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Facts
The assessee was levied a penalty of Rs. 10,34,167 under Section 271(1)(c) for alleged concealment of income relating to an addition of Rs. 50,21,520 as long-term capital gains (LTCG) in A.Y. 2011-12. The assessee contended that the LTCG transaction pertained to A.Y. 2003-04 and, if taxed in that year based on the registered development agreement and possession transfer, would not have resulted in any taxable income, thus arguing against the penalty despite accepting the quantum addition.
Held
The Tribunal, relying on the Bombay High Court's judgment in Chaturbhuj Dwarkadas Kapadia, observed that the transaction should have been offered for tax in A.Y. 2003-04, which would have resulted in no taxable income. Since the assessee eventually offered the income in A.Y. 2011-12 due to what appeared to be ignorance rather than an intention to evade tax, the Tribunal found no justification for levying penalty under Section 271(1)(c) and deleted it.
Key Issues
Whether penalty under Section 271(1)(c) for concealment of long-term capital gains is justified when the income, though incorrectly offered in a later assessment year, would not have been taxable in the correct assessment year.
Sections Cited
250, 271(1)(c), 274, 143(3), 254, 275(1A), 50C(1), 2(47)(i), 2(47)(v), 45
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2011-12 is directed against the order dated 09.01.2024 of National Faceless Appeal Centre(NFAC), Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Penalty Order dated 12.02.2020 passed u/s.271(1)(c) r.w.s.274 of the Act.
Assessee has raised following grounds of appeal:
“1] The learned CIT(A) erred in confirming the levy of penalty u/s 271(1)(c) of Rs. 10,34,167 in respect of addition of Rs.50,21,520 made in the asst. order w/s 143(3) r.w.s.254 towards long term capital gains on transfer of immovable property on the ground that the appellant had concealed the particulars of his income without appreciating that the levy of penalty was not justified on facts and in law.
2] The learned CIT(A) erred in not appreciating that the penalty order u/s 271(1)(c) dated 12.02.2020 is barred by limitation u/s 275(1A) since the same was passed after the period of six months from end of March 2019 i.e. six months from the end of the month in which ITAT Order dated 25.01.2019 was received by the A.O./PCIT, especially when the A.O. had categorically initiated penalty proceedings u/s 271(1)(c) by relying on provisions of section 275(1A) in the asst. order u/s 143(3) r.w.s.254 of the Act.
3] The learned CIT(A) further erred in not appreciating that there was a variation in the charge/limb stated by the A.O. in the asst. order at the time of initiating penalty proceedings and at the time of levying penalty in the order u/s 271(1)(c) and therefore, the penalty order u/s 271(1)(c) was not sustainable in law.
4] The learned CIT(A) erred in not appreciating that as per the law laid down by Hon'ble Jurisdictional Bombay High Court in Chaturbhuj Kapadia [260 ITR 491], the impugned long term capital gain was taxable in A.Y.2003-04 when the registered development agreement was executed and possession of the property was transferred upon receipt of part consideration through banking channel and merely because the appellant had accepted the taxability in A.Y.2011 12 during quantum proceedings, there was no reason to levy penalty u/s 271(1)(c) on the said income incorrectly assessed in this year.
5] The learned CIT(A) ought to have appreciated that if the impugned property. which originally belonged to the mother of the appellant during A.Y.2003 -04 and was inherited by the appellant in subsequent years after demise of his mother, was assessed to tax in A.Y.2003-04, then no taxable capital gains would have arose as per the computation prepared by the erstwhile tax consultant and therefore, merely because the appellant had accepted the taxability of the same in his hands in A.Y.2011-12, there was no reason to levy penalty u/s 271(1)(c) when the action of the dept. in assessing the said LTCG in A.Y.2011-12 itself was a highly debatable issue.
6] The learned CIT(A) erred in not appreciating that the total addition of long term capital gains of Rs.50,21,520 was worked out on the basis of estimation and therefore, the levy of penalty u/s 271(1)(c) in respect of such addition made on estimation basis was not justified in law.
