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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI PRAMOD KUMAR & SHRI G. PAVAN KUMAR
आदेश /O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The assessee has filed appeal against the order of Commissioner of Income Tax (Appeals) -2, Coimbatore in dated 31.10.2014 passed u/s. 271(1)(c) and 250 of the Act.
:-2-: I.T.A. No. 118/Mds/2015
The grounds raised by the assessee are:
2.1 The Hon'ble Commissioner of Income Tax (Appeals) erred in upholding the action of the learned assessing officer who failed to appreciate that the appellant's case would not fall u/s. 271(1)(c) read with its explanation 1 on the facts and circumstances of the case.
2.2 The Hon'ble Commissioner of Income Tax (Appeals) erred in upholding the action of the learned assessing officer who failed to appreciate that where there was difference of opinion among the different High Court in making a claim, no penalty can be levied.
2.3 The Hon'ble Commissioner of Income Tax (Appeals) erred in not following the ratio laid down by Delhi High Court in the case of Jaswinder singh Ahuja (256 CTR 213), where the Delhi High Court has held that when the long term capital asset was treated in the course of assessment as short term capital asset, no penalty should be levied.
2.4 The Hon'ble Commissioner of Income Tax (Appeals) erred in not disposing the following grounds of appeal:
"The learned Assessing Officer failed to appreciate that the addition made as because the appellant was not able to provide any exceptional and unavoidable circumstances for making cash payments would, by itself, not amount to filing inaccurate particulars of income leading to levy of penalty."
:-3-: I.T.A. No. 118/Mds/2015
Brief facts of the case, the assessee is in the business of Real Estate and filed the Return of Income on 31.03.2012 disclosing total income of Rs. 18,00,131/- and the Return of income was proceed u/s. 143(1) of the Act.
Subsequently, the case was selected for scrutiny and notice u/s 143(2) of the Act was issued. In compliance to the notice, Ld. AR appeared from time to time and furnished the details and produced Books of Accounts for verification. The Assessing Officer examined the Books of accounts and verified documents and found that the assessee has claimed exemption u/s. 54F of the Act on sale of land. The said land was purchased by the assessee jointly with Shri V.T.
Kesavan in the financial year 2006-07 for the purpose of business and the assessee holds 60% share in land and has shown as "Stock in Trade" till assessment year 2009-2010. But in the said assessment year the assessee has converted land into Fixed Asset on 01.04.2009 and sold for a consideration of Rs. 1,82,15,000/- and the assessee's share has worked out to 1,09,35,000/- and the assessee claimed cost of purchase with indexation and worked out capital gains of Rs. 72,82,386/-.
The Assessing Officer on perusal of the details furnished found that the intention of the assessee was only to make profit from the Real Estate business and the purchase cost of land disclosed by the assessee is on Higher side and restricted the cost to Rs. 27,99,137/- further, the assessee has converted the land held as stock in trade into Fixed Asset during the financial year 2009-2010.
The assessee claimed deduction u/s. 54F of the Act, even though the period of :-4-: I.T.A. No. 118/Mds/2015 holding of land is less than 36 months and denied the exemption u/s. 54F of the Act. Considering the facts that the sale of land is less than 3 years and Ld. AO disallowed Rs. 81,29,863/- towards assessee's share. Further, the Ld. AO examined that the assessee has purchased lands and disclosed as stock in Trade and cash payments of Rs. 13,55,500/-, were made in excess of Rs. 20,000/- in violation of provisions of section 40A(3) of the Act and disallowed the sum and passed order u/s. 143(3) of the Act dated 24.12.2012. Subsequently, the Ld. AO initiated penalty u/s. 271(1)(c) of the Act and is of the opinion that the explanations 1(A) of sub section (1) of section 271(1) is applicable to the assessee. In penalty proceedings, the Ld. AR of the assessee filed detailed reply to show cause notice and explained that the assessee has sold land and net consideration is invested in construction of Residential house and claimed exemption u/s. 54F of the Act. The lands were purchased from the agriculturalist/farmers who does not have Bank accounts and through cash payments, hence the provisions of section 40(A)(3) are not violated and the assessee has co-operated in assessment proceedings and to purchase peace with the Income Tax Department and to avoid vexatious litigation has accepted the additions and relied on the judicial decisions. The Ld. AO considered the findings of assessment and the submissions filed in penalty proceedings has distinguished the judicial decision relied by the assessee in the case of CIT Vs. Jaswinder Singh Ahuja (2013) 259 CTR (Del) 213 and the Apex Court decision and is of the opinion that the assessee has furnished inaccurate particulars of sale consideration of the property and converted the stock in trade into Fixed Asset to :-5-: I.T.A. No. 118/Mds/2015 claim of exemption u/s. 54F of the Act in accordance with law and levied the minimum penalty on the disallowances u/s. 54F and 40A(3) of the Act and passed the order u/s. 271(1)(c) of the Act dated 28.06.2013.
Aggrieved by the order of penalty order, assessee filed an appeal with the CIT(A). The Ld. AR of the assessee argued the grounds and reiterated the submissions made in the assessment proceedings and penalty proceedings and contested the levy of penalty. The Ld. AR emphasized on the conversion of stock in trade of land in to fixed asset and sold the land and claimed exemption u/s. 54F of the Act. The Ld. CIT(A) has considered the assessee's submissions at page 4 and 5 of his order and observed that the assessee has constructed residential house and claimed exemption u/s. 54F and the Ld. AR filed details of purchase of lands during the financial year which Assessing Officer considered as violation of provisions of section 40A(3) of the Act. The Ld. CIT(A) considered the findings of the Ld. AO and assessee submission is of the firm view that the assessee has made elaborate tax planning to show short term capital gains as long term capital gains and relied on the Apex Court decisions and provisions of section 271(1)(c) and explanation (1) of the Act is of the opinion that the assessee has made a false claim under section 54F of the Act, irrespective of the fact that the assessee has not contested the additions in Assessment Order before Higher authorities and to obtain peace with the department accepted the same and confirmed the levy of penalty u/s. 271(1)(c) of the Act.
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Aggrieved by the order, the assessee filed an appeal before the Tribunal. Before us the Ld. AR argued that the Ld. CIT(A) erred in applying the explanation (1) of section 271(1)(c) of the Act which are not applicable to the assessee and confirming the action of Assessing Officer in distinguishing the judicial decisions where similar issues were on long term capital gains being treated as short term capital gains in assessment proceedings and penalty cannot be levied. The CIT(A) has not disposed off the ground of addition u/s. 40A(3) of the Act raised by the assessee and confirmed the penalty. The Ld. AR Shri T.
Banusekhar, CA supported his submissions with the judicial decisions of M/s.
Kalyani Export Investment Limited Vs. DCIT, 73 ITD 95 (Pune) on the conversion of stock in trade to fixed asset and Anupama Tele Services Vs ITO(2014), 143 Taxman.com 199, (Gujarat) and Saraswathi Housing & Developers Vs. ACIT, 142 ITD 198 (Del) and filed Tribunal decisions. Further filed paper book with evidences on the disputed issues and affidavit of the assessee under Rule 10 of the ITAT Rule 1963 on details of payments in cash u/s. 40A(3) of the Act and emphasized that assessee accepted the additions made by the Assessing Officer only to buy peace with the Department and the provisions applied by the Assessing Officer on levy of penalty is not in accordance with law and prayed for allowing the appeal. The Ld. DR of the Revenue relied on the order of the CIT(A) and findings of Assessing Officer and opposed the grounds.
We heard the rival submissions, perused the material on record and judicial decisions. The Ld. AR argued that the levy of penalty based on :-7-: I.T.A. No. 118/Mds/2015 explanation (1) of section 271(1)(c) of the Act cannot be sustained as there is no furnishing of any inaccurate particulars and nor concealment of income and we find the assessee has purchased the land in the year 2006 jointly with other co- owners. The assessee holding 60% share in land has declared it as stock in trade and on 01.04.2009 the assessee converted the land into fixed asset and claimed the exemption u/s. 54F of the Act on investment of sale proceeds of land. The facts discloses that the Ld. AO has denied the claim and treated the capital gain as short term and the assessee has not disputed the disallowance and accepted. In the penalty proceedings the assessee furnished explanations that he has not furnished any inaccurate particulars or concealed income but disclosed capital gains on land as long term and claimed exemption u/s. 54F of the Act. The Assessing Officer has not disputed the genuineness of the transaction of land except the period of holding of asset. The Ld. AR drew our attention to Supreme Court decision of K.C. Builders Vs CIT 265 ITR 562 (SC) where same figures have been disclosed, by itself if takes out the case from the purview of non-disallowance. It cannot be said that the assessee has furnished inaccurate particulars and there is no bonafide evidence of the Revenue to show that the intention of the assessee is to avoid payment of tax on income on additions and cannot be considered for levy of penalty.
