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Before: SHRI R.K. PANDA & MS. SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
1. This appeal is filed by the assessee against the order dated 18.05.2015 passed by the Pr. CIT(A)-8, New Delhi for AY 2006-07.
2. Grounds of appeal are as under:
1. “That the CIT (Appeals) has erred on facts and under law in confirming the penalty order of AO in treating the sale of boundary walls (referred as ‘Building’) as a short term capital asset and consequently held the said building as depreciable asset u/s 50 of the Income Tax Act, 1961. As the result of such confirmation by the CIT (Appeals) a penalty of Rs. 10,74,878/- was held to be payable by the assessee u/s 271(1)(c) of the Income Tax Act, 1961.
2. That the CIT(A) has erred on facts and under the law in upholding that the assessee is guilty of concealment of income and furnishing inaccurate particulars of income u/s 271(1)(c ), without passing a speaking order of the wrong doing of the assessee.
3. That on record the assessee has never claimed depreciation u/s 32 of the Income Tax Act, 1961 since the construction of boundary walls a fact consistently accepted the department since 2000. However, in year of sale in AY 2006-07, the fact that boundary walls has not been depreciated u/s 32 of the IT Act has been consistently overlooked by the AO/CIT(Appeals) both in the quantum and penalty proceedings.
4. That the fact the assessee was claiming depreciation on boundary walls under Companies Act, 1956 had no bearing as regards determination of taxability under the normal provisions of the Income Tax. 5. That the above grounds of appeal
are independent and without prejudice to one another. Your appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.” Additional Grounds: i. “That the penalty as imposed by the Assessing Officer u/s 271(1)(c ) of the Income Tax Act, 1961 (the Act) vide order dated 28th October, 2013 is barred by time in terms of proviso to Section 275(1)(a) of the Act. ii. That without prejudice to additional ground No. 1 above, in the absence of specific charge pointing out in the notice, the said notice is vague & consequently the levy of penalty u/s 271(1)(c ) of Rs. 10,74,878/- is arbitrary, unjust and illegal. iii. That in the absence of satisfaction as contemplated under section 271 of the Act, the levy of penalty by AO under Section 271(1)(c ), in relation to the income computed in accordance with the directions of the ITAT, is arbitrary unjust and bad in law.
3. In this case, assessee filed its return of income and had declared long term capital gain on sale of land and building at Rs. 7,66,727/-. At the time of assessment proceedings u/s 143(3), the Assessing Officer analysed the long term capital gain declared by the assessee on land and building separately and found that long term capital gain calculated on building was erroneous. The assessee has claimed depreciation against that building and accordingly on these finding, the Assessing Officer treated the capital gain on building as short term capital gain u/s 50 of the IT Act. However, the CIT (A) directed the Assessing Officer to refer the property for valuation by the DVO and accordingly on the basis of valuation, he hold that AO could have made an addition of Rs. 17,46,000/- which is the difference between the amount as per DVO’s report and as shown by the assessee. He has also directed to allow the set off of long term capital losses against the current long term capital gains. On appeal before the ITAT by the Department, it was observed by the ITAT that building is a depreciable asset and it was admitted by the AR of the assessee that depreciation has been claimed on the value of building. Since the CIT (A) has not considered the full facts and he has combined the issue of capital gain calculated on land and building together, the ITAT set aside the issue to the file of the Assessing Officer to treat the transaction of land as long term capital gain and building as short term capital gain u/s 50 and allow the set off of losses of earlier years on account of capital gains against the land. After considering these issues at the time of penalty proceeding, the Assessing Officer has given further opportunity to the assessee and observed that as per Schedule ‘D’ (Fixed Assets) filed during the course of assessment proceedings along with copy of audited accounts, in which it was clearly mentioned that the depreciation upto 31.03.2005 was Rs. 1,39,825/- and depreciation for the FY 2005-06 was Rs. 35,677/-. On the basis of these facts, the Assessing Officer hold that the pleading of the assessee that no depreciation was claimed on building was not found acceptable. The Assessing Officer relied upon the findings of facts given by the ITAT which is the final fact finding authority that Ld. AR of the assessee admitted before the Tribunal that assessee claimed the depreciation on building. After considering these facts, the Assessing Officer gave the finding that assessee concealed the particulars of its income and accordingly levied the penalty of Rs. 10,74,878/-.
4. Aggrieved by the Penalty order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that the penalty levied by the Assessing Officer is time barred. In this case, the penalty proceedings had been initiated by the Assessing Officer vide his order dated 27.11.2008 and against which the CIT(A) passed the order in quantum proceedings vide order dated 14.09.2010. As per the proviso to Section 275(1)(a) of the Act, it is clear that the order of levy of penalty has to be passed within one year from the end of the financial year in which the order of CIT(A) has been received. In the instant case, the CIT(A) had passed the order on 14.09.2010 against which the Revenue preferred appeal having ITA No. 5488/Del/2010. Hence, the order of the penalty should have been passed before 31.03.2012, whereas in the instant case the penalty has been levied by the Assessing Officer on 28.10.2013, which is barred by time. The Ld. AR further submitted that the notice as issued by the Assessing Officer for the penalty proceedings was vague and does not specify under which limb the Penalty has been levied by the Assessing Officer and accordingly no penalty should be levied. The Ld. AR relied upon the following decisions:
1. CIT vs. SSA’ Emerald Meadows 242 Taxman 180 (SC)
2. CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (KAR)
In the instant case, from the penalty notices as issued by the Assessing Officer from time to time, it is not clear under which limb of the provision he has granted the opportunity to the assessee.
