VKJ Latest News Update

VKJ Law Offices of Vinay K. Jain Advocates & Solicitors

Deduction claim cannot be disallowed merely because rectification deed is executed & registered after passing of assessment order: ITAT

2019-TIOL-1443-ITAT-AHM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’ AHMEDABAD

ITA No.1851/Ahd/2013
Assessment Year: 2009-10

INCOME TAX OFFICER
WARD – 9(2), AHMEDABAD

Vs

SHRI ASRAFKHAN K PATHAN
JAMALPUR KOTHI RANG
JAMALPUR, AHMEDABAD
PAN NO: AGCPP7537R

ITA No.86/Ahd/2016
Assessment Year: 2009-10

SHRI ASRAFKHAN K PATHAN
JAMALPUR KOTHI RANG
JAMALPUR, AHMEDABAD
PAN NO: AGCPP7537R

Vs

INCOME TAX OFFICER
WARD-1(3) (1), AHMEDABAD

O P Meena, AM & Madhumita Roy, JM

Date of Hearing: April 05, 2019
Date of Decision: July 01, 2019

Appellant Rep by: Shri B P Shrivastava, Sr. DR
Respondent Rep by: 
Shri B R Popat, AR

Income Tax – Section 44AD.

Keywords – Rectification deed – Capital gain.

THE assessee, engaged in the business of civil construction in his proprietary shown gross receipts of Rs. 13,22,450/- and declared profit of Rs. 1,05,796/- @ 8% of total receipts; the return was filed u/s 44AD of the Act. The agricultural, income to the tune of Rs. 17,23,000/- was also shown by the assessee. Apart from that, the assessee also derived income from capital gain of Rs. 6,70,194/- during the year under consideration as it appears from the records. Subsequently, the transfer on sale was registered before District Registration Office at Ahmedabad. The assessee thereafter transferred the right, title and interest in respect of the property on 04.10.2008 to a third party. The assessee claimed long term capital gain which was negated by the AO on the ground that the period of holding capital assets was less than 36 months and the same was, therefore, treated to be as short term capital gain and charged accordingly. The same was deleted in appeal by the CIT(A). Hence, the revenue filed appeal before Tribunal.

On appeal, Tribunal held that,

Whether claim of deduction can be disallowed merely because rectification deed is executed and registered after the assessment order passed – NO: ITAT

