2020 (1) TMI 609 - AT - Income Tax

Penalty u/s 271(1)(c) - unexplained assets in the shape of sale consideration representing alleged undisclosed income - Capital gain on sale of land - HELD THAT - In the present case, assessee admitted that, along with his co-owners, a land was sold. The evidence exhibiting the sale of land was found. The evidence exhibiting receipt of cash over and above the sale consideration stated in the sale deed was found when confronted to the assessee in the statement recorded u/s 132(4) then he has admitted the undisclosed income received as sale consideration in cash and not disclosed in the regular return as well as accounted for in the books of accounts. There was ample evidence found during the course of search exhibiting the fact that income was not disclosed by the assessee in his regular books of accounts as well as in the return. The case of the assessee falls within the mischief of Explanation 5A. End of the assessee to say that no asset, money, jewellery or bullion representing the alleged undisclosed income was found during the course of search. Therefore, with regard to first fold of contentions, we do not find any merits in the contentions of the learned Counsel for the assessee. It is rejected. As far as second fold of contentions is concerned, it is pertinent to observe that even if the assessee has filed the return of income and declared certain income, but the penalty proceeding is an independent proceeding. If on account of any legal or factual ground, assessee is able to absolve himself from levy of penalty, then all such rights are available in the penalty proceedings. The contention of the assessee is that agricultural land sold by him along with co-owners was not a capital asset and no capital gain tax was imposable upon the assessee. It is a different matter that he has paid the capital gain tax but that admission cannot be accepted even for visiting the assessee with penalty. In the penalty proceedings, he wants to take an independent stand that since no capital gain tax is leviable; therefore, no penalty is imposable. This is an independent plea. It ought to have been examined and ought to have been adjudicated. This plea has been specifically raised in the note appended to the return as well as in the submissions before the learned CIT(A) (extracted supra). Considering the above, we deem it appropriate to set aside this aspect to the file of the learned Assessing Officer. The leaned Assessing Officer shall call for record of the alleged agricultural land and find out whether it was an agricultural land not falling within the ambit of expression capital asset provided in Section 2(14) of the Income-tax Act. In case it is found that it was not a capital asset, then the assessee will not be visited with penalty; however, this should not be construed as a direction. - Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Legitimacy of penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of Explanation 5A to Section 271(1)(c).
3. Consideration of agricultural land as a capital asset under Section 2(14) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty Imposed under Section 271(1)(c):
The primary issue revolves around the penalty of ?23,47,735 imposed by the Assessing Officer (AO) under Section 271(1)(c) of the Income-tax Act, 1961. The penalty was based on the assessee's undisclosed income of ?1,13,96,770, which was admitted during a search operation conducted under Section 132. The AO concluded that the assessee had concealed particulars of income, invoking Explanation 5A to Section 271(1)(c).

2. Applicability of Explanation 5A to Section 271(1)(c):
The assessee argued that Explanation 5A could not be invoked merely on the basis of a statement under Section 132(4) admitting undisclosed income. The assessee contended that no money, bullion, jewellery, or assets representing the undisclosed income were found during the search. However, the Tribunal noted that loose papers indicating the sale of land and receipt of cash were found, which constituted direct evidence of undisclosed income. The Tribunal referenced a similar case (ITA No. 2662/Ahd/2017) and upheld the AO's decision, stating that the case fell within the scope of Explanation 5A. Thus, the assessee was deemed to have concealed particulars of income.

3. Consideration of Agricultural Land as a Capital Asset:
The assessee claimed that the land sold was agricultural and not a capital asset under Section 2(14) of the Income-tax Act, implying no capital gains tax was applicable. This contention was raised in the note appended to the return and during submissions before the CIT(A). The Tribunal acknowledged that penalty proceedings are independent and the assessee could argue against the imposition of penalty on legal or factual grounds. The Tribunal directed the AO to verify whether the land in question was an agricultural land not falling within the definition of a capital asset. If found to be agricultural, no penalty would be imposed. The AO was instructed to decide the issue in accordance with the law, ensuring no prejudice to either party.

Conclusion:
The Tribunal upheld the penalty under Section 271(1)(c) concerning the applicability of Explanation 5A, rejecting the assessee's first contention. However, it allowed the second contention for statistical purposes, remanding the issue of whether the land was a capital asset to the AO for further examination. The appeal was thus partly allowed for statistical purposes.