The Ld. AR further submitted that if we look at the Assessment Order dated 27.11.2008, it is clear that the penalty proceedings was initiated by the Assessing Officer on account of his treatment of market value of the property at Rs. 51,30,000/- as determined by the registered valuer against the disclosed sale consideration of Rs. 55,00,000/- by the assessee. In the Assessment Order, the Assessing Officer separately assessed the value of the boundary wall mentioned in the sale deed at Rs. 4,00,00,000/- as income from other sources but on appeal the CIT(A) held that the sum of Rs. 4,00,00,000/- is part of the sale consideration. So much so, the CIT(A) also held that because the DVO also worked out the value of the property at Rs. 56,74,000/-, the sale consideration as shown by the assessee is correct and long term capital gain has to be computed accordingly. The ITAT, on appeal filed by the Revenue against the order of CIT(A) held that because the assessee claimed depreciation on the building (wall), hence the gain in respect thereto is a short term capital gain and accordingly directed the Assessing Officer to compute the gain in relation to the building/wall as short term capital gain, but in respect of the land it remained to be continued as long term capital gain. On the basis of such direction of the ITAT, while giving effect to the order of the ITAT, computed the long term capital loss on transfer of land at Rs. 15,68,804/- and in respect of the building has worked out the short term capital gain at Rs. 32,32,883/- and after adjusting the above loss of (-) 39,547/- has worked out the total income at Rs. 31,93,336/- and the long term capital loss amounting to Rs. 15,68,804/-. On the basis of income as determined while giving effect to the order of ITAT in accordance with the directions as issued to the Assessing Officer to compute the short term capital gain on sale of building in view of the provisions of Section 50 of the Income Tax Act, the Assessing Officer levied the penalty u/s 271(1)(c) of the Act at Rs. 10,74,878/- vide order dated 28.10.2013.
The Ld. AR further submitted that in the instant case, the Assessing Officer levied the penalty not on the basis of foundation given in the original assessment order dated 27.11.2008 wherein the penalty proceedings was initiated on account of the adoption of the market value of the property at Rs. 51,30,000/- for the purpose of working out a long term capital gain, but on account of working out a short term capital gain, in respect of building in view of the provision of Section 50 of the Act as directed by the ITAT. In other words, the very foundation based on which the proceeding u/s 271(1)(c) of the Act was initiated at the time of original assessment in his order dated 27.11.2008, has been totally substituted in the penalty proceedings which is not permissible under the law. So much so the order passed by the Assessing Officer on the basis of directions of appellate authorities does not amount to satisfaction as contemplated u/s 271 of the Act. The direction issued by ITAT amounts to satisfaction of ITAT and not that of the Assessing Officer. The Ld. AR relied upon the following decisions:
1. CIT vs. Lakhdhir Lal Ji 85 ITR 77 (Guj)
2. CIT vs. Manu Engineering Works 122 ITR 306 (Guj)
3. Gujarat Credit Corporation Ltd. vs. ACIT 116 TTJ 619 (Ahd)
4. CIT vs. Anand Bazar Patrika 116 ITR 416
CIT vs. Shadi Ram Bal Mukund 84 ITR 183 As far as the merit of the case is concerned, the Ld. AR submitted that the penalty proceeding are independent proceedings from Assessment and no penalty can be levied merely on the basis of finding given in the Assessment Order unless cogent material is brought on record to prove its falsity. In the penalty proceedings, the assessee may furnish fresh evidence which should be considered to prove the bonafide of the assessee. The Ld. AR relied upon the following decisions:
CIT vs. Khoday Eswarsa & Sons 83 ITR 369 (SC)
Devsons Pvt. Ltd. vs. CIT 329 ITR 483 (Del)
Prasanna Enterprises vs. CIT 244 ITR 188 (Ker)
The Ld. AR further submitted that the very observation of the Tribunal that the assessee claimed depreciation on the building as alleged to have been admitted by the counsel in the proceeding and then invoking the provision of Section 50 of the Act, is not correct. The fact of the assessee’s case is that the so called building is in the shape of wall constructed around the farm land. While preparing the profit & loss account in accordance with the provisions of the Company Law, the assessee had debited the depreciation in respect of such boundary wall in the profit & loss account, but because such building was in the shape of wall around the farm land which is only a capital asset not connecting to any business, hence while filing the income –tax return, in accordance with the provisions of the Income Tax Act, has ignored the loss occasioned by such depreciation shown in the books of account and has disclosed the income at NIL which is verifiable from the income-tax return filed by the assessee and assessment thereon completed. Such fact may be verified from the income-tax return from the A.Y. 2001-02 onwards because wall was constructed in the F.Y. 2000-01 and accordingly it is incorrect to say that any depreciation u/s 32 of the Act has ever been allowed to the assessee. It is not clear under what impression the assessee’s counsel stated so, but the fact remains, as it is clear from the records also, neither any depreciation was claimed by the assessee in respect of the building (wall) nor has been allowed by the Income Tax Department u/s 32 of the Act. Therefore, merely because the ITAT has gained the impression on the basis of profit & loss account as maintained in accordance with the Company Law, the depreciation has been debited to the profit & loss account, that does not mean that depreciation has actually been allowed to the assessee. Section 50 of the Act contemplates only that depreciation, which has been actually allowed u/s 32 of the Act while computing the income in accordance with the provisions of the Income Tax Act and not otherwise.