++ the assessee purchased the property during F.Y. 1994-95 upon payment of Rs.4,00,000/- by way of two account payee cheques drawn with the Bombay Mereantile Co-op Bank, possession whereof was handed over to the assessee by the vender. It is also a fact that the property was ultimately registered by way of a sale deed on 16.12.2005; therefore the transfer of the capital asset was full and complete in so far as the provision of Income Tax Act are concerned in view of the expanded definition of the term “transfer” as contained in section 2(47)(v) of the Act. Thus, registration of the property which was acquired by the assessee in the F.Y. 1994-95 though executed in the Year 2005 by way of a registered deed is of no significance. Under Section 53A of the Transfer of Property Act, when the possession of the said immovable property has been taken over by the assessee in part performance of a contract, the transfer is complete. The assessee ultimately sold out the property on 04.10.2008. The assessee is thus holding the property for more than 36 months before selling out the same to third party in the Year 2008. Thus, working out of the capital gain as Short Term Capital Gain considering the acquisition of the property in the previous year of its registration rather than the same in the previous year i.e. 1994-95 when the agreement was executed and the appellant paid the consideration for such acquiring of all right title and interest over the property as done by the Learned AO rightly found not justified by the Learned CIT(A). He, therefore, directed the Learned AO to treat the capital gain so worked out by the appellant in return of income as Long Term Capital Gain in the absence of any dispute regarding the sale consideration, cost of acquisition and indexation. It also appears from the records that an application for additional evidence was also submitted before the Learned CIT(A) for taking into consideration the copy of rectification deed registered with the office of Sub Registrar, Ahmedabad which could not be filed by the assessee during the course of assessment proceeding since the mistake committed by the assessee was detected upon getting the assessment order wherein at Page 3 instead of “land with building” the word “land” is mentioned in the schedule of the property. On the basis of the submission and the affidavit filed by the appellant before the Learned CIT(A) on the plea of bonafide mistake and correction thereof a remand report was called for, for admission of those additional evidences as per Rule 46A. In reply whereof, the AO indicated the said lacuna on the part of the assessee by not mentioning “residential house with land apparent thereto”. Since the assessee took a considerable time to take such stand upon rectification of such mistake and submitted the supporting document being the rectified registered deed of sale before the CIT(A) the entire modus operandi was termed as an “after thought” by the AO to avoid tax by the assessee. Such additional evidence was thus not acceptable as opined by the AO in his remand report. In reply to the said remand report, the assessee submitted before the CIT(A) that because of the wrong description of the property in the Registered Conveyance Deed as detected by the appellant after the assessment order was obtained and upon cross check of the description of the property with that of the Registered Sale Deed, the assessee had no other alternative but to execute a correction deed and to get it registered with the office of the Sub Registrar even at a substantial additional cost towards stamp duty and other charges. It was further clarified that the actual qualifying amount for deduction under the section was only Rs.23,58,310/- as against the corresponding deduction of Rs.1,23,65,260/- as inadvertently claimed in the return of income by the assessee when the assessee as become fair enough to admit said bonafide mistake having substantial tax effect. Having regard to this particular facts and circumstances of the case, no reason was found as to why legitimate claim of deduction should be treated as a colorable device or afterthought merely because rectification deed was executed and registered after the assessment order passed. The said plea of the assessee was duly taken care of by the CIT(A) as we found from the order passed by him in its proper prospective;

++ case made out by the assessee towards Long Term Capital Gain on the ground of holding the property for more than 36 months before the sale of the same in the year 2008 and the plea taken by the assessee regarding wrong claim u/s 54D instead of 54 as well as the mistake towards description of the property and registering the deed of rectification with the office of the Sub-registrar from “land” to “residential house with land appurtenant thereto” and after careful consideration of the remand report and the reply filed by the assessee thereto particularly the deed of rectification which was taken into consideration by CIT(A) u/s 46A of the Act, no infirmity was found in allowing the prayer of the assessee by the CIT(A) which, according to us clear and specific and without any ambiguity so as to warrant interference.Thus the same is hereby upheld. Consequently, the appeal fails and is accordingly dismissed.

Revenue’s appeal dismissed

ORDER

Per: Madhumita Roy:

The appeal being ITA No. 1851/Ahd/2013 filed by the Revenue is directed against the order dated 21.03.2013 passed by the CIT(A)-XV, Ahmedabad arising out of the order dated 05.12.2011 issued by the ITO Ward-9(2), Ahmedabad u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) and the appeal being ITA No.86/Ahd/2016 filed by the assessee is directed against the order dated 10.11.2015 passed by the Ld. CIT(A)-10, Ahmedabad arising out of the order dated. 26.02.1015 passed by the ITO Ward-1(3)(1) Ahmedabad u/s. 271(1)(c) of the Act for Assessment Year (A.Y.) 2009-10.

Since both the appeals relate to the same assessee, hence the same are heard analogously and are being disposed of by a common order.

ITA No. 1851/Ahd/2013 A.Y. 2009-10:

2. The Revenue has filed following grounds of appeal:-

1a). The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing to treat the income from capital gain as long term capital gain (LTCG) amounting to Rs. 1,30,35,454/- instead of assessed by the AO as short term capital gain (STCG) amounting to Rs.1,30,35,454/-,when the purchase deed was registered in 2005.

1b). The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing to allow deduction amounting to Rs.58,25,310/- u/s.54 of the Act, out of long term capital gain of Rs.1,30,35,454/- to ignore the fact that neither the original asset nor the new assetare in the nature of residence which is chargeable to tax under the head ‘House Property income’ & infact the ‘newasset’ has been specifically described as open plot of land’ in the purchase deed.

