THE JOINT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, RAJKOT vs. SHRI PRAFULBHAI VALLABHDAS FULETRA, RAJKOT

These are appeals filed by the Department against the order deleting levy of penalty under section 270A of the Act for misreporting of income in case of property sold jointly by Shri PrafulbhaiFuletra and Shri Dinesh Fuletra, who are brothers. Since there is sale of common property in respect of which penalty has been levied and the issues involved in case of both the assessees are the identical and relate to the same assessment year under consideration, both the appeals are being disposed of by a common order.

The assessee has taken the following grounds of appeal:-

The brief facts of the case are that during the year under consideration the assessees Shri Prafulbhai Fuletra and Shri Dinesh Fuletra had entered into Land sale transactions in respect of several properties with total sale consideration of � 46,08,000/-as per the registered sale deeds. During the year under consideration, a blue coloured calendar diary was found during the course of search at the premises of Shri Rajnikant Bhesdadia, who is the brother-in-law of the assessee and his brother. This diary contained details of cash receipts of � 4,20,60,000/- as on-money on sale of agricultural land jointly held by the assessee and his brother. Along with the said diary, draft copies of two land sale deeds were found which were pertaining to land having area of 1260.09 m² and 1279.53 m² at village Vadwala. The AO observed that on the photo copies of the diary, the actual unaccounted land sale transactions of � 4,20,60,000/- were recorded and accordingly the AO concluded that this unaccounted cash receipts were shared by the assessee and his brother had worked out the LTCG of � 2,25,35,829/- in each of the cases and offered the said amount in the return of income filed by each of brothers under section 139 of the Act. In view of the above facts, the AO levied penalty under section 270A of the Act amounting to � 1,06,77,476/- (200% of the tax calculated on � 53,38,738/- as LTCG of � 2,25,35,829/- in the case of the assessee) of the amount of tax payable on under reported income. The AO observed that the assessee had under-reported the income in consequence of misreporting of income as the assessee had sold the land along with his brother Shri Dinesh Fuletra for the sale consideration of � 4,20,60,000/- over and above amount of � 46,08,000/- as per registered sale documents. The AO observed that in case no search action had been conducted on the searched party Shri Rajnikant Bhesdadia, the assessee would have shown only � 46,08,000/- as sale consideration in respect of the above properties as per registered sale documents presented before the sub- registrar. Therefore, the on-money receipts of� 4,20,60,000/- would have remained unaccounted in the books of the assessee, in case the search would not have been made at the premises of Shri Rajnikant Bhesdadia. Therefore, as per the AO this was a case of misreporting of income under subsection (8) and (9) of section 270A of the Act. Further, the AO held that the assessee has not offered any bona-fide explanation to the satisfaction of AO.

In appeal before Ld. CIT(Appeals), the assessee contended that no search proceedings was carried out at the premises of the assessee. However, on the basis of seized papers at the residence of Shri Rajnikant Bhesdadiai.e. at third party premises, who is the brother-in-law of the assessee, the assessee offered LTCG in his return of income filed under section 139 of the Act on 08-03-2018 at the returned income of � 2,39,12,710/- including LTCG of � 2,25,35,829/- on the basis of aforesaid seized papers. Subsequently, the matter was examined by the AO in the assessment proceedings and after verification and considering seized data, the assessment was completed by accepting the returned income under section 143(3) of the Act. The assessee submitted that in the instant set of facts the provisions of section 270A (a to g) could not be invoked, since the specified conditions as mentioned therein have not been satisfied in the instant facts. Further, the assessee submitted that the AO has failed to identify the clause under which the case of the assessee is covered so as to impose the penalty under the said section. Further, the assessee submitted that since the search was conducted during the year under consideration, the books of accounts of the assessee and not yet closed and the assessee had time to file return of income for the said assessment year i.e. assessment year 2017-18. The assessee filed return of income on 08-03-2018 by taking into consideration the transactions recorded in the aforesaid seized documents in order to buy peace. Therefore, in absence of the assessee’s case falling in any of the provisions of section 270A of the Act, no penalty could be levied on the assessee in the instant set of facts.

The Ld. CIT(Appeals) allowed the assessee’s appeal with the following observations:

Before us, the DR has relied upon the observations made by the Assessing Officer in the penalty order. In response, the counsel for the assessee has reiterated the submissions made before Ld. CIT(Appeals) and has on the observations made by CIT in the appellate order.

We have heard the rival contentions and perused the material on record. In view of the facts stated above, we observe that search was conducted at the premises of the third party and on the basis of diary seized during the course of search, certain additions were offered to tax by the assessee in order to buy peace. Since the search was conducted during the year under consideration, the accounts of the assessee were not finalised and there was still time for the assessee to file return of income. Accordingly, the addition amount offered to tax was reflected in the return of income filed by the assessee on 08-03-2018. Now, in order to understand whether the case of the assessee falls within the purview of section 270A of the Act, it would be useful to reproduce the relevant extracts of the said provision for reference:

In our view, on a perusal of the conditions laid out under section 270A of the Act, the case of the assessee does not fall under any of the provisions of section 270A of the Act. Since the search took place during the year under consideration at the premises of third party, and there was still time to file return of income, the said income in respect of on-money receipts was included in the income offered to tax by the assessee in the return of income. Further, even the AO in the penalty order has failed to specify under which specific clause of section 270A of the Act does the case of the assessee fall under. The Ld. CIT(Appeals) in his appellate order has analysed the non- applicability of the provisions of section 270A of the Act in the instant set of facts. Accordingly, we find no infirmity in the order of Ld. CIT(Appeals) and we hold that CIT has not erred in facts and in law in deleting penalty imposed under section 270A of the Act in the instant set of facts.

In the result, the appeal of the Department is dismissed.

The assessee has taken the following grounds of appeal:-

Since the issue pertains to sale of common property held by the assessee and his brother Shri Prafulbhai Vallabhdas Fuletra, in view of our observations in the preceding paragraphs, in the case of Shri Prafulbhai Vallabhdas Fultera, we are hereby dismissing the appeal of the Department in the case of assessee as well.

In the result, appeal of the Department is dismissed.

In the result, both the appeals of the Department are dismissed.