The Ld. AR further submitted that in the instant case, no depreciation has been actually allowed to the assessee and hence the invocation of provision of Section 50 of the Act for the purpose of levy of the tax is not correct and in such circumstances the assessee cannot be branded to have concealed income/furnishing of inaccurate particulars. However, the fact remains as far as the particulars are concerned, it is on the basis of the particulars as provided by the assessee by way of filing of the copy of the sale deeds, all the disputes and inference has been made by various authorities. The Assessing Officer, on the basis of the particulars furnished by the assessee, has inferred in a different way though the CIT(A) has agreed with the assessee but the ITAT has given its finding on a different plank, which was not basically the issue before the ITAT as is clear even from the grounds of appeal filed by the Revenue before ITAT. Therefore, the Ld. AR further submitted that merely on account of the treatment of the capital gain as short term capital gain on the portion of the value of the building of the sale consideration instead of long term capital gain as claimed by the assessee does not amount to furnishing of inaccurate particulars because the particulars as furnished by the assessee remained the same. It is only the difference in inference as made by each authorities in a different manner. The Ld. AR relied upon the Hon’ble Apex Court decision in case of CIT vs. Reliance Petroproducts Pvt. Ltd. 323 ITR 158 (SC).
The Ld. DR relied upon the Penalty Order and the order of the CIT(A). The Ld. DR also relied upon the following decisions: i. UOI vs. Dharmendra Textile Processors 295 ITR 244 (SC) ii. R L Traders vs. ITO 2017-TIOL-2583-HC-DEL-IT iii CIT vs. Zoom Communication P. Ltd. 327 ITR 510 (Del) iv. CIT vs. Moser Baer India Ltd. 315 ITR 460 (SC) v. CIT vs. Gold Coin Health Food P. Ltd. 304 ITR 308 (SC) vi. MAK Data P. Ltd. CIT 358 ITR 593 (SC) vii. B. A. Balasubramaniam & Bros. Co. vs. CIT 236 ITR 977 (SC) viii. CIT vs. Escorts Finance Ltd. 328 ITR 44 (Del)
We have heard both the parties and perused all the relevant material available on the records. Since the Additional Grounds are legal in nature and can be taken at any stage, we are admitting the additional grounds filed by the Assessee. As regards the Additional Ground (i) relating to the time barring penalty order, it can be seen that the original assessment order was passed on 27.11.2008 and the penalty was initiated in the same order itself. But since the earlier Assessment was quashed by the Tribunal on 27.04.2012, the fresh Assessment Order was passed on 03.06.2013. Thereafter the penalty order which is challenged before us is passed on 28.10.2013. Thus, the penalty order is within the parameters prescribed by the provisions of the Income Tax Act, 1961, more specifically that of Section 275(1)(a) of the Income Tax Act. Thus, Additional Ground No. (i) is dismissed.
Additional Ground No. (ii) is relating to absence of specific charge pointing out in the notice. It is pertinent to note here that the penalty order is based on furnishing of inaccurate particulars but the notice is not specifying exactly on which limb the penalty u/s 271(1)(c) has been initiated. From the notice dated 30.06.2013 produced by the Ld. AR during the hearing, it can be seen that the Assessing Officer was not sure under which limb of provisions of Section 271 of the Income Tax Act, 1961, the assessee is liable for penalty. The issue is squarely covered by the decision of the Hon'ble Supreme Court in case of M/s SSA’ Emerald Meadows. The extract of the decision of the Hon’ble Karnataka High Court in M/s. SSA’ Emerald Meadows are as under which was confirmed by the Hon’ble Apex Court: “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.” Thus, Additional Ground No. (ii) of the assessee’s appeal is allowed. Since the inception of the notice issued u/s 271(1)(c) has become null and void, there is no need to comment on merit of the case. The Penalty u/s 271(1)(c) of the Act is quashed.
In result, appeal of the Assessee is allowed.
Order pronounced in the open court on 18.07.2018