7] The appellant craves leave to add/alter/ amend any of the grounds of appeal.”
3. At the outset, ld. Counsel for the assessee placing reliance on the judgment of Hon'ble Jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in (2003) 260 ITR 491 (Bom) submitted that the transaction on the basis of which addition for long term capital gain has been made and accepted by the assessee for A.Y.2011-12 basically pertains to A.Y.2003-04 and if the calculation is made then there was no taxable income for A.Y.2003-04 from the said transaction and therefore no penalty should have been levied by the Assessing Officer for the transaction in question.
4. On the other hand, ld. Departmental Representative supported the order of ld. CIT(A).
We have heard the rival contentions and perused the record placed before us. We observe that the assessee is an individual and declared income of Rs.1,43,712/- in the return of income for A.Y.2011-12 furnished on 30.09.2011. In the first round of assessment proceedings u/s.143(3) of the Act, income determined at Rs.2,00,78,337/-. Thereafter the matter came up before this Tribunal and the direction given by the Tribunal remitting back the issues to the file of Assessing Officer reads as under:
18. When we conjointly read the two provisions to section 50C(1), it emerges that the assessee entered into an agreement to sell on 31/05/2002; received part payments; and finally executed registered conveyance deed on 28/07/2010. Having satisfied the mandate of second proviso and further going by the first proviso to section 50C(1), the stamp value for the purpose of computation of capital gain at the time of sale in the year 2010 should be considered with reference to the date of agreement, namely, 31/05/2002, We order accordingly.
In compliance to the above directions given by the Tribunal, ld. Assessing Officer again carried out the proceedings u/s.143(3) r.w.s.254 of the Act and revised the total income at Rs.51,80,232/-. The addition made by the Assessing Officer has been accepted by the assessee but thereafter penalty proceedings have been initiated and impugned penalty has been levied on the assessee for not disclosing income in the income tax return.
Before us, ld. Counsel for the assessee with the help of documents placed in the paper book running into 151 pages has made out a case that the property on which the long term capital gain has been computed for the year under appeal basically belonged to the assessee’s mother during A.Y.2003-04 and property has been inherited by the assessee in subsequent period. It is also demonstrated before us that the Development Agreement was registered during A.Y.2003-04 and possession of property has been transferred upon receipt of part consideration through banking channel but as the final document has been registered during A.Y.2011-12, the tax liability has been calculated. Before us. Ld. Counsel for the assessee has referred to the Head note of the judgment of Hon'ble Jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia (supra) which reads as under:
Capital Gains-Accrual and year of accural-Year of chargeability- Arrangement conferring privileges of ownership without transfer of title could constitute transfer under s. 2(47)(v)-It is precisely for this reason that the legislature has introduced s. 2(47)(v) r.w.s.45 which indicates that capital gains is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law-No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement-In such cases, the year of chargeability is the year in which the contract is executed-Once under cl. 8 of the agreement a limited power of attorney is intended to be given to the developer to deal with the property, then the date of the contract viz. 18th Aug., 1994, would be the relevant date to decide the date of transfer under s. 2(47)(v) and, in which event, the question of substantial performance of the contract thereafter does not arise- Tribunal was not therefore justified in concluding that the appellant had transferred the property during the previous year relevant to asst. yr. 1996-97.
Now on examining the facts of the case in light of the above judgment, we find that if the transaction has been offered to tax during A.Y.2003-04, there would have been no taxable income and the computation of the same has also been placed on record. It is also an admitted fact that tax liability of the said transaction should have been calculated and offered to tax during A.Y. 2003- 04, however, the assessee has offered the income for A.Y. 2011- 12. It therefore shows that there is no intention of the assessee to evade the tax which is on account of ignorance. The income should have been offered to tax in A.Y.2003-04 but subsequently has been offered to tax in A.Y.2011-12. Under these given facts and circumstances, we find that penalty u/s.271(1)(c) of the Act should not have been levied on the assessee. We therefore, set aside the finding of ld. CIT(A) and delete the impugned penalty. Effective grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on this 14th day of July, 2025.