosed capita: gains on the transfer of land by virtue of JDA, either in the AY 2013-14 or 2014-15. For the AY 2014-15, the assessee offered short term capital gains on sale of two flats and not disclosed the transaction of transfer of land and consequential capital gains on the same. The assessee stated that the capital gains was not eligible in the AY 2014-15, as no possession was given to the builder relying on certain decisions. This contention is also not tenable for the reason that the project which was envisaged as per JDA was accomplished and the share of flats were received by the assessee. Unless the land was given possession to the builder/developer, constructing the apartment or receipt of super built up area to his share by the appellant, does not arise. The assessee has not substantiated the claim that no possession was given to the builder in the above facts. When the assessee received super built up area in the form of flats, the claim made that no possession was given to the builder and no capital arises for the AY 201..1-15, appears to be not a bona fide explanation. Knowing fully well, the clauses of the agreement and also on receipt of flats, the assessee cannot claim that the capital gain does not arise in the AY 20"14-15. In view of this, it is held that the contentions of the assessee are baseless and against the material facts.

The assessee contended that the AO was not initially raised/ assessed the capital gains on account of JDA registration in the AY 2014-15 in view of various Clauses of the agreement. Hence, it was contended that capital gain is 6 ITA 444/Hyd/2019 not liable for taxation in the AY 2014-15 and the concealment of income was not established. In this connection, on perusal of the assessment order, it is noticed that the AO considered supplementary agreements and brought certain amounts to tax in the said AY and nowhere the clauses of the agreement as claimed by the assessee were discussed. The assessee has not furnished the required details to compute capital gains on transfer of the land to the developer. The concealment of Income was established beyond doubt in the appellate proceedings.

Vide letter filed on 27.2.2019, the assessee contended that all the material I documents were furnished before the AO at the time of assessment for the AY 2014-15. The AO called for the details for examining the claim of shortage of capital gains of the assessee for the AY and the assessee has not furnished the details required for computing capital gains on the transfer of land.

During the appellate proceedings for the AY 2014-15, enhancement notice was given by CIT(A) for the reason that the capital gain is chargeable to tax for the AY 2014-15 on-transfer of land to the builder having regard to the date of registration of JDA. Considering the decision of the Hon'ble Supreme Court in the case of Balbir Singh Maini, the capital gains were brought to tax. In view of this, the contention of the assessee that there is no basis or reason for enhancement is baseless. CIT(A) is empowered to enhance 'he income and a valid notice has been given for which the assessee also consented. In view of this, the assessee cannot 'claim that the enhancement is beyond the jurisdiction. The assessee contended that CIT(A) made enhancement on a new source of income, which is not permitted under law and hence, initiation of penalty on such enhancement is not eligible and requested to drop the penalty proceedings, The AO assessed capital gains on transfer of land for the AY 2013-14, considering the date of JDA. Once CIT (A) gave relief to the appellant for that AY., then the income i.e. capital gains required to be taxed in the year of taxability. This is not a completely new source of income. This income was considered by the AO for AY 2013-14. CIT(A) considering the Apex court decision, held that the income is chargeable for the AY 2014'-15 and brought to tax by enhancement. In view of this, there is no merit in the argument of the assessee that the enhancement was made altogether on a new source of income.

The capital gains issue on account of transfer of land was not examined by the AO in the AY 2014-'15, hence, enhancement of income by CIT(A), cannot be treated as re-examination of the same issue, Moreover, the CIT(A) has not re- done the assessment which has' been completed by the AO for the AY 2014-15. In view of these reasons, all the contentions put forth by the assessee are rejected and the CIT (A) has exercised the power vested under law to bring the income which has to be taxed in the year under consideration.

The assessee concealed the particulars of income specifically the capital gains on transfer of land and the same is attracted penal provision, as discussed above, as the assessee has not substantiated the explanation submitted by him.

At this juncture, it is felt necessary whether the assessee concealed particulars of income or furnished inaccurate particulars or both. There is distinction between concealment of particulars of income and furnishing of inaccurate particulars of income. It 's necessary to understand the distinction between the two charges on the basis of which penalty can be levied i.e (1) concealment of particulars of income and (2) furnishing of inaccurate particulars of income. It is 7 ITA 444/Hyd/2019 the particulars of income which is the common subject matter of both the charges which will be discussed later. The word 'conceal' as per Webster's Dictionary means "to hide, withdraw, or remove from observation; cover or keep ,from sight; to keep secret; to avoid disclosing or divulging. That means non disclosure of particulars of income. On the other hand, where particulars are disclosed but such disclosure is not correct, true or accurate, it would amount to furnishing of inaccurate particulars of income. For example, in case of businessman, if a particular transaction of sale is not shown in the books, it would amount to concealment of particulars of income while Sale is shown but at a lesser value, it would amount to furnishing of inaccurate particulars of income.

It is pertinent to note that thrust of the legislature is upon the particulars of income which are either concealed or furnished inaccurately by the assessee. Therefore, one Must understand the meaning of the words "particulars of income". The Hon'ble Tribunal had to consider the meaning of the expression "furnishing of inaccurate particulars of Income" appearing in section 271 (1)(c) in the case of Kanbay Software India (P) Ltd. 122 TTJ 121 (Pune). It was held that the expression 'particular' refers to facts, details, specifics or the-information about someone or something .

Hon'ble High Court of Bombay in the case of Indian Hume pipe Co. Ltd., (340 ITR 439) discussed about disclosure of material facts fully and truly in connection with provisions of Sec.147 of the Act. The Hon'ble High Court held that disclosure must be specific and not covered one and held that Full and true disclosures must mean what the statute says. These disclosures cannot be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the Assessing Officer. The assessee must act with candour and the disclosure must be full and true. A full disclosure is a disclosure of all material facts which does not contain any hidden material or fact. A true disclosure is a disclosure which is truthful in all respects.

.The capital gains could not have been brought to tax but for initiation of Department to bring to tax the same and only after enhancement notice is given the capital gains was accepted by the assessee. It is not a voluntary consent but due to the effort made by Department in establishing the concealment of income. Reliance is placed on the decision of the Hon'ble High Court of Karnataka in the case of Manjunatha Cotton & Ginning Factory (35 taxman.com 250) and also on the decision of the Hon'ble High Court of Punjab & Haryana in the case of Banta Singh Kartha Singh (125 ITR 239 P H) for the preposition that concealment penalty can be leviable even on agreed addition when the concealment was found & established by Department. Reliance is also placed on the decision given by the Hon'ble Supreme Court of India in the MAK Data Pvt Ltd (358 ITR 593), wherein it was held that surrender of income after detection by the Department is not a voluntary offer. It was also held that the Law does not provide when an assessee makes a voluntary disclosure of income he had to be absolved from penalty. Reliance is also placed on the decision of the Hon'ble High Court of Madras in the case of Khandelwal Steel & Tube Traders (256 taxman'305) for the proposition that Department is not precluded from initiating penalty proceedings even when assessee agreed for the addition with a condition that penalty could not be imposed.

In view of this, the assessee's claim that he has disclosed material facts cannot be accepted. Moreover, as discussed above, the assessee has not filed the details of JDA with return of income for the AY 2014-15. In view of this also, it cannot be held that he has furnished information required for assessment. The income particulars were concealed and not disclosed to the Department. Moreover, as the explanation submitted by the assessee is not substantiated,

8 ITA 444/Hyd/2019 the same is attracted the provisions of Explanation 1 to Sec.271(1)(c) of the Act. The penalty proceedings were initiated on the charge of concealment of income and the concealment was established. As per the provisions of the said section, the minimum penalty leviable is 100% tax sought to be evaded i.e., Rs. 9,84,798/- and maximum penalty leviable is 300% of the tax sought to be evaded i.e., Rs. 29,54,394/-. Considering the facts and circumstances of the case, I hereby levy a minimum penalty of Rs.9,84,798/-. The assessee is directed to pay the above penalty of Rs. 9,84,7981- as per demand notice enclosed. The AO is hereby directed to take the demand on record and pursue the same as per Law.

Order pronounced in the Open Court on 25th May, 2023