SHRI YATINBHAI P. PATEL, HUF,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-7(2), AHMEDABAD

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ITA 1402/AHD/2015Status: DisposedITAT Ahmedabad18 September 2018AY 2009-106 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee failed to discharge the burden of proving a bonafide omission. The explanation of ignorance of law or reliance on an accountant was not accepted, and the concealment of income was considered apparent.

What were the facts?

The assessee, a HUF, sold an immovable property and did not disclose the long-term capital gain in its return of income. The assessee claimed the omission was due to a bonafide belief that no tax was applicable on the transfer to a family-owned private limited company.

What were the issues?

Whether the penalty under Section 271(1)(c) is leviable for non-disclosure of long-term capital gains due to a bonafide belief of non-taxability.

Which sections of the Income-tax Act were involved?

Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA

For Appellant: Shri Rahul Patel, A.R, Shri R. P. Maurya, Sr. D.R

PER PRADIP KUMAR KEDIA - AM:

The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-3, Ahmedabad (‘CIT(A)’ in short), dated 30.01.2015 arising in the penalty order dated 15.06.2012 passed by the Assessing Officer (AO) under s. 271(1)(c) of the Income Tax Act, 1961 (the Act) concerning assessment year 2009-10. ITA No. 1402/Ahd/15 [Yatinbhai P. Patel HUF vs. ITO] AY 2009-10 - 2 -

2.

As per grounds of appeal, the assessee has impugned the action of the CIT(A) in confirming the penalty of Rs.6,46,986/- imposed by the AO under s.271(1)(c) of the Act on the long term capital gain arising on transfer of immovable property.

3.

Briefly stated, the assessee, a Hindu undivided family, derives income from house property and interest. The assessee filed return of income for AY 2009-10 declaring total income of Rs.2,18,800/-. The return filed by the assessee was subjected to scrutiny assessment. On the basis of AIR information, it was learnt by the AO that the assessee had sold one immovable property for consideration of Rs.1,26,92,150/-, the profits arising wherefrom were not disclosed in the return of income. On inquiry in this regard, the assessee submitted that the property under sale was purchased on 23.03.1980 and accordingly the cost of acquisition is required to be substituted at fair market value as on 01.04.1981. The assessee further pointed out that the lapse in not declaring the income arising on sale of property was on account of the bonafide belief that no capital gain has accrued to the assessee. The assessee submitted that the property was transferred from HUF to a Private Limited Company wherein the family holds 50% of the share of the company. Owing to this background of the property transaction, the assessee was under erroneous impression that no tax is applicable on such transaction since it is a mere transfer from HUF to family owned Private Limited Company. Entertaining such bonafide plea of non-taxability, the assessee did not appraise these facts to his advising Chartered Accountant. Based on the facts transpired in the course of hearing, the AO computed long term capital gain of Rs.28,52,058/- after granting allowance for cost of acquisition and cost improvement against the sale consideration and initiated penalty proceedings for such non-inclusion of capital gains. In the course of the penalty

ITA No. 1402/Ahd/15 [Yatinbhai P. Patel HUF vs. ITO] AY 2009-10 - 3 -

proceedings, the AO observed that the assessee has remained a non- complaint of the statutory notices. The AO further observed that undisclosed long term capital gain was unearthed during the assessment proceedings, which was not offered as income by the assessee voluntarily. The AO also observed that even after the issuance of notice under s.143(2) of the Act, the assessee did not come forward with the true facts by filing revised return of income. The AO also observed that it took almost 18 months for the assessee to admit omission of income from the property transaction and but for the scrutiny assessment, income arising on the property transaction would have escaped assessment altogether. The AO accordingly observed that a malafide intention of the assessee in the deliberate attempt to conceal income is obvious. The AO also did not accept the narrative of the assessee that the omission to include income from property transaction was on account of the mistake on the part of the Accountant of the assessee. The AO accordingly held that the assessee has willfully, knowingly and without reasonable cause furnished inaccurate particulars of its income and concealed income arising from property transaction. The AO accordingly imposed penalty of Rs.6,46,986/- on the income detected in the course of the assessment proceedings.

4.

Aggrieved, the assessee preferred appeal before the CIT(A).

5.

The CIT(A) however was not impressed with the submissions of the assessee. After taking note of the affidavit of the Accountant Shri R. K. Joshi, the CIT(A) discarded the contention of the assessee on merits having regard to various judicial pronouncements holding the field. The CIT(A) accordingly declined to interfere with the order of the AO and sustained the penalty.

ITA No. 1402/Ahd/15 [Yatinbhai P. Patel HUF vs. ITO] AY 2009-10 - 4 -

6.

Aggrieved, the assessee preferred appeal before the Tribunal.

7.

The learned AR for the assessee appeared and broadly reiterated the written submissions to justify the cancellation of penalty.

8.

The learned DR relied upon the order of the CIT(A).

9.

We have carefully considered the rival submissions and perused the material placed on record. The short controversy is maintainability of penalty under s.271(1)(c) of the Act on the long term capital gain not disclosed in the return of income. The peculiar facts of the case as noted above are that the assessee alongwith two other persons owning the adjoining two plots formed a Private Limited Company namely Shree Hospitality Pvt. Ltd. to run a Hospital. Consequently, all the three owners transferred their respective properties to the Private Limited Company by way of sale deeds. It is the case of the Revenue that sale deed was executed and capital gain attracted on transfer was not shown in the return filed. It is the case of the assessee on the other hand that one Mr. Joshi who was trustworthy and experienced Accountant of the family used to manage file of the family members with the help of the Chartered Accountant. As the HUF does not have income under the head ‘business’ no regular books were maintained of the HUF. The error of omission occurred owing to the belief that sale deed made between assessee HUF and Private Limited Company is a transfer to self and no capital gain per se arises on such symbolic transfer where the HUF holds 50% of the Private Limited Company.

10.

It is thus admitted position that the assessee omitted to disclose true income. As borne out from records, the Karta of the assessee is an educated person and is a Chartered Engineer by qualification.

ITA No. 1402/Ahd/15 [Yatinbhai P. Patel HUF vs. ITO] AY 2009-10 - 5 -

Thus, the ordinary inference for such gross omission to include capital gains is either out of fraud or willful neglect. The assessee has sought to shift the responsibility of all mis-deed of non-disclosure of the capital gains on the Accountant who was not available before the AO to support the purported affidavit. Thus, such affidavit without cross examination has no rational probative value. Needless to say, in view of Explanation 1 to Section 271(1)(c), the burden of proving that it is a case of bonafide omission is on the assessee. The assessee in our view has failed to discharge this burden. As noted by the AO, the conduct of the assessee was also non-responsive. The assessee despite notice of scrutiny took 18 months to admit the omission of this magnitude. The explanation given by the assessee is cursory and does not inspire confidence. The factum of concealment is ostensible. There is nothing on record to support the plea of bonafides taken for such omission. The assessee has not come forward voluntarily either but has merely admitted the liability owing to the transactions coming to the notice of the Revenue as per the Annual Information Report. Thus, the assessee, in essence, has not offered any explanation accept ignorance of law in this regard. Such plea is of no avail in these circumstances unless there is some substantiation thereof. In the absence of disclosure of material facts concerning the transactions at the time of filing of return of income, the burden fastened on the assessee under Explanation 1 is not discharged. The assessee simply rested its plea for exoneration of penalty on unsupported assertions towards its bonafides. Section 271(1)(c) indicates the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return of income. The necessity of mens rea is absent. The Hon’ble Supreme Court in the case of Union of India vs. Dharmendra Textiles Processors & Ors. [2007] 295 ITR 244 (SC) has observed that the said Section has been enacted to provide for a remedy to the department for loss of revenue. The ITA No. 1402/Ahd/15 [Yatinbhai P. Patel HUF vs. ITO] AY 2009-10 - 6 -

penalty under the provisions is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability unlike in the matter of prosecution under s.276C of the Act. The statutory provision of taxability on transfer of property is crystal clear. It will be farfetched to accept the abstract plea that HUF and Private Limited Company as common where even outsiders were involved. The omission to declare the capital gain cannot be regarded as bonafide error. The mitigating circumstances could not be successfully demonstrated. Thus, we decline to interfere with the action of the CIT(A).

11.

In the result, appeal of the assessee is dismissed.

This Order pronounced in Open Court on 18/09/2018 (RAJPAL YADAV) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 18/09/2018S. K. SINHA आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:- 1. राज"व / Revenue 2. आवेदक / Assessee 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त- अपील / CIT (A)

5.

"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील"य अ"धकरण, अहमदाबाद ।

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