11 May 2009
My client sold a piece of land for Rs. 2 lac to her husband. Both are happily married and the same was not a consideration to live apart.
The circle rate of the land was Rs. 15 lac. The ITO after applying section 50C added Rs. 13 lac in the income of assessee and initiated penalty proceedings u/s 271(1)(c).
My client always remained under the bonafide belief the she is making a gift to her husband (which is apparent from the value of consideration).
That it will be not out of place to add here that instead of executing a clear ‘Gift Deed’, she executed a ‘Sale Deed’. It was a technical lapse but my client still rely on the legal opinion and judgment of the Hon’ble High Court that ‘a Sale Deed executed for an inadequate consideration shall be a deemed gift’. Merely because a Sale Deed has been executed, it does not take away the character of the transaction as gift. In this context reliance was placed on the judgment of the Karnataka High Court in the case of Sanjeev V Kudwa vs CIT (1981) 127 ITR page 354
She remained under the bonafide belief that exemption u/s 47(iii) of The Income Tax Act is available to her which excludes Capital Gain on transfer of property under a gift.
My question: 1) Is the ITO right in adding 13 lac to the assessee’s income ? 2) Is he right in initiating penalty proceedings u/s 271(1)(c) ? (keeping in mind that she never hide or furnished inaccurate particulars of her income as the same was disclosed in detail by way of note in the computation of income in Form 2D for the assessment year 2006-07).
01. ITO is right for addition of Rs. 13 lac to income. As Sale consideration of 2L will make clear that there was consideration for the transaction. As you said inadequate consideration will be considered as gift, you have to check the defination of inadequate consideration.
02. On produce reasonable logic. Penalty of 271(1)(C) can be waived.
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