SHRI BALDEVBHAI ATMARAM PATEL,,GANDHINAGAR vs. THE DY.CIT, GANDHINAGAR CIRCLE,, GANDHINAGAR

PER Ms. MADHUMITA ROY - JM:

The instant appeal filed by the assessee is against the order dated 21.04.2015 passed by the Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad arising whereby and whereunder the penalty order dated 14.08.2014 issued by the DCIT, Gandhinagar Circle, Gandhinagar passed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to “The Act”) for the Assessment Year 2011-12 to the tune of Rs.36,00,000/- has been confirmed.

- 2 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 Rs.5,75,700/- including legal and transfer fees. Against the long term capital gain liability, the assessee had shown following investment in order to claim exemption. SN Investment made Benefit claimed 1 Invested Rs.20,65,100/- for purchase of agricultural Exemption u/s. 54B land at Sargasan, sale deed no.21445 dated 29.12.2010. 2 Invested Rs.1,85,33,000/- for purchase of land for Exemption u/s. 54F construction of house, sale deed no.1382 dated 15.02.2012. 3 Invested Rs.1,26,90,000/- for purchase of Flat (only Exemption u/s. 54F booking amount, no sale deed executed) 4 Cost of construction or residential house Exemption u/s. 54F Rs.23,00,471/-

The benefit of Section 54B since available where the capital gain is arising to an assessee for the transfer of any agricultural land, prima facie the Learned AO was of the opinion that the assessee was not entitled to such claim u/s 54B for the specific reason that the land so sold was not agricultural one, the same was converted into a non- agricultural land before transferring it on 30.11.2010 by the assessee. The assessee in reply to the show-cause failed to submit that agricultural activities were being carried out for a period of two years prior to sale and one year from the date of sale. Taking into consideration the entire aspect of the matter, the benefit as claimed by the assessee u/s 54B was denied by the assessment officer. During the assessment proceeding, the assessee further claimed following benefits u/s 54F. Invested Rs.1,85,33,000/- for purchase of land for Exemption u/s 54F construction of house Invested Rs.1,26,90,000/- for purchase of Flat Exemption u/s 54F Cost of construction of residential house of Exemption u/s 54F Rs.23,00,471/-

Section 54F provides that capital gain is exempt if the sale proceeds invested in purchase of the residential house within one year before or 2 years after the date of

- 3 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 transfer of such an asset or in the construction of one residential house within 3 years from the date of such transfer. However, such benefit is not available in the event the assessee is having one house property other than the new asset, as on the date of transfer of the original asset. The assessee in this particular case has shown to have invested Rs.1,85,33,000/- for purchase of land but the assessee is already having one house property situated at Ahmedabad. In terms of Section 54F since the sale proceeds have to be utilized for purchase of a residential house or construction of a house as already mentioned hereinabove, the benefits of Section 54F have also been denied to the assessee for not fulfilling the criteria under the said statutory provisions. The assessee has also claimed to have been invested Rs.1,26,90,000/- to purchase a flat. However, no such new asset in the name of the assessee has been found on record where the title has been transferred upon him by a sale deed rather it appeared that the assessee booked multiple flats. The details whereof was provided by the assessee as also mentioned in the assessment order. Hence, his claim u/s 54F as discussed above has been rejected by the Learned AO. The assessee had also failed to produce supportive evidence so as to prove the construction of residential house incurring cost of Rs.23,00,471/- except producing a few bills. Such claim thus was not accepted and ultimately rejected.

The assessee filed its return of income on 13.04.2012 as against the due date of 31.07.2011 thus the return filed was after the stipulated time. In fact, the return has been filed even after the provisions of Section 139(4). Assessee filed late return, in the return of income, the assessee neither claimed any exemption u/s 54F, 54B rather he has shown only net capital gain. Such benefits were also denied to him. Further that, while calculating the capital gain, the assessee shown to have incurred expenditure of Rs.3,66,249/- towards cost of improvement of the old asset which has been sold. In the absence of any supporting evidence regarding payment details or copy of cash book, etc. the same was rejected. In the result, Rs.3,59,54,820/- was added to the total income of the

- 4 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 assessee as long term capital gain under penalty proceeding u/s 271(1)(c) of the Act, has been initiated on the premise for concealment of particulars of his income leading to furnishing of inaccurate particulars of income.

- 5 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 cases where the facts may attract both the offences, and in some cases there may be overlapping of the two offences.

