SHRI. MUNINAGA REDDY,BANGALORE vs. ACIT, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “ B ” BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. Nos.859 & 860/Bang/2012 (Assessment Years : 2006-07 & 2007-08) Shri Muninaga Reddy, Vs. Asst. Commissioner of Income Tax, No.45, 3rd B Main, 4th Cross, Circle 6(1), Banglaore. 3rd Block, Kalyan Nagar, Bangalore-560 043 PAN AFLPR 5736E Appellant Respondent.

Appellant By : Shri P. Dinesh, Advocate. Respondent By : Dr. P.K. Srihari, Addl. CIT. Date of Hearing : 24.10.2014. Date of Pronouncement : 13.1.2015. O R D E R Per Shri Jason P. Boaz, A.M. : These two appeals by the assessee, are directed against the orders of the Commissioner of Income Tax (Appeals)-III, Bangalore dt.24.2.2012 and 2.3.2012 for Assessment Years 2006-07 and 2007-08 respectively, challenging the confirmation of orders of the Assessing Officer levying penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') for the said assessment years. These appeals were heard together and are therefore being disposed off by way of this combined order in seriatum.

2 ITA Nos.859 & 860/Bang/2012

ITA No.859/Bang/2012 – Assessee's appeal for A.Y. 2006-07.

3 ITA Nos.859 & 860/Bang/2012 3.0 The facts and circumstances of the case under which penalty under section 271(1)(c) of the Act was levied on the assessee by the Assessing Officer are, briefly, as under :-

3.1 The assessee is an individual deriving income from agriculture and is also engaged in the business of real estate. For Assessment Year 2006-07, the assessee filed the return of income on 31.3.2007 declaring income of Rs.17,97,490 and agricultural income of Rs.4,25,621. In this assessment period, the assessee sold agricultural land and declared Long Term Capital Gains (LTCG) thereon; apart from declaring income / loss from other heads such as house property, business and other sources. The assessment was completed under section 143(3) of the Act by order dt.15.12.2008 wherein the income of the assessee was determined at Rs.5,45,59,686. Penalty proceedings under section 271(1)(c) of the Act were simultaneously initiated. The assessment was completed making the following additions / disallowances :- i) Disallowance of interest of Rs.1,50,000 while computing loss form house property; ii) Disallowance of deduction u/s.80C of Rs.1,00,000. iii) Disallowance of cost of improvement to the tune of Rs.1,56,98,159 in computing LTCG. iv) Disallowance of deduction u/s.54B of the Act to the extent of Rs.3,68,14,038. Penalty proceedings under section 271(1)(c) of the Act was initiated simultaneously on all the above four disallowances made in the order of assessment (supra). The Assessing Officer proceeded to complete the penalty proceedings under section 271(1)(c) of the Act, levying the minimum penalty on all the above four disallowances amounting to Rs.1,78,35,511 vide order dt.29.6.2009.

4 ITA Nos.859 & 860/Bang/2012 3.2 Aggrieved by the order levying penalty of Rs.1,78,35,511 under section 271(1)(c) of the Act dt.29.6.2009 for Assessment Year 2006-07, the assessee preferred an appeal before the CIT (Appeals) – III, Bangalore, who disposed off the same vide the impugned order dt.24.2.2012 confirming the levy of penalty by the Assessing Officer. It is against this order of the learned CIT (Appeals), that the assessee is in appeal before this Tribunal. 3.3 In the meantime, the CIT, Bangalore-III, in exercise of his revisionary powers under section 263 of the Act, passed an order dt.28.2.2011 in which he partially set aside the order of assessment for Assessment Year 2006-07 dt.15.12.2008. The issues dealt with in the order under section 263 of the Act related to computation of LTCG on sale of agricultural land by the assessee. The CIT in his order under section 263 of the Act directed the Assessing Officer to consider the following issues :- (i) The cost of the entire agricultural land held by the assessee, i.e. 69 acres 38 guntas was taken as cost of acquisition whereas the assessee had sold only 16.11 acres. Therefore, the excess cost of acquisition to the extent of Rs.20,50,216 has been worked out and consequently the assessee's income from capital gains was short computed to that extent. (ii) The assessee's claim for exemption under section 54B of Rs.10,38,54,742 was to be restricted to Rs.6,70,40,704, as the assessee had produced evidence for purchase of agricultural lands only to that extent. However the exemption under section 54B of the Act should not have been allowed as the assessee had not used the land for agricultural

5 ITA Nos.859 & 860/Bang/2012 purposes and also the land was held by the assessee from August, 2004 to March, 2005, i.e. for a period of less than 2 years. 3.4 Consequent to the directions of the CIT under section 263 of the Act, the Assessing Officer passed an order under section 143(3) r.w.s. 263 of the Act dt.28.12.2011 assessing the total income of the assessee at Rs.7,10,38,410 after incorporating the issues raised in the order under section 263 of the Act. The A.O. also simultaneously initiated penalty proceedings under section 271(1)(c) of the Act. 3.5 Aggrieved by the order of assessment under section 143(3) r.w.s. 263 of the Act dt.28.12.2011, the assessee preferred an appeal before the CIT (Appeals) – III, Bangalore. The learned CIT (Appeals) disposed off this appeal by order dt.31.8.2012, (i) Confirming the income from capital gains due to excess claim of cost of acquisition to the extent of Rs.20,50,216 and (ii) Deleting the disallowance of Rs.6,70,40,704 towards the claim of exemption under section 54B of the Act, holding that the assessee was entitled to this exemption, which has been unjustifiably denied. 3.6 Aggrieved by this order of the CIT (Appeals) – III, Bangalore dt.31.8.2012, the Revenue went in appeal before this Tribunal. The co-ordinate bench of this Tribunal vide its order in ITA No.1488/Bang/2012 dt.23.8.2013 upheld the order of the CIT (Appeals) and dismissed revenue’s appeal.

6 ITA Nos.859 & 860/Bang/2012 In the light of the above factual matrix of the case, we proceed to examine the various grounds of appeal raised before us in the present appeal and the submissions made therein. 4.1 In the course of appellate proceedings, the learned Authorised Representative of the assessee assailed the orders of the learned CIT (Appeals) and the Assessing Officer. It was contended that there was no mala fide intention on the part of the assessee to justify the levy of penalty and that there is no concealment of income or furnishing of inaccurate particulars of income warranting levy of penalty under section 271(1)(c) of the Act. In support of the assessee's contentions the learned Authorised Representative placed reliance on the following decisions :- i) CIT V Gem Granites, ITA No.504 of 2009 (Madras H C) ii) CIT V K.P. Sampath Reddy 197 ITR 232 (Kar) iii) CIT V Manjunatha Cotton & Ginning Factory 357 ITR 565 (Kar). iv) CIT V SAS Pharmaceuticals 335 ITR 259 (Del) v) CIT V Career Education & Infotech, 336 ITR 257 (P&H) 4.2 Per contra, the learned Departmental Representative supported the orders of the authorities below. 4.3 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions placed reliance upon. 5.1 The Grounds raised at S.Nos.1, 7, 8 & 9 are general in nature and requiring no adjudication thereon are dismissed as infructuous.

7 ITA Nos.859 & 860/Bang/2012 5.2 Ground No.2 : No mala fide intention. It is the contention of the assessee that there was no mala fide intention on the part of the assessee to justify the levy of penalty. We find this contention of the assessee is devoid of merits. It is now settled principle that penalty u/s. 271(1)(c) of the Act is a civil liability and mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities and willful concealment is not an essential ingredient for attracting civil liability. In the case of CIT V Manjunatha Cotton & Ginning Factory (supra), cited by the assessee, it has been held that willful concealment is not an essential ingredient for attracting penalty u/s. 271(1)(c) of the Act. In this view of the matter, this ground of appeal is not sustainable and is accordingly dismissed. 6. Ground Nos.3 & 4 : Penalty on cost of improvement. 6.1 A plain reading of these grounds of appeal seem to indicate that both these grounds contradict each other. Whereas Ground No.3 reads that the assessee could not have incurred the expenditure, of Rs.1,56,98,151 on improvement of land; Ground No.4 reads that the expenditure claimed is not unreasonable, considering the extent of the land involved and therefore the addition made was unwarranted. 6.2 Be that as it may, the facts of the matter are that the assessee had sold agricultural land during the year under consideration and had claimed cost of improvement of Rs.1,56,98,159 as deduction from the sale consideration. However, as the assessee could not furnish any evidence for the claim, the amount was disallowed; which disallowance as per the Assessing Officer was accepted by the assessee. The Assessing

8 ITA Nos.859 & 860/Bang/2012 Officer on examination of the assessee's claim was of the view that the assessee was unable to substantiate the claim of cost of improvement with necessary evidence. To verify the claim, survey under section 133A of the Act was carried out on 1.2.2008, but the assessee could not furnish evidence in support of the claim. Subsequently, the assessee admitted that he did not maintain any bills or vouchers for the same and agreed for disallowance of the amount claimed. The Assessing Officer levied penalty u/s. 271(1)(c) of the Act on the ground that the onus lies on the assessee to prove the genuineness of any expenditure claimed and that the assessee had failed to discharge this onus. 6.3 Before us, the learned Authorised Representative of the assessee submitted that though the purchase of the property was registered on 16.8.2005, the assessee had entered into an agreement with the sellers as early as 31.10.2003 by paying an advance and obtained possession of the said property. As the property was sold on 1.3.2006, the assessee had sufficient time to make improvements and therefore the claim of improvement is genuine and valid. It was also contended that, looking into the extent of the land development, i.e. about 65 acres, the expenditure claimed is reasonable. It was submitted that while the disallowance of the expenditure claimed was accepted in assessment proceedings due to lack of evidence and to buy peace, levy of penalty u/s. 271(1)(c) of the Act was not warranted in the facts and circumstances of the case. In support of the assessee's contentions, the learned Authorised Representative placed reliance on the judicial decisions cited earlier in this order.

9 ITA Nos.859 & 860/Bang/2012 6.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. It is not in dispute and clearly evident that the assessee has not been able to furnish any evidence at all to substantiate the claim of expenditure incurred on cost of improvement. As pointed out by the authorities below, the assessee was even unable to furnish any details like the parties to whom the payments were made; even if he was unable to give the full and correct details. In the absence of any evidence, we are unable to accept the contentions of the assessee on the claim of incurring cost of improvement. The onus on the assessee to establish the claim of expenditure incurred, has not been discharged. 6.4.2 On the issue of whether the failure to discharge the onus of proving the claim of expenditure being incurred would entail levy of penalty u/s. 271(1)(c) of the Act, it is settled principle that an addition or/ disallowance resulting in increase to the income of the assessee, raises a presumption of concealment of income. It is a rebuttable presumption, which the assessee can rebut by furnishing material evidence to establish its claim. Explanation – 1 to section 271(1)(c) of the Act provides that, if a person fails to offer an explanation or the explanation offered by such person is found to be false or the explanation put forth by him is not substantiated and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have not been disclosed by him, for the purposes of section 271(1)(c) of the Act, the amount so added or disallowed in computing the assessee's total income is deemed to represent the concealed income. It is for the

10 ITA Nos.859 & 860/Bang/2012 assessee to furnish material to establish that the assessee has not concealed income or has not furnished inaccurate particulars of income. In the absence of any such evidence, the presumption of concealment of income or furnishing of inaccurate particulars of income gets sustained. The decision in the case of Manjunatha Cotton & Ginning Factory (supra) of the Hon'ble Karnataka High Court, cited by the assessee, also upholds this view. 6.4.3 The judicial decisions cited by the assessee do not support the facts of the assessee's case and do not come to its rescue. In the case of Careers Education & Infotech (supra), cited by the assessee, the penalty levied was deleted on the ground that the Tribunal had recorded a categorical finding that there was no material to infer concealment of income or furnishing of inaccurate particulars of income and therefore penalty could not be levied merely because the assessee surrendered additional income consequent to survey action. In the case on hand, however, the penalty has been levied because the assessee could not furnish any evidence in support of the claim of expenditure incurred made in the return of income / financial statements and the presumption has not been rebutted. The facts of the cited case vis-a-vis the case on hand are quite different. 6.4.4 In the case of SAS Pharmaceuticals (supra), it was held that there cannot be any penalty levied only on surmises, conjectures and possibilities and since 271(1)(c) of the Act has to be construed strictly, unless there is actually concealment of income or non- disclosure of the particulars of income, penalty cannot be levied as the assessee has made a complete disclosure in the return of income. In the case on hand, however, the penalty

11 ITA Nos.859 & 860/Bang/2012 has been levied because the assessee could not furnish any evidence for the claim in the return of income of expenditure having been incurred and therefore the disclosure made in the return of income remains unsubstantiated. In our view, there is no surmise or conjecture involved in the levy of penalty in the assessee's case. Therefore, the facts of the cited case are different and the cited decision would be of no help to the assessee. 6.4.5 In the case of Manjunatha Cotton & Ginning Factory (supra) of the Hon'ble Karnataka High Court, it was held that merely because assessee agreed for the addition and the assessment order passed on the basis of this addition, in the absence of any material on record to show concealment of income, it cannot be referred that the said addition is on account of concealment of income. In the case on hand, the penalty has not been levied because the addition was an agreed addition but because the assessee could not furnish any evidence to substantiate its claim of having incurred the expenditure. Hence, we find that the facts of the cited case are different from that of the case on hand and would not be applicable. 6.4.6 We find on perusal of the cited case of K.P. Sampath Reddy (supra) of the Hon'ble Karnataka High Court, that the decision in fact goes against the assessee. In that case the Hon'ble High Court upheld the levy of penalty u/s. 271(1)(c) of the Act observing at para 6 thereof that, “ 6. We are constrained to reject the assessee's contention. We are pained tonote that the Tribunal completely ignored the assessment order which was not based on any concession from the assessee. Concealment of income in the return filed by the assessee is a glaring fact in the instant case. It is not possible to infer any agreement by the Revenue, either in clear terms or by necessary implication, to act on the basis

12 ITA Nos.859 & 860/Bang/2012 of the assessee's letter. Assessee has to thank himself that the ITO levied the minimum penalty only.” In the case on hand also, the levy of penalty has its origin in the return of income filed by the assessee and the inability of the assessee to furnish evidence to support the claim made in the return of income and which has no relation whatsoever to any agreement between revenue and the assessee on this point. 6.4.7 The cited decision of Gem Granites (supra) of the Hon'ble High Court of Madras also, in a way goes against the assessee. In that case, the penalty was cancelled because the assessee had given a cogent explanation and therefore discharged the onus upon it. In the case on hand, however, the assessee has not given any explanation supported by material evidence to substantiate the claim made in the return of income and as such the decision in the cited case is not applicable to the facts of the case on hand. In view of the above discussion of the facts and circumstances of the case, we are of the considered view that the decision of the learned CIT(A) in confirming the levy of penalty u/s.271(1)(c) of the Act on this point does not call for any interference by us. Consequently, Ground Nos.3 and 4 of the assessee's appeal are dismissed. 7. Ground No.5 7.1 This ground of appeal is regarding the penalty levied with respect to the disallowance of the claim of exemption under section 54B of the Act. From a perusal of the material on record, it is seen that the Assessing Officer observed that the assessee had shown ‘income from capital gains’ of Rs.10,45,29,911 and after claiming exemption of Rs.10,38,54,572 under section 54B of the Act, income thereunder was declared at

13 ITA Nos.859 & 860/Bang/2012 Rs.6,75,169. Out of the amount of Rs.10,38,54,572 claimed as exempt under section 54B of the Act, the Assessing Officer disallowed an amount of Rs.3,68,14,038 for not producing any evidence in respect of reinvestment claimed and restricted the exemption to an amount of Rs.6,70,40,704. Penalty proceedings u/s.271(1)(c) of the Act were initiated u/s.271(1)(c) of the Act on the disallowed amount of Rs.3,68,14,038 and penalty was levied thereon. 7.2 On appeal, the learned CIT(A) upheld the levy of penalty u/s.271(1)(c) of the Act on the ground that the assessee has been unable to produce any evidence to substantiate his claim of reinvestment of this amount and has not discharged his onus as required under law. 7.3 The assessee's contentions before us was that there were litigations in respect of property, due to which the assessee was unable to furnish any evidence in respect of the reinvestment claimed and that the non-furnishing of evidence in this regard was due to genuine hardship and reasonable causes and therefore the levy of penalty was not tenable. 7.4.1 We have heard the rival contentions and have perused and carefully considered the material brought on record. At this stage, it would be necessary to put the facts in proper perspective for a proper appreciation of this issue before us. The Assessing Officer had originally accepted the contention of the assessee that he is eligible for exemption under section 54B of the Act, but, however disallowed the assessee's claim of exemption to the extent of Rs.3,68,14,038 for want of any evidence of reinvestment claimed being furnished and allowed exemption under section 54B of the Act

