M/s. O.K. Rice Mills, Distt. Hoshiarpur V. The Income-tax Officer, Distt. Hoshiarpur

ITA 285/ASR/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9754 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Fair market value; Corroborative evidences
• Section: 45(2)

Judgement Text

I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR [CORAM: PRAMOD KUMAR AM AND A.D. JAIN JM] I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 M/S O K RICE MILLS . APPELLANT DASUYA, DISTRICT HOSHIARPUR [PAN: AAAFO6429K] VS. INCOME TAX OFFICER DASUYA, HOSHIAPUR RESPONDENT APPEARANCES BY: TARUN BANSAL FOR THE APPELLANT TARSEM LAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING: 1 ST JUNE, 2015. DATE OF PRONOUNCING THE ORDER: 2 ND JUNE, 2015. O R D E R PER PRAMOD KUMAR AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE CIT(A)S ORDER DATED 26 TH MARCH 2012, IN THE MATTER OF THE PENALTY UNDER SECT ION 271(1)(C) OF THE INCOME TAX ACT, 1961, FOR THE ASSE SSMENT YEAR 2006-07. GRIEVANCE OF THE ASSESSEE, IN SUBSTAN CE, IS THAT THE LEARNED CIT(A), ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE, ERRED IN CONFIRMING THE IMPUGNED PENALTY OF RS 6,99,890. I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 2 OF 11 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MILLING OF PADDY AND OF RICE SHELLER. THIS FIRM ORIGINALLY HAD THREE PARTNER, NAMELY SMT NEELAM RALHAN, SHRI O P RALHAN AND SHRI SUMIT RAALHAN. ON 19 TH FEBRUARY, 2006, I.E. DURING THE RELEVANT PREVIOUS YEAR, ONE OF THE PARTNERS, NAMELY SHRI OM PRAKASH RALHAN, PASSED AWAY AND ANOTHER PARTNER, NAMELY SHRI SUMIT RALHAN, RETIRED FROM PARTNERSHIP ON THAT DATE. THE BUSINESS OF THE FIRM WAS THUS TAKEN OVER BY SMT NEELAM RALHAN. ON THESE FACTS, DURING THE COURSE OF THE SC RUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUI RED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE CAPITAL GAINS, ON TRANSFER OF ASSETS OF THE PARTNERSHIP FIRM ON DISSO LUTION OF THE PARTNERSHIP FIRM AS SUCH, NOT BE BROUGHT TO TAX UNDER SECTION 45(4) OF THE ACT. THE STAND OF THE AS SESSEE WAS THAT THERE IS NO OCCASION OF TAXABILITY OF SUCH CAPITAL GAINS AS THE BUSINESS OF THE FIRM WAS CONTINUED BY THE REMAINING PARTNER, I.E. SMT NEELAM RALHAN, AND, AS SUCH, IT WAS ONLY A CASE OF CHANGE OF CONSTITUTION OF THE FI RM. THE STAND SO TAKEN BY THE ASSESSE DID NOT, HOWEVER, FIN D FAVOUR WITH THE ASSESSING OFFICER. RELYING UPON DECISION O F THIS TRIBUNAL, IN THE CASE OF DHINGRA COLD STORAGE & ICE FACTORY VS ITO [ITA NO. 128(2002) OF 2002; ORDER DATED 19 TH OCTOBER 2007], HE REJECTED THE PLEA OF THE ASSESSEE AND BRO UGHT TO TAX CAPITAL GAINS OF RS 31,01,639. THE ASSESSING OF FICER ALSO DISALLOWED, ON ESTIMATE BASIS AND FOR WANT OF FULL SUPPORTING EVIDENCE, AN AMOUNT OF RS 11,534 OUT OF VEHICLE REPAIRS, MISCELLANEOUS, PRINTING AND STATIONERY EXP ENSES. 