ITO, WARD-3(3),, VISAKHAPATNAM vs. SIRIPURAPU CHINATALLI,, VISAKHAPATNAM

आदेश /O R D E R

PER D.S. SUNDER SINGH, Accountant Member: These appeals are filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-2, Guntur vide Appeal.No.005/2013-14 dated 03.04.2017 and 006/2012-13 dated 23.03.2017 for the Assessment Year (A.Y.) 2008-09. Since the grounds raised in the appeals are identical, these appeals are clubbed, heard together and disposed of in common order for the sake of convenience as under.

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during the assessment proceedings, the assessee filed a revised return declaring ‘NIL' income. In both the returns of Smt.Chinnatalli and Shri K.V.V.Prasad, the assessees have appended the notes relating to the amount received by them in property transaction and stated the reasons why it is not taxable. The AO on the basis of facts and the information available on record noticed that assessee had entered into an agreement of sale-cum-GPA on 10.10.2002 with Shri R.K. Mittal for purchase of 9507 sq.yds. of land at Somajiguda, Hyderabad which was under litigation since 1996. AO further noticed that though Shri R.K. Mittal has decretal right over the property by virtue of a court order he was not in possession of the property. To enforce his decretal right over the property, Shri R.K. Mittal has also filed a petition in the court for execution of decree in his favour. AO observed that Shri R.K. Mittal has also entered into a similar and separate agreement with Shri K.V.V. Prasad. As per the terms of the said agreement, assessee and Shri K.V.V Prasad were to be nominated as parties to the dispute by Shri R.K. Mittal in the execution petition pending in civil court. Thus, in a sense while

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entering into agreement of sale dated 10.10.2002 both assessee as well as Shri K.V.V Prasad knew fully well-that what-they intended to purchase was only decretal rights in the property which were held by Shri R.K Mittal. Subsequently, the assessee, Shri K.V.V. Prasad and Shri R.K. Mittal have entered into a tripartite agreement on 12.11.2007, as per which they relinquished their decretal rights in favour of M/s Fortuna Infrastructure India Pvt. Ltd. Under the terms of the agreement dated 12.11.2007, Shri R.K. Mittal is to receive Rs. 53,42,65,300 @ Rs. 28,100 per sq.yd. while assessee and Shri KVV Prasad were to receive Rs.30,23,06,700/- @ Rs.15,900 per sq.yd. AO noticed that as per the agreement dated 12.11.2007, the assessee is entitled to receive the sum of Rs.15,11,45,400/- where as Shri K.V.V.Prasad is entitled to a sum of Rs.15,11,61,300. It was further noticed by the AO that out of the said amount, a sum of Rs.11,30,00,000/- was already paid to the assessee and Shri K.V.V Prasad at the time of agreement dated 12.11.2007 in the proportion of Rs.5,40,00,000/- and Rs.5,90,00,000/- respectively. As per the said agreement, the balance amount was to be paid in two more instalments i.e. first instalment to be paid after 120 days

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of registration of sale deed and the second instalment will be after recording of delivery possession by the court. Apart from transferring their nominee rights under the tripartite agreement the only other obligation of the assessee and K.V.V.Prasad is to take steps for nomination of Fortuna Infrastructure India (P) Ltd. in the records of EP No.155/2 in OS No.1402/1996 on the file of Sr.Civil Judge, City Civil Court, Hyderabad and further cause the execution of the sale deed under registration by the city civil court. It was observed by the AO that on receipt of the amount of Rs.11,30,00,000/-, both assessee as well as Shri K.V.V. Prasad have paid advance tax of Rs.36,30,000/- and Rs.21,20,000/- respectively for the A.Y under consideration. Subsequently they filed their revised returns of incomes revising the income to ‘Nil’ and claiming the refund of the advance tax paid. From the submissions of assessee and on the facts and materials on record, the AO observed that the assessee had entered into the agreement of sale with Shri R.K. Mittal knowing fully well that the property was under litigation and paid an amount of Rs.50,000/- to Shri R.K. Mittal. The assessee also knew that Shri R.K. Mittal was only