2). The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in directing to treat Rs.3,00,000/- only as business income and balance of Rs.14,23,000/- as agricultural income without any supporting evidence of sale of agriculture produce.

3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad ought to have upheld the order of the Assessing Officer.

4). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad may be set-aside and that of the Assessing Officer be restored.”

3. The brief facts leading to the case is this that the assessee declaring total income at Rs.6,76,210/- filed his return of income on 31.03.2010 through electronic media, which was processed u/s. 143(1) of the Act. Scrutiny under the CASS resulting issuance of notice u/s. 143(2) dated 27.08.2010 followed by a notice u/s. 142(1) along the questionnaire dated 25.01.2011. Further notice u/s. 142(1) of the Act dated 28.04.2011 was issued for details as per questionnaire dated 25.01.2011 due to change of incumbent.

4. The assessee engaged in the business of civil construction in his proprietary concern namely M/s. Anik Construction has shown gross receipts of Rs.13,22,450/- and declared profit of Rs.1,05,796/- @8% of total receipts; the return was filed u/s 44AD of the Act. The agricultural, income to the tune of Rs.17,23,000/- was also shown by the assessee. Apart from that, the assessee also derived income from capital gain of Rs.6,70,194/- during the year under consideration as it appears from the records. The assessee acquired rights and possession of a property bearing survey No.1778 to 1786 at Ward Jamalpur in Ahmedabad District in the month of January, 1995 upon payment of Rs.4,00,000/- through account payee cheque out of the total consideration of Rs.4,11,000/-. Subsequently, the said transfer on sale was registered before District Registration Office at Ahmedabad on 23.11.2005. The assessee thereafter transferred the right, title and interest in respect of the said property on 04.10.2008 to a third party. The assessee claimed long term capital gain which was negated by the Learned AO on the ground that the period of holding capital assets is less than 36 months and the same is, therefore, treated to be as short term capital gain and charged accordingly. The same was deleted in appeal by the Learned CIT(A). Hence, the revenue is before us.

The second issue relates to claim of exemption u/s 54 of the Act. In fact, initially the assessee claimed for exemption u/s 54D. Since the assessee does not fall under the ambit of such exemption the same has been rejected. In appeal, the same deleted by the Learned CIT(A).

It is pertinent to mention that the AO disallowed the entire amount of deduction u/s 54 of the Act, which was in respect of utilization of part of the Long Term Capital Gain arising out of the transfer of the residential house with land appurtenant thereto, for acquiring another residential house. In fact, it was the case of the assessee before the first appellate authority that the assessee claimed this deduction u/s 54D instead of Section 54. A deed of rectification was also executed relating to the description of the property and registered the same with the office of the Sub-registrar rectifying the schedule from “land” to “residential house with land appurtenant thereto”. The same was also submitted before the first appellate authority by way of an additional evidence since the same was prepared after the assessment proceeding was over. The said plea was, therefore, accepted by the Learned CIT(A) and he, thus, directed the Learned AO to allow the deduction of Rs.58,25,310/- out of the Long Term Capital Gain as worked out and shown by the appellant in his return of income at Rs.1,30,35,454/- after accepting the plea of bonafide mistake on part of the assessee of claiming deduction u/s 54D of the Act, which was completely disallowed by the Learned AO.

Apart from that, the assessee received Rs.23,58,310/- from sale of crops and declared agricultural income of Rs.17,23,000/-. The Assessing Officer was of the view that no agriculture produce have been cultivated on the said land after F.Y. 2002-03. The assessee’s plea that due to technical problem with the Revenue department the copy of Form – 7/12 could not be obtained was also negated. Further that the letter u/s 133(6) issued to one Shri Naranbhai Rameshbhai Patel, to whom assessee claimed to have sold agriculture produce since returned to the revenue with the remarks “not known”.In the absence of any evidence to establish that the assessee has earned any agricultural income show-cause was issued to the assessee on 21.11.2011 requesting him to explain as to why the said agricultural income should not be treated as his own business income. Though the assessee declared income u/s 44AD but no details relating to the work carried out in his property business, the Learned AO ultimately disallowed the entire agricultural income treating it as assessee’s own business income. In appeal, the same was restricted to Rs.3,00,000/- by the Learned CIT(A) by treating the same as unexplained source or not from agricultural activity.

5. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that though the deed of sale was registered in the Year 2008 upon permission dated 08.11.2005 obtained from the Collector in respect to the property purchased by the assessee, the right title interest whereof was acquired by the assessee in F.Y. 1994-95 upon payment of Rs.4,00,000/- by two account payee cheque drawn with the Bombay Mereantile Co-op Bank on 04.01.1995. The transfer is thus completed in terms of Section 2(47)(v) of the Act. Subsequently, the property was sold on 04.10.2008 admittedly after holding the same for more than 36 months which qualifies the gain on such capital asset as Long Term Capital Gain arising on the said transfer. This particular aspect of the matter was duly taken care of by the Learned CIT(A) and the claim of the assessee was thus allowed. On the contrary, the Learned DR relied upon the order passed by the Assessing Officer.

6. We have heard the respective parties, perused the relevant materials available on record. It appears from the records that in fact the assessee purchased the property during F.Y. 1994-95 upon payment of Rs.4,00,000/- by way of two account payee cheques drawn with the Bombay Mereantile Co-op Bank, possession whereof was handed over to the assessee by the vender. It is also a fact that the said property was ultimately registered by way of a sale deed on 16.12.2005; therefore the transfer of the capital asset was full and complete in so far as the provision of Income Tax Act are concerned in view of the expanded definition of the term “transfer” as contained in section 2(47)(v) of the Act. Thus, registration of the property which was acquired by the assessee in the F.Y. 1994-95 though executed in the Year 2005 by way of a registered deed is of no significance. Under Section 53A of the Transfer of Property Act, when the possession of the said immovable property has been taken over by the assessee in part performance of a contract, the transfer is complete. The assessee ultimately sold out the property on 04.10.2008. The assessee is thus holding the property for more than 36 months before selling out the same to third party in the Year 2008. Thus, working out of the capital gain as Short Term Capital Gain considering the acquisitionof the property in the previous year of its registration rather than the same in the previous year i.e. 1994-95 when the agreement was executed and the appellant paid the consideration for such acquiring of all right title and interest over the property as done by the Learned AO rightly found not justified by the Learned CIT(A). He, therefore, directed the Learned AO to treat the capital gain so worked out by the appellant in return of income as Long Term Capital Gain in the absence of any dispute regarding the sale consideration, cost of acquisition and indexation. It also appears from the records that an application for additional evidence was also submitted before the Learned CIT(A) for taking into consideration the copy of rectification deed registered with the office of Sub Registrar, Ahmedabad which could not be filed by the assessee during the course of assessment proceeding since the mistake committed by the assessee was detected upon getting the assessment order wherein at Page 3 instead of “land with building” the word “land” is mentioned in the schedule of the property. On the basis of the submission and the affidavit filed by the appellant before the Learned CIT(A) on the plea of bonafide mistake and correction thereof a remand report was called for, for admission of those additional evidences as per Rule 46A. In reply whereof, the Learned AO indicated the said lacuna on the part of the assessee by not mentioning “residential house with land apparent thereto”. Since the assessee took a considerable time to take such stand upon rectification of such mistake and submitted the supporting document being the rectified registered deed of sale before the Learned CIT(A) the entire modus operandi was termed as an “after thought” by the Learned AO to avoid tax by the assessee. Such additional evidence was thus not acceptable as opined by the Learned AO in his remand report. In reply to the said remand report, the assessee submitted before the Learned CIT(A) that because of the wrong description of the property in the Registered Conveyance Deed as detected by the appellant after the assessment order was obtained and upon cross check of the description of the property with that of the Registered Sale Deed, the assessee had no other alternative but to execute a correction deed and to get it registered with the office of the Sub Registrar even at a substantial additional cost towards stamp duty and other charges. It was further clarified that the actual qualifying amount for deduction under the section was only Rs.23,58,310/- as against the corresponding deduction of Rs.1,23,65,260/- as inadvertently claimed in the return of income by the appellant when the appellant as become fair enough to admit said bonafide mistake having substantial tax effect. Having regard to this particular facts and circumstances of the case, we find no reason as to why legitimate claim of deduction should be treated as a colorable device or afterthought merely because rectification deed was executed and registered after the assessment order passed. The said plea of the assessee was duly taken care of by the Learned CIT(A) as we found from the order passed by him in its proper prospective. Relevant part whereof is as follows:

“It is therefore, in my view, the appellant is justified for his claim u/s 54 for the purchase of this property out of the total long term capital gain as per the provisions i.e. the proportionate deduction out of the capital gain as prayed by appellant after admitting his mistake for claim u/s 54D instead of 54 of the Act. The A.O. is directed togrant the Eligible deduction u/s 54 of the Act toappellant on the total purchase of property with construction there on of residential nature as per the provision of section 54 of the Act. The appellant vide para 4.3 of the paper book requested to allow the deduction of Rs. 58,25,310/- as qualifying amount for purchase of this property i.e. purchase consideration of Rs. 55,00,000/- and stamp duty & otherwise expenses for Registration of Rs.3,25,310/-. It is highlighted here that appellant’s expenditure in respect of correction deed is not entitled for such deduction. The A.O. is therefore directed to allow deduction of Rs.58,25,310/- out of the long term capital gain as worked out and shown by appellant in his return of income at Rs.1,30,35,454/- since the appellant in ground of appeal prayed for legitimate deduction u/s 54 of the Act and during assessment proceedings requested to correct his bonafide mistake of claim u/s 54D for an amount of Rs.1,23,65,260/- which was completely disallowed basso But, in appeal proceeding prayer for allowability of Rs.58,25,310/- is made, therefore this ground is treated as partly allowed because the claim of appellant u/s 54D was of Rs. 1,23,65,260/- and the allowable legitimate claim u/s 54 of the Act is only Rs. 58,25,310/-.”

Taking into consideration the entire aspect of the matter, the case made out by the assessee towards Long Term Capital Gain on the ground of holding the property for more than 36 months before the sale of the same in the year 2008 and the plea taken by the assessee regarding wrong claim u/s 54D instead of 54 as well as the mistake towards description of the property and registering the deed of rectification with the office of the Sub-registrar from “land” to “residential house with land appurtenant thereto” and after careful consideration of the remand report and the reply filed by the assessee thereto particularly the deed of rectification which was taken into consideration by Learned CIT(A) u/s 46A of the Act we find no infirmity in allowing the prayer of the appellant by the Learned CIT(A) which, according to us clear and specific and without any ambiguity so as to warrant interference.Thus the same is hereby upheld. Consequently, the appeal fails and is accordingly dismissed.

7. Next ground of appeal relates to the order passed by the Learned CIT(A) in granting the Learned AO to treat Rs.3,00,000/- only as business income and balance of Rs.14,23,000/- as agricultural income of the assessee.

8. The case of the assessee is this that the assessee has been the legal and factual owner or the user by operation of law of huge area of agricultural land measuring about 500 bighas situated at Village Hirapur and Rasulpura. Substantial portion of the same was controlled by the assessee and also legally owned by him in his name part of which was also inherited by the assessee where agricultural operation was carried on for last so many years. Certain agricultural lands which was inherited by the assessee after the demises of his parents was also substantiated by documentary evidence such as death certificates. Certain agricultural land was also acquired by virtue of the order of a competent Court. Since the substantial part of the agricultural land as narrated above came into his possession during the course of A.Y. 2009-10 or a little earlier as a result whereof the agricultural income of the assessee substantially increased the returned agricultural income of Rs.11,85,000/- and Rs.18,30,560/- was shown in A.Y. 2010-11 and A.Y. 2011-12 respectively. Such agricultural income in the assessment year was also accepted by the department. The assessee before the first appellant authority by way of a letter dated 22.08.2012 submitted that he was in possession of 568.87 bighas of land copies of the said extract details was also annexed thereto which was subjected to remand report. Taking into consideration the entire aspect of the matter, the Learned CIT(A) hold as follows:

