C.ELANGO,TIRUPPUR vs. ACIT, TIRUPPUR

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 ITA No. 148/2013-14 dated 31.10.2014 passed u/s. 271(1)(c) and 250 of the Act.

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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."

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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/-.

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

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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

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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.

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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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.

judicial decisions. The Ld. AR argued that the levy of penalty based on

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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.

information in the assessment proceedings on sale, purchase and claiming of

exemption on land and there is no comment/findings of the Assessing Officer

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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

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raised before us, even though CIT(A) has not given any comments or findings in

his order.

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

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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.

Order pronounced on Thursday, the 29th day of December, 2016 at Chennai.

Sd/- Sd/- (�मोद कुमार) (जी. पवन कुमार) (PRAMOD KUMAR) (G. PAVAN KUMAR) लेखा सद!य /ACCOUNTANT MEMBER $या�यक सद!य/JUDICIAL MEMBER

चे�नई/Chennai, /दनांक/Dated: 29th December, 2016 JPV आदेश क' �#त1ल2प अ3े2षत/Copy to: 1. अपीलाथ&/Appellant 2. �*यथ&/Respondent 3. आयकर आयु4त (अपील)/CIT(A) 4. आयकर आयु4त/CIT 5. 2वभागीय �#त#न�ध/DR 6. गाड7 फाईल/GF.