DCIT CEN CIR 29, MUMBAI vs. VIJAY BHAGWANDAS RAHEJA, MUMBAI

The appeal filed by the revenue is directed against the order dated 19-02-2014 passed by Ld CIT(A)-40, Mumbai for assessment year 2010- 11, wherein he has deleted the penalty of Rs.3.44 crores levied by the assessing officer u/s 271(1)(c) of the Act.

The facts relating to the levy of penalty u/s 271(1)(c) of the Act are stated in brief. The assessee is an architect by profession and is also director in various companies of Raheja Group. During the year under consideration, he has sold a Guest House for a sum of Rs.16.11 crores and declared long term capital gain thereon at Rs.8.41 crores. The AO noticed that the assessee has treated the Guest house as his business asset and accordingly, he was claiming depreciation thereon. The Written down Value of the Property stood at Rs.4.93 crores. Hence the assessee should have computed “Short term capital gain” on sale of Guest house as per the provisions of sec. 50 of the Act. Accordingly the computation of Long term Capital gain made by the assessee was not found to be in accordance with the provisions of the Act. Accordingly, the AO issued a show cause notice dated 22.11.2012 to the assessee, but the A.R assessee did not receive the notice and sought time for receiving the notice. Hence, the AO issued the notice through the notice server and also by Speed Post. It appears that the notice was served upon the assessee on 27.11.2012. In the meantime, the assessee filed a letter dated 26.11.2012, wherein he revised the computation of income and offered the gain arising on sale of Guest house as Short term capital gain at Rs.11.18 crores as against the original offer of Long term capital gain of Rs.8.41 crores. The AO completed the assessment as per the revised computation filed by the assessee.

In the penalty proceedings, the assessee explained that the mistake has occurred due to wrong understanding of the accountant. The said explanation was not found to be acceptable to the AO and accordingly he held that the assessee has furnished inaccurate particulars of income. Accordingly he levied a penalty of Rs.3.44 crores computed @ 200% of the tax sought to be evaded. The Ld CIT(A), however, deleted the penalty by holding that there was difference of opinion about the nature of Capital gain, i.e., whether it was long term capital gain or short term capital gain and it appears that the assessee was under bona fide belief that it was a long term asset as he was owning the property over a period of three years. He further placed reliance on the decision of Hon’ble Bombay High Court in the case of ACE Builders Pvt Ltd (281 ITR 210) to hold that the provisions of sec. 50 shall not convert a long term capital asset into a short term capital asset. Aggrieved, the revenue has filed this appeal before us.

The ld D.R placed heavy reliance on the order of the AO and submitted that the assessee is belonging to a Raheja Group, which is being assisted by the professionals. He further submitted that the explanation given by the assessee during the penalty proceedings that the mistake occurred due to wrong understanding of the accountant is very bald and vague. Accordingly he submitted that the assessee has failed to offer proper explanation before the AO either during the course of assessment proceedings or in the penalty proceedings. He further submitted that the assessee by computing the Long term capital gain has furnished inaccurate particulars of income and the same has resulted in concealment of income.

On the contrary, the Ld A.R submitted that the Hon’ble Bombay High Court in the case of ACE Builders Pvt Ltd (supra) has held that the provisions of sec. 50 shall not convert the long term capital asset into short term capital asset. He further placed reliance on the decision rendered by the co-ordinate bench in the case of Smita Conducts Ltd Vs. DCIT (2014)(41 taxmann.com 514) and submitted that the Tribunal has held that the assets held for more than three years would retain the character of long term capital asset. He further submitted that the assessee has committed a mistake at the time of filing of return and the same was rectified during the course of assessment proceedings by filing revised return of income Accordingly he contended that the order of Ld CIT(A) should be upheld.

We have heard the rival contentions and perused the record. The admitted facts are that the “Guest house” sold by the assessee is a business asset on which depreciation has been allowed. Hence, there is no dispute that the gain arising on sale of the same would be assessable as “Short term capital gain” as per the provisions of sec. 50 of the Act. However, the assessee has treated the same as non-business asset at the time of filing return of income and accordingly computed the long term capital gain. It was submitted that the same was a mistake committed by the accountant.

However, as submitted by the Ld D.R, the assessee belongs to a well known business group and hence the explanation given by the assessee is not plausible. The fact the assessee has been claiming depreciation on the value of guest house is very much available on the record. Hence the explanation that the “accountant” has committed a mistake does not appear to be reliable one. Further, the assessee has made a bald statement without substantiating the same with the name of the accountant and his explanation.

The total income of an assessee for a particular assessment year is computed in accordance with the provisions of the Act by having regard to the accounts of the assessee. Hence, it is imperative on the part of the assessee to compute the total income in accordance with the provisions of the Act. In case of assessee, on which depreciation has been allowed, the provisions of sec. 50 mandate that the gain should be computed as “Short term capital gain” only. The assessee has tried to defend his action by drawing support from the decisions rendered in the case of ACE Builders Pvt Ltd (supra) and Smita Conductors Ltd. In our view both the decisions cannot come to the support of the assessee, since they have been rendered in a different context. In the case of ACE Builders, the question was about the eligibility of the assessee to claim deduction u/s 54E of the Act and in the case of Smita Conductors Ltd, the question was related to the computation of tax. The assessee herein has not claimed deduction u/s 54E nor he is contesting about the tax rate.

The Ld CIT(A) has taken the view that the assessee has voluntarily submitted the revised computation of income before the AO. However, the chronological event narrated by the assessing officer, which has also been discussed by us, would show that the assessee has deliberately avoided receiving the show cause notice and immediately furnished the revised computation of income. In our view, the same shows that the assessee has furnished the revised computation of income only after its detection by the assessing officer.

The Ld CIT(A) has also placed reliance on the decision rendered by the Hon’ble Supreme Court in the case of Reliance Petroproducts P Ltd (322 ITR 158), wherein it has been observed that making a certain claim which is not acceptable in the eyes of law does not amount to furnishing inaccurate particulars of income. In our view, the above said decision is not applicable in the facts of the present case, since it is not a case where the assessee has made a claim on some plausible basis, but the same became unacceptable in the eyes of law. It is also not simple case of changing the heads of income due to difference of opinion. On the contrary, the assessee himself has accepted that the gains arising on sale of guest house is assessable as Short term Capital gain. Hence, in our view, the facts of the case show that the assessee furnished inaccurate particulars of income and the explanations furnished by the assessee in that regard were not substantiated.

In view of the above, we are not able to agree with the view taken by the Ld CIT(A). We notice that the assessing officer has levied penalty @ 200% of the tax sought to be evaded. In our view, the same appears to be on the higher side. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to sustain the penalty to the extent of 100% of the tax sought to be evaded.

In the result, the appeal of the revenue is treated as allowed.