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1999 (10) TMI 733

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..... or the year was under two heads, viz. business loss and the profit under the head capital gains. The net taxable income worked out by the assessee-firm was at ₹ 26,16,299. 3. Before the AO, two questions were raised for his consideration : (i) Whether the assessee's claim that the land in question disposed of by the assessee is a capital asset and not a business asset i.e. stock in trade? (ii) If the answer to Issue No. 1 is in the affirmative (it is the capital asset), then whether the assessee could bifurcate this sale consideration in respect of the capital asset into two parts'one in the nature of a capital receipt and the other in the nature of business receipts, thereby claiming deduction under s. 48(2) and also business loss. 4. The AO treated the entire receipt as a one composite receipt in respect of transfer of capital asset. Being aggrieved, the assessee preferred appeal before the CIT(A). The CIT(A) examined the nature of right in property by applying the various legal tenets and found that the receipt in question cannot be construed to be a 'capital receipt', since it is not emanating out of the transfer of a capital asset. The entir .....

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..... calculated by the AO 2,33,11,240 3,18,67,895 1,47,88,338 8. The CIT(A) thus enhanced the assessment by issuing a notice for enhancement of assessment during the appellants proceedings and after hearing the assessee. The assessment as enhanced by the CIT(A) has been finally upheld by the Tribunal in Appeal No. 3653/Bom/1994. The reference application of the assessee under s. 256(2) is pending before the Honourable Bombay High Court on this order of the Tribunal. 9. CIT(A) initiated penalty proceedings under s. 271(1)(c) and after giving the assessee an opportunity of being heard the above penalty has been imposed. It shall be pertinent to mention here that the assessee-firm is a group of firms and the other sister concerns are M/s Omega Associates and M/s Crescendo Associates etc. In these cases also the assessments were enhanced and penalty under s. 271(1)(c) was also imposed similar terms and circumstances. At the time of hearing the learned counsel for the assessee took us through chronology of events and facts of the case which are summarised as under. 10. On 28th .....

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..... r an agreement dt. 6th March, 1989, was executed between the Alpha Associates (first party), Shri C.B. Sharma Ors. (second party), BMRDA (confirming party) and Mahanagar Telephone Nigam Ltd. (MTNL) (assignees). The relevant clauses of the agreement are as under : (i) Shri C.B. Sharma, party of the second part was possessed and seized of the land prior to 12th May, 1983, (p. 4). This averment was made without considering the notification/order issued under s. 10 of the ULCR Act, 1976 because under s. 10 of the ULCR Act right in land might have vested in State Government earlier. (ii) The Government of Maharasthra published a Notification No. BMRDA/2076/1100/CR 84/Part II/UD-4 dt. 12th May, 1983, in Government Gazette to acquire such land in pursuance of sub-s. (1) to s. 32 of BMRDA Act and accordingly various lands including the land Shri C.B. Sharma vested in the State Government upon the publication of the said notification (p. 5). Under this agreement, Shri C.B. Sharma offered to the MTNL (assignees) to assign and transfer the benefits of the said agreement to lease dt. 19th Nov., 1986 in respect of the land in favour of MTNL (assignee) (p. 9). (iii) BMRDA (confirming .....

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..... ing requisite infrastructure under the said scheme in accordance with the standard laid down by the Municipal Corporation of Greater Bombay. The learned counsel for the assessee vehemently contended that all the above documents are in writing and are spread over a long period of time and constitute a series of events one leading to other. The conduct of the assessee clearly shows that what was contemplated to have purchased a bundle of rights including a right to get the conveyance of immovable property executed in favour of the assessee-firm. The agreements are valid agreements as per the canons of the law and no illegality can be attributed to them. The fact that the same was treated as transfer by the assessee is evident from the fact that it applied to the appropriate authority under s. 269UL of the IT Act which is a cumbersoms procedure and applicable only to transfers of immovable property. Had the assessee carried an impression that transactions entered into it with Shri C.B. Sharma is not transfer of immovable property it would not have applied for such proceedings which were applicable only to transfer of immovable property. Further, the Appropriate Authority after con .....

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..... head 'Capital gains' and the balance towards the development of land as per the above schedule as taxable under the head 'Profits from business and profession'. The assessee was under bona fide belief that as far as the amount of contract with MTNL to the extent of land is concerned it has to be covered under the chapter 'capital gains' and as the assessee is doing the developmental work as per the specifications of MTNL the same is an adventure in the nature of trade and the same is to be treated under the head 'Profits from business and profession'. The return was accordingly prepared and valid return duly accompanied with audited accounts statement and all other necessary particulars complete in all respects were filed with the AO. Assessment proceedings were lengthy wherein all the aspects of the assessment were properly looked into by the AO. The AO in framing the assessment made certain findings and observations which shall be pertinent to mention in this behalf : (4.5) The above judicial pronouncements have been gone through and the same found to be applicable to the facts and circumstances pertaining to the case of the assessee-firm and m .....

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..... for acquisition of 8 hectares of development land as against the offer of 34.9 hectares of land for construction of trading centre and staff quarters. Hence you are requested to offer only 8 hectares of land in developed condition..... From the above letter of MTNL, it is clear that it was the developed land which was always intended and was actually acquired by the MTNL from the assessee-firm. In the reply filed by the assessee it is claimed that the above letter dt. 13th May, 1988, shows that the land was acquired in the undeveloped land which is found to be factually incorrect. The other correspondence between the MTNL and the land officer of BMRDA vide letter dt. 2nd Sept., 1986, and further letter dt. 20th March, 1987, is of little consequence in deciding whether it was the developed land which was sought to be acquired by the MTNL or otherwise. Although the above letter has also been relied upon by the assessee, the same are found to be not applicable to the issues in question, which happens to be the condition in which the land was proposed to be acquired. (iii) Coming to the bifurcation of the total premium of ₹ 1,300 per sq. mtr. into two parts i.e. ₹ 90 .....

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..... n the agreement dt. 6th March, 1989. In this agreement all conditions are stated, including that the MTNL is paying the price of ₹ 1,300 per sq. mtr. for the developed land and the assessee will complete the development activities subsequent to the handing over of possession in June, 1989. If it was a separate commercial job, the MTNL would have floated a tender and agreement for the selection of the developer would have been made in this regard. This has not so been done. This is because at the very outset it was the developed land, which was sought to be purchased by the MTNL. It may be mentioned that it was because of such facts that the entire premium of ₹ 4,67,56,233 has been paid by 27th April, 1989. The meaning thereof is that the transaction of sale of the development of the capital asset is taken as complete and it is only an improvement in the complete and it is only an improvement in the condition of the land which is to be carried out by the assessee-firm subsequently. 15. In view of the foregoing discussion regarding the facts of the case (para 5 to 5.4 and regarding the legal positions in para 5.5 and 5.6), the assessee's claim of the said bifurca .....

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..... ch the same is to be offered for taxation is clearly established in favour of the assessee. The counsel further pointed out that assessee has not withheld any paper from the scrutiny of the Department. In fact there is no observation whatsoever in the orders of the lower authorities holding that assessee has produced any wrong paper, withheld any information or concealed any paper. All the agreements are on record. All the receipts are on record, the same are duly reflected in the account books from time to time over a length of time. 15. The counsel of the assessee now came to the enhancement order of the CIT(A). It was however contended that the bona fides of the assessee is further proved by the fact that it was aggrieved by the orders of the AO to the extent of part of the consideration disclosed under the head 'Profits and gains from business'. Had the assessee an impression that the profits are chargeable under the head 'Profits from business and profession' it had got everything from the AO by treating the entire amount under the head 'Capital gains' even beyond the claim of the assessee in the return of income. The CIT(A) issued an enhancement not .....

