SRI M SHANTHA KUMAR vs. THE COMMISSIONER OF INCOME TAX-II

- 1 - W.P.Nos.2176 & 11524 OF 2012 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 26TH DAY OF NOVEMBER 2012 BEFORE THE HON'BLE MR. JUSTICE H.G.RAMESH WRIT PETITION Nos.2176 & 11524/2012 (T-IT) BETWEEN: SRI M SHANTHA KUMAR AGED ABOUT 63 YEARS S/O MUNIYAPPA PROPRIETOR M/S SATYA HOSPITAL NO.1, 1933/1, 1934 KAMMANAHALLI MAIN ROAD BANGALORE 560 084 ...PETITIONER (BY SRI. MAHESHKIRAN SHETTY, ADVOCATE) AND: 1 THE COMMISSIONER OF INCOME TAX-II QUEENS ROAD, BANGALORE 2 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1) MISSION ROAD, BANGALORE. ...RESPONDENTS (BY SRI. JEEVAN J NEERALGI, ADVOCATE FOR R1& R2) THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER PASSED BY THE 1ST RESPONDENT DATED 05.04.2010 VIDE ANNEXURE G AND ETC. THESE WRIT PETITIONS COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:

- 2 - W.P.Nos.2176 & 11524 OF 2012 O R D E R H.G.RAMESH, J. (Oral): In these writ petitions, the petitioner, who is a doctor by profession, is challenging the following orders: (i) the assessment order dated 19.12.2008 (Annexure-E) (ii) the revisonal order dated 05.04.2010 (Annexure-G) (iii) the order dated 19.05.2010 (Annexure-K) imposing penalty under Section 271(1)(c) of the Income Tax Act, 1961 (iv) the order dated 16.12.2010 (Annexure-L) passed by the Appellate Authority in the appeal filed against the aforesaid order of penalty dated 19.05.2010. 2. I have heard the learned counsel for the petitioner and the learned Standing Counsel for the respondents. 3. The sole contention urged by the learned counsel for the petitioner is that the Revisional Authority had

- 3 - W.P.Nos.2176 & 11524 OF 2012 erred in law in not giving deduction of Rs.1,52,25,850/- claimed towards cost of improvement relating to the land sold by the petitioner. Without prejudice to the above contention, he submitted that the order of the Appellate Authority at Annexure-L reducing the penalty from 300% to only 100% is also not correct and requires to be further reduced. 4. On the contrary, the learned Standing Counsel for the respondents submitted that the petitioner's claim for deduction is totally false and fabricated. The claim was made only to evade payment of legitimate taxes. He also submitted that the reduction of penalty by the Appellate Authority from 300% to 100% cannot be said to be erroneous to warrant any interference. 5. I was taken through the reasoning in the four orders referred to above. The only question that falls for determination in these writ petitions is as to

- 4 - W.P.Nos.2176 & 11524 OF 2012 whether the authorities under the Income Tax Act, 1961 were justified in disallowing the cost of improvement alleged to have been effected by the petitioner? 6. It is relevant to refer to the reasoning of the Assessing Authority at Annexure-E: “.............................................................. The property which is a vacant land under sale measures 85,928/- sq.ft was purchased by the assessee in the name of Smt. Tayamma and Smt.

Sandhya Shanthakumar through registered sale deeds for a sum of Rs.64,58,352/-. This property is sold to M/s Rakesh Builders and Developers through a deed dt.18.4.2005 for a sum of rs.2,36,30,200/-. The property sold is 'Vacant industrial land.....'. In respect of the sale the assessee has furnished the following computation of Capital Gains: Sale consideration Rs.2,36,30,200 Less: Cost of acquisition Rs. 64,58,352

- 5 - W.P.Nos.2176 & 11524 OF 2012 Cost of improvement Rs.1,52,25,850

----------------- Rs.2,16,84,202

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Net Short term capital Gains Rs. 19,45,998 -------------- The assessee has furnished books of account wherein it is seen that under “investment – Satya Kalyana Mantapa” the assessee has debited expenditure from 7.4.2005 to 26.6.2005 to the extent of Rs.1,71,86,884/-. Out of this, the assessee has claimed Rs. 1,52,25,800/- as expenditure towards improvement. The entire expenditure of Rs.1,71,86,884/- is shown in cash During the course of hearing the assessee claimed that he had leveled the land by raising the land by nearly 6 ft. The land area is approximately 2 acres and to raise the land by 6 ft. the assessee says that he has incurred this much expenditure. There are no details of any kind like the persons employed, machinery employed, bills, vouchers, receipts, name and address of the contractor or masons who have carried out the work. Infact there is absolutely not even a single details and evidence available. In the circumstances the assessee explained that M/s Rakesh Builders and

- 6 - W.P.Nos.2176 & 11524 OF 2012 Developers insisted that he should carry out this much work and then only they will buy it and therefore he was required to carry out the improvement. As seen from the deed the land sold is a vacant land. Nowhere in the deed it is stated that the land was lying low and was required to be filled in to rise the level. Infact the assessee has furnished a copy of the agreement for sale in respect of one portion. Agreement was entered into on 18.8.2004. Even in this agreement there is no indication of the land lying low and any condition put by the buyer to fill in and raise the level by 6 ft. The assessee's statement has no support of any kind. Infact assessee had received Rs. 5 lakhs on 18.8.2004 as advance at the time of agreement but he has not used the money for any purpose on the land. Only after 7.4.2005 the assessee has started debiting cash expenses to the books. Whanever money he received from the buyer the same has been accounted as receipts by bank and expenditure is shown in cash. Between 7.4.2005 to 26.6.2005 the total number of days is 81. In 81 days the assessee has made 233 payments varying from Rs. 10,000/- to Rs. 3 lakhs and

- 7 - W.P.Nos.2176 & 11524 OF 2012 odd and again all payments are in cash only. After the property was sold and registered on 18.4.2005 and possession handed over as per the deed there was no obligation on the part of the assessee to carry out any improvement. Infact the first clause after the monetary clause is handing over of vacant possession of the land on the date of registration. The assessee's claim of the expenditure is unbelievable and the expenditure in the books are tailored one. In the absence of any details of improvement carried on and any support for having carried out the work and also for the expenditure made, this office is unable to accept assessee's claim. Infact during the course of hearing assessee stated that M/s Rakesh Builders & Developers have sold the land to a different person (owner of Capital Hotel) and buyer has already started constructing a massive building. Huge pillars have already come up and the land is being used for construction of a multi storeyed building. The assessee has no evidence of any kind to show that the land was lying low. In these circumstances the assessee's claim is rejected and accordingly the claim for

- 8 - W.P.Nos.2176 & 11524 OF 2012 deduction of Rs.1,52,25,850/- is disallowed.” It is also relevant to refer to the reasoning of the Revisional Authority at Annexure-G: “vii) The question of the assessee excavating the land, removing the so called toxic soil and refilling it with fresh earth thereby incurring expenditure of Rs.1.52 Crores appears foolhardy in the light of the fact that presently the land has been put to use in construction of a hotel where land has been excavated to provide for underground parking facilities at 9 mtrs below ground level. In view of the above, the undersigned is convinced that a totally false and unsubstantiated claim of development expenses aggregating to Rs.1,52,25,850/- Crores has been made by the assessee. The undersigned therefore, declines to interfere with the order of the Assessing Officer on this point.” 7. The reasoning in the order at Annexure-K imposing penalty on the petitioner reads as follows:

- 9 - W.P.Nos.2176 & 11524 OF 2012 “33. In respect of the bogus claim of improvements to the land, taking into consideration that being a Doctor the assessee attempted to tailor out bogus expenditure at different stages and made deliberate attempt to mislead the Department particularly in creating bogus new evidences before the CIT which was no where there at the time of assessment before the Assessing Officer. The assessee's deliberate, conscious and determined efforts to defraud the revenue invites levy of maximum penalty. The minimum and maximum penalty are prescribed in the Act to distinguish the merits of each case and issue. This issue in this case deserves levy of maximum penalty as established on merits. The Act certainly expects the Departmental Officers to levy maximum penalty in deserving cases. Therefore this office is constrained to levy maximum penalty at 300% of the tax sought to be evaded of Rs.51,25,021/- on the income sought to be evaded of Rs.1,52,25,850/-, which works out to Rs. 1,53,75,063.”

- 10 - W.P.Nos.2176 & 11524 OF 2012 8. The following reasoning by the Appellate Authority at Annexure-L also requires to be referred: “7.8 I am in agreement with the findings of the learned CIT that no mud removing or earth filling has been carried out by the appellant as no supporting documentary evidence has been furnished during any of the proceedings to substantiate his claim. The claim of the appellant that improvement of land has been done by his personal supervision utilising machinery and labour viz. Bulldozers, JCB, Dumper, etc., which were taken from M/s Shekar Transport. The AO has conducted enquiries on direction of the learned CIT and it reveals that no such concern existed at the given address. From the facts and circumstances discussed above, the appellant's claim is found to be false. Thus the appellant has furnished inaccurate particulars of income and concealed the income.................... 7.9 In the light of the ratio of the

- 11 - W.P.Nos.2176 & 11524 OF 2012 decisions discussed above and by reason of the aforesaid facts, in my view there was sufficient material before the AO to come to the conclusion that the appellant was guilty of furnishing of inaccurate particulars and concealment of income. It is seen that the penalty levied by the AO is 300 per cent of the tax sought to be evaded, which appears to be unreasonable. Hence, the penalty is restricted to 100 per cent of the tax sought to be evaded, which works out to Rs.51,25,021/-” 9. As could be seen from the reasonings in the four orders referred to above, the petitioner had produced fabricated evidence to evade payment of legitimate taxes. I find no legal infirmity in the factual findings recorded by the authorities in the four orders referred to above to warrant interference under the extraordinary jurisdiction of this Court under Articles 226 & 227 of the Constitution of India. In my opinion, a very lenient view is taken by the Appellate Authority

- 12 - W.P.Nos.2176 & 11524 OF 2012 in reducing the penalty from 300% to 100%. The writ petitions are totally devoid of merit and are accordingly dismissed with exemplary costs of Rs.1,00,000/- (Rupees One Lakh). I have imposed exemplary costs for the reason that the petitioner had put forward a totally false and a fabricated claim for deduction. The petitioner shall pay the aforesaid costs to the respondents within three months from the date of receipt of a copy of this order. Petitions dismissed. Sd/-

JUDGE hkh.