SHAKIL HAMID SHEIKH,NAVI MUMBAI vs. ACIT 22(3), MUMBAI

आयकर अपील"य अ"धकरण “E” "यायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 6775/Mum/2013 ("नधा"रण वष" / Assessment Year : 2008-09) Shri Shakil Hamid Sheikh, Asstt. Commissioner of बनाम/ Survey No. 183, Income Tax – 22(3), v. Kukshet, Mumbai. Opp. HPCL, MIDC, Navi Mumbai – 400 703. "थायी लेखा सं./PAN : ABQPS2677G .. (अपीलाथ" /Appellant) (""यथ" / Respondent)

Assessee by Shri Rahul Hakani Revenue by : Ms. Pooja Swaroop, D.R.

सुनवाई क" तार"ख /Date of Hearing : 24-08-2016 घोषणा क" तार"ख /Date of Pronouncement : 17-11-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee, being ITA No. 6775/Mum/2013, is directed against the appellate order dated 2nd September, 2013 passed by learned Commissioner of Income Tax (Appeals)- 33, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 22.06.2011 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income Tax Act,1961 (Hereinafter called “the Act”).

ITA 6775/Mum/2013 2

“Penalty u/s. 271(1)(c) of the Act. 1. The learned CIT(A) erred in upholding the order of A.O. levying penalty u/s.271(1)(c) of the Act of Rs4,50,368/- on addition u/s. 50C of Rs.13,25,000/- being difference between stamp duty value and agreement value without appreciating that Assessee has neither concealed any income nor furnished inaccurate particulars of income as Assessee had made all bona fide disclosures during Assessment proceedings, Assessee was under the bonafide impression that land considered as sold was agricultural land and Capital Gains from sale of Agricultural Land was exempt and Assessee is regularly paying Income Tax and therefore penalty u/s. 271(1)(c) of Rs. 4,50,368/- may be deleted. 2. The learned CIT(A) erred in upholding the order of A.O. levying penalty u/s. 271(1)(c) of the Act of Rs. 4,50,368/- on addition u/s. 50C of Rs.13,25,000/- being difference between stamp duty value and agreement value without appreciating that Sec. 50C is a deeming provision and addition u/s. 50C does not amount to concealment of income or furnishing inaccurate particulars of income and hence penalty u/s. 271(1)(c) of Rs. 4,50,368/- may be deleted. “

ITA 6775/Mum/2013 3

lacs during the impugned assessment year which was utilized by the assessee for purchase of land at Baramati. The assessee had not disclosed short term capital gain earned on the sale of the land in the return of income filed with the Revenue and when asked the assessee submitted that the capital gain earned was not disclosed in the return of income under the belief that the same was not leviable on agricultural land and he would get benefit of section 54B of the Act.

The sale consideration of the said land sold during the year was Rs. 31.20 lacs while the stamp duty valuation as adopted by registering authority was Rs. 1.398 crores and matter was also referred to the DVO by the AO u/s 50C(2) of the Act , and the DVO valued the fair market value of land at Rs. 35.75 lacs u/s 50C(2) of the Act. Thus, the value as determined by DVO was lower than the value adopted by stamp duly valuation authorities for the said land, the value as determined by the DVO of Rs. 35.75 lacs was adopted by the AO as full value of consideration for computing capital gain chargeable to tax under the Act while framing quantum assessment u/s 143(3) of the Act.

The Penalty proceedings u/s. 271(1)(c) of the Act were initiated by the AO against the assessee. During the course of penalty proceedings u/s 271(1)(c) of the Act, the assessee submitted that he sold the land for Rs. 31.20 lacs for which the fair market valuation was computed by the DVO at Rs. 35.75 lacs which was adopted as full value of consideration by the AO for computing capital gains chargeable to tax, which was not received by the assessee and the difference of Rs. 4.55 lacs was an unrealized consideration. The assessee submitted that the difference of Rs. 4.55 lacs was added to the income of the assessee by the AO in quantum assessment proceedings u/s 143(3) of the Act which was not accepted by the assessee. The assessee submitted there were no concealment of income or inaccurate particulars furnished by the assessee. It was submitted by the assessee that all the details were submitted

ITA 6775/Mum/2013 4

by the assessee before the Revenue explaining the reasons for selling the land for Rs. 31.20 lacs.

The A.O. rejected the contention of the assessee whereby it was observed that the assessee has not contested the basic fact with respect to the non- disclosure of capital gains earned on sale of land. It was observed by the AO that if the case of the assessee would not have been selected for scrutiny then the capital gains which were not disclosed by the assessee in the return of income filed with Revenue would not have been detected. The contention of the assessee during the assessment proceedings that he was under the belief that tax is not leviable on agricultural land and hence he did not disclose the said capital gains in the return of income filed with the Revenue can also be not accepted as there is a column in the return of income under which exempt income is required to be disclosed. The assessee failed to disclose such exempt income in the original return of income filed on 29/09/2008 nor the same was disclosed in the revised return of income filed on 06/12/2010. The A.O. observed that the assessee not only concealed the particulars of income in respect to the capital gains earned but has also failed to offer an explanation showing reasonable cause in terms of Section 273B of the Act , hence, penalty u/s 271(1)(c) of the Act is leviable in the case of the assessee and accordingly penalty of Rs. 4,50,363/- was levied by the AO u/s 271(1)(c) of the Act , being 100% of the tax sought to be evaded by the assessee, vide penalty order dated 22-06-2011 passed by the AO u/s 271(1)(c) of the Act

ITA 6775/Mum/2013 5

submitted that difference between value as determined by DVO of Rs. 35.75 lacs and the actual sale consideration of Rs. 31.20 lacs, being Rs. 4.55 lacs was added to the income of the assessee by the AO which was never realized by the assessee. The assessee submitted that the land is agricultural land, it is exempted from capital gain tax u/s 54-B of the Act. It was submitted that the land sold and purchased by the assessee were situated under Grampanchayat area and the land was cultivated regularly by the assessee himself being farmer and agricultural income was disclosed regularly. It was submitted that since the land sold and purchased was purely agricultural land and the profit earned was reinvested in purchase of agricultural land at Rs. 39 lacs, there was no question of capital gains been chargeable to tax. It was submitted that these facts were never taken into consideration by the AO.

The ld. CIT(A) considered the submissions of the assessee whereby it was observed by learned CIT(A) that the assessee did not disclose the transaction of purchase and sale of land and the capital gains earned thereon in the return of income filed with the Revenue. It was observed by the learned CIT(A) that even though the said income was exempt, still it was the duty of the assessee to show such exempt income in the return of income filed with the Revenue. The assessee did not include the particulars of capital gains in the original return of income as well as in the revised return of income filed with the Revenue, hence, penalty u/s 271(1)(c) of the Act is leviable as the assessee has concealed the particulars of income relating to capital gains earned by the assessee even till assessment was framed by the AO. The ld. CIT(A) observed that the assessee sold the land for a consideration of Rs.31,20,000/- on 15.02.2008 , and stamp duty valuation adopted by registering authorities was at Rs. l,39,80,000/-. However, the DVO valued the property at Rs.35,75,000/-. Thus, it is clear that the assessee has earned capital gain against this transaction which was not disclosed in the original

ITA 6775/Mum/2013 6

return as well as revised return of income filed with the Revenue , despite the transaction of having earned capital gains being in the knowledge of the assessee but still it was not disclosed in the return of income filed with the Revenue. The learned CIT(A) rejected the contentions of the assessee that the assessee failed to disclose the capital gains by omission or oversight or that it was bonafide mistake or technical or venial breach of the law. The contention of the assessee that it was an agricultural land and hence exempt from capital gains under section 54B of the Act or that the assessee reinvested the profit earned in another agricultural land was not accepted by the ld. CIT(A) as the assessee could not provide any details of such land being agricultural land and also details of reinvestment of amount in another agricultural land, even during appellate proceedings. The learned CIT(A) further observed that the addition of Rs. 13.25 lacs made by the AO was accepted by the assessee in quantum proceedings as no appeal was preferred by the assessee against the quantum assessment order dated 10-12-2010 passed by the AO u/s 143(3) of the Act. The ld. CIT(A) held that the assessee has concealed his particulars of income within the meaning of Section 271(1)(c) of the Act and confirmed the penalty of Rs. 4,50,368/- so levied by the A.O. , vide appellate orders dated 02/09/2013. 6.Aggrieved by the appellate orders dated 02/09/2013 passed by the ld. CIT(A) , the assessee is in appeal before the Tribunal.