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..... of sale of land and ₹ 1,43,55,764 as land development expenses is not justified in any manner. The assessee-firm has not sold the land to MTNL and, therefore, there is no basis for showing receipt of ₹ 3,23,00,469 on account of sale of land. Assessee-firm has also not received any amount on account of land development expenses from MTNL. Therefore, there is no justification for showing receipt of ₹ 1,43,55,764 on account of land development expenses. The assessee-firm has received only the composite receipt of ₹ 4,66,56,233 from MTNL on behalf of Shri C.B. Sharma, as compensation for acquisition of land of Shri C.B. Sharma. The fixation of price of developed land at the rate of ₹ 1,300 and undeveloped land at the rate of ₹ 900 by the Director of Town Planning does not provide any justification for bifurcating the compensation of land in two parts. The compensation of ₹ 4,66,56,233 was obviously bifurcated by the appellant for the purpose of tax evasion and such bifurcation was without any foundation in the case of assessee-firm. 17. After drawing above inference, the CIT(A) further held that : The assessee has not declared the true .....

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..... red by the assessee. 27,53,998 1,20,34,340 Tax sought to be evaded on income of ₹ 1,20,34,349 by treating the assessee-firm as unregistered firm under s. 271(2) of the IT Act : Rs. (i) Tax on income of ₹ 1,20,34,340 sought to be evaded by treating the firm as URF 64,75,755 (ii) Minimum penalty-100% of tax sought to be evaded 64,75,755 (iii) Maximum penalty-300% of tax sought to be evaded 1,94,27,265 (22) After taking into consideration all the facts of the case and gross and wilful neglect of the assessee-firm in furnishing inaccurate particulars of income, I impose penalty of ₹ 1.30 crores on the assessee which is equal to twice the amount of tax sought to be evaded. The AO is directed to issue demand notice and challan and collect the amount of penalty imposed. 19. The learned counsel further submitted before us that all relevant documents, accounts, agreements, receipts etc. necessary to support the claim of th .....

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..... d by the AO 2,33,41,240 3,18,67,895 1,47,88,338 The only difference is that the appellant has declared its income under two heads, viz., party under the head Profits and gains of the business or profession and partly under the head 'Capital gain' with income was fully assessed by the AO under the head 'Capital gain' and reversed by the CIT(A) under the head Profits and gains or profession which order of the CIT(A) has been upheld by the Honourable Tribunal. It is material to note that the income declared and assessed is the same and there is no change in the quantum of income as declared by the appellant. According to the learned counsel no inaccurate particulars of income were furnished and all the particulars of income were furnished and all the particulars of income furnished by the assessee were accepted. If the assessee claimed expenses higher than that were generally incurred, that would be said to be a case of furnishing inaccurate particulars of income. If the AO, or CIT(A) had during the course of proceedings found that there were certain rece .....

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..... ks of account, the assessee was grossly or wilfully negligent, must less fraudulent. (7) CIT vs. Khoday Eswara Sons (SC) 1972 CTR (SC) 295:(1972) 83 ITR 369(SC) (P.B. p. 410) Proceedings under s. 271(1)(c) being penal in character and penalty cannot be levied solely on the basis of reasons given in the original order of assessment. (8) CIT vs. N.A. Mohammed Haneef 1974 CTR (SC) 129: (1972) 83 ITR 215(SC) (P.B. p. 413) It was established in the assessment proceedings that there was a discrepancy between the amount shown in the balance sheet and the information and figures obtained from the bank. Held : There was no basis for coming to a firm conclusion that the assessee deliberately supplied wrong particulars and therefore penalty could not be imposed. (9) CIT vs. Devidayal Aluminium (1988) 72 CTR (All) 7: (1988) 171 ITR 683(All) (P.B. 408) Penalty under s. 271(1)(c) was cancelled on the ground that the assessee's claim for melting loss or wastage was rejected, so long as the claim was bonafide it cannot be held to be false. If the assessee had furnished all details and did not conceal anything, it could not be said that he was not acting bonafide only bec .....