(a) Amount of income on which tax is sought to be evaded. Rs. 1,70,55,571/- (b) Amount of tax evaded. Rs. 35,13,448/- (c) Penalty levied u/s.271(1)(c) for concealment of income Rs. 35,13,448/- at the rate of 100% of tax evaded. (d) Penalty u/s.271(1)(c) at the rate of 300% of tax Rs. 1,05,40,344/- evaded.

- 6 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 “We are in receipt of your dated 28.01.2014 u/s 143(3) served on 30.01.2014 along with a notice to show cause why penalty under section 271(1)(c) should not be levied.

In this connection, we have to submit that there is neither any concealment nor furnishing of inaccurate particulars of income. The notice seems to have been issued because of some disallowances/addition made during assessment. It is submitted with respect that all particulars were truly and fully furnished during the course of assessment but the disallowances/additions is made erroneously which is not accepted by us. Merely because any disallowance/addition is made in the assessment, the same cannot tantamount to concealment or furnishing of inaccurate particulars of income.

We may however, mention that we have preferred an appeal against aforesaid disallowance/addition before Hon’ble CIT(Appeals) wherein the conclusion drawn by your goods self have been challenged. Copy of the acknowledgement of the Appeal filed is attached herewith.”

……. Thus, it can be summarized that - (i) Appellant has claimed exemption for capital gain u/s 54B for Rs 20,65,100/- on land sold during the year even though such land was converted into non agriculture land and appellant has not proved that land is used for agriculture purpose before two years till date of transfer. The facts prove that appellant has made claim which is false and not covered by definition of exemption provided in the act. (ii) As the appellant has already claimed exemption in respect investment in purchase of plot for construction of one new asset i.e. residential house, he is not entitled to exemption for another house u/s 54F of the Act, still appellant has claimed it in Return of Income which prove beyond doubt that appellant has willfully claimed higher exemption which are not provided in Income tax Act. (iii) The appellant has claimed cost of ' construction of Rs.23,00,471/- while considering exemption u/s 54F but has failed to prove cogent evidences in support of such claim. The facts discussed herein above prove beyond doubt that appellant has false claim not supported by any bonafide belief. The deduction u/s 54F and 54B were claimed which were contrary to express provisions of the Act and appellant is not able to substantiate his claim with cogent evidences The Hon'ble Mumbai

- 7 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 ITAT in the case of S.H.R. Trading Pvt Limited V/s DOT 150 ITD 383 has held as under:

"Section 271(l)(c), read with section 54, of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) - Assessment year 2009-10 - Assessee-company filed its return claiming deduction under section 54 in respect of long term capital gain arising from sale of residential house property • Assessing Officer rejected assessee's claim holding that assessee, being a company, was not entitled to claim deduction under section 54 - He also passed a penalty order under section 271(1)(c) for raising a patently false claim of deduction - Whether, on facts, Impugned penalty order did not require any interference - Held, yes [Para 5] [In favour of revenue] "

The Hon'ble Mumbai ITAT after considering the decision of Reliance Petrochemicals relied upon by appellant has further held as under:

"In our opinion there is a basic and fundamental difference between a debatable claim and an inadmissible claim i.e. a patently wrong or false claim, in the case of first kind of claim there can be two opinion as to whether or not the assessee could make such a claim on the basis of certain facts of that particular year. Provisions of the Act do not disentitle the assessee to make such claim. BUT, in the second type of claim there is clear and emphatic bar in the Act-assessee are not en tilled to claim such expend it u re/deduct ion/re bate/exemption. Absence of 3 valid basis for making any claim of deduction, resulting in low tax or no tax, is like going against the letter and spirit of the law. In other words, claims made under the second category have no legs of their own to stand, because such claims are tenable neither legally nor -factually. Courts are of the view that disputable claims and inadmissible Claims ar9 to be treated differently. An assessee making a blatantly inadmissible claim is like a car driver who crosses the red light at the traffic signal and takes a chance of not being caught and not being penalized by the authorities implementing law. A person taking risk of not obeying the law of land has to be visited by penal provisions We are aware that penalty cannot be should not be source of revenue, but at the same time it is essential to deter the assessees who interpret the Act in the manner they want and deprive the State of its due taxes. Fear of long hands of State catching the wrong doers is one of the precondition of smooth implementation of the provisions of law. Invoking penal provision and imposing exemplary penalty has become necessary as

- 8 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 most of the returns filed by the assessee are being accepted by the department without scrutiny. A duty has been cast upon the citizens to make only and only legitimate claims. Courts are very liberal when any debatable or legitimate claim is made, but are very harsh when a claim is made that is not admissible at all. Penalty imposed by the AO.s in such cases have been invariably upheld."

5.4 In the case of CIT v. Harparshad and Co. Ltd. [2010] 328 ITR 53, Hon'bie Delhi High. Court has gone one step further and has held that even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision. In that matter a bogus claim to deduction on account of commission paid to director was made by the company though the person to whom commission paid was not director of company at relevant time. In the quantum appeal Tribunal held that no services were rendered by her. Penalty levied by the AO was confirmed by the first appellate authority, but was deleted by the Tribunal deciding the issue in favour of the assessee, Hon'ble Court held as under—

"The assessee had failed to offer any explanation in respect of the addition of Rs. 1,83,078 and it could be deemed to have concealed the particulars of income or furnished inaccurate particulars thereof, by virtue of this explanation. The Tribunal was not justified in deleting the penalty imposed by the income-tax Officer under section 271(1)© of the Act. The findings given in assessment proceedings are relevant and have probative value. Where the assessee produces no fresh evidence or presents any additional or fresh circumstance in penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and the levy of penalty could be justified.”

It is said that the Explanations appended to section 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. Courts have held that the object behind enactment of section 271(1)(c) read with the Explanations indicate that the section has been enacted to provide, for a remedy for loss of revenue, that the penalty under that provision, is a civil liability, that willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Act.

- 9 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 5.5 Reference is also drawn to decision of Hon'ble Delhi High court in the case of CIT V/s. HCIL Kalindee ... [2013] 37 taxmann.com 347 (Delhi) has held as under:

"Section 271(1)(c), read with section 80-1A, of the Income-tax Act, 1961 Penalty - For concealment of income [Wrong claim under section 80-IA] - Assessment year 2007-08 - Assessee's claim for deduction under section 80- IA was rejected by Assessing Officer on ground that assessee was executing works contract - Assessing Officer also imposed penalty under section 271(1)(c) - Tribunal deleted penalty holding that claim for deduction under section 80-1A was duly supported by certificate of chartered accountant in prescribed form and, hence, bona fide - Whether merely because assessee complied with statutory procedural requirement of filing prescribed form and certificate of Chartered Accountant, it could not absolve assessee of its liability, if act or attempt in claiming deduction was not bona fide - Held, yes - Whether to show and establish bona fides, assessee had to show some more 'tangible material' or basis as to why a clear statutory provision which excludes works contract was ignored - Held, yes - Whether since assessee had not been able to establish that it had acted bona fidely, deletion of penalty by Tribunal was unjustified - Held, yes [Paras 10, 11 & 13] [in favour or revenue)"

The facts in present case clearly suggest that appellant had failed to provide any tangible material in support of claim for deduction u/s 54F, 54B or cost of acquisition and claim was contrary to provisions of the Act hence it is held that AO is justified in levying penalty of Rs.36,00,000/-u/s 271(1)(c) of the Act. The relevant grounds of appeal are therefore rejected.”

- 10 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 Neither the explanation rendered by the assessee before the Assessing Officer during the assessment proceedings found to be false. The assessee with bonafide belief submitted the entire documents relating to his claim of exemption u/s 54B and 54F before the Learned Assessing Officer. Since there is no concealment of income, according to the Learned AR, the provision of Section 271(1)(c) cannot be applied for concealment of income as alleged or at all. The Learned AO also relied upon the judgment passed by the Hon’ble Apex Court in the matter of Learned CIT-vs-Reliance Petro Products, reported in 322 ITR 158. Reliance were also placed upon the order passed by the Learned Tribunal, Delhi Bench in ITA No.1457/Del/2010 and the Co-ordinate Bench passed a judgment in ITA No.164/Ahd/2010 for A.Y. 2004-05. On the contrary, the Learned DR relied upon the order passed by the authorities below. According to him, the concealment of income is apparent from the record and thus penalty can be imposed even on the basis of estimate of income.

- 11 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 the Learned AO during the penalty proceeding annexed with the said written submission so tendered submitted before the Learned CIT(A) as ‘Exibite-B’. We find no deliberation on this particular aspect of the matter by the Learned CIT(A). Principle of natural justice, according to us, deliberately been violated by the authorities below in order to impose penalty. The same depicts close mindness of the authorities below. It is a settled principle of law that the penalty order without considering the same imposed u/s 271(1)(c) for concealment of income deserves to be quashed. On this regard, the judgment relied upon by the Learned AR passed by the Co-ordinate Bench of this Tribunal has been taken care of by us. In the similar situation the Learned Tribunal observed as follows in favour of the assessee: “10. In the present case of penalty before us, it is seen that the explanation that was tendered by the assessee was ignored and not considered before passing the order u/s. 271(1)(c). In view of the aforesaid facts and respectfully following the decision of the Hon'ble Gujarat High Court we are of the view that the penalty order was passed in violation of principles of natural justice and therefore the order levying penalty cannot be upheld. Even on merits the factual position that emerges is that the assessee has losses to be carried forward to the extent of Rs.3.73 lacs after giving effect to CIT (A)'s order. In such a case following the decision of Hon'ble Karnataka High Court in the case of SLN Traders (supra), we are of the view that the assessee cannot be considered to have concealed income so as to justify the levy of penalty. In view of this matter, the order levying penalty is deleted. Assessee's appeal is allowed.”

In that case the order impugned is a product of arbitrariness in the decision making process and the discretion cannot be said to be exercised jurisdictionally as held in the case of CIT-Vs-Scientific Chemicals (2005) 198 CTR 665 (Guj) as passed by the Jurisdictional High Court is also applicable to the instant case of the assessee.

- 12 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 (c) has concealed the particulars of his income or furnished inaccurate particulars of [such income, or 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."

Thus it clearly stipulates that in order to impose punishment u/s 271(1)(c), the Assessing officer must have satisfaction that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. While imposing punishment such satisfaction and/or proposition and/or belief must be established by clear facts and/or corroborating evidence and/or conduct of the assessee during the assessment proceeding. It is evident from the records that in this particular case, the assessee has disclosed all particulars with bonafide belief, no such disclosure was found to be incorrect. Neither the assessee concealed the income by not showing such income in its return or in its books of accounts. The assessee did not hide any income so mentioned in his return, the documents relating to the agricultural land sold by the assessee was produced before the Assessing Officer, claimed u/s 54F regarding investment for purchase of land for construction of house, investment for purchase of flat or cost of construction of the residential house was duly disclosed by the assessee in his return and the corroborating evidences were also placed before the Assessing Officer. Therefore,

- 13 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12 there is no conclusive evidence of concealment of income ever found by the authorities below. The primary fact was duly disclosed by the assessee relating to his claim. Merely because the claim was made on bonafide belief of the appellant, the same cannot be held that the income was concealed or inaccurate particulars were furnished. Since, the claim was rejected as not tenable does not empower the revenue authorities to levy the penalty. We repeat that the appellant had furnished all the details, information and explanation regarding his claim of exemption during assessment. No information or details were withheld from the acknowledgement of the Assessing officer. It can be a wrong claim, but according to us, cannot be said to be false. Merely because the claim was made on bonafide interpretation and belief of the appellant it cannot be held that income was concealed or inaccurate particulars furnished. The judgments relied upon on this ratio has laid down by the Hon’ble Supreme Court in the case of Reliance Petro Product Pvt. Ltd. reported in 322 ITR 158 (supra) squarely covered in the instant case of the assessee. Further that, the appellant being basically an agriculturist had filed its return based on the assistance of the tax practitioner since all income and sales values were duly disclosed, there cannot be said to have any concealment of income by the assessee neither it is the case of the AO that the particulars were inaccurate. It is a settled proposition of law that if the assessee has claimed any exemption after disclosing the income and under the ignorance of the provision of Act 1961 and not offered that amount for tax in such case penalty should not be imposed. Rather it is the duty of the Assessing Officer to ask for further details and tax income if it is liable to tax which has been done in this particular case. The same ratio has also been upheld by the Rajasthan High Court in the case of Chandrapal Bagga-vs-ITAT reported in 261 ITR 67 (Raj). Finally, we observe that though the claim for exemption as made by the assessee found not tenable under the statute it ultimately does not make out a case of deliberate concealment of income rather it is a case of bonafide contesting claim of exemption and therefore the penalty cannot be levied. In that view of the matter, we are of the opinion to delete the

- 14 - ITA Nos.1911/Ahd/2015 Shri Baldevbhai Atmaram Patel vs. DCIT Asst.Year – 2011-12

penalty imposed against the assessee by the Learned AO as confirmed by the Learned CIT(A). Hence, the penalty order is quashed.

Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER

Ahmedabad; Dated 24/01/2019 Priti Yadav, Sr.PS

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-Gandhinagar, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 09/01/2018 & 21.01.2019 (Dictation Pages 16) 2. Date on which the typed draft is placed before the Dictating Member …10/01/2019 & 22/01/2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S 23/01/2019 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………