“I am partly inclined with the contention of appellant that in of 568 Bighas land holding and agricultural income shown year after year, it cannot be held that entire Agricultural income is appellant’s business income. The appellant’s business of contractor is a small business and entitled for the benefit of section 44AD of the Act. As per the provisions, the appellant is not required to maintain books of account as per section 44AA of the Act if he avails the benefit u/s 44 AD of the Act. In this reference, he cannot furnish the complete detail of work carried out except his total receipt falling under the section. In the absence of any such detail and any findings in this regard from A.O. that he had carried out work to such an extent that generated income to the extent of Rs.17,23,000/-, the A.O.’s conclusion is based on presumption and not justified. The appellant producedextract of land holding showing agricultural activities being carried on those land, sale bills of crop and other details. Following the principle of consistency, all such evidences and agricultural income cannot be termed as in genuine transaction or sham transactions. From the 7/12 extracts following example reflect that appellant was carrying on the agricultural activities.

(i) Survey no. 277/ka/paiki at Sanand Taluka Village Hirapur (Extract No. 0108030), Appellant is one of the owner and for F.Y.2008-09 kharif crop of Jwar was cultivated on 16 Hector 26 Are & 85 sq. mt. area by appellant.

(ii) Survey No. 269 at village Hirapur Tal. Sanad (Extract No. G01 08034), Appellant is one of the owner and for F.Y. 08-09 Kharif crop of wheat was cultivated on 6 Hector 95 Acre 05 sq. mt. area.

(iii) Survey No. 262 at village Hirapur Tal. Sanad (Extract No. G 0108032), the appellant is one of the owner and Kharif crop of wheat was cultivated on 11 Hector 11 Acre 88 sq. mt. area in F.Y. 08-09.

It is therefore the appellant’s income from agricultural activities is not doubted. The only issue remain is the reasonability of Rs.17,23,000/-from total sale consideration of crop of Rs. 23,58,310/- in the absence of complete evidence of expenditure incurred by appellant. As per the account, the total expenditure of Rs. 6,35,310/- for total receipt of Rs. 23,58,310/- are only 26.93% which is not a correct picture. Hon’ble Gujarat high court in a recent decision in the case of Special Land Acquisition Officer Vs. Kodasbhai Jevabhai Namdar(2002) held that “in the process of land acquisition while taking land value as on market value and the same is increased by value of crop existing on land, in this regard in the absence of any details evidences available of agricultural expenditure, the same is taken at 50% of value of crop and the same is reasonable.” In the case of appellant such detail is partly available but partly not with evidences. It is therefore a reasonable percentage of 40% of the expenditure if taken, it will result in to agricultural expenditure of Rs.9,43,324/- (40% of Rs.23,58,310/-). This W will lead to conclusion that the reasonable and allowable agricultural income of the appellant will be of Rs.14,14,986/- (2358310 – 943324). As against the appellant has shown Rs.17,23,000/- therefore the difference of Rs.3,08,014/- (17,23,000 – 14,14986/- ) say Rs.3,00,000/- can reasonably be treated as income of appellant from undisclosed sources or not from agricultural activity. It is therefore, the A.O. is directed to treat only Rs.3,00,000/- as taxable income and allow the benefit to appellant for balance of Rs.14,23,000/- as Agricultural Income. This ground of appellant is partly allowed.”

In the absence of the detail and/or evidences regarding the agricultural expenditure the reasonable expenditure of 40% of the value of crop has been estimated and determined by the Learned CIT(A) resulting to agricultural expenditure of Rs.9,43,324/- being 40% of Rs.23,58,310/- seems to be rational and thus acceptable. Therefore the difference of Rs.3,08,014/- (17,23,000 – 14,14,986) i.e. around 3,00,000/- as has been treated as income of the appellant on undisclosed source and not from agricultural activities found to be acceptable and without any ambiguity. Hence we decline to interfere with the order impugned and the same is hereby upheld. In the result, Revenue’s appeal is dismissed.