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..... s. 271(1)(c) conscious concealment is necessary. The presumption under the Expln. to s. 271(1)(c) can be displaced by the assessee providing that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof would be that required in a civil case namely preponderance of probabilities. (18) Yasmin Properties (P) Ltd. vs. Asstt. CIT (1993) 46 ITD 331(Bom) (P.B. p. 435) When there is a bona fide claim made by the assessee and all the facts relating thereto and material to the computation had been disclosed by the assessee it was neither a case of concealment nor the case of deemed concealment within the provisions of Expln. 1 to s. 271(1)(c). (19) Geo Sea Foods vs. ITO (1991) 37 ITD 223(Cochin T.M. case) The learned Third Member agreed with the Judicial Member in cancelling the penalty relying on Calcutta High Court in the case of Burmah Shell Oil Storage Distributing Co. vs. ITO (1978) 112 ITR 592(Cal). (20) Dy. CIT vs. Texmo Industries (1996) 54 TTJ (Mad) 571: (1995) 53 ITD 370(Mad) The penalty was cancelled where the assessee had made a claim for depreciation and investment allowance which was not allo .....

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..... r unsubstantiated. Consequently it cannot be held at all that the assessee has concealed any particulars of income or furnished inaccurate particulars of income. The charge of CIT(A) that the assessee has furnished inaccurate particulars is contained in two paragraphs in para 16 above. According to this the first charge is that the assessee-firm neither purchased the land nor sold the same. Series of litigation and the fact that the appellate authority hold the same as transactions of immovable property, AO in the first instance accepted that the same is capital gains. It clearly shows that there was a strong possibility that the assessee and the AO were harbouring under the bona fide impression that the transactions entered into by the assessee was of purchase of land or rights therein. The second charge is that the assessee has bifurcated the receipts and since the assessee-firm has not sold the land to MTNL and the assessee has not received any amount on account of the land development expenses from MTNL, this allegation of the CIT(A) again stands refuted by the document submitted that the assessee has furnished complete details of the expenditure incurred against the receipt sh .....

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..... als established a strong interpretation that the receipts as returned by it are taxable under these heads only. The CIT(A)'s findings that the heads are to be changed and the finally upholding of the same by the Tribunal does not lead to an irresistible/automatic conclusion that the penalty under s. 271(1)(c) is leviable. For imposition of penalty all the facts are to be re-considered and on the basis of reconsideration an objective assessment of the entire material is to be made and after making such objective assessment and objective finding has to be given about the culpability of the assessee in concealing income by furnishing inaccurate particulars of income. Series of above facts clearly establishes that there was no culpability (sic) on the part of the assessee to conceal the income, furnish inaccurate particulars of income. As a matter of fact whatever findings have been attributed against the assessee have only resulted in changing of the heads of income under which the income declared by the assessee is to be assessed There is no change in the amount of income disclosed but because of the change in heads of taxability, the assessment has finally upheld by the Tribunal .....

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..... in the land. Therefore, the sale of land shown by the assessee in the computation statement of income as well as P L a/c on credit side was totally false. When the land was never purchased by the assessee-firm, the declaration about sale of land in the return of income and documents enclosed with the return of income has to be considered as false. Since the assessee had never purchased the land nor acquired any right, title or interest in land the question of sales of the land by the assessee can never arise. Therefore the amount of receipt shown by the assessee on account of sale of land amount to furnishing of inaccurate particulars of income because the income which was clearly business income has been shown as receipt on account of sale of land for the apparent purchase of evading income-tax. (14.3) The assessee worked out the sale consideration of the land at ₹ 900 X 35,88,941 = ₹ 3,23,00,469 by taking clue from the valuation report of the Director of Town Planning that the compensation for land in undeveloped condition comes to ₹ 900 per sq. mtr. The business receipts were furnished by the assessee at the rate of ₹ 400 per sq. mtr. This amount of &# .....

