The ITAT Mumbai has given an important decision on levy of penalty u/s 271(1)(c) of Income Tax Act when a person fails to declare capital gain as per the deeming fiction of section 50C, I find this Judgment very useful and sharing it for the benefit of all concerned.
Section 50C say that if a person sells an immovable property below the stamp valuation then the valuation done by stamp valuation authority, is considered as the sales consideration of such immovable property for the limited purpose of calculation of capital gain. But if a person fails to declare capital gain as per section 50C then it would not mean that he has concealed some income and no penalty can be levied on this ground alone as per the decision of Mumbai ITAT in this case.
Brief Facts: The assessee sold a flat for Rs. 63 lakhs and offered capital gains on that basis while its stamp duty valuation was Rs. 72 lakhs. The difference of Rs. 9 lakhs was assessed by the AO u/s 50C which the assessee accepted. The AO levied penalty u/s 271(1)(c) which was confirmed by the CIT (A).
Held: The AO had not questioned the actual consideration received by the assessee but the addition was made purely on the basis of the deeming provisions of s. 50C. The AO had not doubted the agreement or given any finding that the actual sale consideration was more than the sale consideration stated in the sale agreement. The fact that the assessee agreed to the addition is not conclusive proof that the sale consideration as per agreement was incorrect and wrong. Accordingly, there was no concealment of income or furnishing inaccurate particulars of income.
Judgment:
Renu Hingorani vs. ACIT (ITAT Mumbai)
ITA No. 221 0/Mum/2010, (Assessment Years: 2006-07)
O R D E R
PER VIJAY PAL RAO,JM
This appeal by the assessee is directed against the order dated 9.12.2009 of CIT(A) arising from the penalty order dated 26.3.2009 passed under section 271(1)(c ) of the Act for the assessment year 2006-07.
2. Only effective ground raised by the assessee in this appeal is the ld. CIT(A) erred in upholding levy of penalty u/s 271(1)(c) on addition arising u/s 50C.
3. Facts leading to this penalty are that during the year under consideration, the assessee sold two flats bearing no.101 and 102 at Mangalgyan and one flat at Navmeghdoot. As far as the sale consideration for the two flats at Mangalgyan is concerned the same was more than the value for Stamp valuation . However, the sale consideration for the flat at Navmeghdoot has been shown at Rs. 63 lakhs. Whereas the stamp valuation of the said flat was at Rs. 72,00,824/-. Thus, there was a difference of Rs. 9,00,824/-. The AO asked the assessee to show cause as to why this difference should not be disallowed and added back to the total income of the assessee. The assessees representative had agreed for the same and accordingly the said sum of Rs. 9,00,824/- has been disallowed as income of the assessee and added to the total income of the assessee by applying the provisions of section 50C of the Act.
4. The AO consequently initiated penalty proceedings u/s 271(1) ( c ) and levied the penalty of Rs. 198181/- at 100% of the tax sought to be evaded vide order dated 20.3.2009.
5. The assessee challenged the levy of penalty before the CIT(A) who confirmed the action of the AO by dismissing the appeal of the assessee.
6. Before us, the learned AR of the assessee has submitted that merely because the assessee agreed for addition penalty should not be levied unless and until there is a concealment of income or furnishing inaccurate particulars of income. The assessee has admitted the sale consideration of the flat in question which is less than the stamp duty valuation. The learned AR further submitted that the assessee has admitted the sale consideration as per the actual sale consideration received by the assessee and therefore there is no question of furnishing inaccurate particulars of income or concealment of income. The AO has applied the deeming provisions of section 50C of the Act and made the addition being difference between the sale consideration as per the sale agreement and the valuation made by Stamp Valuing Authority. He has further contended that the valuation by the Stamp Valuing Authority is not a conclusive evidence of actual Fair Market Value of the property and therefore, no penalty can be levied against the addition made by applying the deeming provisions of law. He has relied upon the various decisions on the point of agreed addition and submitted that agreed addition does not warrant penalty automatically. Sales valuation adopted as per the stamp valuation authority and giving rise to the addition does not warrant penalty. The learned AR also relied upon the decision of the Honble Supreme Court in the case of CIT V/s Reliance Petro products Pvt. Ltd reported in 322 ITR 158(SC) and submitted that merely because the claim of the assessee was not allowed by applying the provisions of law does not attract the penalty u/s 271(1)( c ). The ld. AR submitted that explaining the relevant fact includes the production of the record showing actual sale consideration received by the assessee. Thus, the learned AR has prayed that the penalty levied u/s 271(1)( c ) be deleted.
7. On the other hand, the learned DR has contended that the assessee has admitted the income proposed by the AO being difference in the sale consideration as per sale agreement and the valuation made by the stamp valuation authority adopted by the AO. The assessee did not challenge the valuation made by the stamp valuation authority of the property in question. Therefore, the penalty levied u/s 271(1)( c ) is justified. He has relied upon the orders of the lower authorities.
8. We have considered the rival contentions and relevant record . We find that the AO had made addition of Rs. 9,00,824/- being difference between the sale consideration as per sale agreement and the valuation made by the Stamp Valuation Authority. Thus, the addition has been made by the AO by applying the provisions of section 50C of the Act. It is evident from the assessment order that the AO has not questioned the actual consideration received by the assessee but the addition is made purely on the basis of deeming provisions of the Income Tax Act, 1961. The AO has not given any finding that the actual sale consideration is more than the sale consideration admitted and mentioned in the sale agreement. Thus it does not amount to concealment of income or furnishing inaccurate particulars of income. It is also not the case of the revenue that the assessee has failed to furnish the relevant record as called by the AO to disclose the primary facts. The assessee has furnished all the relevant facts, documents/material including the sale agreement and the AO has not doubted the genuineness and validity of the documents produced before him and the sale consideration received by the assessee. Under these facts and circumstances, it cannot be said that the assessee has not furnished correct particulars of income. Merely because the assessee agreed for addition on the basis of valuation made by the Stamp Valuation Authority would not be a conclusive proof that the sale consideration as per this agreement was incorrect and wrong. Accordingly the addition because of the deeming provisions does not ipso facto attract the penalty u/s 271(1)(c ). Hence in view of the decision of the Honble Supreme Court in the case of CIT V/s Reliance Petro products Pvt. Ltd (supra), the penalty levied u/s 271(1)( c ) is not sustainable. The same is deleted.
9. The appeal of the assessee is allowed.
Pronounced in the open court on 22.12.2010
Amit Bajaj Advocate,
Bajaj & Bajaj Advocates,
128, Sangam complex,
Milap chowk, Jalandhar city(Punjab)
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