ITA No.86/Ahd/2016 for A.Y. 2009-10:

9. The assessment proceeding in respect of the return filed by the assessee on 31.03.2010 was finalized by the Learned AO u/s 143(3) of the Act on 05.12.2011 upon computation of total income at Rs.1,52,83,020/- after making addition on the following:

i. Disallowance of Rs.1,35,54,000/- of deduction u/s 54 on LTCG and treating the income from capital gain as STCG

ii. Agriculture income of Rs.17,23,000/- treated as unaccounted business income

Penalty proceeding u/s 271(1)(c) of the Act was initiated against the assessee; notice u/s. 274r.w.s. 271(1)(c) of the Act dated 05.12.2011 was also issued and duly served upon the assessee. The assessee in response to the above notice submitted the following before the Learned AO during the course of penalty proceeding.

“[4] In response to the above notice, the assessee had filed his reply dtd.29/01/2015. In the said reply the assessee inter alia narrated the operative part of the order in quantum appeal which is as follows:

……..[4.3.3.C] It is, therefore, the appellant’s income from agricultural activities is not doubted. The only issue remain is the reasonability of Rs. 17,23,000/- from total sale consideration of crop of Rs. 23,58,310/- in the absence of complete evidence of expenditure incurred by appellant As per the account, the total expenditure of Rs. 6,35,310/- for total receipt of Rs. 23,58,310/- are only 26.93% which is not a correct picture. Hon’ble Gujarat High Court in a recent decision in the case of Special Land Acquisition Officer Vs Kodasbhai Jevabhai Namdar (2002) held /that “in the process of land acquisition while taking land value as on market value and the same is increased by value of crop existing on land, in this regard in the absence of any details/evidences available of agricultural expenditure, the same is taken at 50% of value of crop and the same is reasonable/” In the case of appellant such details is partly available but partly not with evidences. It is, therefore, a reasonable percentage of 40% of the expenditure if taken, it will result into agriculture expenditure ofRs.9,43,324/- (40% of Rs. 23,58,310/-). This will lead to conclusion that the reasonable and allowable agricultural income of the appellant will be of Rs. 14,14,986/- (23,58,310 – 9,43,324). As against this appellant has shown Rs. 17,23,000/-therefore the difference of Rs. 3,08,014/- (17,23,000 – 14,14,986) say Rs. 3,00,000/- can reasonable be treated as income of appellant from undisclosed sources or not from agricultural activity. It is, therefore, the AC is directed to treat only Rs. 3,00,000/- as taxable income and allow the benefit to appellant for balance of Rs. 14,23,000/- as agricultural income.”

After considering the entire aspect of the matter particularly the explanation rendered by the assessee and the order passed by the first appellate authority whereby and whereunder the Learned AO was directed to treat only 3,00,000/- as taxable income and to render the benefit to the appellant for the balance amount of Rs.14,23,000/- as agricultural income. The Assessing Officer finality while imposing penalty of Rs.16,86,851/- concluded as follows:

“[5] The explanation offered by the assessee is considered carefully, however, it is not acceptable. As per details available on record the assessee has purchased property on 23.11.2005 and sold the same on 04.10.2008 and therefore the period of holding of capital assets is less than 36 months. Since, the period of holding was less than 36 months income is taxed as short term capital gain and exemption claimed u/s. 54 D of Rs.1,35,54,000/- was disallowed as the assessee has wrongly claimed exemption-u/s.54 D of the Act. The assessee has even not filed any explanations during the course of assessment proceeding when asked the details of claimed of exemption u/s. 54 D of the Act. In appeal the learned CIT(A) has directed to consider income from capital gain as long term capital gain of Rs.1,30,35,454/- and allow the deduction of Rs.58,25,310/- u/s. 54 of the Act. Instead of 54 D as claimed by the assessee and confirmed the addition of Rs. 72,10,144/-.