ITA 6775/Mum/2013 7

section which is applied by the AO whereby DVO valuation of Rs. 35.75 lacs was considered as full value of consideration. The actual consideration received by the assessee was Rs. 31.20 lacs. Penalty cannot be levied on the difference between the DVO valuation and actual sale consideration as the DVO value is deemed as full consideration for chargeability to capital gains tax owing to deeming fiction of Section 50C of the Act. The ld. Counsel submitted that the assessee was under a belied that he had sold agricultural land and the assessee was under the bonafide belief that capital gains arising thereon are exempted from capital gain tax u/s 54B of the Act. It was submitted that the land sold was an industrial land and reinvestment in the new land was also into an industrial land and not an agricultural land. Reference was drawn to the sale agreement/purchase agreement which are placed in the paper book filed with the Tribunal. It was also submitted that no consideration has been received in the impugned assessment year which was received in the subsequent year. It was submitted that no taxes were paid in the subsequent year also as the said capital gains were not even declared in the succeeding year. It is submitted that assesse is buying land regularly and disclosure has been made in the balance sheet.It was submitted that the sale consideration of the land was reduced from the Block of the Asset for the next year i.e. financial year 2008-09. It was also submitted that the land was purchased from the same person(s) to whom this land under consideration was sold and hence the assessee was under a bonafide belief that the land was exchanged , the assessee did not disclose and pay capital gain on the sale of this land while capital gains w.r.t. other transactions in property were paid. It was submitted that penalty cannot be levied on the additions made u/s 50- C of the Act. The ld. counsel relied on the decision of Mumbai bench of this Tribunal in the case of Renu Hingorani v. ACIT in ITA No. 2210/Mum/2010 for the assessment year 2006-07 vide orders dated 22nd December, 2010 and the decision of Hon’ble High Court of Calcutta in the case of CIT v. Madan Theatres Ltd.[2014] 44 taxmann.com 382 (Calcutta) and submitted that no ITA 6775/Mum/2013 8

penalty u/s 271(1)(c) of the Act can be levied as there is no concealment of income.

ITA 6775/Mum/2013 9

dated 29-02-2008 with respect to sale of land being survey no. 32 Hissa No 3/27/6 admeasuring 00H, 06R means total area 2600 square meters lying being situated within the limits of industrial area in the village Kondhva Budruk , Pune , MIDC area (page 87/pb) and it is clearly stated in the development agreement dated 29-02-2008 as under(page 91/pb) :-

“ AND WHEREAS :- The said properties are not under cultivation . It is a barren land there is no source of water. The said property is under Industrial Area as per the plan of Municipal Corporation of Pune.”

Thus, the plea of the assessee that the land is an agricultural land lacks merit and is not borne out of the records and the assessee during assessment accepted that the land is not agricultural land but an industrial land. Thus, this explanation offered by the assessee that the said land was an agricultural land and hence not exigible to tax could not be held to be a bonafide explanation as the facts narrates a totally different story that the said land being under MIDC and a barren land having no source of water is not under cultivation , to take it out of ambit from the penalty provisions u/s 271(1)(c) of the Act. The plea of the assessee that the assessee has reduced the sale consideration of the said land from the Block of the asset is again and hence capital gains were not declared is again devoid of merits. The concept of Block of Asset is for the assets which are eligible for depreciation. The Block of Asset is defined under section 2(11) of the Act as under:

“Definitions. 2. In this Act, unless the context otherwise requires,— **** **** [(11) "block of assets" means a group of assets falling within a class of assets comprising— (a) tangible assets, being buildings, machinery, plant or furniture;

ITA 6775/Mum/2013 10

(b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;]

***** *****”

The assessee held industrial land which was sold during the impugned assessment year and the land is not eligible for depreciation as per scheme of the Act . Thus, the contention of the assessee that the assessee reduced the sale consideration from the Block of asset is also not borne out from the records as on perusal of the financial statement of the financial year ended 31-03-2008 reveals that there was not block of asset created by the assessee for the land held by the assessee and this land was shown as separately under the schedule of investment(page 45/pb). The claim of the assessee that the said land was reduced from the Block of next year i.e. financial year 2008- 09 is again devoid of merits as firstly there is no block of asset as created by the assessee in financial year 2007-08 and secondly this plea is taken for the first time before the tribunal and also remained substantiated as the assessee has not even submitted financial statements for the financial year 2008-09 in the paper book filed with the tribunal. Thirdly , the said plea lacks merit as the concept of Block of asset is for the depreciable assets. The assessee has taken another plea that the land was sold to the same person from whom the new land was purchased and hence the assessee was under a belief that there is an exchange of land which is not exigible to tax again lacks merit because of the clear definition of the word ‘transfer’ u/s 2(47) of the Act in relation to the capital asset which include ‘exchange’ of the asset. The word ‘transfer in relation to a capital asset is defined as under:

ITA 6775/Mum/2013 11

“Definitions. 2. In this Act, unless the context otherwise requires,— **** ****

(47) ["transfer", in relation to a capital asset, includes,— (i) the sale, exchange or relinquishment of the asset ; or **** ****”

Thus, the explanation offered by the assessee could not be considered a bonafide explanation keeping in view the clear definition of the word ‘transfer’ under the provisions and scheme of the Act as contained in Section 2(47) of the Act which is exigible to tax under Chapter IV-E of the Act. In any case the assessee entered into two different agreements for sale and purchase of land and also the consideration were paid and received in monetary terms at the time of purchase and sale of two different land’s and it was not an exchange of land. The assessee claimed that the DVO valuation of Rs. 35.75 lacs was substituted by actual sales consideration of Rs. 31.20 lacs , wherein the difference was added to the income owing to deeming fiction created by Section 50C of the Act. We are in agreement with the assessee that the deeming fiction of Section 50-C of the Act under which capital gains arising from sale of land owing to adoption of DVO value of Rs. 35.75 lacs instead of actual sale consideration of Rs. 31.20 lacs will not be hit by section 271(1)(c) of the Act, hence no penalty is exigible on the difference between DVO valuation and actual consideration unless it is shown by the Revenue that the assessee has not shown the actual sale consideration correctly and on-money in excess of actual sales consideration was received by the assessee which was not declared to the Revenue in the return of income filed with the Revenue relying on the decision of Hon’ble Calcutta High Court in the case of ITA 6775/Mum/2013 12

CIT v. Madan Theatres Limited (2014) 44 taxmann.com 382(Cal.)/ (2013) 260 CTR 75(Cal.) and decision of the tribunal in the case of Renu Hingorani v ACIT in ITA 2210/Mum/2010 dated 22-12-2010. However, the assessee has not disclosed the transaction of earning of capital gains on sale of land in the return of income although knowing well that it is an industrial land within Poona Municipality , the concealment of the particulars of same will be hit by section 271(1)(c) of the Act, hence, the authorities below has rightly levied the penalty u/ s 271(1)(c) of the Act to the extent on the tax sought to be evaded on difference between actual sale consideration of Rs. 31.20 lacs and the purchase price of the land of Rs. 22.50 lacs and to that extent of difference between the actual sale consideration and the purchase price , we confirm and sustain the penalty levied by the A.O. u/s 271(1)(c) of the Act on the tax sought to be evaded by the assessee as there was a concealment of particulars of income with respect to the capital gains earned by the assessee to the extent of difference between the actual sale consideration and the purchase price as the assessee could not come out with any bonafide explanation of not disclosing and declaring the said capital gains on the sale of industrial land which was within Poona Municipality and more-over as also additions made by the AO in quantum assessment order u/s 143(3) of the Act were not challenged by the assessee. The contention of the assessee that the sale consideration was not received by the assessee during the previous year relevant to the impugned assessment year but during subsequent year can also be not accepted , firstly because the assessee has sold the said land vide sale deed executed in the previous year relevant to the impugned assessment year and also even during the succeeding assessment year, the assessee did not declare the said capital gain in the return of income filed with the Revenue. While on the other hand we order deletion of penalty levied by the authorities below on the allegation of tax sought to be evaded by the assessee on difference between full value of consideration as determined by DVO of Rs. 35.75 lacs and the actual sales consideration of Rs. 31.20 lacs as the same

ITA 6775/Mum/2013 13

was brought to tax owing to deeming fiction created by Section 50-C of the Act and no evidence has been brought on record by the Revenue that any on- money in excess of actual sale consideration of Rs. 31.20 lacs was actually received by the assessee which was not declared and disclosed to the Revenue in the return of income filed with the Revenue by the assessee. We order accordingly.

Order pronounced in the open court on 17th November, 2016. आदेश क" घोषणा खुले "यायालय म" "दनांकः 17-11-2016 को क" गई । sd/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated 17-11-2016 [ व."न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K.

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""यथ" / The Respondent. 3. आयकर आयु"त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु"त / CIT- Concerned, Mumbai "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai “E” Bench 5. 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप/सहायक पंजीकार (Dy./Asstt.