ANANDKUMAR MANSUKHLAL PATEL,RAJKOT vs. INCOME TAX OFFICER, WARD-3 (1) (2),, RAJKOT

The only issue raised by the assessee is that the learned CIT(A) erred in sustaining the levy of penalty under section 271(1)(c) of the Act.

The assessee, an individual, has transferred the capital asset being office space for a consideration of Rs. 4 lakh and declared capital gain of Rs. 1,19,286/- only on the same. However, the AO found that the value on which stamp duty paid was of Rs. 5,79,991/- only. On objection by the assessee, the AO made reference to the valuation officer as per the provision of section 50C(2) of the Act, who valued the property at Rs. 5,51,000/- only. Thus, the AO recomputed the capital gain at Rs. 3,17,517/- after taking consideration at Rs. 5,51,000/- under the provision of section 50C(2) of the Act and accordingly framed the assessment under section 143(3) r.w.s. 147 of the Act. The AO in the assessment order initiated penalty proceeding under section 271(1)(c) of the Act for concealment/furnishing inaccurate particular of income. After addition got conformed by the learned CIT(A) in the quantum proceeding, a fresh show cause notice proposing to levy penalty on account of furnishing inaccurate particular of income was issued. The assessee failed to make any submission/response to such notice. Hence, the AO in the absence of any explanation and submission from the assessee levied penalty of Rs. 46,105/- under section 271(1)(c) being an amount equal to 100% of tax sought to evaded on account of furnishing inaccurate particulars of income.

The aggrieved assessee preferred an appeal before the learned CIT(A).

The assessee before the learned CIT(A) submitted that he received sale consideration of Rs. 4 Lakh only and offered capital gain on the same. However due to legal fiction created under section 50C of the Act, additional capital gain was worked out by the AO. The assessee, accordingly, contended that no penalty under section 271(1)(c) of the Act can be levied in case of any addition made to the total income on account of legal fiction created under the provision of the Act.

The learned CIT (A) after considering the submission of the assessee and the order of the AO confirmed the levy of penalty under section 271(1)(c) of the Act by observing as under: 6.1 In this case, the assessee disputed the stamp duty value, therefore, the AO referred the property for valuation to the DVO who determined the value of the property at Rs.5,51,000/- as against the stamp duty value of Rs.5,79,911/-. The fact which needs a special mention here is that, in place of the proposed addition of Rs.5,79,911/- as per the stamp duty value, the AO calculated Long Term Capital Gain of Rs.3,17,517/- adopting the value determined by DVO at Rs.5,51,000/- as against Rs.1,19,286/- calculated by the appellant. Consequently, the AO initiated penalty proceedings u/s 271(1)(c) for furnishing inappropriate particulars of income. The appellant contested this addition by filing appeal before the CIT(A) on the grounds that the "(i) The Income Tax Officer erred in reopening the assessment under the provisions of section 147 of the Act. The reopening of the assessment is not justified. (II) Without prejudice to the ground no. 1, the Income Tax Officer erred in determining the long term capital gains at Rs.3,17,517/- as against Rs.1,19,286/- declared by the appellant." 6.2 The Ld. CIT(A) dismissed the appeal and the appellant is in appeal before ITAT, which is still pending. Consequently, the AO levied penalty of Rs.46,105/- u/s 271(1)(c) for furnishing of inaccurate particulars of income by the appellant. 6.3 The appellant is now in appeal against levy of penalty u/s 271 (1 ){c) of the Act. As seen from the facts of the case, as per the provisions of section 50C(2) the AO was required to adopt the stamp duty value. However, taking into account the objection raised by the appellant, he adopted the value determined by the DVO which is less than the stamp duty value. Hence, the Ld.ClT(A) has upheld the addition and dismissed the appeal filed against the assessment order. It is a fact that the appellant though advised by a tax professional has chosen to declare only the document price instead of the Stam duty authority. The value adopted by the Stamp duty authority is not contested, but adoption of the same for income tax purpose as mandated by the section 50C of the Act is contested which resulted in referring the matter to the DVO. Finally, the price determined by the DVO is adopted for arriving the capital gains. It appears from the facts that though the assessee was aware of the provisions of section 50C, he ignored and declared capital gains. Since, the arguments of the assessee cannot be accepted and the action of the AO is in order as per the provisions of the Act, I am of the considered view that the AO was right in imposing penalty u/s 271(1)(c) of Rs.46,105/- being minimum penalty. Though, the appellant has quoted the judgementrendered by various judicial authorities, the same are seldom applicable to the facts of the case. 6.4 In view of the above, the penalty levied u/s 271(1)(c) of the Act is confirmed. Hence, the ground nos. 1 & 2 of the appeal are dismissed.

Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.

The learned AR before us contended that the assessee has not furnished any inaccurate particular of income and therefore no penalty under the provisions of section 271(1)© of the Act can be imposed.

On the other hand, the learned DR before us vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The fact of the case has been elaborated in previous paragraph and there no dispute with regard to the facts. Hence for the sake of brevity and convenience, we are not inclined to repeat the same. The question before us is whether any addition made because of legal fiction created under the Act i.e. to say addition made under section 50C of the Act will amount furnishing inaccurate particular of income. In this connection, we note that the Hon’ble Courts have held that there cannot be any penalty on the amount representing the deemed consideration. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in case of PCIT vs. Sun on Peak Hotel (P) Ltd. reported in 95 taxmann.com 320 where it was held as under: 11. As is well settled, capital gain can be levied on actual sale consideration and not on fair market value. Sub-section [1] of Section 50C of the Act makes a deviation in this principle and introduces a concept of deemed consideration for the purpose of Section 48 of the Act. There is thus a clear distinction between sale consideration actually received and deemed to have been received in terms of sub-section [1] of Section 50C of the Act. Application of sub- section [1] of Section 50C therefore cannot automatically give rise to penalty proceedings. 10.1 We also find support and guidance from the judgment of Hon’ble Bombay High Court in case of CIT vs. Fortune Hotels and Estates (P.) Ltd reported in 52 taxmann.com 330 wherein it was held as under: 3. To this extent there is no dispute and what later on followed was the imposition of penalty. The Tribunal held that this cannot be taken as a case of furnishing inaccurate particulars of income inasmuch as there was a registered sale deed and there was consideration mentioned therein. That ground was raised and therefore, the document was forwarded to the Valuer and for determination of the value, by itself would not mean that the Assessee had furnished inaccurate particulars of income or has concealed the income. In these peculiar circumstances the imposition of penalty was not justified, is the conclusion drawn. The larger question posed for our consideration by Mr.Vimal Gupta really does not arise in the peculiar facts of the case. We leave that question and contentions based thereon open for being canvassed in an appropriate case. The Tribunal's order even if containing any reference to some deeming provision will not preclude or prevent the Revenue from raising such contentions. With this clarification and finding that the Tribunal's order does not raise any substantial question of law that we proceed to dismiss the Appeal. It is, accordingly, dismissed. No costs.

In the result appeal of the assessee is hereby allowed.