Penalty under section 271 (1) (c) cannot be levied only as there has been an addition based on valuation of the Registering Authority

The ITAT Hyderabad in the case of Bhavya Anant Udeshi Hyderabad-500034 having PAN AALPUB8857A (appellant) vs. The Income Tax Officer (International Taxation)-I, Hyderabad- 500004 (respondent), ITA No.565/Hyd./2015 in connection with the Assessment Year 2008-2009, has held that no penalty under section 271(1) (c) of the Income Tax Act can be levied merely on the ground that there has been an addition based on valuation of the Stamp Valuation Authority.

Pleaders engaged in the case:

Mr. Ajay Gandhi appeared on behalf of the Assessee and Mr. Prabhat Kumar Gupta appeared on behalf of the Revenue.

Date of Hearing:

The hearing was concluded on 23.07.2015.

Date of order:

The order was pronounced on 04.09.2015.

Backgrounds of the case:

The appeal of the assessee was preferred against the order dated 26.02.2015 passed by the Ld. CIT (A), Hyderabad confirming penalty under section 271(1)(c) of the act amounting to Rs.50,91,600 for the A.Y. 2008-2009.

The assessee was a non-resident Indian. For the said assessment year he had filed a return of income on 31.07.2008 declaring his total income of Rs.3, 18,567 in which a short term capital gain of Rs.3, 06,625 from sale of shares and immovable property at Hyderabad was included.

During the assessment proceedings, it was noticed by the Assessing Officer that though the assessee declared sale consideration of the sale deed at Rs.1 lakh, however, the registering authority of the State Government valued the property at Rs.2, 55, 50,000.

The Assessing Officer invoked the provisions of section 50C of the Act and accordingly completed the assessment in computing capital gain of Rs.2, 54, 58,000.

Being aggrieved by the assessment order the assessee preferred an appeal before the Ld. CIT (Appeals). The Ld.CIT (A) confirmed the capital gain determined by the Assessing Officer.
The assessee filed another appeal before the ITAT. However, the ITAT upheld the view of the Ld.CIT (A) in applying section 50C for computation of capital gain.

Thereafter the Assessing Officer issued a notice to the assessee asking him to show cause as to why penalty under section 271(1) (c) of the Act shall not be imposed against him for filing incorrect details of income as the assessee has willfully disclosed the sale consideration at a lower rate than that was calculated by the registering authority.
The assessee in reply to the show cause notice objected against the allegation of the A.O. and stated that he has furnished all particulars of the sale transaction by furnishing sale deeds and other related documents before the A.O. and the determination of the capital gain was only by applying the value determined by the registering authority for the purpose of stamp duty as such, it cannot be said that he has filed incorrect details of income.

The A.O. however did not admit the explanation given by the assessee. The A.O. passed an order under section 271(1) (c) of the Act imposing penalty amounting to Rs.50, 91,600 being 100% of the tax sought to be evaded.

Being aggrieved by the order of penalty, the assessee preferred an appeal before the Ld. CIT (A). The Ld. CIT (A) confirmed the levy of penalty. Being aggrieved, the assessee filed an appeal before the ITAT, Hyderabad.

Arguments of both the sides:

The learned counsel for the appellant submitted that there was no conclusive evidence before the A.O. to prove that assessee received the amount calculated by the registering authority for imposing penalty under section 271(1)(c) of the Act. It was argued that the valuation made by the authority for stamp duty purpose cannot be considered as the amount actually received by the assessee.

It was also submitted that the provision of section 50C being a deeming one cannot be used for imposing penalty under section 271(1) (c). The Learned counsel submitted that the assessee having furnished all material facts such as copy of sale deed, other related documents, etc. there is no material to show that assessee has furnished incorrect details of income.

Decisions relied upon by the assessee:

In support of his contentions, the assessee relied upon the following decisions:
1. Judgment of Hon’ble Mumbai High Court in the case of Renu Hingorani, Mumbai vs. ACIT, Range 19(3), Mumbai, ITA.No.2210/Mum/2010, dated 22.12.2010.
2. Judgment of Hon’ble Gujarat High Court in the case of Shri Chimanlal Manilal Patel, Surat vs. ACIT, Cir.6, Surat, ITA.No.508/Ahd/2010, dated 22.06.2012.
3. Judgment of Hon’ble Mumbai High Court in the case of ACIT 14(1), Mumbai vs. M/s. Sunland Metal Recycling, Mumbai, ITA.No.6454/Mum/2011, dated 10.12.2014.

The learned counsel on behalf of the Revenue submitted that the assessee has furnished inaccurate particulars of income regarding the value of the property knowing well that the registering authority has valued the property at Rs.2, 55, 00,000 for the purpose of stamp duty and has shown the lower value for computing capital gain. As such, there is furnishing of inaccurate details of income. It was further submitted that the computation of capital gain by applying the provisions of section 50C and imposition of penalty under section 271(1) (c) is justified in law.

The judgment:

The Tribunal considered the submissions of both the parties and perused the materials on record. The facts revealed that while deciding assessee’s quantum for the purpose of computation of capital gain, provisions of section 50C of the Act was applied but that does not conclude that the assessee has filed inaccurate details of income or has concealed any part of his income.
It was held that from the language of section 50C itself it can be seen that it is a deeming provision. Only as the assessee agreed for addition based on a valuation made by the registering Authority would not be a conclusive proof that the sale consideration was wrong.
The ITAT also held that the addition due to the deeming provisions does not attract the penalty under section 271 (1) (c).
In view of the decision of the Hon’ble Apex Court in the case of CIT vs. Reliance Petro products Pvt. Ltd., the penalty levied was not sustainable. Following the view expressed in the decisions referred by the assessee, it was held that imposition of penalty under section 271(1) (c) of the Act was not valid in the present case.
Accordingly, the penalty was deleted. In view of the above, the appeal of the assessee was allowed.