M/S. CHAKRABARTY MEDICAL CENTRE,,PUNE vs. INCOME-TAX OFFICER,,

The assessee has raised the following grounds of appeal:- On facts and in law, 1] The learned CIT(A) erred in confirming the levy of penalty in respect of the addition made by the A.O. on account of sale of property by holding that the assessee had concealed its income by not offering the capital gain to tax on sale of the property.

The only issue raised in the present appeal is against penalty levied under section 271(1)(c) of the Act.

Briefly, in the facts of the case, for the year under consideration the assessee had furnished return of income showing loss of ₹ 6,480/-. The assessee was partnership firm and was carrying on medical profession. The return of income was processed under section 143(1) of the Act. Thereafter, the Assessing Officer recorded reasons for reopening the assessment and issued notice under section 148 of the Act. In response to the same, the assessee filed return of income showing original loss of ₹ 6,480/-. The case of assessee was picked up for scrutiny. Reasons recorded for reopening the assessment are reproduced under para 3 at page 2 of assessment order. The said reasons were communicated to the assessee. The Assessing Officer noted that the assessee had sold an immovable property during the year under consideration. The assessee was asked to file copy of sale deed executed on 15.11.2007 for consideration of ₹ 1.90 crores. The Assessing Officer noted that hospital building and land situated at Cantonment Excise Area on Nagar- Aurangabad Road, East facing and admeasuring 1171.93 sq.mtrs., which was known as ‘Chakraborty Medical Centre’, was sold on 15.11.2007 for consideration of ₹ 1.90 crores to Dreamz Investments. The Assessing Officer was of the view that short term capital gain arises on sale of said property which had not been shown in the original return of income filed and even in the

The CIT(A) upheld levy of penalty under section 271(1)(c) of the Act. However, the Assessing Officer was directed to re-work the amount of penalty after giving effect to the orders of Tribunal in assessee’s own case.

The assessee is in appeal against levy of penalty under section 271(1)(c) of the Act.

The learned Authorized Representative for the assessee took us through the factual aspects of the case and pointed out that the land was purchased in 1988 by the husband and his wife in their individual names and building was also constructed thereon. The partnership firm was formed later on 06.04.1992 wherein their son was also included as partner. He further stated that land and building was introduced in firm by way of journal entries and the property was shown in the Balance Sheet of assessee firm and depreciation was claimed. The legal title of property was in the name of husband and wife and in financial year 2007-08, the said land and building was transferred for sum of ₹ 1.90 crores. The long term capital gain arising on its sale was declared by husband and wife in their hands. However, the Assessing Officer held the said asset to be of partnership firm and the entire gain was worked out as short term capital gain in the hands of assessee firm. The Tribunal had confirmed the addition made by Assessing Officer. However, it had directed that the land was to be assessed as ‘Income from long term capital gain’ and exemption under section 54EC of the Act was directed to be allowed and further sale of building was to be assessed as short term capital gain in the hands of assessee firm. However, the Assessing Officer levied penalty under section 271(1)(c) of the Act on entire amount as being assessed as short term capital gain. The CIT(A) upholds the levy of penalty but directs the Assessing Officer to re-work the quantum of sum to be levied. The learned Authorized Representative for the assessee stressed that the assessee had made a bonafide claim which was not accepted and the issue at best is debatable issue. He pointed out that on similar facts, the Chennai Bench of Tribunal in Raja Fertilizers Vs. ITO (2013) 142 ITD 435 (Chennai-Trib), deleted the addition on long term capital gain

The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below.

We have heard the rival contentions and perused the record. The issue arising in the present appeal is against levy of penalty for concealment under section 271(1)(c) of the Act. The assessee before us is a partnership firm, which was constituted on 01.04.1992 consisting of Mr. M. Chakrabarty, his wife Dr. (Mrs.) Neela Chakrabarty and their son Dr. Sandeep Chakrabarty. The assessee was running hospital from the building. Both Dr. M. Chakrabrarty and Dr. (Mrs.) Neela Chakrabarty had originally purchased the land in their individual names and thereafter, constructed building also by utilizing their savings and taking loan. The land was registered in the names of two individuals and even the property tax and electricity bill was also in the names of individuals. However, the said land and building by way of journal entries were introduced in the partnership firm and depreciation was claimed on the said asset. The land and building were sold for consideration of ₹ 1.90 crores during financial year under consideration. However, the gain arising therefrom was declared as ‘Long term capital gain’ in the hands of husband and wife i.e. in the name of persons, in which it was registered. The said persons also claimed deduction on account of investment made in bonds. On the other hand, since the assessee had introduced the said asset in the partnership firm though by way of journal entries, but it was claiming depreciation on the said

The issue which arises in the present appeal is that where the assessee firm had not declared the income arising from gain on transfer of land and building in its hands while filing the return of income, can the assessee be held to be exigible to levy of penalty under section 271(1)(c) of the Act. The aforesaid penalty is leviable where the assessee has concealed its income or furnished inaccurate particulars of income. The Assessing Officer held the assessee to have concealed particulars of income making it liable for levy of penalty under section 271(1)(c) of the Act, which was confirmed by the CIT(A), against which the assessee is in appeal before us. On the other hand, plea of assessee before us is that it had made bonafide claim in the facts and circumstances of the case, wherein the property continued to be registered in the name of two individuals and even the property tax and electricity bills were in the name of two owners and the sale deed was also executed by the said persons and even the investment in bonds were made by them. In this regard,

The Chennai Bench of Tribunal on similar facts in Raja Fertilizers Vs. ITO (supra) noted that the assessee had purchased piece of land and purchase deed was registered in his personal name. However, the said asset was reflected in Balance Sheet of assessee firm and even the funds were withdrawn from assessee firm to finance purchase of said property; capital gain arising on sale of said property was offered by the partner as ‘Long term capital gain’ in his personal assessment and was not disclosed by the partnership firm. The Assessing Officer was of the view that since the property was owned by partnership firm, long term capital gain was to be taxed in the hands of firm. However, the Tribunal held that in the absence of any conveyance deed registered in the name of assessee firm, the said property could not be held to be owned by the partnership firm. The Tribunal was of the view that matters relating to acquiring and releasing right in immovable properties, etc. needed to be strictly construed in the light of Indian Registration Act and Transfer of Property Act. Hence, the addition made of long term capital gain in the income computation of partnership firm was deleted by the Tribunal. In such circumstances, it can safely be said that the issue raised in the present appeal of assessability of gain arising on sale of land and building, whether in the hands of registered owner or in the hands of partnership firm in whose Balance Sheet the said asset was introduced and depreciation was claimed from year to year, at best was a debatable issue. The claim of assessee firm of not being liable to pay capital gain on the gain arising from transfer of said asset was a bonafide claim made by the assessee, especially taking into consideration the

In the result, appeal of assessee is allowed.