TMI Blog2006 (5) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... and as long as he places all the relevant facts material to the computation of his total income irrespective of the fact that the same explanation was not accepted for the purpose of assessment. Whether the assessee's explanation was found to be false by the Assessing Officer, or even if the assessee were not able to substantiate his case, whether the assessee's explanation was bona fide and the assessee has disclosed all material facts and information relating to the capital gain arising from sale of land-in-question, so that penalty should be imposed or not? - HELD THAT:- As the Assessing Officer was of the view that there was no agricultural operation carried out on the land in question and mere plantation of tree itself cannot be a basis for treating the use of land as for agricultural purposes. The Assessing Officer further stated that immediately after the purchase, the land was given on lease to M/s. Weikfield Agro Products (P.) Ltd. on and from 24-11-1994 for production of Mushroom. The Assessing Officer also stated that the dominant purpose for acquiring this land was not to use the same for agricultural purposes, but for other purposes - The certificate issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at village Bakori was added to the assessee's total income by the Assessing Officer in the assessment completed under section 143(3) of the Act - HELD THAT:- The facts and circumstances of the case in the assessment year 1998-99 are identical as to that of the assessment year 1997-98 and that position has been accepted by the Assessing Officer in the assessment order as well as in the penalty order. Therefore, in the light of the view taken by us in the assessment year 1997-98, and particularly in view of the fact that this land was treated as land for being used for agricultural purposes in the year of its purchase by the Assessing Officer himself while granting deduction under section 54B of the Act and the assessee's claim that the land in question was of agricultural land is supported by the view expressed by the Agricultural Department of the State Government of Maharashtra, Horticulture Commissioner, Government of India, Ministry of Agriculture, New Delhi and further by classification of the same as agricultural land in revenue record being 7/12 extracts - no penalty under section 271(1)(c) is exigible in the present case as the assessee's explanation is found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an asset as per the provisions of section 2(14) of Income-tax Act, and thus being agricultural land, the gain thereon was not liable to tax. The Assessing Officer stated that the land-in-question was purchased by the assessee on 17-10-1994 along with four other persons jointly for a sum of Rs. 12 lakhs. The Assessing Officer further stated that this land was given on lease immediately after to Weikfield Agro Products Pvt. Ltd. on 24-11-1994, and land was being used by the said company for the purpose of mushroom cultivation. The lease money received by the assessee from this land was treated as non-agricultural income by assessee himself. Therefore, during the course of assessment proceedings, the assessee was asked by the Assessing Officer to explain as to why the land-in-question should not be treated as agricultural land and why the gain on the said land is not liable to tax. 3.4 In the course of assessment proceedings, the assessee submitted that the land-in-question was agricultural land as would be evident from 7/12 extracts as well as on the basis of certificate of Dr. S.K. Goyal, Commissioner of Agriculture. He further stated that the land-in-question was used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, since the land is agricultural land. The assessee has submitted various documents and papers at the time of hearing in support of his claim that the land is agricultural land and has also discussed reasons as to why the transaction is not considered while computing the income for the purpose of Income-tax Act. The assessee was carrying bona fide belief that therefore the receipt from such transactions need to be considered in computation of the income. It may further be n6ted and appreciated that after discussing with your goodself and also arguing the matter at length in support of claim of such exemption pertaining to such transaction the assessee has surrendered the said claim in order to buy the peace of mind and to avoid possible future litigation in that respect. It may kindly be noted that as per knowledge and belief of the assessee, the income which is not qualifying for exemption under section 2(14) or under section 54 of the Act has already been compiled and offered for taxation, which would support the contention of the appellant that there was no mala fide intention of not disclosing the exempted income. On this background and under thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning thereby tilling of the land, sowing of seeds, planting and similar operations on the land. They would be the basic operations and would required the expenditure of human skill and labour upon the land itself [CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 508 (SC)] 'If the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility either for consumption or for trade and commerce, it will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless, there is present all throughout the basic idea that there must be at the bottom of its cultivation of land in the sense of tilling of the land, sowing of the seeds, planting and similar work done on the land itself [CIT v. Raja Benoy Kumar Sahas Roy [1975] 32 ITR 466, 510-11 (SC)] in order to constitute agricultural income, under section 2(1A)(b) of the 1961 Act two conditions have to be satisfied viz., (i) the land must be used for growing all of any of the commercial cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, it is held that the assessee has concealed particulars of income by not disclosing capital gain on sale of land at Village Bakori amounting to Rs. 10,85,200/- in the return of income. Penalty under section 271(1)(c) is clearly leviable in this case. The amount liable is computed as under:- Income Concealed 10,85,200 Tax sought to be evaded 4,34,080 Minimum penalty leviable 4,34,080 Maximum penalty leviable 13,02,240 Penalty of Rs. 4,34,080/- is hereby imposed. 3.7 Being aggrieved with the Assessing Officer's order imposing penalty under section 271(1)(c), the assessee carried the matter in appeal before the CIT(A). 3.8 The various contentions and submissions raised by the assessee before the CIT(A) had been discussed by the CIT(A) in his order mainly at paras 4 to 7. After considering the assessee's submission, the CIT(A) deleted the penalty by observing and holding as under:- 8. I have gone through the facts of the case and I find that. the appellant had le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 271(1)(c) of the Act. 3.9 The learned Departmental Representative submitted that the Assessing Officer was very much justified in imposing the penalty under section 271(1)(c) of the Act inasmuch as that the conduct of the assessee in not offering the capital gain on the sale of land-in-question was not at all bona fide and honest one. She further submitted that since no agricultural activity were carried out by the assessee on the land-in-question, no question could or did arise to treat the land-in-question as agricultural land by the assessee and claimed the same as exempted on the ground that the agricultural land-in-question does not come within the ambit of capital asset defined under section 2(14) of the Act. She further contended that the activity of growing mushroom could not by any stretch of imagination to be treated as agricultural activity. The capital gain offered by the assessee for taxation in the course of assessment proceedings was not at all voluntary but the same was made only when assessee left with no other option. The ld. D.R. further contended that in the light of provisions contained in section 271(1)(c) read with Explanation 1 thereto, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at mushroom production is an agricultural activity. (b) Letter from NABARD that Hi-tech floriculture is an agricultural activity. The assessee's belief is that floriculture is similar to mushroom inasmuch as in floriculture, flowers are cultivated in places kept in climate controlled green houses. (c) An income-tax assessment order in the case of floriculture in which the Income-tax Officer had treated floriculture as an agriculture activity. (vi) That the assessee had agreed to the addition to buy the peace with an understanding that no penalty under section 271(1)(c) would be imposed on the assessee. (vii) In the light of the aforesaid explanation, the assessee has been able to discharge its burden that lay upon it under Explanation 1 to section 271(1)(c) by establishing that the explanation of the assessee was bona fide and the assessee has disclosed all material facts and particulars to the Department. (viii) That the explanation offered by the assessee to the Assessing Officer was not found to be false. (ix) That in the year in which the land was purchased, the A.O. has himself treated the land to be used for agricultural purposes by allowing the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or offers an explanation which is found by the [Assessing] Officer or the [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 3.14 As to the scope and effect of the Explanation 1 to section 271(1)(c), we may refer to the following decisions: 3.15 The Hon'ble Supreme Court in the case of B.A. Balasubramaniam Bros. Co. v. CIT [1999] 236 ITR 977 has held that after the incorporation of the Explanation in section 271(1)(c) of Income-tax Act, 1961, the view which had been taken earlier in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) no longer holds field and it is for the assessee to prove that there had been no concealment of income where the income shown in the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries relating to alleged hand loans and offered explanation for the same as fanciful and vague, so that the Tribunal was not justified in excusing penalty. It was in this context that the Hon'ble High Court found that the mere offer of income and the fact that the notice issued by the Assessing Officer did not invoke the Explanation to section 271(1)(c) cannot justify cancellation of penalty. In this case, the Hon'ble Supreme Court went further and held that the decision of the Supreme Court in Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705 is no longer good law after the insertion of Explanation to section 271(1)(c) of the Act. In this case, the Hon'ble Supreme Court has overruled the decision of Hon'ble Bombay High Court in CIT v. P.M. Shah [1993] 203 ITR 792 (Bom.) and CIT v. Dharamachand L. Shah [1993] 204 ITR 462 (Bom.). 3.18 In addition Jeevan Lal Shah's case, the Hon'ble Supreme Court was dealing with penalty initiated on reassessment, which was prompted by some information in the possession of the Department. The assessee himself offered higher income disclosing certain deposits and interest, which he had not disclosed earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding an explanation to be false is akin to a fact disproved in contrast to a fact not proved as defined in the Evidence Act. In such event the conclusion that is to be arrived at is that the amount added or disallowed in computation is deemed to represent the income in respect of which particulars have been concealed. Clause (13) comes into the picture only when some explanation is furnished by the assessee. It does not come into the picture where the assessee does not furnish any explanation because such a case is governed by clause (A). Clause (B) comes into operation, where the explanation furnished by the assessee in respect of the additions or disallowance of any amount, he is unable to substantiate the same that is to say where the explanation furnished by the assessee is placed in the category of a fact 'not proved', which denotes that the fact in enquiry is neither proved nor disproved. This 'not proved' state by itself can invite the operation of the Explanation. If in addition to failure to substantiate the explanation, the assessee also fails to prove that the explanation furnished by him was bona fide, and that he has disclosed all material facts ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glect or fraud and the explanation offered by the assessee is found to be bona fide, the Explanation 1 to section 271(1)(c) itself would not then help the revenue to justify the penalty. (viii) The burden placed upon the assessee to rebut the presumption raised under Explanation 1 to section 271 (1)(c) would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation by the assessee must be accepted. (ix) Mere offer of income by the assessee cannot justify cancellation of penalty. Though it cannot be laid down as a principle of universal application that whenever an addition is made on a concession, penalty is not to be levied, the factual position in each case has to be considered and the background in which the agreement is made for the addition has to be taken note of. (x) Where penalty is exigible with reference to the Explanation to section 271(1)(c), the mere fact that the Assessing Officer has not specifically invoked the same would not justify cancellation of penalty. 3.21 In this view of the matter, it is thus clear that so long as the assessee gives a bona fide explanation and unreservedly gives all the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten submission on 28-2-2000 to the Assessing Officer, which is extracted as under: The land at village Bakori has been used for carrying on Agriculture operation which is evident from 7/12 extract enclosed separately. It may also kindly be noted and appreciated that assessee along with order co-owners has also entrusted the work of plantation of various trees as is evident from the bill dated 4-10-1995 issued in the name of Weikfield Agro Products. We are enclosing copy of the same for your honours kind perusal and ready reference. It may also kindly be noted appreciated that no accounts have been maintained by the assessee in this respect and as such details cannot be furnished in respect of receipt and expenses incurred for carrying out such activities. It may, however, kindly be noted and appreciated the receipts were just sufficient to meet the expenses. In fact there was negligible income earned by the assessee in the initial year. In this respect, elaborate note have already been brought on your record at the time of hearing under the head Note on Bakori land purchase/leased/ sell. We are enclosed the said copy for your kind perusal and ready reference. This land, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted in support of such claim. On discussion it has been decided by the assessee to surrender the claim of exemption on the condition that no penalty would be initiated by the department under section 271(1)(c) and except imposing the relevant amount of tax and interest if any payable thereon, no other action will be taken by the deptt. The assessee has decided to surrender the claim with a view to buy peace of mind and to avoid possible litigation in this respect. The amount of Rs. 11 lakhs claimed as exempt may be treated as forming part of the income subject to the conditions mentioned above. 3.24 The aforesaid submission of the assessee was not found acceptable to the Assessing Officer. As the Assessing Officer was of the view that there was no agricultural operation carried out on the land in question and mere plantation of tree itself cannot be a basis for treating the use of land as for agricultural purposes. The Assessing Officer further stated that immediately after the purchase, the land was given on lease to M/s. Weikfield Agro Products (P.) Ltd. on and from 24-11-1994 for production of Mushroom. The Assessing Officer also stated that the dominant purpose for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed earlier in assessment year 1995-96 is revoked and offered for taxation as per provisions of section 54B. 3.26 On reading the said note as well as the assessee's written submissions filed before the Assessing Officer on 28-2-2000, it is clear that the transaction of selling the land-in-question has been disclosed by the assessee to the Assessing Officer. The consideration amount for which the land was sold was also furnished. In the Note, the assessee has claimed that since this land was agricultural land and is situated outside 8 kms. from municipal limit, the assessee is claiming capital gain arising from the sale of this land as exempted. The assessee further stated that as the land-in-question has been sold within the period of 3 years from the date of its acquisition, the exemption claimed earlier in assessment year 1995-96 against purchasing the said land under section 54B is withdrawn or revoked and offered for taxation as per the provisions of section 54B of the Act. From the explanation submitted by the assessee before the Assessing Officer on 28-12-2000, it is also clear that the assessee had submitted a certificate issued by one Dr. S.K. Goyal, Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessing Officer has taken the cost of acquisition at Rs. 14,800/- being 1/5th share of the assessee. It is not in dispute that this land was purchased for a sum of Rs. 12 lakh jointly along with four other persons and the assessee's share in the purchase consideration including other expenses was of Rs. 2,56,000/-. As against the actual cost of acquisition of Rs. 2,56,000/-, the Assessing Officer has deducted cost of acquisition of Rs. 14,800/- only. The reason given by the Assessing Officer for taking the cost of acquisition at Rs. 14,800/- as against actual cost of acquisition of Rs. 2,56,000/- is that this land was purchased by the assessee out of capital gain of Rs. 24,33,313/- that arose to the assessee in the assessment year 1995-96. At this stage, it is pertinent to note that the assessee had a capital gain of Rs. 24,33,313/- in the assessment year 1995-96 out of which the assessee had purchased this land in question. The purchase consideration of this land-in-question was allowed as deduction under section 54B of the Act in the assessment year 1995-96. Section 54B provides for the cases where capital gain an transfer of land used for agricultural purposes is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for agricultural purposes. In other words, the Assessing Officer has recognized the land-in-question as the land for being used for agricultural purposes and has allowed the exemption under section 54B of the Act in the year of its purchase. Since the land has now been sold in the year under consideration within a period of three years of its purchase, the cost of acquisition of this land has been reduced by the Assessing Officer from Rs. 2,56,000/- to Rs. 14,800/- as per clause (i) or (ii) of sub-section (1) of section 54B of the Act. It is not in dispute that the deduction allowed under section 54B on account of purchase of this land-in-question has not been withdrawn by the department, but rather the Assessing Officer has invoked clause (i) or (ii) of section 54B(1) by reducing the cost of acquisition of the land-in-question while computing the short-term capital gain at Rs. 10,85,200/- arising from the sale consideration of Rs. 11 lakh in the year under appeal. In other words, the Assessing Officer even in the year under consideration has acted upon the provisions of section 54B of the Act and computed the capital gain accordingly. It is thus clear that as the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and thus not offering the gain arising on sale thereof cannot be said to be false and non-bona fide one. It is the case where the assessee's claim is found to have not been substantiated without there being any material or evidence on record to show and establish that the assessee's claim was false and not a bona fide one. We do not find that the assessee has given any fantastic or fanciful explanation, which do not deserve to be accepted as bona fide one. Therefore, on this count also, we hold that the assessee has been able to rebut the presumption of concealment of income or of furnishing inaccurate particulars of income drawn against him under Explanation 1 to section 271 (1)(c) of the Act. It is further to be noted that a view that no penalty under section 271 (1)(c) is exigible in the present case has been taken by us not for the reason that the assessee has agreed for the addition in the course of assessment proceedings after an explanation was sought for by the Assessing Officer, but we have taken this view for the reason that the assessee's claim, though not found to be acceptable for the purpose of assessment, is not a false and non- bona fide one. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure production namely Mushroom. In this respect, it has been clarified that as per the certificate issued by Dr. S.K. Goyal, Commissioner of Agriculture, MS Pune dated 21-2-2000 the mushroom are an agricultural produce classified as vegetables. We are enclosing copy of the said certificate for your kind perusal and record. It has also been clarified that as per the dictionary meaning of Agriculture it is the science or art of cultivating the soil, harvesting crops and raising live stock. It is also the science or art of production of plants and animals useful to man and in varying degrees. The preparation of these products for mans use and their disposal (as by marketing). We are enclosing the relevant page of the dictionary from Webster's at page 44 giving such meaning. We may further bring to your notice that the said land was given on lease to M/s. Weikfield Agro Products (P.) Ltd. only up to 21-3-1997. It is also submitted that since the land is agricultural land the same is not taxable since it is situated beyond the prescribed limit stated in terms of provisions of section 2(14) of the Act. After considering the assessee's explanation, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer has stated that this land was purchased by the assessee on 9-1-1995 through three purchase agreements for a sum of Rs. 4,89,000/- and the cost of acquisition in the hands of the assessee for the purpose of capital gab1 was taken to be Nil as per provisions of section 54B of the Act. It is, thus, clear that at the time of purchase of this land, the land was treated for being used for agricultural purpose by the Assessing Officer and he, thus, allowed the deduction under section 54B of the Act. The facts and circumstances of the case in the assessment year 1998-99 are identical as to that of the assessment year 1997-98 and that position has been accepted by the Assessing Officer in the assessment order as well as in the penalty order. Therefore, in the light of the view taken by us in the assessment year 1997-98, and particularly in view of the fact that this land was treated as land for being used for agricultural purposes in the year of its purchase by the Assessing Officer himself while granting deduction under section 54B of the Act and the assessee's claim that the land in question was of agricultural land is supported by the view expressed by the Agri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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