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..... s that the appellant did not receive any amount from MTNL on land development expenses. The Hon'ble Tribunal vide order dt. 27th Oct., 1994, has confirmed in para 29 (p. 19) that the entire amount of consideration was business receipts. Under these circumstances, it cannot be stated that the assessee-firm has furnished accurate particulars of income. By bifurcating such particulars and facts which does not exist, the assessee-firm has even intentionally furnished inaccurate particulars of income. These observations of the CIT(A) in the penalty order clearly establish that the assessee never purchased any land from Shri C.B. Sharma and the computation of statement of income and P L a/c as returned by the assessee were incorrect and false as the land was never purchased by the assessee and no such right was transferred in its favour. The amount of receipt shown by the assessee as capital gains and bifurcation thereof amounts furnishing inaccurate particulars of income and this bifurcation of particulars and facts which do not exist has been furnished by the assessee with clear intention. The plain and simple reading of the various agreements will go to show that the documents .....

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..... n profits from business and profession under the head 'Capital gains'. Therefore, the inaccuracy or falsity attributed by learned Departmental Representative or the CIT(A) towards the accounts and computation of the assessee is without any basis. A plain reading of the agreement will indicate that there existed transfer of right in immovable property and it is only after a long drawn process to litigation and technical observation of facts and documents that a finding has been reached that the income of the assessee is taxable under the head 'Profits and gains from business and profession'. Further reliance was placed on the decision in the case of Gopal C. Sharma (supra) and on the decision of Calcutta High Court in the case of Burmah Shell Oil Storage Distributing Co. (supra). 24. We have considered the rival submissions and perused the material available on record. The admitted facts are that whatever documents and information was necessary for filling the return of income or finalisation of the assessment or in the matter for finalisation of assessment in the wake of enhancement notices served by the CIT(A), the assessee supplied all the required informatio .....

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..... apital gain which resulted into assessment at a higher tax. This assessment of the AO also was made after elaborate observations and compliances and detailed findings which are contained in the elaborate order of the AO. Here ultimately though the income-tax levied on the assessee was at a substantially higher figure but the treatment of income from one head to other by the AO was not considered fit to initiate penalty under s. 271(1)(c). This gives an impression that though there was substantial increase in the assessed tax due to change of head of income but the AO laboured under the impression that this has been occasioned by the interpretating the documents and particulars of the income of the assessee in a different manner on the basis of documents and material supplied by the assessee. So we have a side of the affairs where one statutory authority in the similar situation upholds the arguments of the assessee and strengthens it further by holding the business income of the assessee into income from capital gains. Thereby at this level the assessee's claim that the land in question was assessable under the head 'Capital gains' was accepted by the Department. In fin .....

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..... atement, books maintained and all other relevant materials supplied by the assessee. There is no charge on the assessee that the assessee has supplied wrong documents or failed to produce any information. The matter boils down to situation that the assessee furnished return of income together with relevant material, the materials based on past conduct of the assessee in the form of accounts maintained. The assessee furnished the return income by filing computation of income. The computation of income is otherwise proper and in consonance with the account books maintained by the assessee. The AO in principle endorsed the computation part of the assessee that the lands purchased in question constitute a capital asset and the receipt thereof are taxable under the head 'Capital gains'. Further he goes to convert the business income of the assessee into capital gains and thereby levying more income-tax. No penalty under s. 271(1)(c) however is initiated in these proceedings. Suffice to say that though there was a shift in the assessability of the assessee from one head of income to other head still, it was not deemed to be fit for initiation of penalty proceedings for the reason .....

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..... held the entire income from business and profession. From the entire record we are unable to see that the assessee has not furnished any material or any material found by it has been considered to be false or wrong. Whatever can be attributed is the computation of income filed by the assessee. We are of the view that the assessee has a right to interprete the set of documents in a particular manner based on the reasonability as if the same pertaining to the particular income. Clarification of the heads of income should not be arbitrary, it should have a reasonable nexus with the material which is relevant for arriving at such conclusion. In order to bring the assessee in the ambit of s. 271(1)(c) in such case it is to be proved that the assessee's conduct is false or the material supplied by it is to mislead the Revenue authorities and lower them into a wrong selection of heads. In the present case though we agreed that on merits the assessee's interpretation has not been accepted by the CIT(A) and the Honourable Member of the Tribunal but the same has been done after consideration of a series of divergent pleas and after meticulous interpretation of technical provisions o .....

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