SHRI BIREN ASHOKBHAI PATEL,MEHSANA vs. INCOME TAX OFFICER, WARD-1, MEHSANA

The Assessee is aggrieved by the order of the Ld. CIT(A), Gandhinagar, Ahmedabad dated 19.12.2014 pertaining to A.Y. 2010-11. 2 . A.Y. 2010-11

The only grievance of the assessee is that the ld. CIT(A) erred in confirming the penalty of Rs. 68,613/- levied by the A.O. u/s. 271(1)(c) of the Act.

Rival submissions heard and case record carefully perused. The roots for the levy of penalty lie in the assessment order dated 30.11.2012 framed u/s. 143(3) of the Act.

During the course of the scrutiny assessment proceedings, the assessee was asked to produce bank statement and on verification of the same, the A.O. noticed that the assessee has made cash deposit of Rs. 17,80,500/-. The assessee was asked to explain the sources of the cash deposited. Assessee explained that he is doing the personal business of electrical house wire on retail basis and his turnover is at Rs. 38,73,010/- with purchases amounting to Rs. 38,82,244/-. It was explained that the cash deposited in the bank account relates to the receipt from electrical house wiring business. Profit and loss account and balance sheet of the said business was also produced for verification.

Though the A.O. accepted the electrical wiring business of the assessee but was of the firm belief that the presumptive taxation as per Section 44AF of the Act would apply and accordingly treated the profit of the electrical wiring business at 5% of the total sales of Rs. 38,73,010/- and made the addition of Rs. 1,93,651/-. 3 . A.Y. 2010-11

In our considered opinion, once the business of the assessee has been accepted by the A.O. and taxed the profit on the basis of presumptive taxation, we do not find any reason for the levy of penalty u/s. 271(1)(c) of the Act.

Proceeding further, the A.O. noticed that the assessee has sold an open land situated at Panchot, Mehsana for a consideration of Rs. 94,000/-. The assessee was asked to furnish the details and on verification of the details, the A.O. found that the purchase consideration of the said land was Rs. 37,200/- Therefore, the assessee has earned Short Term Capital Gain of Rs. 56,800/-.

When the assessee was confronted with this fact, he replied that since the land was held for more than 12 months, he was under a bona fide belief that like share investments where Long Term Capital gain is exempt if the shares are held for more than 12 months, the capital gains on the said plot of land is also exempt being held for more than 12 months. But when the correct law as confronted to the assessee, he accepted the gains as Short Term Capital Gain and paid the taxes accordingly.

On the aforementioned facts, which relate to the bona fide belief of the assessee supported by some provision of the Act, though the said provision is not at all applicable on the facts of the case, the belief of the assessee cannot be brushed aside lightly. In our considered opinion, when the correct provisions of the law were brought to the notice of the assessee, he immediately accepted the same and paid the taxes accordingly. On such 4 . A.Y. 2010-11 facts, we do not find it a fit case for the levy of penalty u/s. 271(1)(c) of the Act.

We accordingly direct the A.O. to delete the penalty so levied and allow the appeal.