Regarding agriculture income assessee has failed to produce any evidence to substantiate his claim of cultivate agriculture produce also no evidence was produced to prove the ownership of land in the name of the assessee. The assessee also failed to file any explanation of show cause issued requesting as why agriculture income should not be treated as income from undisclosed source. Even the learned CU (Appeal) has directed to treat Rs.3,00,000/- as taxable income as income from undisclosed source.

Further, the judgement relied upon by the assessee in his submission is not squarely applicable in this case as they are different and fact and circumstance of the case.

[6] In view of the discussion made in the foregoing paragraphs, it is clear that the assessee had consciously and deliberately furnished inaccurate particulars of income to the tune of Rs.75,10,144/- and hence it is liable for penalty u/s. 271(1)(c) of the Act.

8. Therefore, I am satisfied that this is a fit case for levy of penalty u/s 271(1)c) of the Act. The maximum penalty lea viable @ 300% of the tax sought to evaded works out to Rs.50,60,533/- and minimum penalty @ 100% comes to Rs. 16,86,851/-. Looking to the facts of the case, I levy minimum penalty of Rs.16,86,851/- u/s. 271(1)(c) of tie I.T. Act.

In appeal, the penalty was in turn confirmed by the first appellant authority. Hence, the instant appeal before us.

While confirming the same the Learned CIT(A) observed as follows:

“10.3 I have noticed that the argument of the assessee is too technical and thus difficult to digest. From the wordings used by my predecessor in the appellate order in quantum, it though appears that he has made a separate estimation of agricultural expenses at Rs.3,00,000/- which has got nothing to do with the corresponding addition for Rs. 17,23,000/- made by the AO for which penalty was initiated. However, going by the logic behind the action of CIT(A) and reading between the lines, it is very clear that he has sustained the addition to the extent of Rs.3,00,000/- for all practical purposes and intent and one is always required to go into the root of the issue rather than moving around the wordings of the order.

10.4 In view of what has been mentioned above, I hold that the AO was right in levying penalty in respect of this part of the addition of Rs.3,00,000/-.

10.5 In the result, this ground of appeal is Dismissed.”

It is an admitted position that the first appellate authority passed his order only on estimation basis of the agricultural expenditure and there is clearly no element of furnishing of inaccurate particulars of income or concealment of income so as to justify levy of penalty under section 271(1)(c) of the Act in this regard.

In view of the specific facts of the case as summarized above, we find no reason for imposing penalty under section 271(1)(c) of the Act.

In this respect, at the time of instant appeal, the assessee relied upon the judgment passed by the original jurisdictional High Court in the matter of Bombaywala Readymade Stores.

In that particular case, during search excess stock was found on physical verification as against book stock worked out as on date of search. The assessee, however, did not file return of income for relevant year in which search had been conducted. The assessment was finalized on the basis of materials available with the Assessing Officer. Penalty proceeding was also initiated for concealment of particulars of income. Since the income was assessed on estimated basis by the revenue in the absence of the return of income not filed by the assessee, penalty has been held not to be levied u/s 271(1)(c) of the Act for concealment of income.

Taking into consideration the entire aspect of the matter and applying the ratio laid down by the Hon’ble Jurisdictional High Court, we find no merit in imposing penalty in the present facts and circumstances of the case when the quantum order has been passed restricting the disallowance to the tune of Rs.3,00,000/- only on estimated basis. Further that in the absence of any conclusive evidence to establish concealment of particular of income penalty on estimated basis is not permissible in the eye of law. In that view of the matter, we are of the considered opinion that this is not a fit case for levy of concealment penalty. Penalty on such estimated disallowance is this, liable to be quashed. We, therefore, direct to delete the same. Assessee’s appeal is, thus, allowed.

10. In the combined result, revenue’s appeal is dismissed and assessee’s appeal is allowed.

(This Order pronounced in Open Court on 01.07.2019)

Leave a Reply

Close Menu
%d bloggers like this: