TMI Blog2006 (5) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... come from other sources and income from capital gain. On going through the details of computation of capital gain, it was noticed by the AO that assessee had not shown any capital gain on sale of agricultural land at Bakori, Distt. Pune. The assessee's contention was that the land was situated outside 8 kms. from municipal limits and as such, the land in question is not an asset as per the provisions of s. 2(14) of IT Act and thus being agricultural land, the gain thereon was not liable to tax. The AO stated that the land in question was purchased by the assessee on 17th Oct., 1994 along with four other persons jointly for a sum of Rs. 12 lakhs. The AO further stated that this land was given on lease immediately after to M/s Weikfield Agro Products (P) Ltd. on 24th Nov., 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 AO to explain as to why the land in question should not (sic) be treated as agricultural land and why the gain on the said la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction. It may further kindly be noted and appreciated that the assessee had carried bona fide belief that the transaction pertaining to such land is exempt under the provisions of the IT 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 IT 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 noted 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 s. 2(14) or under s. 54 of the Act has already been compiled and offered for taxation, which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estricted only to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of seeds, planting and similar operations on the land. They would be the basic operations and would require the expenditure of human skill and labour upon the land itself. [CIT vs. Raja Benoy Kumar Sahas Roy (19571 32 ITR 466 (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 vs. Raja Benoy Kumar Sahas Roy]. In order to constitute agricultural income, under s. 2(1A) (b) of the 1961 Act two conditions have to be satisfied viz., (i) the land must be used for growing all or any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 s. 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 AO's order imposing penalty under s. 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 leased out the land owned by him to the company which constructed a building on the land for the purpose of cultivation of mushroom. In the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was 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 s. 2(14) of the Act. She further contended that the activity of growing mushroom could not by any stretch of imagination 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 was left with no other option. The learned Departmental Representative further contended that in the light of provisions contained in s. 271 (1)(c) r/w Expln. 1 thereto, it was the burden of the assessee to prove that the explanation offered by him as to why capital gain was not included in the return of income was honest and bona fide one and that the assessee has disclosed all the material facts and particulars r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture is an agricultural activity. The assessee's belief is that floriculture is similar to mushroom in as much 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 ITO had treated floriculture as an agriculture activity. (v)(a) That the assessee had agreed to the addition to buy the peace with an understanding that no penalty under s. 271(1)(c) would be imposed on the assessee. (vi) In the light of the aforesaid explanation, the assessee has been able to discharge its burden that lay upon it under Expln. 1 to s. 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. (vii) That the explanation offered by the assessee to the AO was not found to be false. (viii) That in the year in which the land was purchased, the AO has himself treated the land to be used for agricultural purposes by allowing the deduction under s. 54B to the assessee. (ix) Based on the facts and circumstances prevailing in the case and the evidence produced by the assessee, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cl. (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 Expln. 1 to s. 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. vs. CIT (1999) 157 CTR (SC) 556 : (1999) 236 ITR 977 (SC) has held that after the incorporation of the Explanation in s. 271(1)(c) of IT Act 1961, the view which had been taken earlier in CIT vs. 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 return is less than the assessed income. In this case, the Hon'ble Supreme Court had affirmed the decision of the Hon'ble High Court by holding that the High Court was correct in holding that as the income returned was less than 80 per cent of the income assessed, the Explanation to s. 271(1)(c) became applicable and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271 (1)(c) cannot justify cancellation of penalty. In this case, the Hon'ble Supreme Court went further and held that the decisions of the Supreme Court in Sir Shadi Lal Sugar General Mills Ltd. Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) is no longer good law after the insertion of Explanation to s. 271(1)(c) of the Act. In this case, the Hon'ble Supreme Court has overruled the decisions of Hon'ble Bombay High Court in CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom) and CIT vs. Dharamchand L. Shah (1993) 113 CTR (Bom) 214 : (1993) 204 ITR 462 (Bom). 3.18 In Addl. CIT vs. Jeevan Lal Sah, 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. It was further held herein that CIT vs. Anwar Ali is no longer good law after the Explanation in s. 271(1)(c) is inserted and that in cases where Explanation is attracted, levy of penalty or otherwise would depend upon the principles enunciated in CIT vs. Mussadilal Ram Bharose and CIT vs. K.R. Sadayappan. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 cl. (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 necessary for assessment then Expln. 1 operates......... For giving effect to the legal consequence on certain existing state of affairs, which has been ordained by a statute, does not require any specific notice of intention to invoke the statutory provision. The statutory provision in question comes into operation by its own force once the conditions ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 s. 271(1)(c), the mere fact that the AO 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 documents and information without withholding any information relating to the computation of assessee's total income, the assessee's explanation unless found to be false, would deserve acceptance for the purpose of penalty imposable under s. 271(1)(c), so that penalty should not be exigible. In other words, if an assessee offers an explanation, which is not found to be false, he can save himself from penalty even if he were not able to substantiate his case as long as the explanation of the assessee is bona fide and as long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciated 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 that the receipted 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 has already been brought on your record at the time of hearing under the head 'Note on Bakori land purchase/leased/sell'. We are enclosing the said copy for your kind perusal and ready reference. This land however has been given on lease to Weikfield Agro Products (P) Ltd. for carrying out the agriculture production namely mushroom. In this respect, it has been clarified that as per the certificate issued by Dr. S.K. Goyal, Commr. of Agriculture, MS Pune, dt. 21st Feb., 2000 the mushrooms 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned above." 3.24 The aforesaid submission of the assessee was not found acceptable to the AO. As the AO 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 AO further stated that immediately after the purchase, the land was given on lease to M/s Weikfield Agro Products (P) Ltd. on and from 24th Nov., 1994 for production of mushroom. The AO also stated that the dominant purpose for acquiring this land was not to use the same for agricultural purposes, but for other purposes. The AO also did not give any consideration to 7/12 extracts by saying that it was never the case of the assessee that the land in question was used for the purpose of production of those crops mentioned in 7/12 extracts, but the assessee's case was that mushrooms were produced on the land by his lessee, i.e. M/s Weikfield Agro Products (P) Ltd. The AO further stated that once the lands were leased on 24th Nov., 1994 by the assessee to M/s Weikfield Agro Products (P) Ltd., the question of use of this land by the assessee himself for the purpose of prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion claimed earlier in asst. yrs. 1995-96 against purchasing the said land under s. 54B is withdrawn or revoked and offered for taxation as per the provisions of s. 54B of the Act. From the explanation submitted by the assessee before the AO on 28th Dec., 2000, it is also clear that the assessee had submitted a certificate issued by one Dr. S.K. Goyal, Commr. of Agriculture, MS, Pune, dt. 21st Feb., 2000 in support of the contention that mushrooms are agricultural produce classified as vegetables. From the written submission filed by the assessee on 28th Feb., 2000, it is also seen that the assessee had also submitted elaborate note on this land to the AO, a copy of which was enclosed with the assessee's submission filed on 28th Feb., 2000 for the AO's perusal and ready reference. Therefore, in this background, we may say that the assessee has furnished or placed all facts material to computation of his capital gain before the AO in the course of assessment proceedings. On perusal of the AO's order passed under s. 271(1)(c) of the Act, it is also clear that it is not the AO's case that the assessee has not furnished all the relevant facts material to computation of his capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under s. 54B of the Act in the asst. yr. 1995-96. Sec. 54B provides for the cases where capital gain on transfer of land used for agricultural purposes is not to be charged. The conditions for applicability of s. 54B(1) are that a capital gain arises from the transfer by the assessee of a capital asset being land, and such land was being used by the assessee or a parent of his for agricultural purposes in the two years immediately preceding the date of transfer, and the assessee has within a period of two years after the date of the transfer, purchased any other land for being used for agricultural purposes, which is referred to as new asset. If these conditions are satisfied, then where the amount of capital gain is greater than the cost of new asset, it is the difference between the amount of capital gain and the cost of new asset that will suffer tax under s. 45 as capital gain of the previous year, and if the new asset is made subject of a transfer within a period of three years of its purchase, its cost of acquisition shall be taken at nil, or, where the amount of the capital gain is equal to or less than the cost of the new asset, capital gain arising from the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO himself has allowed the cost of the land in question as deduction under s. 54B of the Act from the amount of capital gain arising on the sale of earlier land used by the assessee for agricultural purposes for the reason that the assessee has purchased this land in question for being used for agricultural purposes within a period of two years after the date of transfer of the first asset which was being used for agricultural purposes, the land in question was treated by the AO as a land for being used for agricultural purposes while granting deduction under s. 54B in the asst. yr. 1995-96. Therefore, in the light of the fact that the Department has itself treated the land in question as the land used for agricultural purposes while allowing the assessee's claim under s. 54B in asst. yr. 1995-96 and the AO has reduced the cost of acquisition by an amount of deduction already allowed under s. 54B while computing the capital gain on transfer of the land in question, the assessee's claim that the land in question is to be treated as agricultural land being situated beyond 8 kms. from the municipality cannot be said to be false or non bona fide one. Mere rejecting the assessee's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate from concerned authority may not be sufficient to support the assessee's case. 3.30 For the reasons given above, we, therefore, hold that the CIT(A) was justified in deleting the penalty levied by the AO under s. 271(1)(c) in respect of the addition of short-term capital gain arising to the assessee from the sale of land in question. 4. Now, we proceed to take the appeal filed in the case of Shri Malhotra Satpal Sitaram for the asst. yr. 1998-99. In this case, an addition of Rs. 20 lakhs being short-term capital gain arising from sale of a land situated at village Bakori was added to the assessee's total income by the AO in the assessment completed under s. 143(3) of the Act. It is stated by the AO that on scrutiny of the return of income, he found that the assessee had claimed the income of Rs. 20 lakhs on the sale of land at village Bakori as exempted from tax as the land sold was of agricultural in nature and, therefore, the assessee was asked to explain as to why the land was treated as agricultural land and to furnish certain details, being copy of the purchase and sale deed, 7/12 extract in respect of the land from the date of its purchase till the date of its sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts (P) Ltd. for the purpose of cultivation of mushroom, the land in question cannot be considered as of agricultural in nature and, thus, the gain derived by the assessee on sale thereof is chargeable to tax under the head capital gain. The AO, therefore, charged the sum of Rs. 20 lakhs being sale consideration of the land in question to tax while completing the assessment and also initiated penalty proceedings under s. 271(1)(c) for furnishing inaccurate particulars of income with regard to the income arising to the assessee from the sale of the land in question. The AO ultimately imposed penalty equal to 100 per cent of the tax sought to be evaded on the capital gain of Rs. 20 lakhs, vide his order dt. 25th April, 2001. While imposing the penalty under s. 271(1)(c), the AO has stated that the explanation offered by the assessee for treating the land as agricultural land was not bona fide and the assessee had no reason to treat the land as agricultural land. The AO invoked Expln. 1 to s. 271(1)(c) for the purpose of imposing penalty under s. 271(1)(c) and has held that the onus on the assessee to establish that the explanation offered was bona fide has not been proved. 4.1 On a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l facts were produced by the assessee. We uphold the order of the CIT(A) in deleting the penalty levied under s. 271(1)(c) of the Act for this asst. yr. 1998-99 also. 5. With regard to ITA Nos. 183/Pn/2003 and 184/Pn/2003, in respect of two assesses, namely, Shri Malhotra Mukesh Satpal and Shri Malhotra Baldevraj Satpal for the asst. yr. 1997-98, it is seen that the land involved in these appeals is one and the same which was involved in the case of Shri Malhotra Satpal Sitaram in the asst. yr. 1997-98, inasmuch as these two assessees were joint owners of the land, which was jointly purchased by these two assessees, namely, Shri Malhotra Mukesh Satpal, Shri Malhotra Baldevraj Satpal along with Shri Sitaram Satpal Malhotra, Shri Puneet Satpal Malhotra and Shri Ashwini Baldevraj Malhotra. 5.1 In the case of Shri Malhotra Baldevraj Satpal, the cost of acquisition was taken at nil as against purchase consideration of Rs. 2,56,000 while computing the short-term capital gain at Rs. 11 lakhs being the sale consideration m this assessee's hand by the AO, as it was found by the AO that the cost of acquisition of this land was allowed as deduction under s. 54B and, as such, the cost of a ..... 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