DDIT(IT) - 2(1),KOLKATA., KOLKATA vs. RAJ NARAYAN SINHA, KOLKATA

This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-VI, Kolkata dated 07.01.2013. Assessment was framed by ADIT (IT-II), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 14.11.2006 for assessment year 2004-05. Penalty levied by Assessing Officer u/s 271(1)(c) of the Act vide his order dated 31.03.2010.

At the time of hearing none appeared on behalf of assessee though notice of hearing sent to assessee through RPAD. So we decide to hear the present appeal where we find that the hearing is possible without appearance of assessee or its legal representative.

Briefly stated facts are that the assessee is a non-resident individual and has earned income from capital gain & interest income. The assessment was completed by the AO u/s 143(3) of the Act after making certain additions and disallowances to the total income of the assessee on dated 14.11.2006. In the present case, assessee along with his brother inherited property located at 6 queens road, Kolkata during the year 1998-99 upon the demise of their mother. Both the brothers were having 50% ownership right in the said property. The property in question was comprised of 1 bigha 16 cottah and 18 square feet freehold land with an old structure of building thereon. As a result of sale of the property the assessee got the property valued as on 1st April 1981 in terms of the provisions of section 49 of the Act read with section 55(2)(b)(ii) of the Act. As per the assessee, the valuation of entire property was of Rs.1,07,60,000/- as on 1.4.1981 and the share of the assessee was comes to Rs.53.80 lacs in the said property. However the valuation of the property was disregarded by the AO by referring the matter to the District Valuation Officer (for short DVO). The DVO valued the said property at Rs. 64.26 lacs and the share of assessee comes to Rs. 32.13 lacs. Accordingly, AO worked out the capital gain tax liability in the hands of the assessee by taking the valuation of the property as on 1st April 1981 in the light of valuation made by the DVO for the property. The AO while framing the assessment has recorded in the assessment order that penalty proceedings u/s 271(1)(c) r.w.s 274 of the Act is initiated for furnishing inaccurate particulars about the cost of the acquisition and understated the capital gain. Finally, AO levied the penalty of Rs.20.36 lacs being 100% of the amount of tax sought to be evaded u/s 271(1)(c) of the Act on dated 31st March 2010. The penalty was levied on the assessee for furnishing inaccurate particulars of income after relying in the decision of Hon’ble Supreme Court in the case of Union of India and Others v. Dharmendra Textiles Processors [166 taxman 65 (SC) where it was held that DDIT(IT)-2(1) Kol. V. Raj Narayan Sinha Page 3 penalty under section 271(1)(c) of the Act is a civil liability and for attracting such liability, willful concealment is not an essential ingredient as indicate as is the case in matter of prosecution under section 276C of the Act.

Aggrieved, assessee preferred an appeal to Ld CIT(A) who has deleted the penalty on the ground that all of material facts with the regard to the computation of capital gain income were placed in the file and the assessee had neither concealed any particulars of income nor furnished inaccurate particulars of his income. The AO collected all these information from the submission of the assessee only and there was no deliberate act on the part of the assessee neither for concealing the particulars of income nor submitting inaccurate particulars of income. Accordingly the learned CIT(A) deleted the penalty imposed by the AO.

We have heard Ld. DR and perused the materials available on record. Before us Ld. DR relied on the order of AO and left the issue to the discretion of the Bench. From the aforesaid materials and submission made by Ld. DR we find that the addition was made by the AO on account of difference in valuation of the property as on 01.04.1981 furnished by the assessee and thereafter furnished by the DVO. The assessee preferred an appeal before Ld. CIT(A) against the quantum addition made by the AO. The Ld.CIT(A) has given partly relief to the assessee. After that assessee never preferred an appeal before us against the order of learned CIT(A) hence AO confirmed the penalty on the ground that the assessee has furnished inaccurate particulars of income. Now the question before us is whether the assessee is guilty for furnishing inaccurate purpose of income or not. From the facts, it is clear find that assessee got the property valued from a registered valuer and accordingly the return of income was filed. However the AO disagreed with the same valuation and got the valuation done from the DVO where the AO found DDIT(IT)-2(1) Kol. V. Raj Narayan Sinha Page 4 for the difference in the valuation of the property between the registered valuer and DVO. As a result difference in the valuation of the property was found on the basis of two different valuation reports. Now from the facts, it is clear that there were 2 views regarding the valuation of property as on 01.04.1981 and we have seen in many cases where the Court’s have deleted the penalty when two views are possible for the particular transaction. Accordingly, in the instant case in our considered view the assessee cannot be held guilty for furnishing either for concealment of income or furnishing inaccurate particulars of income. We also find in support from the decision of Hon'ble jurisdictional Hon'ble High Court in the case of Durga Kamal Rice Mills v. CIT 265 ITR 25,183 CTR; 130 taxmann 553 as follows:- “When two views, are possible, no penalty can be imposed is a principle that has been enunciated in the said two decisions in National Textiles v. CIT [2001] 249 ITR 125 (Gj) and CIT v. P.K. Narayanan [1999] 238 ITR 905 (Ker). In CIT v. P.K.Narayanan [1999] 238 ITR 905 (Ker), it was held that unless the amount is owned by the assessee and there is a conclusive finding to that effect it is not hit by Explanation 1 to section 271(1)(c). whereas in National Textiles v CIT [2001] 249 ITR 125 (Guj), it was held that until and unless the Explanation is found to be false or mala fide, the mischief of section 271(1)(c) cannot be attracted. In the present case, there was nothing to indicate that the explanation was false or mala fide. The learned Tribunal has not arrived at any such conclusion. Having regard to the facts and circumstances of the case, as was held in National Textiles [2001] 249 ITR 125 (Gul), no reasonable and positive inference cold be drawn. Because of the two stands taken by the income-tax authority in this case by adding the amount in the income of the assessee and again accepting the same at the hands of the partners, the income-tax authority cannot fall back on one and reject the other. In Ashok Timber Industries [1980] 125 ITR 336 (Cal), in a similar circumstance, it was held that it could have been treated to be an income of the following previous year when it I shown as the opening balance of that previous year. Thus, also, two views are possible. When two views are possible and when no clear and definite inference can be drawn, in a penalty proceedings, penalty cannot be imposed.”

I further place reliance upon decision of the Hon'ble Apex Court rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel v. State of Orissa [1972] 83 ITR 26 wherein it was held that “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty DDIT(IT)-2(1) Kol. V. Raj Narayan Sinha Page 6 will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

In the background of the aforesaid discussion and precedents relied upon, I delete the levy of penalty u/s. 271(1)(c) in these cases.

In the result, assessee’s appeal in 2857, 2858, 2919/Del/2007 are dismissed. The assessee’s appeal in I.T. Nos. 4416, 4417, 4418, 4419/Del/2010 are allowed.”