3. THE ASSESSEE DID NOT RAISE ANY GRIEVANCES AGAINS T THESE ADDITIONS BUT THE MATTER DID NOT REST AT THAT . THE ASSESSING OFFICER ALSO PROCEEDED WITH PENALTY PROCE EDINGS UNDER SECTION 271(1)(C) IN RESPECT OF THESE ADDITIO NS. WHILE SO IMPOSING THE PENALTY, THE ASSESSING OFFICE R, INTER ALIA, OBSERVED AS FOLLOWS: 3. AS ALREADY CONCLUDED IN THE ASSESSMENT ORDER, TH E FIRM WAS DISSOLVED ON 19.02.2006 AND THE ASSETS OF THE FIRM WERE TAKEN OVER BY SMT. NEELAM RALHAN ONE OF T HE PARTNER AS PROPRIETOR. SUBSEQUENTLY, THE LAND UNDER I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 3 OF 11 THE SHELLER BUILDING WAS SOLD BY SMT. NEELAM RALHAN ON 24.01.2007 FOR A SUM OF RS.33,13,50/- AGAINST THE B OOK VALUE OF RS.42,628/-. BEING A CLEAR CUT CASE WHERE THE PROVISION OF SECTION 45(4) WERE ATTRACTED, DURING T HE ASSESSMENT PROCEEDINGS, THE ASSESSEE FIRM WAS CALLE D UPON TO EXPLAIN AS TO WHY THE LONG TERM CAPITAL GAI N ARISING ON THE DATE OF DISSOLUTION I.E., 19.02.2006 SHOULD NOT BE CHARGED TO TAX IN THE HANDS OF THE FI RM. THE STAND OF THE ASSESSEE THAT IT WAS CASE OF CHANG E OF CONSTITUTION AND NOT DISSOLUTION OF FIRM, IN THE FACTS OF THE CASE, WAS REJECTED AND ADOPTING THE FA IR MARKET VALUE OF RS.33,13,500/- FOR WHICH THE LAND W AS SUBSEQUENTLY SOLD THE LONG TERM CAPITAL GAIN WAS COMPUTED AT RS.31,01,639/- AFTER ALLOWING THE COST OF RS.42,628/- AS PER BOOK VALUE AND FURTHER INCREASED TO RS.2,11,861/- AFTER INDEXATION. IT IS GATHERED FROM RECORDS THAT NO APPEAL HAS BEEN FILED BY THE ASSESS EE DISPUTING THE ABOVE ADDITION WHICH MEANS THAT THE ADDITION HAS ATTAINED FINALITY. EVEN DURING THE COU RSE OF PENALTY PROCEEDINGS, THE EXPLANATION FURNISHED B Y ASSESSEE AS DISCUSSED IN PRECEDING PARAS, HAS NOT B EEN FOUND TO BE SATISFACTORY. RATHER BY NOT CONTESTING THIS ADDITION, THE ASSESSEE HAS ADMITTED TO HAVE CONCEALED THE CAPITAL GAIN LIABLE TO TAX. THEREFORE , I AM CONVINCED THAT THE FIRM WAS LIABLE TO DECLARE CAPITAL GAIN ON THE DISSOLUTION OF FIRM U/S. 45(4) OF THE INCOME TAX ACT BY TAKING THE FAIR MARKET VALUE OF THE CAPITAL ASSETS TRANSFERRED TO SMT. NEELAM RALHA N WHO SUBSEQUENTLY SOLD THE SAME FOR 33,13,500/- 4. LIKEWISE ON THE OTHER ADDITION OF RS.11,534/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF VARIOUS EXPENSES WHICH WERE FOUND TO BE UNVOUCHED DURING TH E ASSESSMENT PROCEEDINGS, THE ASSESSEES EXPLANATION AS DISCUSSED ABOVE IS NOT FOUND SATISFACTORY AND PENAL TY PROVISIONS ARE CLEARLY ATTRACTED. 5. KEEPING IN VIEW OF THE ABOVE DISCUSSION, I AM SATISFIED, THAT THE ASSESSEE HAS FURNISHED INACCURA TE PARTICULARS OF INCOME RELATING TO LONG TERM CAPITAL GAIN AT RS.31,01,639/- ARISING OUT OF THE TRANSFER OF ASSETS AT THE TIME OF DISSOLUTION OF THE FIRM AS ON 19.02.2006 AND DISALLOWANCE OF UNVOUCHED EXPENSES F OR RS.11,534/- AS DISCUSSED ABOVE. I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 4 OF 11 4. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE THE CIT(A) BUT WITHOUT ANY SUCCESS. WHILE CONFIRMING TH E ACTION OF THE ASSESSING THE OFFICER, THE CIT(A) CONCLUDED AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS CAREFULLY. THE RETURN OF INCOME BY HE ASSESSEE FIRM WAS FILED ON 31.10.2006. AS PER THE DISSOLUTION DEED DRAWN ON 21.3.2006 W.E.F. 19.2.2006 ON THE DEATH OF SRI OM PRAKASH, THE BUSINESS OF THE FIRM STOOD DISSOLVED W.E.F. 19.2.2006 SINCE SH. SUMIT RAHLAN EXPRESSED H IS INABILITY TO CARRY ON AS A PARTNER. IN THE ASSESSME NT ORDER DATED 12.12.2008 IT HAS BEEN NOTED THAT THE ASSESSEE HAD CONTENDED VIDE REPLY DATED 27.11.2008 THAT THERE WAS NO DISSOLUTION OF THE FIRM AS PER TH E PROVISIONS OF THE SECTION 45(4) OF THE ACT. IT WAS CONTENDED THAT THE CAPITAL GAIN, IF ANY, WOULD ARIS E DURING THE F.Y. 2006-07. THE FACT THAT CAPITAL GAINS U/S. 45(4) AROSE TO THE ASSESSEE IS WELL SUPPORTED BY THE DECISION OF THE HONBLE JURISDICTIONAL TRIBUNAL IN THE CASE OF DHIN GRA COLD STORAGE VS. ITO (SUPRA). IN HIS JUDGMENT IT HA S BEEN HELD THAT BY VIRTUE OF THE PROVISIONS OF SECTI ON 45(4) OF THE ACT CAPITAL GAINS AROSE IN THE CASE OF FIRM ON THE DISSOLUTION OF THE PARTNERSHIP. HOWEVER , IN THE CASE OF CIT VS. MOPED & MACHINES (SUPRA), RELIED UPON BY THE LD. AR, THE HONBLE HIGH COURT H AVE HELD THAT WHEN A FIRM CONSISTED OF ONLY TWO PARTNER S, AND ON THE DEATH OF ONE PARTNER THE OTHER PARTNER CONTINUES THE BUSINESS IT WOULD NOT BE TAKEN TO BE A CASE OF DISSOLUTION. THE HONBLE HIGH COURT HAVE HE LD THAT A TRANSFER U/S. 2(47) OF THE ACT WAS DIFFICULT TO CONCEIVE UNDER THESE CIRCUMSTANCES. IT HAS ALSO BEE N CONTENDED BY THE APPELLANT THAT NO PARTICULAR MENTIONED IN THE RETURN HAS BEEN FOUND TO BE INCORR ECT AND THAT ALL THE FACTS WERE DISCLOSED BY THE APPELL ANT UPFRONT. IT IS SEEN THAT SECTION 45(4) OF THE ACT BRINGS TO TAX THE CAPITAL GINS ARISING FROM THE I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 5 OF 11 TRANSFER OF THE CAPITAL ASSET BY WAY OF DISTRIBUTIO N OF CAPITAL ASSETS ON THE DISSOLUTION OF THE FIRM OR OTHER BODY AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TAKES PLACES. THUS, THE REQUIREMENTS FOR ATTRACTING SECTION 45(4) ARE THERE SHOULD BE DISSOLUTION OF FIRM AND THERE SHOULD BE DISTRIBUTIO N OF THE ASSET OF THE FIRM ON DISSOLUTION. IN THE PRESENT CASE, A DISSOLUTION DEED WAS PREPARED ON 21.3.2006, IN WHICH IT WAS NOTED THAT THE FIRM WAS DISSOLVED ON 19.2.2006 ON THE DEATH OF THE PARTNER. THUS, WHEN THE SURVIVING PARTNERS WERE AWARE OF THE DISSOLUTION, AND ACCEPTED IT IN WRITING, THE RELIAN CE ON THE DECISION IN THE CASE OF CIT VS. MOPED AND MACHINES (SUPRA) FOR CONTENDING THAT THERE WAS NO DISSOLUTION CAN ONLY BE AN AFTERTHOUGHT. MOREOVER, I DO NOT CONSIDER IT INSIGNIFICANT THAT THE PARTNER W HO TOOK OVER THE LAND DID NOT FILE ANY RETURN OF INCOM E FOR THE AY. 2007-08 WHEN THE LAND WAS SOLD BY HER. THUS, WHILE THE FIRM DISPUTED LIABILITY U/S. 45(4), THE PARTNER ALSO DID NOT ACCEPT THE LIABILITY TO PA Y TAX ON THE SALE OF THE LAND. IN MY OPINION, THIS SH OWS THAT THERE WAS A CLEAR ATTEMPT TO EVADE TAX ON THE DISTRIBUTION OF LAND TO THE PARTNERS ON DISSOLUTION OF THE FIRM. UNDER THESE CIRCUMSTANCES, THE DECISION I N THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. (SUPRA) WILL NOT ASSIST THE ASSESSEE, SINCE THIS IS A CLER CASE OF ATTEMPT TO EVADE PAYMENT OF TAXES. THE PENALTY LEVIED BY THE AO IS UPHELD. 5. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. WE FIND THAT, IN THE CASE OF CIT VS MOPED & MACHINES [(2006) 281 ITR 52 (DEL)], HONBLE HIGH COURT WAS IN SEISIN OF A SITUATION IN WHICH A PARTNERSHIP FIRM HAD TWO PARTNERS AND ONE OF THE PARTNERS PASSED AWAY. THE QUESTION A ROSE WHETHER IN SUCH CIRCUMSTANCES, THE ASSETS OF THE FI RM CAN I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 6 OF 11 BE SAID TO HAVE BEEN TRANSFERRED TO THE SURVIVING P ARTNER WHO THUS BECAME SOLE PROPRIETOR OF THE PARTNERSHIP FIRM. ON THESE FACTS, THE ASSESSING OFFICER BROUGHT TO TAX T HE CAPITAL GAINS ON TRANSFER OF PARTNERSHIP FIRMS ASS ETS TO THE SURVIVING PARTNER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT, AS NOTED BY HONBLE HIGH COURT, CIT(A) DELETED THE ADDITION ON THE GROU ND THAT THE PARTNERSHIP FIRM CEASED TO EXISTS AND THAT THA T LEVY OF CAPITAL GAIN DOES NOT MEET THE TEST OF BASIC REQUIREMENT, NAMELY, TRANSFER. IT WAS ALSO HELD BY HIM THAT NO CAPITAL GAIN CAN BE LEVIED ON AN ENTITY WHICH IS NON- EXISTENT. IN APPEAL, THE TRIBUNAL, RELYING UPON A COORDINATE BENCH DECISION IN THE CASE OF ACIT VS. THERMOFLICS INDIA LIMITED [(1997)60 ITD 554 (JAB)], CONFIRMED THE RELIEF SO GRANTED BY THE CIT(A). WHEN THIS MATTER TRAVELLED BEFORE HONBLE DELHI HIGH COURT, T HEIR LORDSHIPS CONFIRMED THE STAND SO TAKEN BY THE TRIBU NAL AND PUT THE SEAL OF APPROVAL ON THE SCHOOL OF THOUGHT THAT THERE COULD NOT BE A TAXATION OF CAPITAL GAIN EVEN ON DISSOLUTION OF A PARTNERSHIP FIRM AS THE PARTNERSHI P FIRM CEASES TO EXIST. LEARNED CIT(A) WAS THUS CLEARLY IN ERROR WHEN HE REJECTED ASSESSEES RELIANCE ON MOPED & MAC HINES (SUPRA) DECISION ON THE GROUND THAT WHEN SURVIVING PARTNERS WERE AWARE OF THE DISSOLUTION, AND ACCEPTI NG IT IN WRITING, THE RELIANCE ON (THIS DECISION) FOR CONTENDING THAT THERE WAS NO DISSOLUTION CAN ONLY BE AN AFTERT HOUGHT . IN THE LINE OF REASONING APPROVED BY THEIR LORDSHIP S, THE FACT OF DISSOLUTION WAS RELEGATED TO INSIGNIFICANCE BY THE FACT THAT, AS HELD THEREIN, TRANSFER TAKES PLACE AF TER TRANSFEROR CEASES TO EXISTS AND, THEREFORE, CAPITAL GAINS COULD NOT BE BROUGHT TO TAX. THE UNDERLYING REASON FOR GIVING RELIEF IN THIS CASE DID NOT, AS WE HAVE SEEN IN THE PRECEDING PARAGRAPH, MUCH TO DO WITH DISSOLUTION AS PECT. THE DECISION OF THERMOFLICS (SUPRA), WHICH WAS RELIED UPON BY THE TRIBUNAL IN THIS CASE, WAS ALSO A CASE IN WH ICH DISSOLUTION HAD TAKEN PLACE AND YET IT WAS HELD THA T CAPITAL GAINS CANNOT BE BROUGHT TO TAX IN THE HANDS OF THE PARTNERSHIP FIRM. IN THIS CASE, A COORDINATE BENCH OF THE TRIBUNAL HAD, INTER ALIA , OBSERVED AS FOLLOWS: 11. ONE MAY BE TEMPTED TO ARGUE THAT SUB-S. (4) OF S. 45 IS A SEPARATE CODE BY ITSELF AND IT BY WAY OF DEEMING PROVISION PROVIDED FOR LEVY THE CAPITAL GAI NS I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 7 OF 11 TAX ON THE DISTRIBUTION