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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
ITA No.1228/Bang/2013 Assessment year : 2007-08
The Deputy Commissioner of Vs. M/s. Minitechs Aerotools Income Tax, Pvt. Ltd., Circle 12(1), Rathna Complex, IV Floor, Bangalore. No.143, Rathna Avenue, Richmond Road, Bangalore – 560 025. PAN : AABCM 1317J APPELLANT RESPONDENT
Appellant by : Shri P. Dhivahar, Jt. CIT (DR) Respondent by : Shri S. Venkatesan, CA
Date of hearing : 12.05.2015 Date of Pronouncement : 26.05.2015
O R D E R Per N.V. Vasudevan, Judicial Member
This appeal by the Revenue is against the order dated 31.5.2013 of the CIT(Appeals)-III, Bangalore relating to assessment year 2007-08.
ITA No.1225/Bang/2013 Page 2 of 12
In this appeal, the Revenue has challenged the order of the CIT(Appeals) whereby the CIT(A) cancelled the order of the AO imposing penalty on the assessee u/s. 271(1)(c) of the Income Tax Act, 1961 (Act).
The facts and circumstances under which penalty was imposed on the assessee by the AO are as follows. The assessee is a company engaged in manufacture of machine components. It owned a property viz., land bearing Plot No.1 & 2, Khata No.2 of CMC Krishnarajapuram situated at HAL Industrial Estate, Bangalore – 37, measuring 21,862 sq.ft. [hereinafter referred to as “the property”]. The assessee entered into a joint development agreement in respect of the property with Ms/. Value Build Designs Pvt. Ltd. [“VBDPL”] dated 23.2.2004. As per the joint development agreement, the developer agreed to put up construction over the property and hand over to the assessee 10,931 sq.ft. of built up area, in exchange for the assessee conveying to the builder 50% undivided share of the land of the property. The joint development agreement was given effect to by parties. The assessee accordingly received built up area of 10,931 sq.ft. The share of property which the assessee received from the builder was let out by the assessee and income from such letting was offered to tax by the assessee under the head ‘income from house property’. The return of income was filed by the assessee for A.Y. 2007-08 on 24.10.07 declaring total income of Rs.36,04,060 comprising of Rs.36,04,060 comprising of income from property of Rs.33,88,276 and income from business of Rs.2,15,779. The return was processed u/s. 143(1) of the Act on
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31.10.2008. The assessee received built up area of the flats during the previous year relevant to A.Y. 2007-08 i.e., on 1.11.2006.
There was a survey u/s. 133A of the Act conducted in the case of M/s. VBDPL. In the course of such survey, the Revenue came to know about the joint development agreement between the assessee and VBDPL and the fact that capital gain on transfer of the property by the assessee had not been offered to tax in the return of income filed by the assessee for A.Y. 2007-08. It appears that on coming to know about the survey, the assessee filed a working of long term capital gain arising from transfer of the property. The assessee filed only a computation of long term capital gain computing the same at Rs.2,14,42,340, but did not file a revised return of income because the time limit for filing revised return of income had also expired by that time.
The Assessing Officer initiated proceedings u/s. 148 to tax the capital gain of Rs,2,14,42,340 declared by the assessee in the revised computation of capital gain. Ultimately by an order dated 30.12.2011 passed u/s.147 r.w.s. 143(3) of the At, the AO brought to tax long term capital gain of Rs.2,27,31,386 + Rs.1,26,696 as disallowance in calculation of long term capital gain + Rs.17,59,087 out of labour charges claimed as expenses in computing business income. In all, a sum of Rs.2,46,17,169 was brought to tax.
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In respect of long term capital gain brought to tax in the reassessment proceedings and addition to business income by disallowance of labour charges, the AO initiated penalty proceedings u/s. 271(1)(c) of the Act against the assessee. In the penalty proceedings, the AO held that but for the survey in the case of VBDPL, the capital gain would not have been offered to tax by the assessee. He therefore concluded that assessee had concealed particulars of income and accordingly imposed penalty u/s. 271(1)(c).
Before the CIT(Appeals), the assessee submitted that assessee had no intention of concealing the particulars of income. The assessee pointed out the circumstances under which the built up area was received by the assessee under the joint development agreement and income therefrom had been duly disclosed by the assessee in the original return of income. The assessee pointed out that it was owing to a wrong advise that in a joint development agreement, there was only a barter and hence there was no incidence of capital gain that capital gain had not been declared in the original return of income. The assessee also pointed out that after the survey, when the assessee was apprised of the real position in law, it voluntarily declared revised computation of income, cooperated with the department and paid taxes. The assessee also pointed out that it could have legally taken a stand that capital gain is liable to tax only in the year in which the joint development agreement was entered into viz., 2004-05 and such a stand would have been in tune with the decision of the Hon’ble High
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Court of Karnataka rendered in the case of CIT v. T.K. Dayalu in ITA No. (ITA No.3209 of 2005) dated 20.6.2011. In that case, the Hon’ble High Court held that incidence of charge to tax of capital gain in a joint development agreement is the previous year in which the joint development agreement is entered into and possession is delivered to the developer. The assessee also pointed out that its bonafides in the circumstances stated above cannot be doubted.
The CIT(Appeals) on a consideration of the above circumstances pointed out by the assessee, was of the view that it was not a fit case for levy of penalty. It is also relevant to point out that while computing long term capital gain, the computation of long term capital gain as filed by the Assessee, was a sum of Rs.2,14,42,340. In arriving at this figure, the assessee had reduced the cost of acquisition of Rs.2,53,392. Since the assessee was retaining 50% of the undivided share of land of the property. The AO was of the view that only 50% of the aforesaid sum can be claimed as cost of acquisition. Similarly, a sum of Rs.17,59,087 was disallowed out of labour expenses. The CIT(Appeals) was of the view that those additions cannot also be the basis to impose penalty for the following reasons:-
“6.3 Similarly, with respect to labour charges, the addition made by the AO is fully accepted by the appellant and taxes paid on the same. In course of the appellate proceeding, the appellant has produced the details of the labour payments together with the receipts / vouchers and demonstrated the entries in the cash book and the ledger account extracts. The genuineness of these expenses is evident from the same. However, the AO found some
ITA No.1225/Bang/2013 Page 6 of 12
discrepancies in the figures and accordingly made the additions. Finding that the appellant accepted the additions and chose not to contest the same, and having noted that all the payments were duly routed through the bank account, I am not convinced that the appellant intended to avoid tax through such payments by manipulating the same.”
Aggrieved by the order of the CIT(Appeals), the Revenue has filed the present appeal before the Tribunal.
We have heard the submissions of the ld. DR, who reiterated the stand of Revenue that but for the survey, the assessee would not have declared long term capital gain. The ld. counsel for the assessee relied on the order of CIT(Appeals) and also brought to our notice certain judicial pronouncements.
We have considered the rival submissions. We have given a very careful consideration to the rival submissions. The assessee received built up area of the flats of 10,931 sq.ft. during the previous year relevant to A.Y. 2007-08 i.e., on 1.11.2006. The share of property which the assessee received from the builder was let out by the assessee and income from such letting was offered to tax by the assessee under the head ‘income from house property’. The return of income was filed by the assessee for A.Y. 2007-08 on 24.10.07 declaring total income of Rs.36,04,060 comprising of income from property of Rs.33,88,276 and income from business of Rs.2,15,779. The return was processed u/s. 143(1) of the Act on 31.10.2008. There was a survey u/s. 133A of the Act conducted in the
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case of M/s. VBDPL, the entity which developed the property. In the course of such survey, the Revenue came to know about the joint development agreement between the assessee and VBDPL and the fact that capital gain on transfer of the property by the assessee had not been offered to tax in the return of income filed by the assessee for A.Y. 2007- 08. Immediately the assessee filed a working of long term capital gain arising from transfer of the property, even without any proceedings having been initiated against the Assessee. The assessee filed only a computation of long term capital gain computing the same at Rs.2,14,42,340, but did not file a revised return of income because the time limit for filing revised return of income had also expired by that time. The above circumstances explained by the Assessee cannot be ignored and
was rightly treated by the CIT(A) to be circumstance which go to show the bonafides of the Assessee.
The Assessee’s explanation that owing to wrong professional advise to the effect that in a Joint Development Agreement there was only a barter and no capital gain arises is also a plausible explanation. Though no material has been brought on record in this regard by the Assessee, it is widely acknowledged that incidence of capital gain tax in a Joint Development Agreement and the year of chargeability of capital gain tax in a Joint Development Agreement is not free from doubt and is always controversial.
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The subsequent conduct of the Assessee in not raising any legal issue with regard to the year of taxability of capital gain and validity of
initiation of reassessment proceedings was also rightly treated as a circumstance showing the bonafides of the Assessee by the CIT(A). It was
open to the Assessee to have taken a stand that in view of the decision of
the Hon’ble Karnataka High Court case of Dr T K Dayalu (supra), capital gain in the case of transfer of capital assets under Joint Development
agreement will be only the year in which the Joint Development Agreement is entered into and possession given to the developer for developer.
The Assessee paid taxes much before the issue of the notice u/s
148 and had also duly filed the revised computation of income. The AO’s view is that “when the rental income was already offered to tax, it was in
the knowledge of the assessee that the capital gains are also attracted on taking possession of the built up area”. As already stated, the issue was
debatable and the belief entertained by the Assessee in this regard cannot
be said to be unreasonable. The levy of penalty with regard to computation of long term capital gain by disallowing part of cost of acquisition, in our
view, cannot lead to concealment and it, at best, could be an error in computation. The primary facts with regard to the computation of capital
gain filed by the Assessee are true and there was no concealment or furnishing of inaccurate particulars therein. Even with regard to
disallowance of labour charges of Rs.1759087/- against the business
receipts, the disallowance was made owing to mismatch between two
ITA No.1225/Bang/2013 Page 9 of 12
submissions. The accountant had made a mistake by submitting a provisional ledger extract at one point of time which resulted into certain
mismatches in the amounts. The mismatch in the submissions would not result into total expenditure to be bogus. The labour component is major
expenditure of the Assessee. The CIT(A) has examined the labour
payments of Rs.17,59,087 made to various parties and the mode of payment and has found that labour charges for Rs.1759087/- have been
discharged through bank barring a small expenditure of Rs.3224/- by cash. It appears to us that the Assessee in order to avoid any litigation with the
department has accepted the addition and did not file any appeal on the addition made though the entire expenditure is backed up with clear
documentary proof.
The Hon’ble Supreme Court in the case of MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC) has discussed the approach to be adopted in
cases such as that of the Assessee. The assessee-company filed its return
of income for the assessment year 2004-05 on 27th October, 2004 declaring income of Rs 16.17 lakh along with tax audit report. The case
was selected for scrutiny. At the time of assessment, it came to light that a survey under section 133A was conducted on the assessee on 16.12.2003.
During the course of survey, certain documents comprising share application forms, bank statements, memorandum of association of certain
companies, affidavits, copies of income-tax return and blank share transfer
deeds were impounded. The Assessing Officer sought specific information
ITA No.1225/Bang/2013 Page 10 of 12
pertaining to blank share transfer deeds by means of show cause notice. The assessee-company surrendered a sum of Rs 40.74 lakhs as additional
income with a reply in the following manner: “The offer of surrender is by way of voluntary disclosure of income without admitting any concealment
whatsoever or with any intention to conceal and subject to non-initiation of
penalty proceedings and prosecution”. The Assessing Officer completed the assessment by adding Rs 40.74 lakhs as income from other sources
and the assessment was completed on 29.12.2006. Further, the Assessing Officer initiated proceedings for levy of penalty towards concealment of
income. The Hon’ble Delhi High Court applied clause (A) of Explanation 1 and held that the assessee has not offered any explanation and therefore
upheld the levy of penalty. On appeal by the Assessee, the Hon’ble
Supreme Court held that Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing
Officer between the returned income and assessed income. The burden then is on the assessee to show otherwise, by giving cogent and reliable
evidence. When the initial onus is discharged by the assessee, the onus
shifts on the Revenue to show that the amount in question constituted the income and not otherwise. The Apex Court held that surrender of income
with a view to avoid litigation, buy peace and to channelise the energy and resources towards productive work and to make amicable settlement with
the Income-tax Department are not recognised type of defence under Explanation 1 to section 271(1)(c) of the Act. It held that the law does not
ITA No.1225/Bang/2013 Page 11 of 12
absolve the assessee from concealment penalty merely because a voluntary disclosure of concealed income is made.
The Hon’ble Supreme Court held that the surrender of income in
this case is not voluntary and the surrender was in view of the detection made by Assessing Officer. It is not surrender of income on voluntary
basis. The survey was conducted 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and
true disclosure, it could have filed the return declaring the amount which was factually surrendered only during the course of assessment
proceedings and not in the return filed. It is a clear case of the assessee
not having intention to declare its true income.
In the present case, as we have already seen, the original return of
income was filed by the Assessee in which the income from the property
which the Assessee received under the Joint Development Agreement was offered to tax. After survey in the case of the Property Developer, the
Assessee filed a revised computation of total income offering capital gain to tax and also paid taxes due thereon. We have already found that the
explanation offered by the Assessee for not offering the capital gain in the original return of income as bonafide explanation. In the circumstances, we
are of the view that the CIT(A) was fully justified in coming to the
conclusion that the case is not a fit case for imposing penalty u/s.271(1)(c)
ITA No.1225/Bang/2013 Page 12 of 12
of the Act. We concur with the view of the CIT(A) and find no merit in this appeal by the Revenue.
Accordingly, the appeal by the Revenue is dismissed.
In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 26th day of May, 2015.
Sd/- Sd/-
( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 26th May, 2015.
/D S/
Copy to:
Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar / Senior Private Secretary ITAT, Bangalore.