ACIT, NEW DELHI vs. M/S PURI CONSTRUCTION LTD.,, NEW DELHI

This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals)-III against deleting penalty of Rs. 36,85,892/- u/s 271(1)(c) of the Act vide his order dated 2nd June, 2009.

The brief facts of the case are that the assessee, company field its return of income on 31st October, 2005 declaring total income of Rs. 1,47,02,126/-. In the assessment addition of Rs. 1,13,27,415/- was made on account of capital gain with respect to some shops which were revalued in the F.Y. 1996-97. These shops were further transferred into stock in trade in assessment year ACIT V Puri Constructions Limited A Y 2005-06 1999-2000, some of the shops were sold in assessment year 2004-05, and the remaining shops, which were not sold, were not reflected in the balance sheet of the assessee. On inquiry, it was admitted by the assessee that these shops were taken over by the society for a consideration of at least Rs. 36 lacs. The original cost of these assets were Rs. 25,62,798/- and which were revalued for Rs. 1,48,00,550/- and reserve of Rs. 1,22,37,752/- was created. According to the provisions of section 45(2) the assessee was required to disclose capital gain on these shops. As per provision of section 45(2) according to the Ld. AO assessee is liable to pay capital gain tax at the time of transfer of these shops on difference between fair market value as on the date of conversion of the assets and against cost of acquisition at the time of transfer of assets into stock in trade. The assessee has not disclosed this income chargeable to tax. As assesses has not disclosed the same Ld. AO computed capital gain taking fair market value of the assets at Rs. 1,48,00,550/- and granted index cost of acquisition of this shop taking the cost of acquisition at Rs. 25,62,798/- to Rs. 34,73,135/- and computed the long term capital gain of Rs. 1,13,27,415/-. On this addition, Ld. AO initiated penalty u/s 271(1) (c) of the act. During the course of penalty proceedings assessee submitted later dated 22nd of August 2007 as well as 17/09/2007 wherein it was stated that the assessee had filed the revised written before finalisation of assessment proceedings and has paid the due tax thereon to purchase peace with the Department and to avoid litigation. Therefore it was the submission of the assessee that it has not concealed any income or furnished ITA No. 3554/De/09 ACIT V Puri Constructions Limited A Y 2005-06 any accurate particulars of its income and therefore the penalty may not be levied. Vide letter dated 17/09/2007 once again the assessee submitted that that there was no concealment detected in the case by the assessing officer but the return was revised to avoid unnecessary litigation. It was further submitted that a specific condition has been mentioned in the letter accompanying the return that no penalty proceedings may be initiated therefore the penalty may not be levied. However the Ld. assessing officer rejected all the contentions of the assessee and levied a penalty of Rs. 36,85,892/- . Against this assessee preferred an appeal before the Ld. CIT (A) who in turn held that in fact there is no income but there is a trading loss arising into the hands of the assessee. He further held that though in the year under consideration the appellant had not declared any income yet in the subsequent year that is assessment year 2006-2007 by furnishing return of income on 30 of November 2006 the appellant had credited the prior period income representing the reversal of revaluation reserve of Rs. 1.22 crores. This amount was offered for taxation for assessment year 2006- 2007. Therefore he was of the view that the assessee has already disclosed this income in the computation of total income for assessment year 2006 -2007. According to him this shows the bona fides of the appellant and there was no intention of concealing the income on transfer of the shop. The Ld. CIT (A) further relied upon the decision of the Hon’ble Gujarat High Court in CIT v Mani Lal Tara Chand 254 ITR 630 (GUJ) and held that where there is a dispute about the year of assessment of income, penalty will not be imposable because the ACIT V Puri Constructions Limited A Y 2005-06 assessee has offered income in a different year. Therefore after considering the totality of the facts and the law Ld. CIT (A) deleted the penalty. Against this order of the Ld. CIT (A) revenue is in appeal before us

Ld. DR submitted that the order of ITAT in case of the assessee for assessment year 2004- 2005 has clearly laid down the facts of the case about the taxation of the shops where in para No. 2 it has been stated that there is a revaluation reserve and the provisions of section 45 (2) is applicable. Therefore it is not the case of the oversight but it is clearly the case of concealment of income. It was further submitted that the written was revised by the assessee during the course of assessment proceedings when the detection of chargeability of capital gain was made known by the Ld. AO . Therefore it was submitted that it is not the case of bona fides but violation of the law and merely because the assessee has surrendered the income with the condition it cannot lead to a situation that no penalty should be levied. Further LD DR vehemently stated that revision in the return of income has been done after the assessee was confronted with the issue and there is no dispute of income subject to taxation in which year therefore the reliance by the Ld. CIT(A) in deleting the penalty on the decision of the Hon’ble Gujarat High Court is erroneous. Therefore it was submitted that the Ld. AO has rightly levied the penalty and Ld. CIT (A) has erred in deleting the penalty.

