SAJEETHA BANU,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the Order dated 04.04.2016 of Commissioner of Income Tax (Appeals)-5, Chennai, in for the AY 2011-12.

ITA No.1946/Mds/2016 :- 2 -:

2.0 All the grounds of the appeal are related to the levy of penalty u/s.271(1)(c) of Income Tax Act (in short ‘the Act’) for the AY 2011-12.

The assessee filed return of income declaring total income of Rs.25,47,900/-. The assessment was completed on total income of Rs.36,72,463/-. In the assessment proceedings, the Assessing Officer (in short ‘AO’) made the following addition to the returned income.

(i) Long term capital gains on sale of land claimed as agricultural land Rs.1,86,605/-. (ii) Addition on account of unproved agricultural income of Rs.5.00 lakhs (iii) Addition on account of undisclosed amount Rs.3,63,379/-.

3.0 The AO also initiated penalty u/s.271(1)(c). During the penalty proceedings, the AO issued show cause notice to the assessee and the assessee has filed the reply. Not being satisfied with the explanation offered by the assessee, the AO imposed penalty of Rs.2,69,792/- u/s.271(1)(c) of the Act.

4.0 Aggrieved by the order of the AO, the assessee went on appeal before the Commissioner of Income Tax(Appeals) and the Ld.CIT(A) confirmed the penalty levied by the AO. Therefore, the assessee is in appeal before this Tribunal.

5.0 Appearing for the assessee, Learned Authorized Representative (in short ‘Ld.AR’) made two fold arguments. Firstly, LD.A.R. raised the ITA No.1946/Mds/2016 :- 3 -: defects in issue notice u/s.271(1)(c). The Ld.AR argued that in the notice issued by the AO u/s.271(1)(c) has not struck off the irrelevant columns giving the ambiguity for which reasons the penalty was initiated i.e. whether for furnishing inaccurate particulars or for concealment of income.

The assessee relied on the decision of The Hon’ble Karnataka High Court in Commissioner of Income-tax.v.Manjunatha Cotton & Ginning Factory, reported in [2013] 35 taxmann.com 250 (Karnataka) and case of M/s.SSA’S Emerald Meadows v. CIT in dated 23.11.2015 wherein the Hon’ble High Court held that the failure to intimate the nature of offence in the penalty notice u/s.271(1)(c) makes the order passed u/s 274 r..w.s 271 makes the order invalid.

5.1 Secondly, the Ld.AR argued that on merits of the case also. On merits, the first addition made on account of long term capital gains on sale of agricultural lands. The assessee sold agricultural lands and claimed the capital gains as exempt being agricultural lands are not capital assets. The assessee also invested a sum of Rs.3,63,42,100/- in capital gains bonds. The assessee has sold agricultural lands for a consideration of Rs.3,63,42,100/- and the entire sale proceeds were invested in capital gains bonds. The AO held that agricultural land in question were capital assets and proposed to invoke Sec.50C of the Act. The Stamp Valuation Authorities made the valuation for the purpose of registration at Rs.7,08,93,000/- and the AO proposed to adopt Sec.50C of I.T. Act. The ITA No.1946/Mds/2016 :- 4 -: assessee objected for adopting the 50C value for Income Tax, hence the A.O. referred the valuation to the District Valuation Officer who valued the fair market value of the property at Rs.3,73,59,000/-. Accordingly, the A.O. brought the difference amount of Rs.1,86,605/- to tax. The Ld.AR contended that the difference in long term capital gains was on account of estimation made by the DVO and it was neither concealment of income nor furnishing of inaccurate particulars. The entire information is placed before the AO and accordingly, pleaded that penalty u/s.271(1)(c) is not attracted on this issue.

5.2 The next addition made by the AO was unproved agricultural income of Rs.5.00 lakhs.

During the assessment proceedings, the assessee admitted agricultural income of Rs.7,88,010/-. The AO has called for the details and the assessee furnished partial details but complete evidence was not furnished. Therefore, the AO estimated the agricultural income at Rs.2,88,010/- and the balances amount of Rs.5.00 lakhs was added to the returned income. The Ld.AR submitted that the assessee is owning agricultural land of 11.83 acres and the family has minor beneficial Trust by name Amun Batcha Education Trust and the said minor Trust is having agricultural land of 36.66 acres and the income of the minor Trust is clubbed with the assessee u/s.64(1) of the Act and the AO has made pure estimation without any scientific basis or the evidence and the assessee has not gone on appeal only with an intention to purchase peace. Since

ITA No.1946/Mds/2016 :- 5 -: the income is made on estimation basis, no penalty is attracted and requested to cancel the penalty.

5.3 The third addition made by the AO was in relation to deposits in undisclosed bank account:

The assessee was having Savings Bank Account with Punjab National Bank with closing balance of Rs.3,63,378/- as on 31.03.2011.

The said bank account was not disclosed to the Department and there was an outstanding balance of Rs.3,63,378/- as on 31.03.2011. During the assessment proceedings, the assessee explained that the source was rent advance of Rs.3.00 lakhs received from the tenant but no evidence was furnished. Since no evidence was furnished and the bank account was not disclosed, the AO made the addition and imposed penalty u/s.271(1)(c).

The Ld.AR argued that the source was rent advance received from the tenant and admitted that the bank account was not disclosed in the return by mistake and there was no intention to conceal the income and requested to cancel the penalty imposed by the A.O.

6.0 We heard the rival submissions and perused the material placed before us.

7.0 Firstly, the Ld.AR argued the case on technical grounds stating that the penalty notice issued u/s.271(1)(c) was invalid since the assessee was not put on notice for which offence, penalty is initiated and assessee required to explain. The AO has not struck off the irrelevant column in the penalty notice thereby causing confusions in the mind of the assessee for ITA No.1946/Mds/2016 :- 6 -: which limb of the provisions penalty u/s.271(1)(c) of the Act was initiated.

The assessee relied on the decision of M/s.SSA’S Emerald Meadows v. CIT & Anr. in dated 23.11.2015 (cited supra) and The Hon’ble Karnataka High Court in the case of Manjunatha Cotton Jinning Mills reported in 359 ITR 565.

We have gone through the objections raised by the Ld.AR and the decision relied upon by the assessee, and lower authorities orders. The penalty notice u/s.271(1)(c) was issued on 27.03.2014 along with the Assessment Order. In the Assessment Order, the AO clearly mentioned that the penalty has been initiated for concealment of particulars of income and for furnishing of inaccurate particulars of income. Since the AO has initiated penalty for furnishing of inaccurate particulars of income as well as for concealment of income which is evident from the Assessment Order, the AO has rightly issued notice for both the limbs of provisions u/s.271(1)(c). Therefore, the decision relied upon by the assessee are not applicable in the assessee’s case and we uphold the issue of notice u/s.271(1)(c) and assessee’s arguments on this issue does not hold any merit accordingly, rejected.

8.0 The next issue is levy of penalty on estimated income of long term capital gains on sale of agricultural land. As per the Assessment Order, the difference was on account of estimation of the fair market value by the DVO and the sale proceeds received by the assessee. There was no suppression of sale consideration and the entire sale proceeds relating to the capital gains were invested in capital gain bonds. Since the entire sale

ITA No.1946/Mds/2016 :- 7 -: proceeds were invested in capital gains bonds and the difference was on account of estimation between the DVO and the actual sale consideration, we hold that there is no case for imposition of penalty u/s.271(1)(c) and the same is cancelled. The order of the lower authorities on imposition of penalty on sale of agricultural land is set-aside.

8.1 The second issue for imposition of penalty was estimation of agricultural income.

The assessee was having agricultural lands to the extent of 11.83 acres and the minor Trust whose income was clubbed u/s.64(1) was having 33.36 acres of agricultural land. The total agricultural land works out around 48 acres. The assessee admitted agricultural income of Rs.7,88,000/- and the AO has restricted it to Rs.2,88,010/- on estimation basis. From the perusal of the Assessment Order, it is observed that the AO has made pure estimation without any scientific basis. The AO has not established that the assessee has concealed the incomeor furnished the inaccurate particulars. Therefore, we cancel the penalty imposed by the AO set aside the orders of the lower authorities on this issue.

8.2 The third addition made by the AO was the addition on account of undisclosed bank account.

The assessee was having balance as on 31.03.2011 a sum of Rs.3,63,078/- in Punjab National Bank in SB A/c No.692/- (Page No.59).

The said account was not disclosed by the assessee in the return of income. During the course of assessment proceedings, it has come to the notice of the AO regarding the outstanding balance in the bank accounts

ITA No.1946/Mds/2016 :- 8 -: and its non-disclosure. The assessee tried to explain the sources as rent advance received from tenants for letting out the Godown land and building at Alamathi Village but no evidence has been furnished by the assessee. The assessee has not gone on appeal and the addition has become final. The AO imposed penalty and the Ld.CIT(A) confirmed the penalty. The Ld.AR admitted that non-disclosure of account was a mistake and no evidence was produced in support of letting out the premises for godown during relevant period. Therefore, the AO has rightly made the addition and levied penalty and the Ld.CIT(A) confirmed the penalty. This is a clear case of concealment of income and we uphold the order of the Ld.CIT(A)

In the result, the appeal of the assessee is partly allowed.