The Ahmedabad bench of the Income Tax Appellate Tribunal, in a recent decision, held that determination capital gain by applying section 50C of the Income Tax Act, 1961 cannot be treated as a conclusive proof that sale deed is incorrect or wrong. While observing so, the Tribunal invalidated the penalty order passed under section 271(1)(c) of the Income Tax Act.
Coming to the facts of the case, the assessing Officer determined the deemed capital gain while completing assessment against the assessee by adopting sale consideration under section 50C against the sale deed value. Instead of total sale consideration shown by the assessee, the Officer taken the value determined by the Stamp Duty Authority as the market value of the property.Accordingly, the amount equal to the difference between both the said values was included to the total income of the assessee by treating the same as undisclosed receipt.Thereafter, the amount paid as stamp duty as per original value was also added to the total income as paid from unaccounted source. Consequently, the Department initiated penalty proceedings under section 271(1)(c) of the Income Tax Act against the assessee alleging concealment of particulars of income.
Though the above penalty proceedings were challenged before the Commissioner of Income Tax (Appeals), the assessee could not secure any relief. Therefore, the matter was brought before the ITAT to decide the validity of the proceedings.
The Tribunal found that the Officer has never questioned the actual sale consideration received by the assessee. Further, the Revenue has no case that the assessee has under estimated the sale consideration while filing the return. The Tribunal noted that “The Assessing Officer had not questioned the actual sale consideration received by the assessee but the addition was purely made on deeming fiction and he has also not given the finding that actual sale consideration is more than the sale consideration admitted and mentioned in sale deed. Application of Section 50C of the Income Tax Act is not a conclusive proof that sale deed is incorrect or wrong and addition because of deeming fiction would not ipso facto attract penalty us/ 271(1)(c). It has been held by the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro products (P) Ltd, (2010) 322 ITR 0158 (SC), that merely by making a claim which is not accepted by the AO, penalty u/s 271(1)(c) cannot be levied. Even otherwise also the assessee’s case is not covered within the meaning of Explanaion-1 to Section 271(1)(c), because the assessee has furnished the explanation which is not found to be false. There is no allegation that the assessee has not disclosed any material fact for the purposes of assessment or for the purposes of levy of penalty and there is also no allegation that the explanation furnished by the assessee is not bonafide.”
The tribunal further noticed the decision of the Co-ordinate Bench Star International (P) Ltd vs. ACIT, reported in (2008) 23 SOT 88 (Lucknow), in which the Tribunal laid down the following three ingredients to invoke explanation-1 to section 271(1)(c) of the Act. Firstly, The assessee offers an explanation which he is not able to substantiate. Secondly, he fails to prove that such explanation is bonafide. And thirdly, all the facts relating to the same and material facts to the computation of total income then disclosed by him.
The Tribunal, referring the above decision, observed that the conditions laid down by the Tribunal in the above case are not satisfied in the above case and therefore, the penalty order is not sustainable.
Read the full text of the order below.