Ld. AR submitted that additions were on account of the capital gain under section 45 (2) of the Act and the business income was apparent. Further he submitted that that the company had shops valuing Rs. 1.48 crores out of 4 ACIT V Puri Constructions Limited A Y 2005-06 which 1.22 crores is on account of revaluation reserve. These shops were taken over by a society on non-payment of dues of Rs. 36 Lacs . These shops were not taken as closing stock as they were taken by the Society and therefore mistakenly income on account of revaluation reserve has not been offered under section 45 (2) of the Income Tax Act. He further submitted that the facts of the issue were already disclosed in the order of the appellate tribunal for assessment year 2004 – 05 in ITA No. 3526/DEL/2007 dated 16/05/2008 therefore the facts were already disclosed to the AO. He further referred to the page No. 10 of the order of the Ld. Commissioner of Income Tax (A) is that there was a bonafide belief of the appellant and there was no intention of concealing the income on transfer of the shops. He further referred to the notice under section 142 (1) dated 19/02/2007 along with the detailed questionnaire and submitted that there was no detection in that letter of the amount involved and before that assessee has already disclosed this amount by filing revised computation of total income. Therefore, his argument was that that the disclosure is before the detection by the assessing officer. In view of above arguments he vehemently supported the order of the Ld. Commissioner of Income Tax (A) and submitted that the penalty under section 271(1) (c ) may not be levied and the order of Ld CIT (A) may be upheld.

We have carefully considered the rival contentions and also perused the orders of the lower authorities in penalty proceedings as well as the order of the Ld. assessing officer under section 143 (3) of the Income Tax Act 1961. On 5 ACIT V Puri Constructions Limited A Y 2005-06 perusal of the assessment order it is apparent that the assessee did not disclose in its original return of income capital gain chargeable to income tax under section 45 (2) of Rs. 1,13,27,415/-. During the course of assessment proceedings the assessee submitted vide letter dated 20/03/2007 surrendering a sum of Rs. 11327415/- on the condition that penalty or prosecution proceedings may not be launched against the company and promised to deposit the additional tax within 15 days. Based on this the Ld. assessing officer completed the assessment on 26th of March 2007 determining total income of the assessee at Rs. 1132 7415/-. As the assessee has not filed any appeal before the Ld. Commissioner of Income Tax (A) against the assessment order, vide order dated 24/09/2007 Ld. AO levied penalty under section 271 (1) (C) of Rs. 3685892/-. On appeal before Ld. CIT (A) the penalty was deleted. The Ld. CIT (A) has deleted the penalty after considering various arguments raised by the assessee before him. However on reading the penalty order under section 271 (1) (c) passed by the Ld. assessing officer we do not find that such arguments were ever raised before the Ld. AO. It is also not possible to decipher from the order of the Ld. CIT (A) that how he has come to the conclusion that in subsequent year this income was offered for taxation. The conclusion arrived by the Ld. CIT (A) that once appellant had shown income in the subsequent year despite no such income shown in the year under consideration leads to the bonafide belief of the appellant of not having any intention of concealing the income on transfer of the shop. The Ld. AO did not have any advantage of the above arguments/ ITA No. 3554/De/09 ACIT V Puri Constructions Limited A Y 2005-06 information in the penalty proceedings as nothing was specifically stated before him by the assesse. Further the reliance by Ld. CIT (A) on the decision of the Hon Gujarat High Court for deleting the penalty taking a view that in case of dispute about the taxability of the assessment year about an income penalty cannot be levied was also not raised before the assessing officer and CIT (A) has also not stated that how there was a dispute on year of taxation on capital gain arising u/s 45(2) of the act. While deciding the appeal, ld. CIT (A) has also not sought remand report from the assessing officer on various contentions raised by the assessee before deciding the issue. Therefore in our view, Ld. CIT (A) has deleted the penalty on the arguments advanced by the assesesse, which were not raised before the assessing officer. Hence, in the interest of Justice we set aside the whole issue of the penalty before the assessing officer with a direction to decide the issue afresh after considering all the arguments raised by the assessee. We also held that that the assessee is further entitled to raise any new/ fresh arguments as the penalty proceedings are separate and independent proceedings then the assessment proceedings and the Ld. AO may decide the issue on merit. In view of this, we allow ground No. 1 of the appeal of the revenue.

In the result, appeal filed by the revenue is allowed for statistical purposes.