The Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the penalty under Section 271(1)(c) of the Income Tax Act, 1961, stating that merely agreeing to an addition based on the valuation made by the stamp valuation authority does not constitute conclusive proof that the sale consideration was incorrect.
The assessment proceedings, the assessee submitted a revised statement of income on 18.06.2014, revealing the sale of assets and declaring a total income of Rs. 23,01,894/-. Notably, the initial return did not disclose the sale of land. The Assessing Officer determined that the property was purchased for an amount below its Fair Market Value ( FMV ) for stamp duty valuation purposes and consequently added the difference to the assessee’s total income under Section 56(vii)(b) of the Income Tax Act, 1961, totaling Rs. 8,18,717/-.
Additionally, an amount of Rs. 20,000/- was added by the Assessing Officer as the source of this payment towards stamp duty charges was not explained by the assessee. Subsequently, the Assessing Officer imposed a penalty under Section 271(1)(c)of the Income Tax Act, 1961, arguing that had the case not been selected for scrutiny, the capital gains from the asset sale would not have been disclosed. The penalty imposed was 100% of the tax sought to be evaded, amounting to Rs. 7,84,090/-
The counsel for the assessee Arti N. Shah argued that the omission to declare the sale of the aforementioned property in the original return of income was inadvertent. This was due to the fact that, at the time of the sale, the assessee had already paid advance tax of Rs. 5,00,000/- (on 26.12.2014), and the purchaser had also deducted TDS on the purchase of the immovable property under Section 194IA of the Income Tax Act, 1961, amounting to Rs. 42,120/- on the same date.
Consequently, the assessee genuinely believed that since taxes had already been settled on the sale of the immovable property, there was no necessity to report it in the return of income. Furthermore, the counsel highlighted that during the original assessment proceedings, there was no additional tax liability arising from the sale consideration of the immovable property, as all taxes, including TDS payable on the sale, had been duly paid by the assessee on 26.12.2014. Thus, there was no intention to evade tax payments regarding the sale of the property.
Additionally, the counsel argued that the additions to the total income were made under the “deeming provisions” outlined in Section 56(2)(vii)(b) of the Income Tax Act, 1961, and therefore, no penalty could be imposed on a “deemed addition” under Section 271(1)(c) of the Income Tax Act, 1961.
In response, the counsel for revenue Saumya Pandey Jain argued that penalties can still be imposed even in “tax-neutral” transactions that have been disclosed in the original return of income. The Learned Deputy Representative cited the observations made by the Learned Commissioner of Income Tax ( Appeals ) and also referenced the case of Honorable Supreme Court in the matter of MAK Data Pvt. Ltd. 358 ITR 593 ( SC ). In this case, it was established that voluntary disclosure does not exempt the assessee from the consequences of penal proceedings under Section 271(1)(c)of the Income Tax Act, 1961
The two member bench of the tribunal comprising Anupama Gupta ( Accountant member ) and Siddartha Nautiyal ( Judicial member ) reached a conclusion regarding the imposition of penalties under Section 271(1)(c) of the Income Tax Act, 1961, in the current case. Firstly, it is evident that at the time of the sale of the mentioned immovable property, the assessee had already fulfilled tax obligations amounting to Rs. 5,42,120/- on 26.12.2014 (inclusive of tax deducted at source under Section 194 IA of the Income Tax Act, 1961). Thus, there appears to be no intent to evade taxes on the short-term capital gain arising from the sale of the property.
Secondly, the bench noted that the additions were made by the Assessing Officer by invoking the deeming provisions of Section 56(2)(vii)(b)of the Income Tax Act, 1961. This was based on the assertion that the purchase price of the property was lower than its Fair Market Value ( FMV ) for stamp duty valuation purposes. Consequently, the addition was made under these “deeming provisions,” and there is no evidence to suggest that the assessee concealed income particulars or deliberately furnished inaccurate details of income.
The bench concluded that mere agreement to an addition based on stamp valuation does not conclusively prove that the sale consideration in the sale agreement was incorrect, thus ruling out penalty on the basis of deeming provisions. Considering the precedent set by the Gujarat High Court in the aforementioned case and applying it to the current circumstances, we believe that the penalty under Section 271(1)(c) of the Income Tax Act, 1961, should be deleted in this particular case.
In the result, the appeal of the assessee was allowed.
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