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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLESmt. S. Chinatalli, vs.
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 74/VIZ/2019 (Asst. Year : 2008-09) Smt. S. Chinatalli, vs. ITO, Ward-1, 9-16-37/2, Gurujada Enclave, Palakol. CBM Compound, Visakhapatnam. PAN No. AGRPC 1150 E (Appellant) (Respondent)
Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri D.V. Subba Rao– Sr.DR
Date of hearing : 21/07/2019. Date of pronouncement : 07/08/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Rajamahendravaram, dated 28/11/2018 for the Assessment Year 2008-09. 2. Facts of the case, in brief, are that the assessee is an individual, filed her return of income admitting NIL income. The assessee has received advance of Rs. 2,90,40,600/- on account of selling of immovable property. According to the assessee, the
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amount received by her is capital gains and accordingly she filed her return of income, however, the Assessing Officer is not accepted the explanation of the assessee on the ground that she had purchased the land which is in litigation, it is adventure in the nature of trade. Accordingly, he treated the transaction as business transaction and raised a tax demand of Rs. 72,46,989/- and subsequently imposed penalty of Rs. 1.00 lakh u/sec. 271B for non-auditing the books of accounts as per section 44AB of the Act. 3. Aggrieved, assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) confirmed the order of the Assessing Officer on the ground that the assessee is carrying the business i.e. adventure in the nature of trade, the income earned by the assessee has already been treated under the head ‘business’, therefore, the assessee’s accounts have to be audited as per the provisions of section 44AB of the Act. In absence of the audited, the Assessing Officer is justified in levying penalty of Rs. 1.00 lakh u/sec. 271B of the Act. 4. Before us ld. counsel for the assessee has submitted that during the year under consideration, the assessee entered into only one transaction which is sale of land, which resulted into capital gains, but the same is treated by the Assessing Officer as
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business income and submitted that levy of penalty u/sec. 271B in respect of a single transaction is not justified. He also submitted that in the similar circumstances, the coordinate bench of the tribunal in the case of K.V.V. Prasad Vs. ITO in ITA No. 78/VIZ/2019, dated 21/06/2019 deleted the penalty levied by the Assessing Officer u/sec. 271B of the Act. 5. On the other hand, ld.DR has strongly supported the orders of the authorities below. 6. We have heard both the sides, perused the material available on record and orders of the authorities below. 7. In this case, the assessee has advanced an amount to purchase the land which is in litigation and subsequently she entered into an agreement and received an amount of Rs.2,90,40,600/-. According to the assessee, the amount received by her is capital gains and accordingly return has been filed, however, the Assessing Officer has not accepted her claim as capital gain and treated it as adventure in the nature of trade and assessed the income under the head ‘business’. Subsequently, penalty has been levied u/sec. 271B of the Act. The only issue for consideration before us is whether 271B levied by the Assessing Officer is correct or not. It is a fact that the assessee had entered into only a single transaction. It is also a fact that she has
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bonafide belief that the transaction entered into by her leads to capital gains and not business transaction. It is also a fact that during the year under consideration, the assessee entered into a single transaction though the amounts received by her attracts the provisions of section 44AB. Under these facts and circumstances of the case, we are of the opinion that the explanation given by the assessee is bonafide and also justified, no penalty can be levied u/sec. 271B of the Act. In a similar circumstances, the coordinate bench of the tribunal in the case of K.V.V. Prasad (supra) who is also entered into agreement along with the assessee, held that no penalty can be levied u/sec. 271B. For the sake of convenience, the relevant portion of the order is extracted as under:-
“7. We have heard both the parties and perused the material placed on record. For the sake of clarity and convenience we extract the facts of the case from page No.2 of the penalty order which reads as under: “The assessee entered into an agreement dated 10.10.2002 with one Shri RK Mittal of Hyderabad for purchase of land admeasuring 9507 sq.yds at Somajiguda, Hyderabad and paid an initial advance of Rs.50,000/- and made certain payments subsequently. Shri RK Mittal was the decree holder for the property in question. Subsequently, a tripartite agreement was entered into between 1) RK Mittal (seller), the assessee(seller) and M/s Fortuna Infrastructure P.Ltd. represented by ShriP.C.Ashok of Hyderabad. By virtue of the said tripartite agreement, the property in question got vested in M/s Fortuna Infrastructure P. Ltd., Hyderabad. The final consideration that accrued to the assessee was
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Rs.3,40,00,000/-. The amount was physically received by the assessee during the year. There was another tripartite agreement dated 10.04.2010 by the same parties. The tripartite agreements entered on 12.11.2007 and 10.04.2010 are similar and there is no substantive change. In the supplementary agreement dated 10.04.2010, it was agreed upon that the initial amounts paid by virtue of the tripartite agreement dated 12.11.2007 were accepted as final amounts and that no further amounts would be payable. Barring this there is nothing distinguishable in the supplementary agreement dated 10.04.2010. During the scrutiny proceedings that ensued the contention of the assessee is twofold. Firstly, the assessee contended that the income arising from the said transaction, if any is taxable under Long Term Capital Gain and secondly, since a finality was reached by the virtue of the supplementary agreement dated 10.04.2010, the income would arise in the previous year relevant to the Asst.Year 2011-12 and not in the Asst.Year 2008-09. Further, the assessee filed a letter dated 06.11.2010 by which he agreed to be assessed at Rs.265/- lakhs being income from Capital Gains, for the Asst.Year 2008-09. The assessee undertook to pay the consequential taxes before 31.12.2010. The assessee however did not pay any taxes thereafter.” 7.1 We also extract the observations of the AO for which the AO treated the business transactions instead of capital gains and levied the penalty holding that the assessee is liable for penalty u/s 271B of the Act. “The following observations made in the Assessment Order dated 30.12.2010 and Appellate order dated 30.11.2011 are relevant: 1. The assessee while entering into an agreement for purchase of land from RK Mittal is fully aware that Shri Mittal is only a decree holder and that the land in question is in litigation. 2. During the course of scrutiny proceedings, the assessee himself has admitted that such lands in litigation would be available for a cheaper price and once the litigation is cleared, they would fetch a handsome price. Therefore, the idea is to trade in such lands not to make any investment. For any investment, safety is the first and foremost factor for consideration which is conspicuous by its absence in the present deal.
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The assessee entered into a land deal for Rs.26.71 crores. The assessee did not possess adequate money to finalize the deal. It is only with the intention of finding an immediate buyer, the assessee entered into the deal. 4. That the amounts paid as advance did not constitute payment of part consideration does not hold water. Part consideration alone is paid as advance. Therefore, the contention that there is no consideration involved in the said transaction and hence the transaction does not give rise to tax liability is not tenable. 5. The pattern of payments to RK Mittal gives rise to serious doubts as to the time of payment. The amount of Rs.50,000/- was paid as advance by the agreement dated 10.10.2002 and the balance amounts were paid to him years later i.e. in Feb 2007. 6. The stamp paper verification dated 10.10.2002 revealed that the stamp papers sent for verification either not sold by the stamp vendor Shri M.Satyanarayana or they might have old stamp papers, which are tampered with the date of purchase. 7. The assessee has entered into similar deals of land purchase where the land in litigation which clearly establishes the fact that the assessee has been carrying out the business of purchasing of lands in litigation and selling them at a higher price where risk and margins are high. Therefore, the purchase of land in question can no way be termed as an investment, but is only a stock in trade. 8. The consideration received by the assessee represented consideration received in relinquishment of rights acquired through an agreement entered into with RK Mittal. Even the buyers, M/s Fortune Infra P.Ltd are fully aware that the assessee cannot improve upon the title. Whatever right that he had acquired by virtue of the agreement dated 10.10.2002 is being transferred for a definite consideration. 9. As far as the assessee is concerned, there is no obligation in his part to refund the sale consideration received even if it were proved that the title were defective. Hence it can be stated that gains accrued to the assessee on the date of Tripartite agreement dated 10.11.2007 became final in the previous year relevant to the A.Y. 2008-09. 10. The supplementary tripartite agreement did not cast any additional burden on the part of the assessee. On
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the other hand, it freed the assessee from the encumbrances / litigation that could have ensued subsequently. Therefore, it is tripartite agreement dated 10.11.2007 that decides the issue that the income chargeable to tax in the A.Y. 2008-09. By virtue of the above observations, it is clear that the assessee derived business income during the year, the receipts from which have exceeded the forty lakh limit prescribed u/s 44AB of the Act. In view of the failure on the part of the assessee to get his accounts audited, the assessee is liable for penalty in terms of Sec 271B of the Act.” From the penalty order of the AO, it is observed that the assessee made only single transaction which is stated to be advance for purchase of land and property and there were no series of transactions. The assessee was under the impression that the advance received by the assessee was not taxable in the impugned assessment year since the transaction was not finalized. Even if it is to be taxed, the same is to be taxed under the head „capital gains‟, but not under the head „business income‟. That was the reason that the assessee did not get his accounts audited as required u/s 44AB of the Act. There is no dispute that the transaction was single transaction. No other expenditure was also claimed by the assessee. The AO did not bring any other material to support that the assessee has carried on the business in the earlier year or subsequent year in the assessment order. There is no issue of complexity involved in the receipts of the assessee. The assessee is a mechanical engineer, as observed from the assessment order and he is not engaged in the business, there are no other business transaction carried on by the assessee as brought out by the AO in the assessment order. Therefore, we hold that the assessee did not get the accounts audited since he was under the bonafide impression that sale transaction of litigated land as capital gains but not business and the same appears to be reasonable cause as required u/s 271B. Accordingly, we hold that there is reasonable cause for not getting the accounts audited, hence, the penalty levied by the AO is unsustainable. Accordingly, we set aside the order of the Ld.CIT(A) and cancel the penalty levied by the AO.”
Keeping in view of the facts and circumstances of the case and by respectfully following the decision of the ITAT,
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Visakhapatnam Bench, we find that penalty levied by the Assessing Officer and confirmed by the ld. CIT(A) is not justified. Accordingly, we cancel the penalty levied by the Assessing Officer, which is confirmed by the ld. CIT(A). Thus, this appeal filed by the assessee is allowed. 9. In the result, appeal filed by the assessee is allowed. Order Pronounced in open Court on this 07th day of August, 2019.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 07th August, 2019. vr/- Copy to: 1. The Assessee-Smt. S. Chinatalli, 9-16-37/2, Gurujada Enclave, CBM Compound, Visakhapatnam. 2. The Revenue – ITO, Ward-1, Palakol. 3. The Pr.CIT, Rajamahendravaram. 4. The CIT(A), Rajamahendravaram. 5. The D.R. 6. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.