14 ITA Nos.859 & 860/Bang/2012 to the extent of Rs.6,70,40,704. The CIT, Bangalore-III invoked the revisionary powers under section 263 of the Act to reverse the decision to allow the exemption under section 54B of the Act amounting to Rs.6,70,40,704, on the grounds that the assessee was not eligible for exemption under section 54B of the Act. However, the assessment order passed under section 143(3) r.w.s. 263 of the Act dt.28.12.20111, pursuant to the order of the CIT, Bangalore-III under section 263 of the Act dt.28.2.2011, on the issue of exemption under section 54B of the Act, was cancelled by the learned CIT(A) – III, Bangalore by order dt.31.8.2012 wherein the learned CIT(A) held that the assessee was entitled to claim deduction under section 54B of the Act to the extent of Rs.6,70,40,704. Therefore, the original stand of the Assessing Officer had got restored. In other words, the disallowance of exemption under section 54B of the Act to the extent of Rs.3,68,14,038 on which penalty has been levied u/s.271(1)(c) of the Act, because the assessee is not eligible for exemption under section 54B of the Act, but because the assessee failed to produce evidence to substantiate the claim made. In this view of the matter, the decision of the learned CIT(A) upholding the eligibility of the assessee to be allowed exemption under section 54B of the Act and the Tribunal upholding the decision of the learned CIT(A) in the matter, will not have any bearing on the disallowance of Rs.3,68,14,038 on which the penalty u/s.271(1)(c) of the Act has been levied and which is presently for consideration before us. 7.4.2 We have carefully considered and appreciated the facts on record on the issue for consideration before us. It is not in dispute that the assessee had not been able to

15 ITA Nos.859 & 860/Bang/2012 furnish any evidence to substantiate the claim of reinvestment to the extent of Rs.3,68,14,038 made by him. We find that the disallowance of Rs.3,68,14,038 was made only because the assessee could not substantiate the claim of reinvestment by producing any material evidence in this regard. The contention that the assessee is unable to produce any evidence because of litigation in the property is hard to accept. As pointed out by the Assessing Officer and the learned CIT (Appeals), the assessee could not furnish any details at all. In the absence of a shred of evidence, it is not possible to accept the contentions of the assessee on the claim of making reinvestment to the extent of Rs.3,68,14,038. From the above factual matrix, it is amply clear that the assessee has failed to discharge the onus on him to establish with material evidence the claim of having incurred the expenditure on reinvestment. 7.4.3 On the issue of whether the failure to discharge the onus of proving the claim of expenditure would entail levy of penalty u/s. 271(1)(c) of the Act; it is settled principle that an addition made to the income or a disallowance of a claim resulting in addition to income raises the presumption of concealment of income. This is a rebuttable presumption, which the assessee can do by furnishing details and evidence to establish the claim in question. Explanation 1 to section 271(1)(c) of the Act provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false or the explanation offered by person is not substantiated and he fails to prove that the explanation offered is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the

16 ITA Nos.859 & 860/Bang/2012 purposes of section 271(1)(c) of the Act, the amount added or disallowed in computing the total income is deemed to represent the concealed income. It is for the assessee to furnish evidence to establish that he / it has not concealed income or furnished inaccurate particulars of income. In the absence of any evidence, the presumption of concealment of income or furnishing of inaccurate particulars of income gets sustained. The decision in the case of Manjunatha Cotton & Ginning Factory (supra), cited by the assessee, also upholds this view. That there was litigation in the property, in regard of which the assessee claimed reinvestment, cannot, in our view, constitute reasonable cause warranting cancellation of the penalty levied u/s. 271(1)(c) of the Act. In respect of the case laws cited by the assessee, the discussion thereon at paras 6.4.1 to 6.4.7 of this order while dealing with Ground NO.4 of this appeal is applicable to this ground as well. In view of the above discussion on the facts and circumstances of the case on hand, we are of the considered view that the decision of the learned CIT (Appeals) in upholding the levy of interest u/s. 271(1)(c) of the Act on this issue does not warrant any interference. Consequently, Ground No.5 of the assessee's appeal is dismissed. 8. Ground No.6 : Interest on repayment of Housing Loan. 8.1 This ground of appeal is in respect of the levy of penalty with respect to the disallowance of interest claimed on repayment of housing loan. 8.2 In the course of assessment proceedings, the Assessing Officer noticed that the assessee made a claim for deduction of Rs.1,00,000 under section 80C of the Act towards repayment of housing loan and an amount of Rs.1,50,000 towards interest on housing loan

17 ITA Nos.859 & 860/Bang/2012 under the head ‘income from house property’. On examination thereof, the Assessing Officer found that both the claims made were wrong. ; the property in question was found to be in the name of the wife of the assessee and the housing loan was also taken in her name. Therefore, the Assessing Officer disallowed these claims which resulted in addition to the assessee's income. The Assessing Officer simultaneously initiated penalty proceedings u/s. 271(1)(c) of the Act and proceeded to levy penalty on the assessee thereunder. 8.3 On appeal, the learned CIT (Appeals) confirmed the levy of penalty. 8.4 Before us, it was contended that the assessee was under the bona fide belief that he can claim the deduction in respect of interest on repayment of housing loan and that it was an “inadvertent mistake”. We are unable to agree with the contention put forth by the assessee. It is not in dispute that the claim for deduction of Rs.1,50,000 on account of interest on housing loan made in the return of income was admittedly erroneous and this erroneous claim was detected by the Assessing Officer in the course of assessment proceedings. For the reasons discussed and the reasoning given earlier in this order, while dealing the earlier grounds of appeal (supra), the levy of penalty u/s. 271(1)(c) of the Act on this issue is justified. In this view of the matter, we are of the opinion that the decision of the learned CIT (Appeals) on this issue does not require any interference. Consequently, Ground No.6 of the assessee's appeal is dismissed. 9. In the result, the assessee's appeal for A.Y. 2006-07 is dismissed.

18 ITA Nos.859 & 860/Bang/2012 Assessee's appeal in ITA No.860/Bang/2012 for A.Y. 2008-09. 10. The grounds raised by the assessee in this appeal are as under :- “1. On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in upholding the impugned order u/s.271(1)(c) of the Act, in the manner in which it was done. 2. The learned CIT (Appeals) ought to have appreciated that there was no mala fide intention on the part of the appellant and consequently the penalty upheld was uncalled for. 3. The learned CIT (Appeals) without appreciating the appellant’s plea erred to hold that, appellant sought to evade tax by concealment of the additional income which is determined in the assessment consequent to survey which otherwise would not have been charged to tax. 4. The learned CIT (Appeals) ought to have appreciated and accepted appellant’s bona fide explanation that, the alleged (additional) income charged to tax under the head Business Income instead of Capital Gains which was accepted to buy peace was based upon the joint venture income managed by the associate viz., Sri E. Krishnappa who managed the joint venture. 5. The learned CIT (Appeals) ought to have appreciated that, the explanation offered by the appellant in respect of the facts material to computation of his income was neither found to be false material to computation of his income was neither found to be false nor did the appellant fail to prove his bona fides because, difference between the assessed income and income returned was voluntarily offered for peace and no tax was sought to be evaded. 6. The learned CIT (Appeals) ought to have appreciated the explanation/s given by the appellant and ought to have refrained form upholding the levy of impugned penalty. 7. For these and such other grounds that may be urged at the time of hearing the appellant prays that the appeal may e allowed.” 11. The facts and circumstances under which penalty u/s.271(1)(c) of the Act was levied on the assessee are, briefly, as under :- 11.1 The assessee is an individual deriving income from agriculture and is also engaged in real estate business. For Assessment Year 2007-08, the assessee filed his return of income on 30.6.2008 declaring income of Rs.46,16,573, comprising of Rs.30,36,787 as

19 ITA Nos.859 & 860/Bang/2012 ‘Income from Business’ and Rs.15,79,786 as ‘Income from Capital Gains’ being income in respect of plots sold at Singapore Layout.’ 11.2 A survey action under section 133A of the Act was carried out at the assessee's premises on 1.2.2008. The assessee was found to be engaged in the development of a layout called ‘Singapore Layout’ along with another person by name of Sri Krishnappa. During the survey action, the assessee had declared an amount of Rs.70 lakhs as income for Assessment Year 2007-08. However, in the return of income filed on 30.6.2008, after the survey under section 133A of the Act, the assessee had declared income of Rs.46.16 lakhs; out of which Rs.30,36,787 was towards income from business and Rs.15,79,786 was towards ‘income from capital gains.’ 11.3 Subsequently on 11.2.2009, a survey under section 133A of the Act was carried out at the premises of Sri Krishnappa. In the course of this survey, it was determined that the activity of layout formation constituted business activity and in the absence of details of expenditure incurred, the income from the sale of land was determined at Rs.200 per sq. ft. sold. Accordingly, the income from the layout formation was determined at Rs.1,62,72,800 for the period relevant to Assessment Year 2007-08. It was also accepted that this income will be shown as the income of both the assessee and Sri Krishnappa at 50% each in these respective hands. Therefore 50% of this income i.e. Rs.84,56,800 was income of the assessee. 11.4 The Assessing Officer completed the assessment in the case of the assessee, based on the findings made during the survey action in the case of Sri Krishnappa under

20 ITA Nos.859 & 860/Bang/2012 section 143(3) of the Act vide order dt.24.12.2008 determining income of the assessee at Rs.1,14,93,587 as against the returned income of Rs.46,16,573. In doing so, the Assessing Officer accepted the ‘income from business’ declared at Rs.30,36,787 in the return of income. However, as against the ‘income from capital gains’ declared at Rs.15,79,786 form ‘Singapore Layout’, the Assessing Officer assessed the income from the Singapore Layout as ‘income from business’ at Rs.84,56,800 as was determined in the course of survey action under section 133A of the Act. 11.5 Penalty proceedings u/s.271(1)(c) of the Act were initiated simultaneously and the Assessing Officer proceeded to levy the minimum penalty of Rs.38,12,640 u/s.271(1)(c) of the Act vide order dt.29.6.2010 by considering the total assessed income of Rs.1,14,93,587 as concealed income. On appeal, the learned CIT (Appeals) vide the impugned order dt.2.3.2012 confirmed the levy of penalty u/s.271(1)(c) of the Act holding that the Assessing Officer was correct in assessing the income from layout formation as ‘income from business.’ 11.5.1 In the proceedings before us, the learned Authorised Representative assailed the levy of penalty u/s.271(1)(c) of the Act and its confirmation by the learned CIT (Appeals) in the impugned order. It was submitted that the assessee had not hidden or concealed any material details form revenue and the Assessing Officer has not made any incriminating findings during the survey action under section 133A of the Act. It was contended that the additional income brought to tax in the assessee's hands is only because what was considered by the assessee as ‘income from capital gains’ has been

21 ITA Nos.859 & 860/Bang/2012 assessed by the Assessing Officer as ‘income from business’ based on the joint venture income managed by the assessee's associate Mr. Krishnappa. It is submitted that, as such there has been no concealment of income or furnishing of inaccurate particulars of income by the assessee and that the additional income was accepted only to buy peace with the Department and that no tax was sought to be evaded. 11.5.2 The learned Authorised Representative of the assessee also submitted that the Assessing Officer had erroneously considered the entire assessed income as concealed income, since a substantial portion of the ‘income from business’ i.e. Rs.30,36,787, which was declared by the assessee, ought to have been taken into consideration and excluded while arriving at the figure of concealed income. 11.6 Per contra, the learned Departmental Representative supported the orders of the authorities below in levying and upholding the levy of penalty u/s.271(1)(c) of the Act in the case on hand for Assessment Year 2007-08. 11.7.1 We have heard the rival contentions and perused and carefully considered the submissions made and the material on record. Admittedly, the assessee was involved in the activity of layout formation in the ‘Singapore Layout’ with one Sri Krishnappa and the income earned form this activity of layout formation, in the period under consideration i.e. Assessment Year 2007-08, was to be assessed equally at 50% thereof in the hands of the assessee and Sri Krishnappa. Since the details of expenditure incurred in this layout formation activity was admittedly not maintained, it was accepted that the income may be assessed at an agreed rate of Rs.200 per sq. ft. of land sold.

22 ITA Nos.859 & 860/Bang/2012 11.7.2 Though the assessee has raised as many as seven grounds, the only issue in dispute was whether the income from layout formation was ‘income from business’ or ‘income from capital gains’. The assessee has shown the income from layout formation as ‘income from capital gains’ whereas the Assessing Officer has assessed the same income as ‘income from business’ and has levied penalty on the difference between the two. Therefore, the two issues that arise for our consideration are :- i) Whether penalty u/s.271(1)(c) of the Act is exigible on the facts and circumstances of the case ; and ii) Whether the quantum of income considered for levy of penalty has been correctly taken. 11.7.3 In the case on hand, the facts do not support the contention of bona fide explanation put forth by the assessee. We find from an appreciation of the facts on record that it was in the course of the survey action in the assessee's case on 1.2.2008, when the assessee admitted the nature of the income from layout formation. Even then, the assessee chose to declare the income from layout formation in the return of income filed on 30.6.2008 after the survey action as ‘income from capital gains’ rather than ‘income from business.’ It was only after the survey under section 133A of the Act conducted on 11.2.2009 in the case of Sri Krishnappa that the assessee accepted the income from layout formation and ‘income from business’. But for the survey conducted on 11.2.2009 in the case of Sri Krishnappa, the assessee would not have accepted the income from layout formation as ‘income from business.’

23 ITA Nos.859 & 860/Bang/2012 11.7.4 It is true that it is settled principle that a mere change of head of income or a wrong characterization of income may not be a ground for levy of penalty u/s.271(1)(c) of the Act on grounds of concealment of income. It is rebuttable presumption, which the assessee can rebut by furnishing evidence to the contrary. Explanation 1 to section 271(1)(c) of the Act provides that if a person fails to offer an explanation or the explanation offered by such person is found to be false or the explanation offered is not substantiated and he fails to prove that such explanation is bona fide and that all facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c) of the Act, the amount added or disallowed in computing the total income is deemed to represent the concealed income. It is for the assessee to furnish evidence to establish that he/she/it has not concealed income or furnished inaccurate particulars of income. In the absence of any such evidence, the presumption of concealment of income or furnishing of inaccurate particulars of income gets sustained. 11.7.5 In the case on hand, the assessee's decision to declare the income from layout formation in the return of income filed on 30.6.2008 as ‘income from capital gain’ was a conscious one. The assessee has not been able to furnish any explanation, supported by material evidence, for the same and therefore, in our view, has not been able to rebut the presumption of concealment. In this view of the matter, we are of the considered opinion that the learned CIT (Appeals) was correct in upholding the action of the Assessing Officer in levying penalty u/s.271(1)(c) of the Act.

24 ITA Nos.859 & 860/Bang/2012 11.8.1 As regards the issue of the quantum of income to be considered for levy of penalty u/s. 271(1)(c) of the Act, in our view, the Assessing Officer is wrong in considering the entire assessed income for levy of penalty. The only issue of dispute is the income from Singapore Layout formation; whether the income is to be assessed as ‘business income’ or ‘income from capital gain’ and which was only declared in the belated return of income filed on 30.6.2008 after the survey action on 1.2.2008; when actually return of income for Assessment Year 2007-08 was due by 31.7.2007 Therefore, in our view, it is not appropriate for the Assessing Officer to have considered the entire income, which included income from other activities, as concealed income, as there was no dispute with respect to those items of income declared. In view of the above, we are of the considered view and hold that the penalty leviable u/s.271(1)(c) of the Act should be on the assessed income, as reduced by commission income and other income, if any, declared in the return of income in respect of which there is no dispute. The Assessing Officer is directed accordingly. 12. In the result, the assessee's appeal for A.Y. 2007-08 is partly allowed for statistical purposes. To sum up, the assessee's appeal for A.Y. 2006-07 is dismissed and the appeal for A.Y. 2007-08 is partly allowed for statistical purposes. Order pronounced in the open court on 13th Jan., 2015. Sd/- Sd/- (N.V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp