TMI Blog2010 (1) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... J. Sudhakar Reddy, V.D. Rao, JJ. L.K. Agarwal for the Appellant R.R. Vora for the Respondent ORDER J. Sudhakar Reddy:- 1. This is an appeal filed by the Revenue directed against the order of the CIT(Appeals)-XII, Mumbai dated 27-11-2006 for the assessment year 2001-02 wherein penalty levied u/s 271(1)(c) has been deleted. 2. Facts in brief:- The assessee is an individual who owned a piece of land in Shivaji Nagar, Pune. On the land stands a Bungalow, two servant quarters, a garage and tenanted bungalow. The assessee obtained permission to develop the land. He intended to construct a building on the said plot as a business activity. For that purpose he converted the land in question into stock-in-trade and entered into joint venture agreement with Godrej Properties and Investment Ltd. (in short GPIL) and started construction work. As per the agreement three faces/projects in the name of Sherwood, Eternia B and Eternia C were to be constructed. The activity started some where in the assessment year 1999-2000. The accounts for all the three constructions were kept separately but at the end, a combined profit and loss account and balance sheet have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in appeal. The first appellate authority deleted the penalty both on the ground that both the return of income as well as the assessed income was a loss and also that the assessee had disclosed all particulars before the AO and it is very much possible that under a bonafide belief the assessee thought that after completion of the projects the income would be subject to capital gains. He noted that as projects Eternia C and Sherwood were still under completion, the assessee had not shown accrual of the capital gains. On the ground that there is a difference of opinion he struck down the penalty levied. Aggrieved, the Revenue is in appeal on the following ground:- "On the facts of the case and in law, the ld. CIT(A) has erred in cancelling the penalty of Rs.37,54,140/- levied u/s 271(1)(c) by holding that the assessee was under bonafide belief that capital gain would be taxable only after completing all the three projects but ignoring the fact that the assessee was always guided by a qualified Chartered Accountant that assessee has not been able to prove bonafide of its explanation before the A.O." 4. Mr. L.K. Agarwal, learned DR, submitted that the assessee was followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal issue whether penalty can be levied when both the returned income as well as the assessed income is a loss, is against the assessee by the decision of the Hon'ble Supreme Court in the case of Gold Coin, the learned counsel for the assessee submitted that the assessee was under the bonafide belief that he has to offer the income in question to tax only on completion of the project. He submitted that it was a difference of opinion between the assessee and the AO on the year of chargeability to tax of capital gains, on conversion of a capital asset into stock-in-trade and that this cannot be regarded as furnishing of inaccurate particulars of income. He submitted that it is merely timing difference on the issue of chargeability of capital gains and this does not tantamount to furnishing of inaccurate particulars of income. He vehemently contended that the assessee was under a bonafide belief that capital gains was to be offered for taxation on the completion of the project and such a belief was based on a written opinion of a senior Advocate. The learned counsel submitted that it was wrong on the part of the AO to state that the assessee maintained separate books of account for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India vs. Rajastan Spinning and Weaving Mills Ltd. 23 DTR 158. He further relied on the following decisions:- i) M/s. Sidhartha Enterprises, Ludhiana. ii) CIT vs. Haryana Warehousing - 314 ITR 215. iii) Kanbay Software India Private Limited vs. DCIT - 22 DTR 481 (AT). iv) ACIT vs. VIP Industries - (2009) 30 SOT 254. He distinguished the case laws relied upon by the Revenue. 7. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows : 8. Factually the land in question was the capital asset of the assessee and this capital asset was converted into stock in trade. Such conversion is governed by section 45(2) which reads as follows:- "Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stockin- trade is sold or otherwise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty, nor could the guilt of concealment of income be said to have been established." 10.1 Similar view is taken by the Hon'ble Calcutta High court in the case of CIT vs. Jagabandhu Kumar Ruplal Sen Poddar 133 ITR 156 (Cal.) The Hon'ble Gujarat High Court in the case of CIT vs. Manilal Tarakchand 254 ITR 360 was considered the imposition of a penalty when the dispute between the assessee and the Department was, as to in which year the compensation received by the assessee was taxable. The Hon'ble High Court held that penalty u/s 271(1)(c) cannot be levied in such circumstances. 10.2 The Hon'ble Supreme Court in the case of T. Ashok Pai (supra) held as follows:- "It is, therefore, trite that if an explanation given by the assessee with regard to the mistake committed by him has been treated to be bona fide and it has been found as of fact that he had acted on the basis of wrong legal advice, the question of his failure to discharge his burden in terms of explanation appended to Section 271(1)(c) of the Income Tax Act would not arise." 11. Applying these propositions to the facts of the case, the assessee has given a bonafide explanation, and this explanation has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-s. (2) of s. 11A. that is what Dharamendra Textile (supra) decides." 13. The Hon'ble Punjab and Haryana High Court in the case of M/s Sidhartha Enterprises held that penalty is must only when there is some element of deliberate default and not a mere mistake. The Court also considered the judgment in the case of Dharamendra Textiles. At para 5, the Hon'ble Court stated that the judgment of Hon'ble Supreme Court in the case of Dhamendra Textiles (supra) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow and that the concept of penalty has not undergone a change by virtue of the said judgment. 14. The Mumbai A-Bench of the Tribunal in the case of ACIT vs. VIP Industries 122 TTJ (Mum.) held that when the assessee has offered an explanation which was not found false and when the assessee's explanation was bonafide and when all the facts r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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