Further, the Ld. AR explained that the assessee has furnished the information in the assessment proceedings on sale, purchase and claiming of exemption on land and there is no comment/findings of the Assessing Officer
:-8-: I.T.A. No. 118/Mds/2015 that assessee has not disclosed information or filed inaccurate particulars and the explanations of the assessee are not satisfactory. The assessee accepted the Additions to buy peace with the department and the information submitted in the assessment proceedings by the assessee cannot be considered as Inaccurate particulars. Considering these facts and circumstances of judicial decisions we are of the opinion that the conversion of stock in trade in to the capital asset by the assessee and the Assessing Officer having taxed the sale transaction as the short term capital gains and accepted by the assessee cannot be a valid reason for levy of penalty u/s. 271(1)(c) of the Act and we rely on the decision of Price Waterhouse Cooper Ltd Vs CIT, 348 ITR 306 (SC), wherein, it held that the imposition of penalty would be unwarranted in the case the where assessee has committed an inadvertent and bonafide error and we takes support from Hon'ble Supreme Court decision of CIT Vs Reliance Petro Products, 322 ITR 158(SC) where it was held that merely because the assessee claimed deduction, not accepted by the AO, penalty u/s. 271(1)(c) not allowed. In the present case, the assessee has furnished the particulars and there is no Bonafide mistake in disclosure of capital gains. Hence, the penalty cannot be levied. The Assessing Officer also levied penalty on the addition made u/s. 40A(3) of the Act. The Ld. AR submitted that the Ld. CIT(A) has not dealt the ground on the levy of penalty on additions u/s. 40A(3) of the Act and was not disposed off and the assessee filed petition u/s. 154 of the Act and same is pending before the CIT(A). We are of the opinion, that since we took the positive view on the penalty levied on Addition of short term capital gains is as not leviable we dispose off the ground :-9-: I.T.A. No. 118/Mds/2015 raised before us, even though CIT(A) has not given any comments or findings in his order.
We find the assessee is in the Real Estate business and purchased the land from agriculturalist and disclosed as stock in trade and the cash payments were made in excess of more than Rs. 20,000/- and Ld. AR supported the facts with paper book on cash payments at page 5 to 8 and the assessee has accepted disallowance u/s. 40A(3) of the Act only to buy peace. The contention of the Ld. AR that the difference of total cash payment is Rs. 13,55,500/- which was made to purchase the land from agriculturalist who do not have any bank account and resident in villages. The Ld. AR further substantiated that the observations of the Assessing Officer that the assessee has not submitted any evidence or material for making payments is incorrect and demonstrated with the letters dated 19.12.2012 and 20.12.2012 filed in assessment proceedings and confirmed by affidavit with evidence as per Rule 10 of the ITAT Rules, 1963. We are of the opinion that the provisions of section 40A(3) cannot restrict the business of the assessee. The exception under rule 6DD must be interpreted liberally. The Assessing Officer has not disputed the genuineness of the payment to Agriculturalist and the assessee has explained various circumstances of payments and relied on decision of Hon'ble High Court in the case of Anupam Tele Services Vs ITO (2014), 143 Taxman.com 199, (Gujarat) and Attar Singh Gurmukh Singh, ITO 191 ITR 667 (SC). We on perusal of the submissions/evidence in the paper book are of the opinion that the assessee has :-10-: I.T.A. No. 118/Mds/2015 filed details on cash payment of more than 20,000/- before the Assessing Officer and has not furnished any inaccurate particulars and we support our view relying on judicial decisions that disallowance u/s. 40A(3) of the Act cannot be basis for levy of penalty. The disallowance/additions by the AO cannot be a gateway for levy of penalty and we also relying on the decision of High Court of CIT Vs Manjunatha, 359 ITR 565 (Karnataka) and direct the Assessing Officer to delete the penalty and allow the grounds in favour of the assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced on Thursday, the 29th day of December, 2016 at Chennai.