TMI Blog2008 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was more than what was declared in the relevant agreement and this being the undisputed position, we are of the view that the action of the Assessing Officer in adopting the fair market value on the basis of the District Valuation Officer's report as sale consideration for computing the higher income under the head Capital gain itself was not tenable in law and the addition made on the basis of such action cannot be treated as concealed income of the assessee to attract the penalty. Moreover, as held by the hon'ble Madras High Court in the case of Apsara Talkies [ 1981 (11) TMI 2 - MADRAS HIGH COURT] and by the hon'ble Supreme Court in the case of Dilip N. Shroff [ 2007 (5) TMI 198 - SUPREME COURT] , the valuation made by the District Valuation Officer is an estimate which can be a basis for making addition to the income of the assessee for the purpose of assessment, but the same alone cannot be the basis to construe concealment for the purpose of imposing penalty under section 271(1)(c). Therefore, we are of the view that considered from any angle, the penalty imposed by the Assessing Officer u/s 271(1)(c) was not sustainable and the ld CIT (A) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither in the year under consideration or even in the earlier years. He held that even though the main object of the assessee company was defined in the memorandum and article of association, the same by itself was not sufficient to confirm that it was actually engaged and had carried out such business activity. He, therefore, held that the land and building sold by the assessee was its capital asset and the income arising from sale thereof was chargeable to tax as capital gain and not as business income. He also made a reference under Section 55A to the DVO to estimate the market value of the said property as on the date of sale i.e. 10.3.2003 as well as the cost of construction of the building. In his valuation report submitted to the AO, the DVO estimated the market value of the said property as on 10.3.2003 at Rs. 2,44,16,000/- and the cost of construction of the building at Rs. 62,65,852/-. Adopting these values estimated by the DVO, capital gain arising from the said property sold by the assessee during the year under consideration was worked out by him at a negative figure i.e. loss of Rs. 64,41,983/- as per the working given below: Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by Rs. 1,47,52,538/-. 2. The value of the land has been estimated at Rs. 1.81 Crores as against the purchased cost of Rs. 1.62 Crores. 3. Since it is a business assets as such no reference can be made Under Section 55A (reference Under Section 55A can be made only for ascertaining the FMV of a Capital Assets). 4. The Assessing Officer is not clear in his mind whether reference has been made for ascertaining FMV of the assets or for determining the cost of construction incurred by the assessee. 5. The assessing officer with a prejudice mind has taken the FMV of the property estimated by the valuation cell as sales consideration while on the other hand has ignored the cost of construction which was incurred by the assessee in the pervious year and accepted by the department. There by denying the assessee its legitimate right deducting the actual cost from the sales realization. 6. For the sake of argument even if it is presumed that the matter has been rightly referred to the valuation cell for determining the fair market value then the assessee should have been given the following benefits: a) The matter has been referred to the valuation cell for determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale considerations. Accordingly, reliance placed by the ld.A.R. of the appellant in the decision of Hon'ble Delhi High Court in the case of Super Metal Re-Rollers (P) Ltd. and M/s Ram Commercial Enterprises Ltd. are not applicable to the facts of the appellant's case. As far as the another contention of the ld.A.R. of the appellant that since both returned income and assessed income are losses, penalty proceedings can not be imposed, same also stand rejected because of amendments brought in the Explanation 4 to Section 271(1)(c) and also omission of the Sub-clause (iii) of Section 271(1)(c) of the Income-tax Act, 1961. My view has found support from the decision of jurisdictional Delhi High Court in the case of CIT v. Aditya Chemicals Ltd. However, on the merits of the facts I find that it is not a case of either furnishing inaccurate particulars of income or concealment of its income. It could be true that the assessee had not filed initially an appeal against the quantum additions but same can not be foundation for levying the penalty under Section 271(1)(c). Concealment proceedings and assessment proceedings are independent to each other. The consideration for not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in its return of income and accepted by the Department. As per the working of the appellant, the long term capital loss work out at Rs. 2,53,84,357/- if the indexation is given on the cost of construction disclosed in its return of income. According to the appellant, the Assessing Officer can adopt fair market value under Section 55A but cost of construction can not be adopted as per the estimate given by the Valuation Officer for the purpose of capital gain as there is no provision in the Income-tax Act. Moreover, in the case of the appellant, the cost of construction has been disclosed by the assessee in its return of income for last many years which was never disputed by the Department. Therefore, the cost of acquisition of the asset should have been adopted by the Assessing Officer by giving the indexation on the cost of land and also on the cost of construction as disclosed in its return of income. Therefore, the working of the Assessing Officer even if it is presumed that the said transaction is a capital gain transaction, working out the long term capital loss is patently incorrect. Furthermore, appellant has vehemently objected the treatment of the whole of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/- imposed by him under Section 271(1)(c) of the Income-tax Act, 1961. 8. The learned CIT(A) thus found no merits in the preliminary objection raised by the assessee challenging the validity of initiation of penalty proceedings on the ground of lack of satisfaction observing that the requisite satisfaction was duly recorded by the AO in the assessment order. He also rejected the contention of the assessee that the returned as well as assessed income being loss, the penalty Under Section 271(1)(c) was not leviable by relying on Explanation (4) to Section 271(1)(c) inserted in the statute w.e.f. 1.4.2003. He, however, accepted the contentions raised on behalf of the assessee company before him challenging the imposition of penalty on merits and cancelled the penalty so imposed by the AO Under Section 271(1)(c). Aggrieved by this relief allowed by the learned CIT(A) to the assessee, the Revenue has preferred this appeal before the Tribunal. 9. Before us, the learned DR strongly supported the order of the AO imposing penalty Under Section 271(1)(c). He submitted that as noted by the AO in the assessment order, there was no evidence to show that the assessee company had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO on page 2 of the assessment order, he pointed out that the cost incurred by the assessee on the construction of building over the years was shown as work-in-progress in the relevant balance sheets. He contended that the inference drawn by the AO that there was no evidence brought on record by the assessee to show that it was in the business of real estate thus is factually incorrect. He submitted that the cost of construction incurred by the assessee on the said building was to the tune of Rs. 2,12,18,084/- as recorded in its books of account and the AO was not justified in referring the matter of valuation of the said construction to the DVO without pointing out any defect in the books of account of the assessee regularly maintained. He contended that there was also no evidence brought on record by the AO to show that any consideration over and above what was shown in the relevant agreement had been actually received by the assessee from the purchaser of the property in question. He submitted that there was no doubt a mistake committed by the assessee company in showing the said property as fixed assets in its balance sheet for the year under consideration, but the same was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained by the learned Counsel for the assessee, this by itself cannot be sufficient to draw any adverse inference against the assessee during the course of penalty proceedings which are distinct and separate from the assessment proceedings. Moreover, a mere change of head of income by the AO in the assessment cannot be construed as concealment as envisaged in Section 271(1)(c) so as to attract the penal provisions contained therein. 12. It is also observed that while computing the profit/loss arising from the sale of the aforesaid property under the head capital gain , the fair market value of the said property as on the date of sale as valued by the DVO at Rs. 2,44,16,000/- in a report obtained by making a reference Under Section 55A was adopted by the AO as sale consideration in place of the sale consideration of Rs. 1,62,00,000/- shown in the relevant agreement. As is evident from the order of the AO, there was, however, no material available on record before him to show that something more than what was shown in the agreement as sale consideration had been actually received by the assessee. In the case of Mamta Mahajan and Ors. v. ITO 86 TTJ 120, this Tribunal has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the valuation made by the DVO in his report itself was not justified, much less the imposition of penalty in respect of such addition. Even the benefit of indexation in respect of cost of construction admittedly incurred by the assessee in the earlier years was not allowed by the AO while computing the income from capital gain and as pointed out on behalf of the assessee before the learned CIT(A) and accepted by the latter vide his impugned order, even if such indexation benefit is appropriately allowed in respect of cost of construction, the resultant income would be less than what was shown by the assessee. 14. Moreover, as held by the Hon'ble Madras High Court in the case of Apsara Talkies (supra) and by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) cited by the learned Counsel for the assessee, the valuation made by the DVO is an estimate which can be a basis for making addition to the income of the assessee for the purpose of assessment, but the same alone cannot be the basis to construe concealment for the purpose of imposing penalty Under Section 271(1)(c). 15. As such, having regard to all the facts of the case as discussed above, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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