DINESH SUNDERJI SHAH, MUMBAI V. ASSESSING OFFICER, NFAC, DELHI

ITA 275/MUM/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 5666 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 29-05-2024
• Assessment Year: misc
• Appeal Filed On: 18-01-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK L. SHARMA
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Salary income
• Section: 147; 131; 148; 271(1)(c); 139; 143(3); 50C; 142(1); 274; 13

Judgement Text

Page | 1 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI SUNIL KUMAR SINGH, JM ITA Nos. 274 & 275/Mum/2024 (Assessment Years: 2012-13 & 2018-19) Dinesh Sunderji Shah, 41-42, Jayanti Apartment, Jatashankar Dosa Marg, Mulund West, Mumbai-400 080 Vs. Assessing Officer, Ward 15(1)(1), Aaykar Bhavan, M.K Road, Mumbai-400 020 (Appellant) (Respondent) PAN No. AAFPS3093N Assessee by : Shri Ashok L. Sharma, CA Revenue by : Smt. Mahita Nair, DR Date of hearing: 30.05.2024 Date of pronouncement : 24.07.2024 O R D E R PER PRASHANT MAHARISHI, AM: 01. ITA No. 275/Mum/2024, is filed by Mr. Dinesh Sunderji Shah (assessee / appellant) for A.Y. 2018-19, against the appellate order passed by the National Faceless Appeal Centre, Delhi [the learned CIT (A)], dated 30 th November, 2023, wherein the appeal filed by the assessee against the Page | 2 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 assessment order passed under Section 143(3) read with section 144B of the Income-tax Act, 1961 (the Act) dated 22 nd May, 2021, was partly allowed. 02. The assessee has raised following grounds of appeal: - “1) On the facts of case the learned AO erred and learned CIT(A) erred in confirming of not determining Long Term Capital Loss Rs 3,39,66,946/and allowing the same to be carried forward. 2) Appellant craves, leave to add, alter and/or modify any ground of appeal before or at any time of hearing of Appeal.” 03. The brief facts of the case shows that the assessee is an individual deriving income from salary and other sources, filed his return of income on 13 th August, 2018, declaring total income at ₹72,25,940/-. 04. This return was selected for scrutiny showing specific information pointing tax evasion received from other agency. Therefore, notice under Section 142(1) of the Act was issued on 1 st February, 2021. As per information on record it was found that the assessee has entered into transaction of immovable property for total consideration of ₹6,73,20,000/-, whereas the stamp duty valuation of such property is ₹6,84,70,540/-, thereby, difference of ₹11,50,540/- resulted on transaction of flat no. 2301, E Wing and 2506 B Wing, Navraj Grainder, Hiranandani, Mumbai-7. Now this issue is not in appeal before us. Page | 3 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 05. In the return of income, assessee has claimed long term capital loss of ₹3,39,66,946/-. The assessee has received a consideration of ₹7,56,80,000/- from sale of land or building, whose cost of acquisition with indexation ₹10,96,46,945/-, resulting into a long term capital loss of ₹3,39,66,946/-. The assessee was asked to furnish the complete detail of the loss. The assessee submitted that the assessee had two flats in the joint name but the entire transaction belongs to the assessee. On cancellation of allotment of flat no. 2306, which was allotted to the assessee on 20 th September, 2010, and second flat no. 2206, also allotted on the same date. On cancellation of allotment, the builder made the payment of ₹7,56,80,000/- on 27 th September, 2017. The purchase date of both these flats was 20 th September, 2010 and the cost of acquisition is also ₹3,36,60,000/-. This, the total purchase cost of ₹6,73,20,000/-, indexed at ₹10,96,45,946/- and thus, the Long Term Capital Gain Loss of ₹3,39,66,946/- was incurred and claimed as Long Term Capital Loss. 06. The learned Assessing Officer on examination of the same held that i. it is cancellation of allotment of flat and no transfer of capital asset took place. ii. assessee merely furnished the copy of cancellation of the allotment letters but has not furnished the evidence regarding sale or transfer of such flats. Page | 4 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 iii. cancellation letter was also with respect to the request of the assessee. 07. Accordingly, the explanation offered by the assessee was not considered satisfactorily and the claim of the Long Term Capital Gain was rejected. Consequently, the assessment order under Section 143(3) read with section 144B of the Act was passed on 22 nd May, 2021, wherein there is an addition under Section 56(2)(X) of the Act of ₹11,50,540/-, and denial of carry forward of Long Term Capital Loss of ₹339,66,946/-, determining the total income of the assessee at ₹ 83,76,480/-. 08. Assessee aggrieved with the same preferred the appeal before the learned Commissioner of Income-tax (Appeals). The learned CIT (A) deleted the addition under Section 56(2) of the Act. However, the claim of Long Term Capital Loss did not find favor and same was confirmed. The reason for confirming the action of the learned Assessing Officer was that assessee failed to explain the reason why he got allotment cancelled since substantial payments were made against the purchase of both these flats. He further held that as there is a transfer of allotted flats of the assessee in favour of the builders, provisions of Section 50C of the Act and 56(2)(x)(b) of the Act are applicable in this case. Since, the assessee has not taken prevailing market value of the flats whose allotments were cancelled and returned back to the builder, the long term capital loss cannot be allowed to the assessee. Therefore, he confirmed the action of the learned Assessing Officer. Page | 5 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 The assessee aggrieved with the same preferred the appeal before us. 09. The assessee has submitted two different paper books, one containing 49 pages and another containing 18 pages along with several judicial precedents. The learned Authorized Representative explain the facts of the case and stated that assessee has surrendered his right to acquire a flat, which is capital asset, on extinguishment of such right, the assessee received consideration and computed the capital loss therein. On such transaction provisions of Section 50C of the Act does not apply. 010. He further submitted that the claim of long term capital loss was denied to the assessee without any reason. He referred to the cancellation letters for both the flats placed at page no.4 to 11 of Paper Book no.1 and submitted that whether the transaction has been cancelled by the assessee or by the seller does not make the transaction invalid. He therefore submitted that assessee should be allowed Long Term Capital Loss. 011. The learned Departmental Representative vehemently supported the orders of the lower authorities and stated that the assessee has surrendered the allotment of house property of two flats which does not amount to transfer of assets and therefore, the loss is correctly denied the assessee. 012. We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts Page | 6 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 clearly shows that assessee has been allotted two residential flats on 20 th September, 2010, being flat no. 2205 and 2305 on 22 nd and 23 rd floor in residential complex namely Raj Grandeur at Near Hiranandani Hospital Powai, Mumbai. These flats were allotted by Rajesh estate and Nirman Pvt. Ltd. For each of the flat it is stated that assessee has paid a consideration of ₹3,36,60,000/- in terms of allotment of letter. The assessee approached builder that assessee is desirous to cancel the allotment of the above flats. The builder refunded assessee a total sum of ₹3,78,40,000/- and cancellation letter was issued on 20 th June, 2017. The assessee offered long term capital loss on the above surrender of allotment letters. The assessee considered net sales consideration paid by the builder of ₹7,56,80,000/-. Further as the assessee has disclosed purchase amount of ₹3,36,60,000/- on purchase date i.e. on 20 th September, 2010, same was indexed to the current year and indexed cost of acquisition of ₹10,96,46,946/-, was determined resulting into Long Term Capital Loss of ₹3,39,66,946/-. The assessee supported the sale consideration by the cancellation letter. In the cancellation letter sale consideration is mentioned. Thus, the assessee has acquired by way of allotment, right to acquire two flats in his name. This 'right to acquire' these two flats is naturally a capital asset. On surrender or extinguishment by cancellation letters of such capital asset, it has been surrendered and assessee loose right to acquire these two flats. Therefore, there is a transfer of Page | 7 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 capital asset. On the transfer of capital asset, assessee has also received consideration. The capital asset was also acquired at a total cost of ₹3,36,60,000/- for each flat. The right to acquire was acquired on 20 th September, 2010, on transfer of such right naturally the capital gain arises in the hands of the assessee. The consideration received by the assessee, cost of acquisition and fact of surrender of capital asset squarely prove that there is a transfer of a capital asset for consideration which has cost of acquisition and therefore, there has to be a computation of capital gain on such transfer. The learned Assessing Officer was submitted both the cancellation letter where the amount of consideration received by the assessee is duly mentioned. Therfore according to us, on transfer of right to acquire these flats, has resulted in to a long term capital loss in the hands of the assessee and same dserves to be allowed. 013. The learned CIT (A) agreed that there is a transfer and capital gain is chargeable, however, he held that provisions of Section 50C of the Act and Section 56(2)(X) of the Act applies. This observation of the learned CIT (A) clearly shows that computation of capital gain is required to be made on these transactions. 014. Now, question arises is that whether on this transaction, provision of Section 50C of the Act applies or not. The Provisions of Section 50C of the Act applies only when capital assets transferred is ' land or building or both." In this case assessee has transferred 'right to acquire' the Page | 8 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 flats. Thus, Provision of Section 50C of the Act does not apply. Further, as Provisions of Section 50C of the Act does not apply, naturally, the provisions of Section 56(2)(X)(b) of the Act also do not apply. 015. Accordingly, solitary ground raised in this appeal is allowed and the learned Assessing Officer is directed to allow carry forward of capital loss of ₹3,39,60,946/- to the assessee. 016. In the result, ITA No.275/Mum/2024 is allowed. 017. ITA No. 274/Mum/2024, is filed by the assessee against the confirmation of penalty under Section 271(1)(c) of the Act for A.Y. 2012-13 by appellate order dated 30 th November, 2023, by the NFAC, wherein the appeal filed by the assessee against the penalty order passed by the learned Assessing Officer under Section 271(1)(c) of the Act dated 8 th October, 2021, for A.Y. 2012-13, levying the penalty of ₹4,25,262/-, was confirmed. The assessee is aggrieved with that and is in appeal before us. 018. Assessee has raised following grounds of appeal:- ““1. That as per the facts of the case learned A.O. erred in levying and Learned CIT(A) erred in confirming penalty u/s 27(1)(c) considering difference in Income in return u/s 148 and original return as concealed income when no additional income was offered but just claim of an expense was withdrawn voluntarily before any confrontation by AO Page | 9 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 2. Appellant craves leave to add, alter and/or modify any ground of appeal before or at any time of hearing of appeal.” 019. The brief facts of the case shows that assessee filed his return of income declaring total income of ₹2,10,075/-. Subsequently, the information was received from investigation Wing that assessee is a director on board of Bharat Wire Ropes Pvt. Ltd. and for A.Y. 2009-10, he has disclosed income of ₹2,74,578/- and for impugned assessment year, he had paid premium to Birla Sunlife Insurance Limited, which does not commensurate with the return of income of the assessee. The return filed by the assessee for A.Y. 2010-11 and 2012-13, were not available. Notice under Section 148 of the Act was issued on 30 th March, 2019, in response to which assessee filed his return of income on 11 th December, 2019, declaring total income of ₹23,30,520/-. The assessment under Section 143(3) read with section 147 of the Act was passed on 24 th December, 2019 at a total income of ₹ 23,30,520/-. This is so because of the reason that assessee has offered income which was covered for the reopening of the assessment. The learned Assessing Officer initiated the penalty proceedings under Section 271(1)(c) of the Act for the additional income offered by the assessee in return in response to notice under Section 148 of the Act for concealment of income. After several notice issued to the assessee the assessee furnished the reply on 3 rd March, 2021, stating that there is no concealment of income. The learned Assessing Page | 10 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 Officer noted that original return of income was at ₹9,54,268/-/ while the return of income filed in response to notice under section 148 of the income tax act was ₹ 2,330,520/–. Therefore it is evident that there is additional income shown in the return filed under section 148 of the act. The assessee did not revise the return of income voluntarily under section 139 (5) but increases its income after detection of concealment and issue of notice under section 148 by the Department. Therefore he levied the penalty holding that assessee has concealed his income and penalty levied was ₹ 4,25,262/–. 020. Assessee preferred an appeal before the learned CIT – A disposed of the appeal on 30/11/2023 dismissing the appeal of the assessee holding that assessee has concealed his income by filing inaccurate particulars of income. He further found that assessee has SUO Moto enhanced the income in the return of income filed against notice under section 148 cannot be a criteria for providing the relief from penalty to be levied under section 271 (1) (C). Assessee himself has stated that he had claimed interest of ₹ 4,045,732/– paid against the salary income of ₹ 24 lakhs. But the assessee did not explain how the interest paid against the loan is an allowable expenses against the salary income. Thus the argument of the appellant does not have any force and substance. He further held that had the assessee's case not been selected for the assessment, the amount of salary income suppressed in the original return would have gone on Page | 11 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 taxed. Assessee aggrieved with the same is in appeal before us. 021. The learned authorised representative has filed a paper book containing 14 pages and relying upon certain judicial precedents. He referred to the decision of the honourable Kerala High Court in case of principal Commissioner of income tax versus Ambady Krishna Menon (ITA number 75 of 2020) dated 20/5/2024 wherein on identical facts and circumstances the penalty under section 271 (1) (C) of the act is deleted. He further referred to the decision of the coordinate bench in case of ACIT Ltd in ITA number 5935/M/2014 for assessment year 2005 – 06 dated 28/3/2018. He therefore submitted that the penalty cannot be levied. 022. The learned departmental representative vehemently supported the orders of the learned lower authorities. 023. We have carefully considered the rival contention and perused the orders of the learned lower authorities as well as the various judicial precedents relied upon before us.. The facts clearly shows that the assessee filed original return of income by the salary income of ₹ 24 lakhs was disclosed and income from other sources loss of ₹ 1,445,732 was claimed. Resulting into the net taxable income of ₹ 954,268. The case of the assessee was reopened where the reasons was not with respect to the claim of income from other sources of loss of ₹ 4,045,732/–. While filing the return of income under section 148 of the income tax act the assessee did not Page | 12 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 claim the loss of income from other sources of ₹ 4,045,732/–. The revised return was furnished declaring total income of ₹ 2,330,518/–. Thus it is apparent that assessee has offered higher income in response to notice under section 148 of the income tax act but the higher income is not on account of issues recorded in the reasons for reopening of the assessment. Therefore it is not correct to state that there was a detection by the revenue authorities that the assessee has claimed loss under the head income from other sources which is not allowable. This loss was offered for taxation by not claiming the same in the return of income in response to notice under section 148 of the act. Thus according to us the assessee has offered the higher income prior to detection by the revenue authorities. 024. Assessee has placed reliance on the decision of the honourable court Kerala High Court in case of Shri Ambady Krishna mennon (supra) wherein after recording the facts in para number 8, findings have been recorded in paragraph number nine the lead to the penalty as under:- "8. On a consideration of the facts and circumstances of the case and the submissions made across the bar, we find that it is not in dispute that in the original return filed by the respondent/assessee, only a lesser figure was returned both in respect of the total income as also capital gains earned by the respondent/assessee. It is also not in dispute that but for the investigation initiated by the Revenue, the differential income might have escaped assessment Page | 13 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 to tax. What is significant however is that it was during the course of the investigation initiated by the Revenue, but well before any conclusion could be arrived at by the Revenue as regards suppression/concealment of income, that the assessee in the instant case came forward and admitted before the Revenue authorities that he was convinced of the mistake occassioned at the time of filing the original return, and that he was ready and willing to pay the differential amount of tax computed by him based on a revised computation of the capital gains earned by him. We further find from the records that the differential tax, together with interest thereon, was subsequently paid by the respondent/assessee when he was afforded an opportunity of doing so by filing the necessary returns pursuant to the notice issued to him under Section 148 of the I.T. Act. In our view, on the peculiar facts of this case, the notice issued under Section 148 of the I.T. Act has to be seen as one that literally enabled the respondent/assessee to pay the differential tax along with interest thereon by filing a fresh return that was recognised under the I.T. Act. We have to remind ourselves that, but for the notice under Section 148 of theI.T. Act, the assesseee in the instant case could not have paid the differential tax that was admitted by him as payable, because the time limit for filing returns in terms of Section 139 of the I.T. Act had already expired. At any rate, the subsequent payment of tax, based on the disclosure that was made prior to the notice under Section 148 of the I.T. Act, led to the finalisation of the assessment for the assessment year concerned [2011-12], and in the finalised assessment, there Page | 14 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 was no addition to the income of the respondent/assessee over and in addition to what was already disclosed and admitted by him before the Revenue authorities." XXXXXXX 9. XXXXXX It will be seen from a perusal of Section 271 of the I.T. Act that it is a specific provision providing for imposition of penalties, and is a complete code in itself, regulating the procedure for the imposition of penalties prescribed. The proceedings are therefore to be conducted in accordance therewith, subject always to the rules of natural justice. The provisions for the assessment and levy of tax will not apply as such for the imposition of penalty, and when there is a specific provision, it is trite that it alone will govern the imposition of penalties. In terms of Section 271(1)(c) of the I.T. Act, the penal provision is attracted only when the conditions therein are fulfilled namely, when there is a concealment of the particulars of an assessee's income or when the assessee has furnished inaccurate particulars of such income. The crucial question that arises for consideration before us is whether on the facts of the instant case those pre-conditions existed for initiating proceedings under Section 271 of the I.T. Act. Further, the provisions of Section 271(1) of the I.T. Act mandate that the existence of the conditions precedent for imposition of penalty under Section 271(1)(c) of the I.T. Act must have been noticed by the Assessing Authority in the course of some proceedings under the I.T. Act. In other words, the satisfaction of the Assessing Authority with regard to the existence of either of the conditions Page | 15 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 warranting the invocation of the provisions of Section 271(1)(c) had to be in the course of proceedings initiated by the Assessing Authority under the I.T. Act. In our view, the reference to proceedings under Section 271 of the I.T. Act, on the facts of the instant case, can only be a reference to the proceedings initiated against the assessee in terms of Section 148 of the I.T. Act. This is because the call for details and information under Section 131 of the I.T. Act cannot be seen as initiation of any proceedings under the I.T. Act but is merely a manifestation of the exercise of a power similar to that conferred to civil courts, by the Officers of the I.T. Department. If that be the case, then what we have to examine in the instant case is whether at the time of issuance of notice under Section 148, the Assessing Authority can say that he was satisfied that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. In our view, in the light of the disclosure made by the assessee, of the income that he had omitted to include in his original return, well before the date on which the notice under Section 148 of the I.T. Act was issued to him by the Assessing Authority, the Assessing Authority was effectively estopped from contending that he was satisfied at that point in time, of the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income. Section 271(1)(c) no doubt authorises the imposition of a penalty irrespective of whether the assessee had any mens rea to occasion the default specified therein. The liability in that sense is a strict one as was the case under Section 11AC of Page | 16 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 the Central Excise Act, the scope of which was considered by the Supreme Court in Union of India v. Dharmendra Textiles Processors – [(2008) 306 ITR 277]. It is therefore all the more necessary to strictly construe the provisions of Section 271(1)(c) to ensure that only the clear and unambiguous cases of defaults specified therein would attract a penalty. On the facts of this case, we fail to see how an assessee who disclosed his liability to tax, well before the Assessing Authority himself could determine it, can be seen as having concealed or incorrectly stated the facts leading to his liability. To invoke the penal provisions of the Act against an assessee in such a situation would throw to the winds the elements of fairness in tax administration and discourage asssessees from disclosing defects in their tax returns before their Assessing Authorities. This is more so when, as in the present case, the assessee had also paid the interest on the differential tax to cover the period of delay in payment thereof. The payment of statutory interest having compensated the exchequer adequately, to further penalise the assessee would tantamount to an act of overkill and would be antithetical to the rule of law. We are of the firm view that the honesty of an assessee cannot attract the penal provisions under the I.T. Act and that, in the instant case, the essential pre- conditions for the invocation of the provisions of Section 271(1) (c) of the I.T. Act against the assessee were not established." 025. We find that the facts in the case of the assessee are identical to the facts in the case decided by the honourable Kerala High Court, therefore respectfully following the Page | 17 ITA Nos. 274 & 275/Mum/2024 Dinesh Sunderji Shah, A.Ys. 2012-13 & 2018-19 decision of the honourable High Court we reverse orders of the learned lower authorities and direct ld AO to delete the penalty levied under section 271(1) (C) of Rs 4,25,262/-. 026. Accordingly solitary ground of appeal of assessee is allowed. 027. In the result both the appeals are allowed. Order pronounced in the open court on 24.07.2024. Sd/- Sd/- (SUNIL KUMAR SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 24.07. 2024 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai