The Sathe Biscuit & Choloate Co. Ltd., , ... vs Assessee

The Sathe Biscuit and Chocolate Company Ltd., Sathe Memorial Complex, 820, Bhavani Peth, Pune - 411 002. PAN : AACCT3593Q .... Appellant

Vs.

Dy. Commissioner of Income Tax, Circle- 7, Pune. .... Respondent

Assessee by : Mr. Sunil Pathak & Mr. Sanket Joshi Department by : Mrs. M.S. Verma, CIT & Mr. B. G. Reddy, CIT Date of hearing : 13-03-2015 Date of pronouncement : 10-04-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against the order of

the Commissioner of Income Tax (Appeals)-III, Pune dated 30.12.2011 which,

in turn, has arisen from an order dated 27.05.2011 passed by the Assessing

Officer u/s 271(1)(c) of the Income-tax Act, 1961 (in short "the Act") pertaining

to the assessment year 2007-08.

2. In this appeal, assessee has raised the following Grounds of Appeal :-

"1. The Learned CIT (A) erred in confirming the penalty u/s 271(l)(c).

2. The Learned CIT (A) erred in confirming the penalty of Rs.12,76,62,859/- on the ground that assessee has concealed the income by way of Capital Gain on sale of land at 44/A/1, Dhanori, Pune and furnished inaccurate particulars thereof.

3. The Learned CIT (A) was not justified in holding the Learned A.O.'s stand that the assessee had inflated the fair market value of the property as on 01.04.1981 and thereby reduced the capital gain on sale thereof.

2 ITA No.441/PN/2012 4. The Learned CIT (A) was not justified in holding the Learned A.O.'s stand that by assessing the capital gain on sale of land in AY 2007-08 against the AY 2008-09 as offered to tax by the assessee, amounts to concealment of income/ furnishing of inaccurate particulars of Income.

5. The Learned CIT (A) erred in confirming the penalty levied on the ground of disagreeing with the true particulars submitted in support of the Return of Income by the appellant.

6. The Learned CIT (A) erred in confirming the penalty levied on the ground of difference of opinion on estimation of FMV as on 01.04.1981.

7. The Learned CIT (A) erred in confirming the penalty levied on the ground of difference of opinion on year of taxability of income.

8. The Learned CIT(A) erred in confirming the penalty levied, when capital gain is taxed in the A.Y. 2007-08 instead of 2008-09 because of the High Court Judgment (not the Supreme Court Judgment) in case of Chaturbhuj Dwarkadas Kapadia.

9. The Learned CIT (A) failed to appreciate that a. The appellant had voluntarily offered to tax the Capital gain on sale of land in the AY 2008-09 and paid the total tax liability by way of advance tax.

b. The appellant relied and submitted following documents along with the return of income for AY 2008-09 in support of the sale transaction.

i Copy of Development Agreement ii. Copy of Sale Deed/Conveyance Deed c. The appellant's estimate of FMV as on 01.04.1981 was based

on the FMV as per the Stamp Duty Authorities Circular No.5 dated 10in -14m August 1989.

d. There was no practice of estimating the FMV by Stamp Duty Authorities in the reckoner in the year 1981 and therefore the only correct way to find out the FMV in 1981 was on the basis of circular referred above.

e. The sale instances referred by the Learned AO for determining the FMV as on 01.04.1981 were not comparable at all with the appellant's land and therefore the FMV as on 01.04.1981 could not be determined on the basis of these incomparable sale instances.

f. The appellant had disclosed all the facts correctly and the FMV as on 01.04.1981 was supported by the Registered Valuer's Report. Hence, it is wrong to presume that appellant had concealed the income or filed the inaccurate particulars of income.

g. At the best, it could be stated that the claim of the FMV as on 01.04.1981 made by the assessee was a disputable one and in view of the Supreme Court's decision in case of Vegetable Product (88 ITR 192), penalty was not leviable. h. Merely because the Learned A.O. disagree with the true particulars submitted in support of return of income, it cannot be construed that the appellant concealed the particulars of 3 ITA No.441/PN/2012

income or furnished incorrect or inaccurate particulars of income for the purpose of Sec. 271(1)(c).

i. The learned A.O. failed to refer the valuation of land as on 01.04.1981 to Departmental Valuation Officer, and failed to obtain the DVO"S Report.

10. The appellant prays for admission of additional evidences. If any required in supporting this appeal.

11. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal."

3. In this appeal, although the appellant has raised multiple Ground of

Appeal but essentially the solitary grievance is arising from the order of the

CIT(A) whereby he has sustained the levy of penalty u/s 271(1)(c) of the Act to

the extent of Rs.12,76,62,859/-.

4. Substantively speaking, the penalty u/s 271(1)(c) of the Act has been

imposed with respect to addition made by the Assessing Officer on account of

long term capital gain earned by the assessee on sale of land at 44/A/1,

Dhanori, Pune. Before we proceed to adjudicate the efficacy of the penalty

sustained by the income-tax authorities on the Grounds raised in the Memo of

Appeal, we may touch-upon an Additional Ground of Appeal raised by the

assessee in the course of hearing, which reads as under :-

"1] The learned CIT(A) erred in holding that the penalty order u/s 271(1)(c) of the Act is not barred by limitation."

5. In terms of the said Additional Ground of Appeal, it is sought to be

canvassed by the assessee that the penalty order passed by the Assessing

Officer u/s 271(1)(c) of the Act dated 27.05.2011 is barred by limitation. Since

this Ground of Appeal involves a point of law and arises from the facts which

are already on record, the same was admitted for adjudication following the

parity of reasoning laid down by the Hon'ble Supreme Court in the case of

National Thermal Power Co. Ltd. vs. CIT, (1998) 229 ITR 383 (SC). Notably,

the said Ground was also raised by the assessee before the CIT(A) who has

deal with the same in para 5.1 to 5.1.2 of the impugned order and has rejected 4 ITA No.441/PN/2012

the same on merits. At the time of hearing, the Ld. CIT-DR did not oppose the

admission of the said Ground of Appeal. In this background, both the

counsels furnished their say on the merits of the Additional Ground of Appeal.

6. As per the assessee, the penalty order passed by the Assessing Officer

is barred by limitation and for that matter he has referred to a chronological

chart of events placed at page 1 of the Paper Book. The plea raised by the

assessee is that in terms of the first proviso to section 275(1)(a) of the Act,

once an order is passed by the CIT(A) after 1st June, 2003 on the quantum

proceedings, the Assessing Officer should levy penalty u/s 271(1)(c) of the Act

within one year from the end of the relevant financial year in which the order of

the CIT(A) has been received by the Commissioner of Income Tax or the Chief

Commissioner of Income Tax, as the case may be. In this context, it is

pointed out that the assessment order u/s 143(3) r.w.s. 147 of the Act was

passed on 23.03.2009 and the show-cause notice u/s 274 r.w.s. 271(1)(c) of

the Act was issued on 23.03.2009. The order of the CIT(A)-III, Pune arising

from the assessment order dated 23.03.2009 is passed on 31.08.2009. On

this basis, assessee submitted that the order of the CIT(A) dated 31.08.2009

was received by the concerned CIT during the financial year 2009-10 and

therefore in view of the proviso to section 275(1)(a) of the Act, the Assessing

Officer ought to have passed the penalty order on or before 31.03.2011

whereas the impugned order has been passed by the Assessing Officer on

27.05.2011, which is belated.

7. On this aspect, the Ld. CIT-DR opposed the plea of the assessee by

pointing out that the assessee company had appealed to the Tribunal against

the order of the CIT(A) in quantum proceedings dated 31.08.2009 and

therefore the time limit for levy of penalty was to be reckoned in terms of

section 275(1)(a) of the Act i.e. within six months from the end of the month in

which the order of the Tribunal was received by the Commissioner of Income 5 ITA No.441/PN/2012

Tax or Chief Commissioner of Income Tax, as the case may be. It was

therefore contended that seen from this angle the order of penalty passed by

the Assessing Officer on 27.05.2011 was within the period of limitation and in

support he relied upon the judgement of the Hon'ble Madras High Court in the

case of Rayala Corporation P. Ltd. vs. UOI, 288 ITR 452 (Mad.).

8. We have carefully considered the rival submissions on this aspect.

Pertinently, the issue raised by the assessee is fully covered by the judgement

of the Hon'ble Madras High Court in the case of Rayala Corporation P. Ltd.

(supra). As per the Hon'ble Madras High Court, in a case where assessee

has challenged the quantum addition before the Tribunal, the period of

limitation for passing of penalty order u/s 271(1)(c) of the Act is to be reckoned

as per the provisions of section 275(1)(a) of the Act i.e. within a period of six

months from the end of the month in which the order of the Tribunal has been

received by the concerned Commissioner of Income Tax or the Chief

Commissioner of Income Tax, as the case may be. In this context, the

following discussion in the judgement of the Hon'ble Madras High Court in the

case of Rayala Corporation P. Ltd. (supra) is relevant :-

"A reading of the abovesaid provision makes it clear that the interpretation placed by learned counsel for the petitioner on the said provision is acceptable. There is no dispute in this case that the petitioner has filed an appeal before the Tribunal and the same is pending. In such a case, the limitation period for the levy of penalty will be as provided for under section 275(1)(a), i.e, six months from the end of the month in which the order of the Appellate Tribunal is received by the Chief Commissioner. There cannot be any doubt on this aspect. Accordingly, this court is of the view that the proviso to section 275(1)(a) of the Act, does not nullify the availability to the third respondent of the period of limitation of six months from the end of the month when the order of the Income-tax Appellate Tribunal, Chennai, is received by the third respondent herein."

9. If we examine the fact-position in the present case, we find that the

assessee had challenged the order of the CIT(A) in quantum proceedings

before the Tribunal who vide its order dated 06.09.2010 in ITA

No.1329/PN/2009 & Others had disposed of such appeal. Therefore, the 6 ITA No.441/PN/2012

limitation for passing of an order u/s 271(1)(c) of the Act in the present case is

to be governed by section 275(1)(a) of the Act which provides that the penalty

can be levied within six months from the end of the month in which the order of

the Tribunal was received by the Commissioner of Income Tax or the Chief

Commissioner of Income Tax, as the case may be. From the side of the

assessee, there is no dispute that the impugned penalty order has been

passed by the Assessing Officer within six months from the end of the month

in which the Tribunal order was received by the Commissioner of Income Tax

or the Chief Commissioner of Income Tax, as the case may be. Thus, in this

factual background and having regard to the parity of reasoning laid down by

the Hon'ble Madras High Court in the case of Rayala Corporation P. Ltd.

(supra), the Additional Ground of Appeal raised by the assessee challenging

the limitation in passing the impugned penalty order is hereby dismissed.

10. In order to appreciate the factual background leading to the imposition

of penalty u/s 271(1)(c) of the Act, the following facts are relevant. The

assessee company in this case filed a return of income on 27.03.2008

declaring 'Nil' income. The assessment was re-opened by the issuance of

notice u/s 148 of the Act on 28.05.2008 in consequence to which an

assessment u/s 143(3) r.w.s. 147 of the Act was completed on 23.03.2009

assessing a total income at Rs.76,10,61,683/-. The said income represented

an addition made by the Assessing Officer on account of long term capital gain

in respect of the land situated at Dhanori, Pune. The assessee company

challenged the addition made by the Assessing Officer in appeal before the

CIT(A) who has since affirmed the same. However, the Tribunal vide its order

dated 06.09.2010 (supra) allowed partial relief whereby the long terms capital

gain on sale of land was determined at Rs.56,89,07,575/-. The Assessing

Officer in the meanwhile vide his order dated 27.05.2011 held the assessee

guilty of concealment/furnishing of inaccurate particulars of income within the

meaning of section 271(1)(c) of the Act qua the aforesaid long term capital 7 ITA No.441/PN/2012

gains. The CIT(A) has also upheld the levy of penalty but has scaled down it

to Rs.12,76,62,859/- by restricting it to the revised long term capital gain

computed after the order of the Tribunal at Rs.56,89,07,575/- as against

Rs.76,10,61,683/- assessed by the Assessing Officer.

11. The area of difference between assessee and the Revenue with regard

to the taxability of the long term capital gain is two-fold. Firstly, it is noticed

that while computing capital gain assessee considered the Fair Market Value

of the said land as on 01.04.1981 at Rs.1230 per sq.mtr. for the purposes of

computing its cost of acquisition. The Assessing Officer did not accept the

aforesaid Fair Market Value as on 01.04.1981 and instead he adopted a rate

of Rs.15.23 per sq.mtr.. This aspect of the addition was sustained by the

CIT(A) also in the quantum proceedings. However, the Tribunal vide its order

dated 06.09.2010 held that Fair Market Value as on 01.04.1981 be considered

at Rs.665 per sq.mtr.. Thus, as against the Fair Market Value adopted by the

assessee at Rs.1230 per sq.mtr., the Tribunal directed it to be adopted at

Rs.665 per sq.mtr.. In this context, a revised working of the long term capital

gain has been furnished by the assessee which comes to Rs.56,10,96,776/-

as against Rs.37,19,49,949/- offered to tax by the assessee albeit in the next

assessment year 2008-09. The copy of the said working is placed at page 4

of the Paper Book.

12. Pertinently, on this point it is also relevant to observe that the assessee

had sold the land in two tranches. Firstly, in assessment year 2005-06 and

balance in assessment year 2008-09. Therefore, assessee offered capital

gains in assessment year 2005-06 and 2008-09 and no capital gains was

offered in the instant assessment year of 2007-08 initially. The Assessing

Officer, however, held that the second tranche of land sold by the assessee

was liable for capital gains in assessment year 2007-08 itself and not in

assessment year 2008-09. This aspect of the controversy is the second limb 8 ITA No.441/PN/2012

of the addition on which the penalty has been levied. Thus, it is notable that

the penalty has been levied by the Assessing Officer on two aspects, firstly on

the ground that the capital gain was not offered in assessment year 2008-09;

and, secondly, that the assessee had adopted the Fair Market Value of the

land as on 01.04.1981 at Rs.1230 per sq.mtr. as against which the Tribunal

has directed to adopted the Fair Market Value as on 01.04.1981 at Rs.665 per

sq.mtr..

13. In this background, at the outset, the Ld. Representative pointed out

that even at the time of the assessment of capital gain on the first tranche of

the sale in assessment year 2005-06 there was a difference between the Fair

Market Value as on 01.04.1981 adopted by the assessee and that determined

by the Assessing Officer. In assessment year 2005-06 also, the Assessing

Officer computed capital gain by adopting the Fair Market Value at Rs.15.23

per sq.mtr. as against Rs.1230 per sq.mtr. adopted by the assessee. It was

pointed out that the Fair Market Value was adopted by the assessee on the

basis of a Valuation Report obtained from a Government Approved Valuer

which was very much before the Assessing Officer. In assessment year 2005-

06 also, the said issue travelled before the Tribunal and in its order dated

06.09.2010 (supra) in ITA No.1568/PN/2008 the Fair Market Value of the land

as on 01.04.1981 was directed to be adopted at Rs.665 per sq.mtr.. In

assessment year 2005-06 also, the Assessing Officer levied penalty on this

aspect of the dispute. The Ld. Representative pointed out that penalty

imposed on this aspect of the dispute in assessment year 2005-06 travelled to

the Tribunal, and vide its order in ITA No.495/PN/2010 dated 20.03.2012 the

Tribunal found it fit to delete the same. Therefore, it was contended by the Ld.

Representative that so far as the penalty levied with respect to the difference

in computed income on the basis of the difference in Fair Market Value as on

01.04.1981 is concerned, no penalty was leviable having regard to the

decision in the assessee's own case for assessment year 2005-06 (supra). 9 ITA No.441/PN/2012

This factual matrix has not been opposed by the Ld. CIT-DR appearing for the

Revenue.

14. We have perused the precedent dated 20.03.2012 (supra) in the

assessee's own case and find that the following discussion in the order is

relevant :-

"6. After going through t he rival submissions and perusing the material on record, we find that the assessee has sold its land at dhanori, Pune. The assessee was engaged in the business of manufactur ing biscuits and chocholates and stated to have closed its business activities from 1996 onwards due to var ious problems, manuf act uring loss, control over adm inistration and it was not running the administration pr operly and was not having all records so as to file the returns for A.Y. 2005-06 at relevant part of t ime. However various quer ies were raised by t he Assessing Officer with regar ds to capital gain and after r ejecting the cont ention raised on behalf of the assessee, the Assessing Officer considered the capital gain of Rs.22,93,91,745/- which was confirmed by the CIT(A). In second appeal and the Tribunal vide its order dated 6 t h September 2010 in ITA No. 1568/ PN/2008 directed the Assessing Officer to compute the capital gain by taking FMV of the land at Rs. 665/- per sq. mtr as on 1-4-1981. In consequent ial order, the long term capital gain has been revised by the Assessing Officer at Rs. 8,39,82, 576/-.

Thus, the Assessing Officer determined the FMV of the land at Rs. 665/- per sq. mtr as against Rs. 15.23 per sq. mtr allowed by the Assessing Officer as against Rs. 1230/- per sq. mtrs as claimed by the assessee. The basis of penalty is non- acceptance of the long term capital loss by the Assessing Off icer which was conf irmed by the CIT(A). According to the Assessing Officer, the value of the land adopted by the assessee was unrealistic and w ithout any basis. He stated that the assessee has adopted the higher value of the land and thereby reduced the income. Accor dingly, the above said FMV of the property was adopted at Rs. 15.23 per sq. mtrs as against the claim of the assessee at Rs. 1230/- per sq mtrs for the purpose of computation of capit al gain. Now, the FMV as stated above, has been held to be reasonable at Rs. 665/- per sq. mtrs. In fact the FMV of t he land has been the subject matter of penalty w hich was, according to the assessee, is debatable and rightly so, because the Tr ibunal has also taken the market value with regards t o FMV. The adoption of FMV is a matter of estimate.

It may vary person to person and adopting the particular FMV at the advice of approved valuer cannot be the sound basis for invoking the provisions of sect ion 271(1)(c) of the Act. As explained above, the assessee could not file the ret urn in time. Same thing was explained before the Assessing Officer though not accepted by the him at the r elevant point of time. The assessee was trying to give explanat ion with regar ds to non-

10 ITA No.441/PN/2012 filing of the return and to justify its claim of FMV in the computation of capital gain. So there is nothing on recor d to suggest that the assessee had any intention to conceal the income. This view gets strength from the fact that the assessee had paid advance tax on the long term capital gain ar ising fr om the sale of the balance portion of the land. So, the assessee was prevented by r easonable cause for not f iling t he ret urn of income in time. The assessee bonaf idely claimed the capital gain in question. This view gets strength from the judgment of the Himachal Pradesh High Court in the case of CI T Vs. Raghunat h Singh Thakur (304 ITR 268) wherein it has been stated that in case the Assessing Officer does not refer the matter to the DVO, the value adopted by the assessee should be accepted the Assessing Officer. In this background, the assessee was under bonafide impression that the FMV adopted by it for the purposes of computat ion of capital gain is just ified. The Hon'ble supr eme Court in t he case of Reliance Petroproducts Pvt. Ltd. (322 ITR 158) has held that even if the assessee makes an incorrect claim in law, same cannot be stated that the assessee has concealed its income or furnished inaccurate particulars of income. Clause (c) of section 271(1) categor ically states that the penalty would be leviable if the assessee conceals particulars of his income of furnishes inaccurate particulars thereof. Moreover, the valuation by approved valuer or otherwise is a matt er of est imate. Under facts and circumstances, we hold that the penalty is not just ifiable in respect of the addition made on account of computation of capital gain on sale of land at Dhanori. The same is directed to be deleted. "

15. Considering the decision of the Tribunal dated 20.03.2012 (supra) in

the assessee's own case for assessment year 2005-06 we hold that no

penalty is leviable on the income assessable on account of adoption of the

Fair Market Value as on 01.04.1981 at Rs.665 per sq.mtr. as against Rs.1230

per sq.mtr. adopted by the appellant company. Thus, the Assessing Officer is

directed to delete the same.

16. The second issue on which the penalty has been levied is non-offering

of the capital gain to tax by the assessee in assessment year 2007-08. On

this issue, assessee pointed out that it had offered to tax the long term capital

gain in assessment year 2008-09. At the time of hearing, the Ld.

Representative for the assessee referred to pages 11 and 12 of the Paper

Book to point out that for assessment year 2008-09 assessee duly furnished a 11 ITA No.441/PN/2012

return of income on 29.09.2008 declaring such capital gains. In this context,

the case setup by the assessee is that only difference in the year of taxability

of income cannot be a ground to levy penalty u/s 271(1)(c) of the Act.

17. In this context, brief facts are that assessee entered into a Development

Agreement with one M/s Raghuleela Builders Pvt. Ltd. on 19.03.2007 which

was registered on 04.04.2007. The Ld. Representative at the time of hearing

has pointed out that ultimately the Conveyance Deed was executed on

27.03.2008, a copy of which has been placed at pages 177 to 179 of the

Paper Book. Notably, assessee considered that the transfer of land giving rise

to the levy of capital gains took place during the period 01.04.2007 to

31.03.2008 and accordingly it declared capital gains on sale of such land in

the return filed for assessment year 2008-09 on 29.09.2008. The Assessing

Officer, however, deemed it fit to tax such capital gain in assessment year

2007-08 itself on the basis of the Development Agreement dated 19.03.2007.

The Assessing Officer taxed the capital gain in assessment year 2007-08 on

the basis of the judgement of the Hon'ble Bombay High Court in the case of

Chaturbhuj Dwarkadas Kapadia vs. CIT, 260 ITR 491 (Bom.). In so far as the

merits of such action is concerned, the same has been affirmed by the

Tribunal also vide its order dated 06.09.2010 (supra). Be that as it may, for

the present, the merits of the controversy are not the issue before us.

18. On this aspect, the plea of the Ld. Representative was that in terms of

the Development Agreement dated 19.03.2007, assessee only gave a license

to the purchaser/developer to enter upon the land and to commence

development and construction. The case of the Revenue is that the

Development Agreement dated 19.09.2007 clearly indicated passing or

transferring of complete control over the said land to the purchaser and the

execution of the Conveyance was only postponed till the discharge of full

consideration by the purchaser. The Ld. Representative in this background, 12 ITA No.441/PN/2012

pointed out that though the Development Agreement granted license to the

purchaser for development of the land but in reality the physical possession of

the land remained with assessee during the previous year relevant to the

assessment year 2007-08. In support, he invited our attention to a copy of the

complaint filed by the assessee to Vishrantwadi Police Station dated

22.05.2007, which has been placed at pages 182 to 185 of the Paper Book.

In terms of the said complaint, it is sought to be made out that a mob of about

50 to 60 people entered the said land. Another complaint filed with the Police

dated 26.05.2007 is also enclosed at pages 186 to 187 of the Paper Book; the

Ld. Representative also referred to an invoice raised by the Security Agency

for the period April to June, 2007 to demonstrate that assessee was hiring

Security and Labour Services to protect the land. It was therefore contended

that the physical possession of the said land was not parted by the assessee

in the previous year ending on 31.03.2007 so as to deem it to be a 'transfer'

within the meaning of section 2(47)(v) of the Act.

19. We have considered the aforesaid submissions put-forth by the

assessee but the same impinges on the merits of the addition which is not the

subject-matter of the controversy before us. The assessee had also stated in

the course of the hearing that only part consideration was received by the

assessee during the year under consideration inasmuch as only a sum of

Rs.38,25,92,925/- out of the total consideration of Rs.76,51,85,850/- was

received during the assessment year 2007-08. It was pointed out that only

after receipt of the entire consideration the Conveyance Deed of the said land

was executed by the assessee in favour of the purchaser on 27.03.2008 and

therefore assessee was justified in declaring capital gain on sale of such land

in the previous year 2007-08 corresponding to the assessment year 2008-09.

It was, therefore, contended that the issue regarding the taxability of capital

gain in assessment year 2007-08 or assessment year 2008-09 is a debatable 13 ITA No.441/PN/2012

issue and therefore in such a situation, at least penalty u/s 271(1)(c) of the Act

is not leviable.

20. On the other hand, the Ld. CIT-DR has supported the order of the

authorities below. It was argued by Ld. CIT-DR that the plea of the assessee

that long term capital gain on sale of land was taxable in assessment year

2008-09 was negated by the Tribunal and therefore the Assessing Officer was

justified in levying the penalty. It was submitted by the Ld. CIT-DR that the

Development Agreement dated 19.03.2007 clearly stated that assessee

company handed-over possession of the said land on that date and therefore

the said capital gain was liable to be offered in assessment year 2007-08

itself. Because the assessee did not offer it in assessment year 2007-08, the

Assessing Officer was justified in levying penalty u/s 271(1)(c) of the Act.

21. We have carefully considered the rival submissions. The moot point to

be considered is as to whether the assessment of capital gain on sale of land

in assessment year 2007-08 as against in assessment year 2008-09 as

offered by the assessee tantamounts to concealment of income and/or

furnishing of inaccurate particulars of such income within the meaning of

section 271(1)(c) of the Act. Factually speaking, it is not a case where

assessee has not offered the capital gains to tax rather it is a case where the

income has been offered to tax by the assessee, albeit in the subsequent

assessment year. The Assessing Officer has assessed the capital gain in

assessment year 2007-08 based on the decision of the Hon'ble Bombay High

Court in the case of Chaturbhuj Dwarkada Kapadia (supra). The aforesaid

action has also been affirmed by the Tribunal vide its order dated 06.09.2010

(supra). As per the Hon'ble Supreme Court in the case of Anantharam

Veerasingaiah And Co. vs. CIT, 123 ITR 457 (SC) penalty proceedings are

independent of the assessment proceedings and a finding in assessment

proceedings that a particular receipt is income cannot automatically be 14 ITA No.441/PN/2012

adopted as a finding to that effect in the penalty proceedings. The Hon'ble

Supreme Court emphasized that the burden of proof in a penalty proceeding

varies from that involved in an assessment proceeding and therefore in the

penalty proceedings the taxing authority is bound to consider the matter afresh

on the basis of material before it and in the light of the burden cast to ascertain

whether the levy of penalty is justifiable. As per the Hon'ble Supreme Court,

the finding in the assessment order that the disputed amount represented

income may constitute good evidence in penalty proceedings but such finding

in the assessment proceedings cannot be regarded as conclusive for the

purposes of levy of penalty. The aforesaid legal proposition laid down by the

Hon'ble Supreme Court is relevant in the present context because it is clearly

emerging from the orders of the authorities below in the impugned penalty

proceedings that assessee has been held guilty for concealment of income

and/or furnishing of inaccurate particulars of income only for the reason that

addition on account of capital gain has been sustained by the Tribunal in the

quantum proceedings. It is noteworthy that in so far as the particulars relating

to the impugned income furnished by the assessee in the proceedings before

the Assessing Officer are concerned, the same have not been found to be

erroneous or incorrect. The entire conspectus of the dispute, which we have

narrated in the earlier paras would reveal that the crux of the difference

between the assessee and the Revenue is the year in which the capital gain is

liable to be taxed, having regard to the terms and conditions of the

Development Agreement entered by the assessee with the purchaser on

19.03.2007. No doubt, in the quantum proceedings, it has been held that a

'transfer' has occurred in terms of section 2(47)(v) of the Act in assessment

year 2007-08 on account of giving of possession following the judgement of

the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia

(supra). So however, the question relevant for the present situation is as to

whether assessee's action of declaring such income in assessment year 2008-

09 is bona-fide or not ? It is quite apparent from the copy of the Development 15 ITA No.441/PN/2012

Agreement which is placed in the Paper Book that it was registered on

04.04.2007. It is also clear that the Conveyance Deed was ultimately

executed on 27.03.2008 after assessee received the full consideration from

the purchaser. It is also not in dispute that during the previous year relevant to

the assessment year under consideration assessee did not receive the full

consideration but had received only part consideration from the purchaser.

Under these circumstances, especially in view of the fact that assessee had

suo-motu declared such income in the return of income filed for assessment

year 2008-09, no mala-fide on the part of the assessee can be inferred for

having declared such income for assessment year 2008-09 and not for

assessment year 2007-08. At the time of hearing, in support of assessee's

bona-fides, the Ld. Representative made a statement at Bar that the advance

taxes on such income payable for assessment year 2008-09 were paid by the

assessee within period prescribed which was even before the re-assessment

proceedings were started by the Assessing Officer for the instant assessment

year 2007-08. The said statement made by the Ld. Representative for the

assessee at Bar has not controverted by the Revenue.

22. In the case of Metal Rolling Works Ltd. vs. CIT, (2011) 339 ITR 373

(Bom.), which was relied upon by the assessee before us, the issue was

relating to levy of penalty on capital gains. The controversy was the year in

relation to which capital gains tax was leviable. The Hon'ble High Court

disagreed with the Revenue for levy of penalty u/s 271(1)(c) of the Act merely

on account of the difference in the year of taxability of capital gains. To the

similar effect is the judgement of the Hon'ble Bombay High Court in the case

of Jayant Vegoils and Chemicals Pvt. Ltd. vs. CIT, (2010) 323 ITR 641 (Bom.). In the case of Jayant Vegoils and Chemicals Pvt. Ltd. (supra), penalty was

imposed with respect to the disallowance of a fine levied in lieu of confication

of goods. The Assessing Officer had noted that in terms of an order passed

by the competent authority, the fine was dropped and therefore the 16 ITA No.441/PN/2012

disallowance was justified. Factually, it was not disputed that the fine in lieu of

confiscation had been cancelled by the competent authority, but assessee

took the plea that the order passed by the competent authority cancelling the

fine was received after the close of the financial year under consideration and

therefore assessee did not make entries in the books within the relevant year.

The book entries were made in the subsequent year. The assessee

contended that on the basis of the book entries made in the subsequent year

the said amount was offered to tax in the next year. Therefore, the plea was

that there was no justification for levy of penalty for disallowance of the fine

levied in lieu of confiscation of goods. The Hon'ble High Court accepted the

plea of the assessee that such a lapse was not deliberate and "at the highest it

could be said to be an inadvertent error of judgement, no penalty ought to

have been imposed".

23. In our considered opinion, in the present case too having regard to the

conspectus of facts and circumstances, non-declaration of capital gain in

assessment year 2007-08 cannot be construed as a deliberate lapse but it

could only be construed as an inadvertent error of judgement on a point of law

and therefore no penalty u/s 271(1)(c) of the Act is imposable.

24. Moreover, it is also apparent from the contours of the dispute that the

claim of the assessee for taxability of capital gains in assessment year 2008-

09 instead of 2007-08 has been rejected not on the basis of any falsity or

inaccuracy in facts or particulars furnished by the assessee but only on an

application of a legal position. In this context, a mere making of a claim, which

is not found to be sustainable in law by the Assessing Officer cannot by itself

be construed as furnishing of inaccurate particulars of income within the

meaning of section 271(1)(c) of the Act, as held by the Hon'ble Supreme Court

in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158

(SC).

17 ITA No.441/PN/2012

25. In view of the aforesaid discussion, in conclusion, we hold that lower

authorities have erred in imposing the penalty u/s 271(1)(c) of the Act on the

impugned aspect of the matter. We therefore set-aside the order of the CIT(A)

and direct the Assessing Officer to delete the penalty imposed u/s 271(1)(c) of

the Act.

26. In the result, the appeal of the assessee is partly allowed, as above.

Order pronounced on 10 th April, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 10 th April, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-III, Pune; 4) The CIT-IV, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune