PRINCIPAL COMMISSIONER OF INCOME TAX 5 vs. M/S NATRAJ

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TAXAP/981/2018HC GujaratGJHC24019040201820 August 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the deletion of the penalty by the CIT(A). The Tribunal noted that the quantum proceedings had granted substantial relief to the assessee, indicating that the issue was complex and debatable. The AO had modified the cost of acquisition based on the fair market value as on April 1, 1981, as claimed by the assessee under Section 48 read with Section 55(2)(b). The AO disallowed the deduction on the ground that the assessee had not incurred any cost for acquiring the leasehold rights. However, the assessee had acted upon professional advice for determining the fair market value of the cost of acquisition. The Tribunal found no falsity in the assessee's claim per se and concluded that, in view of the mitigating circumstances and the explanation offered, the assessee's conduct was not malafide. Therefore, the Tribunal declined to interfere with the CIT(A)'s order deleting the penalty. The High Court dismissed the Tax Appeal.

What were the facts?

The Revenue is in appeal against the Income-Tax Appellate Tribunal's (ITAT) order dated August 22, 2017. The appeal concerns a penalty of Rs. 67,26,000 levied under Section 271(1)(c) of the Income-tax Act, 1961, for alleged concealment of income due to a wrong claim of the cost of acquisition to evade long-term capital gains. The Assessing Officer (AO) had made additions, which were deleted by the Commissioner of Income-tax (Appeals) [CIT(A)], and this deletion was upheld by the ITAT. The core issue revolves around the valuation of leasehold rights as on April 1, 1981, and whether the assessee's claim constituted concealment warranting penalty.

What were the issues?

1. Whether the Appellate Tribunal was correct in law and fact in upholding the CIT(A)'s decision and deleting the penalty of Rs. 67,26,000 under Section 271(1)(c) of the Act, levied for concealment of income by way of a wrong claim of cost of acquisition to evade long-term capital gains? (Question of law and fact, concerning Section 271(1)(c)). 2. Whether 'ignorance of law' can be a valid ground to hold that the assessee has not concealed income and that penalty under Section 271(1)(c) is not leviable? (Question of law, concerning Section 271(1)(c)). Assessee's Contentions: The assessee acted upon the advice of a professional for determining the fair market value of the cost of acquisition. The issue was complex and debatable. The explanation offered by the assessee was not malafide, considering the mitigating circumstances. Revenue's Contentions: The revenue contended that the assessee had concealed income by making a wrong claim of the cost of acquisition, leading to evasion of long-term capital gains, and therefore, the penalty under Section 271(1)(c) was leviable.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 48,Section 55(2)(b)

AI-generated summary — verify with the full judgment below

C/TAXAP/981/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 981 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 5 Versus M/S NATRAJ ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 MR B S SOPARKAR(6851) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 20/08/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1.  Revenue is in appeal against the judgment of the   Income­tax   Appellate   Tribunal   dated 22.8.2017 raising following question for our consideration. “A.     Whether the Appellate Tribunal is correct in law and in fact in upholding the   decision   of   the   ld.   CIT(A)   and deleting   the   penalty   of   Rs.67,26,000/­ u/s.271(1)(c) of the Act levied on account of concealment of income by way of wrong claim of cost of acquisition to evade long term capital gains? B.   Whether 'ignorance of law' can be a valid ground to hold that the assessee has not   concealed   the   income   and   penalty u/s.271(1)(c) of the Act is not leviable?”

Page 1 of 3

C/TAXAP/981/2018 ORDER 2.   Issue   pertains   to   penalty   imposed   by   the Assessing Officer under Section 271(1)(c) of the Income­tax Act, 1961. It was deleted by the   CIT   (Appeals)   and   confirmed   by   the Tribunal. Tribunal in the process observed as under :­ “7.  With the assistance of the Ld.AR for assessee,   we   notice   that   the   Coordinate Bench  of Tribunal  in quantum proceedings in   ITA   No.3036/Ahd/2010   for   AY   2007­08 order   dated   04.01.2013   has   granted substantial relief to the assessee against the   action   of   the   AO   in   quantum proceedings. A reading of the order of the Tribunal shows that the issue involved is complex and debatable in nature.

8.

After perusal of the orders of the authorities below and after taking note of rival submissions, we are unable to find any infirmity in the conclusion drawn by the CIT(A). The CIT(A) has taken note of the relevant facts while adjudicating the issue   in   favour   of   assessee.   As   can   be seen, the cause of action arose on account of   modification   of   cost   of   acquisition made   by   the   AO   with   regard   to   the   fair market value as on 01.04.1981 claimed by the   assessee   in   the   return   of   income having regard to section 48 r.w.s. 55(2)

(b) of the Act. The AO did not allow the deduction towards cost of acquisition on the   ground   that   the   assessee   has   not incurred   any   cost   for   acquiring   the leasehold   rights.   We   notice   that   the assessee   had   acted   upon   the   advice received   from   a   professional   for determination of fair market value of cost of acquisition.  Thus, we do not see any Page 2 of 3

C/TAXAP/981/2018 ORDER falsity in the claim of assessee per se. 9. In

view

the

mitigating circumstances   available,   the   explanation offered by the assessee cannot be termed as   malafide.   Therefore,   we   decline   to interfere with the order of the CIT(A) in the deleting the penalty.” 3.   We   gather   that   the   issue   pertains   to valuation   of   lease­hold   rights   as   on 1.4.1981.   The   Assessing   Officer     did   not accept valuation adopted by the assessee and made corresponding additions. We notice that on merits itself substantial additions were deleted by higher authorities. Thus the issue itself was highly debatable and substantially fact based. In background   of such facts the Tribunal held that this is not a fit case for penalty.   No   interference   is   needed.   Tax Appeal is dismissed. 4.  Nothing stated in this order will affect the Revenue's   appeal   against   the   deletion   of quantum addition we are informed is pending. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 3 of 3

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