Capital Gain on Co‑Owned Agricultural Land Not Offered: ITAT Quashes ₹18.41 Lakh Penalty u/s 271(1)(c): ITAT [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Surat Bench, set aside a penalty of ₹18.41 lakh imposed under Section 271(1)(c) of the Income Tax Act, 1961, after finding that the notice issued to the taxpayer was defective and the omission arose from a bona fide belief regarding the taxability of agricultural land.

The case concerned Assessment Year 2014–15, where the Assessing Officer had added ₹89.14 lakh as Long‑Term Capital Gain on the sale of land jointly owned by the assessee Kantibhai Tulshibhai Bhadani and others. The assessee had declared an income of ₹2.97 lakh, believing the sale proceeds from agricultural land to be exempt from tax. The department treated the transaction as taxable and levied a penalty under Section 271(1)(c) for furnishing inaccurate particulars.

Appearing before the Tribunal, the assessee’s counsel argued that the penalty notice under Section 274 read with Section 271(1)(c) was invalid since it failed to specify whether the charge was for “concealment of income” or “furnishing inaccurate particulars.” He further contended that the assessee had disclosed all details of the sale and genuinely believed the transaction was tax‑neutral, as the land was agricultural and co‑owned.

On the other hand, the opposite counsel relied upon the assessment order in the order of the Ld. CIT(A) .

The bench, comprising B.R.R. Kumar (Vice President) and Suchitra Kamble (Judicial Member), agreed that the notice was defective and cited the Supreme Court’s decision in CIT v. SSA’s Emerald Meadows (2016), which held that vague penalty notices are invalid. The bench also noted that other co‑owners of the same land were not subjected to any addition, reinforcing the assessee’s bona fide belief.

The tribunal observed that “The assessee is one of the co-owners and in fact and other co-owners case, the Assessing Officer has not made any addition. Therefore the question of concealment of income or furnishing of inaccurate particulars of income does not arise in present assessee’s case.”

Accordingly, the appeal of the Assessee was allowed.

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