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having decretal rights over property and not having the physical possession of the same. The value of the property intended to be purchased was very high compared to the available means of the assessee as the proposed sale consideration to Shri R.K. Mittal is to the tune of Rs.53.00 crores, whereas the assessee did not have the sources to pay such huge amount. The AO recorded the statement from the assessee and found that the assessee has entered into such transaction due to more profit. It was also stated by the assessee that she took the risk in dealing with disputed property with a view to earn the profit. It was further stated by her that looking at the high margin of profit in such nature of transaction involving disputed property, she has entered into the transaction. From available information and the observations made from the statement, the AO viewed that assessee has made the transaction as business transaction and any prudent person who intends to invest in a property for investment purpose would invest only in property free from the litigation, unlike the assessee who enters into transactions with disputed properties, shows the profit motive. Hence, AO came to a conclusion that the transaction is an

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adventure in the nature of trade. The assessee’s contention that it is only a solitary transaction was rejected by the AO and held that even a solitary transaction can be characterized as an adventure in the nature of trade, as the intentions of assessee was to purchase property with an idea to resell with a huge profit margin. For this purpose the AO relied on a number of decisions of Hon’ble Supreme Court as well as different High Courts. So far as the year of taxability is concerned, AO concluded that since the assessee has transferred her right, for a consideration during previous year relevant to AY under dispute, the amount received is taxable in the impugned assessment year. Having come to such conclusion, the AO proceeded to compute the amount received as income under the head ‘business and profession'. Out of the total amount of Rs.5,40,00,000/- received by the assessee, AO allowed the deduction of Rs.2,00,00,000/- paid to Shri R.K. Mittal and the sum of Rs.50,00,000/- returned back to Shri T.C. Ashok and brought the balance amount of Rs.2,90,00,000/- to tax.

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the CIT(A) and challenged the assessment on two issues. Firstly, the year of taxability and secondly the head of income under which the amount taxable. The Ld.CIT(A) in its appeal in I.T.A No.183 & 184 dated 30.11.2011 upheld the addition made by the AO holding that the transaction is an adventure in the nature of trade and accordingly confirmed the addition under the head business income. The Ld.CIT(A) also held that the income is assessable in the Financial Year 2007-08 and to be taxable in the assessment year 2008- 09 irrespective of the subsequent evidences. The assessee went on appeal before the ITAT and the ITAT also confirmed the order of the CIT(A) and dismissed the appeals of the assessee. In the meantime, the AO completed the penalty proceedings initiated u/s 271(1)(c) by an order u/s 274 r.w.s. 271(1)(c) dated 07.03.2013 and imposed penalty of Rs.98,77,719/- against S.Chinatalli and Rs.1,14,72,375/- against Shri K.V.V.Prasad. The AO in the penalty order reiterated the observations of the CIT(A) and the assessment order which reads as under : 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 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

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conspicuous by its absence in the present deal. 3. 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 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 of papers 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 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 definitive consideration. 9. As far as the assessee is concerned, there is no obligation on her part to refund the sale consideration received even if it were proved that the title was 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 the other hand, it freed the assessee from the encumbrances / litigation that could have ensued subsequently. Therefore, it

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is tripartite agreement dated 10.11.2007 that decides the issue that the income chargeable to tax in the A.Y. 2008-09. 4. The AO viewed that there is total absence of bonafide and presence of malafide in this transaction. Thus, the AO held that the assessee has fully concealed her income particulars and furnished them inaccurately, thereby it is a clear attempt to conceal her income particulars and or furnished inaccurate particulars of income seeking to avoid taxes and accordingly held that the case is fit case for levy of penalty u/s 271(1)(c) and levied the concealment penalty in both the cases of Smt.Chinatalli and Shri K.V.V.Prasad.

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12 I.T.A. Nos.375/Viz/2017 and 457/Viz/2017 Smt. Siripurapu Chinatalli and Shri K.V.V.Prasad, Visakhapatnam

sq.yard. The assessee had paid the part amount of Rs.50,000/- as advance to the vendor and subsequently entered into a tripartite agreement on 12.11.2007 conferring the rights on M/s Fortuna Infrastructure India Private Ltd., along with others and received the sum of Rs.5.90 crores as advance till the date of Registration of the tripartite agreement. According to the assessee, the title of the property in question is sub-judice and hence very foundation of the claim of the ownership made by the original owners, and consequently the rights of the Sri R.K.Mittal as decree holder and the rights derived by her through the agreement with R.K.Mittal with regard to the property are all in serious jeopardy and nothing would be due if the appeal is decided against R.K.Mittal. The assessee had placed evidences regarding the claims of ownership made by the rival claimants who are in physical possession of the property for very long time. Since, the disputes are continuing, the assessee along with Sri K.V.V.Prasad have entered in to supplementary agreement with M/s Fortuna Infrastructure India Private Ltd relinquishing the right to receive the balance consideration on 10.04.2010. It is the contention of the assessee that as the disputes regarding the property and taking over the possession of the property were not settled the assessee had no right on the amounts received thus the same

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cannot be treated as income in the impugned assessment year till the date of complete settlement of the disputes. The income accrues to the assessee only on settlement of the disputes but not in the year of receipt. The assessee had got the right over the money received only after the supplementary agreement, thus viewed that if the same is to be treated as income it should be assessed in the F.Y.2010-11, related to the A.Y.2011-12 but not in the A.Y.2008-09. The assessee has taken the support from the decision of CIT vs Hindustan Housing and Land Development trust Ltd(1986) 161 ITR 524 and the decision of CIT vs Jai Prakash Om Prakash Co.Ltd(1961) 41 ITR718(Punj). The assessee contended that the amount received from M/s Fortuna Infrastructure India Private Limited has to be treated as advance in the impugned assessment year and cannot be treated as income pending settlement of dispute. According to the assessee, the sum received by the assessee is also not taxable as capital gains, since the cost of the acquisition was Nil. Further, the assessee is under the impression that since, the supplementary agreement was finally reached on 10.04.2010, the consideration received by the assessee, if at all taxable the same required to be taxed in the A.Y. 2011-12 but not in the impugned A.Y. According to the assessee the receipt is not taxable as capital gain.

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Even if it is taxable the same required to be taxed in the A.Y. 2011-12, but not in the A.Y.2008-09, the year in which the assessee had entered into supplementary agreement. The assessee has submitted the entire facts along with the Income Tax returns, thus, furnished the complete particulars before the AO. This fact was accepted by the AO in the assessment order. The note appended by the assessee in the assessment order is made available in page No.15 of the Ld.CIT(A) which reads as under :

"NOTE REGARDING LONG TERM CAPITAL GAINS

An agreement of sale -cum- general power of attorney was executed by Sri R.K. Mittal on 10/10/2002 for the sale of 9507 sq. yds. In TS. No.20/IA, 20/2 and 20/3 at Somajiguda, Hyderabad in favour of the assessee @ Rs. 28.100/- per sq. yd. Inrespect of the said, property litigation is pending in, the court since 1996 The amounts paid by the assessee to Sri R.K, Mittal were endorsed on the back of the agreement. The assessee along with others entered into a Tripartite Agreement On 12/11/2007 whereby the rights conferred on him by the above said agreement are to be vested in M/s. Fortuna Infrastructure India Pvt.Ltd, Hyderabad. It is submitted that the agreement rights transferred by the assessee did not have any cost of acquisition. Though some payments were made under the agreement these amounts were towards the consideration payable under the agreement by the assessee and would have been adjusted against the same at the time of registration of sale deed in favour of the assessee in the normal course. In other words, the amounts paid under the agreement by the assessee were only advances and they were not the costs incurred for obtaining the agreement rights. Under these circumstances, it is submitted that the amounts realized by the assessee on the transfer of agreement rights in favor of M/s. Fortuna Infrastructure (India) Pvt. Ltd. Do not constitute taxable capital gains in view of the ratio of the decision of the Hon'ble Supreme Court in the case of CIT Vs B.C. Srinivas Setty (1981) 128 ITR 294 (SC) and followed in CIT Vs. Dhanaraj Dugar(1982) 137 ITR 350 (Cal). Another angle to the issue is that the right under an agreement of sale

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is a mere right to specific performance or a right to sue and therefore not transferable u/s. 6(e) of the Transfer of Property Act, 1882 and hence such right did not constitute a capital asset and hence the transfer of agreement right would not give rise to taxable capital gains. Reference in this context may kindly be made to CIT Vs, R.Dalmia (1984) 149 ITR 250 (Del) and CIT Vs. R. Dalmia (Decd) (1987) 163 ITR 517 Under these circumstances the assessee submits that the transfer of agreement rights under the Tripartite Agreement did not give rise to taxable capital gains. For detailed appreciation of all the aspects involved a copy of the agreement of sale cum power of attorney dt. 10.10.2002 executed in favour of the assessee and a copy of the registered Tripartite Agreement dt. 12.11.2007, which are enclosed, may kindly be perused."-

The department took a view that the income is taxable in the A.Y. 2008-09 under the head business income, since, nature of transaction is venture in the nature of trade and the agreement has reached finality during the previous year relevant to the A.Y. 2008-09. The department has taken this view since the assessee had received the amount in the previous year relevant to the A.Y. 2008-09. Both the views of the department have been confirmed by the Hon’ble ITAT, Visakhapatnam. It is settled issue that mere confirmation of the addition cannot lead to automatic imposition of penalty. From the submissions, it is observed that the two views are possible in this case with regard to taxability of income and the year of taxability. The assessee was under the impression that the transaction is taxable under the head capital gains. Since there was no cost of acquisition,

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the taxable capital gains works out to nil. The assessee was also under the impression that the year of taxability of income would be 2011-12, but not A.Y.2008-09. The complete details were furnished before the AO along with the return of income. The AO has taken all together a different view and held that the transaction was completed in the previous year 2007-08 relevant to the A.Y. 2008-09, hence taxable in the A.Y. 2008-09. Similarly, the AO has also taken a view that the sum received by the assessee was taxable under the head business as adventure in nature of trade but not capital gains, keeping in view of the facts and circumstances in which the assessee had entered into the transaction. Though the view of the AO was finally confirmed, prima facie it is argued that two views are possible with regard to the taxability of income. Since the entire particulars are placed before the AO, the issue was kept open before the AO and it cannot be said that the assessee had furnished the inaccurate particulars. In this case, the entire material was placed before the AO and the assessee has given her view and claimed that the amount received by the assessee is neither taxable in the year under consideration nor taxable as capital gains. The view taken by the assessee was taxability of income under the head capital gains since the investment was made for purchase of land. The assessee

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has given her interpretation and supported her view with various case laws in the note itself. The department has taken a different view which was not foreseen by the assessee and taxed the entire amount as business income. The source of information for taxing the subject amount is the information furnished by the assessee in the return of income. Thus the source of information was given by the assessee voluntarily and the department has not collected any other information which was not submitted by the assessee in the return of income independently. Though the Ld.DR relied on the decision of Dharmendra Textiles Processors, the Hon’ble Supreme Court did not held that in all the cases where the addition is confirmed, the penalty shall follow automatically. This view is fortified by the decision of coordinate Bench of Mumbai Tribunal in the case of Assistant Commissioner of Income-tax, Central Circle 32, Mumbai. v. VIP Industries Ltd., [2009] 30 SOT 254 (Mumbai) In the case referred above the coordinate bench of ITAT held as under:

“Therefore, it would be clear that the penalty proceedings are distinct from the assessment proceedings and, hence, it becomes amply clear that any addition made does not automatically lead to the imposition of penalty under section 271(1)(c). In the penalty proceedings, the assessee is given a chance to explain his case. If he successfully explains his position and is not trapped within the parameters of clause (c) of section 271(1) along with the Explanation deeming the concealment of income, the penalty cannot be imposed. In the instant case, the assessee had bonafidely made a claim for deduction under section 35 in

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respect of cost of car purchased for the purpose of R&D activity by disclosing all the necessary particulars in the audit report. The facts that the car was purchased by the assessee and also used for the purpose of the business had not been controverted by the Assessing Officer. Further, the granting of depreciation at 20 per cent instead of hundred per cent deduction claimed by the assessee showed that there was a genuine difference of opinion between the assessee and the Assessing Officer on this aspect of the matter. It could not be said that the assessee, under such circumstances, had concealed its income and was caught within the four corners of section 271(1)(c). Therefore, the Commissioner (Appeals) had rightly deleted the impugned penalty levied upon the assessee. [Para 12]” The expression concealment of income implies that the income is being camouflaged or covered up so as it cannot be seen, found, observed or discovered. The expression furnishing of particulars of income implies furnishing of details or information about income which is not in conformity with the facts is true. It does not extend subject to areas such as taxability of income, admissibility, deduction and interpretation of law. The coordinate bench of ITAT in the case of Cooperative Textile Mills Ltd. V. ACIT (2015) 43 CCH 0164 (Del.Trib) held that making an incorrect claim does not amount to mentioning of inaccurate particulars. In the instant case, the AO in the assessment order stated that there is total absence of bonafide and on the other hand, there is presence of malafide. However, the AO has not discussed how there was absence of bonafide and the presence of malafide. Similarly, the AO levied the penalty for furnishing the inaccurate particulars and for concealing the income. From plain reading of

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the penalty order, it shows that the AO is not sure of the charge on which the penalty is levied. The AO must be clear in his mind for levying the penalty. It is the duty of the AO to make out a case of concealment of income or furnishing of inaccurate particulars. As discussed earlier, concealment of income is implied that hidden transaction and furnishing of inaccurate particulars implies that furnishing of details or information about income which are not in conformity with the facts or truth. In the instant case, the entire particulars are placed before the AO which was not disputed by the AO. Hon’ble High Court of Andhra Pradesh in ITA No.684/Vizag/2016 in Principal CIT-1, Visakhapatnam Vs. Smt. Baisetty Revathi, held that it is necessary to make the assessee to know for which offence the notice has been issued while quashing the notice u/s 271(1)(c). In the instant case as observed from the penalty order, the AO is not sure of the offence committed by the assessee for levying the penalty. The AO himself is confused with regard to concealment of income or furnishing of inaccurate particulars. Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Haryana Warehousing Corporation [2009] [314 ITR 215 (P&H)] distinguishing Dharmendra Textiles (supra) held that where assessee has claimed a deduction disclosing all material facts, but the deduction was

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disallowed though the conflicting decisions exist on the subject, penalty cannot be levied. In the case of CIT & Anr. Vs. Euro Footwear Ltd. &Anr. (2015) (94 CCH 0153), Hon’ble High Court of Allahabad held that mere making of claim that is unsustainable in law by itself shall not amount to furnishing of inaccurate particulars regarding income of assessee and no penalty u/s 271(1)(c) can be imposed in the absence of any finding that the return was in fact incorrect, erroneous or false. Hon’ble Delhi High Court in the case of Woodward Governor India (P) Ltd. Vs. CIT (2002) 253 ITR 745 (Del.) held that levy of penalty u/s 271(1)(c) is not automatic.

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271(1)(c) of the Act. The Ld.CIT(A) also relied on the decision of Hon’ble High Court of Bombay in the case of Metal Rolling Works Limited Vs. CIT (supra), wherein Hon’ble High Court of Bombay held that once the receipt is disclosed, the assessee cannot be said to have concealed the particulars of income. Similarly, in the case of CIT-21 Vs. Advaita Estate Development Pvt. Ltd., the Hon’ble High Court of Bombay held that when an appeal has been admitted in quantum of proceedings by High Court then that itself is an evidence of the issue being debatable not warranting penalty. In the instant case, it is undisputed fact that the Hon’ble High Court has admitted the appeal of the assessee with regard to quantum and the entire information is furnished by the assessee in the return of income. In view of the foregoing facts and circumstances of the case , we hold that in the instant case, the assessee has neither concealed the income nor furnished the inaccurate particulars of income, hence, there is no case for penalty u/s 271(1)(c). Accordingly, we have no hesitation to sustain the order of the Ld.CIT(A) and the same is upheld.

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Order pronounced in the open court on 13th February, 2019.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 13.02.2019 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ TheAssessee- (i) Smt. Siripurapu Chinatalli, D.No.9-16-37/2, Gurajada Enclave, CBM Compound, Visakhapatnam (ii) Shri K.V.V.Prasad, Plot No.301, Vytla Residency, Balajinagar, Siripuram, Visakhapatnam 2. रधजस्व/ The Revenue –Income Tax Officer, Ward-3(3), Visakhapatnam 3. The Pr.Commissioner of Income Tax, Rajahmundry 4. Commissioner of Income-Tax (Appeals)-2, Guntur 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम /DR, ITAT, Visakhapatnam 6.गार्ड फ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, VISAKHAPATNAM