OF ASSETS AMONG THE PARTNER S ON DISSOLUTION OF THE FIRM. THEREFORE, THERE IS NO NECESSITY OF REFERRING TO THE DEFINITION OF WORD 'TRANSFER' IN S. 2(47). HOWEVER, WE FIND THAT IN S. 45, SUB-S. (2) WAS INSERTED BY TAXATION LAWS (AMENDMENT) ACT, 1984, W.E.F. 1ST APRIL, 1985. AS P ER THIS SUB-SECTION, (I.E., SUB-S. (2) OF S. 45) CONVERSION OF CAPITAL ASSET, BY THE OWNER THEREOF, AS STOCK-IN-TRADE WAS BROUGHT WITHIN THE NET OF CAPITA L GAINS TAX. THERE WAS SIMULTANEOUS AMENDMENT IN SUB- S. (47) OF S. 2, I.E., (DEFINITION OF WORD 'TRANSFER') AND CL. (IV) WAS INSERTED THEREIN, SO AS TO INCLUDE , THE CONVERSION OF ANY ASSET BY OWNER THEREOF AS STO CK- IN-TRADE, WITHIN THE DEFINITION OF WORD 'TRANSFER'. THUS, THE LEGISLATURE WAS AWARE THAT S. 45 IS NOT A COMPLETE CODE IN ITSELF AND TO CHARGE ASSESSEES UND ER S. 45(2) FOR CONVERSION OF CAPITAL ASSET INTO STOCK - IN-TRADE, SIMULTANEOUS AMENDMENT IN THE DEFINITION OF WORD 'TRANSFER' UNDER S. 2(47) IS ESSENTIAL. AMENDM ENT IN DEFINITION OF WORD 'TRANSFER' UNDER S. 2(47) WAS SO MADE BY INSERTING CL. (IV). HOWEVER, WE FIND THAT S UB- S. (4) TO S. 45 WAS INSERTED BY THE FINANCE ACT, 19 87, W.E.F. 1ST APRIL, 1988. BY THE SAME DATE, THERE WER E INSERTION OF CLS. (V) AND (VI) IN SUB-S. (47) OF S. 2, BUT THESE TWO CLAUSES DO NOT COVER THE CASES OF DISTRIBUTION OF ASSETS ON THE DISSOLUTION OF THE FI RM. THUS, THE DEFINITION OF THE WORD 'TRANSFER' IS NOT AMENDED OR MODIFIED, SO AS TO ENLARGE THE DEFINITIO N OF WORD 'TRANSFER' TO COVER THE CASES OF DISTRIBUTI ON OF ASSETS ON THE DISSOLUTION OF FIRM. WE HAVE ALREA DY MENTIONED THAT FOR CHARGEABILITY OF CAPITAL GAINS T AX AS PER THE NEWLY INSERTED SUB-S. (4) OF S. 45, 'TRANSFER' OF CAPITAL ASSET IS ESSENTIAL. UNLESS TH ERE IS 'TRANSFER' OF CAPITAL ASSETS, THE ASSESSEE CANNO T BE CHARGED TO CAPITAL GAINS TAX. THEREFORE, THE DECISIONS OF HONBLE SUPREME COURT IN THE CASES OF DEWAS CINE CORPN. (SUPRA), BANKEY LAL VAIDYA (SUPRA ) AND MALABAR FISHERIES CO. (SUPRA) STILL HOLD GOOD. 12. THE OMISSION OF SUB-S. (2) OF S. 47 W.E.F. 1ST APRIL, 1988 WILL NOT MAKE ANY DIFFERENCE. THIS SUB- SECTION, BEFORE ITS OMISSION PROVIDES EXEMPTION FRO M CAPITAL GAINS TAX IN RESPECT OF DISTRIBUTION OF CAPITAL ASSETS ON THE DISSOLUTION OF THE FIRM, BODY OF I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 8 OF 11 INDIVIDUALS OR AOP. HOWEVER, AS WE HAVE HELD THAT T HE DISTRIBUTION OF ASSETS ON THE DISSOLUTION OF FIRM I S NOT 'TRANSFER' SO AS TO MAKE THE ASSESSEE LIABLE FO R CAPITAL GAINS TAX. THEREFORE, WHEN THE ASSESSEE IS NOT LIABLE TO CAPITAL GAINS TAX, THERE IS NO NECESSITY FOR CLAIMING ANY EXEMPTION UNDER S. 47(2). 8. LET US, IN THIS LIGHT, TAKE A LOOK AT THE SCHEME OF SECTION 271(1)(C). THE SCHEME OF S. 271(1)(C VISUALIZES IMPOSITION OF PENALTY WHEN THE ASSESSEE HAS CONCEAL ED INCOME OR WHEN THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF INCOME. IN ADDITION TO THESE TWO SIT UATIONS, PENALTY CAN ALSO BE IMPOSED, INTER ALIA, WHEN ASSES SEE IS DEEMED TO HAVE CONCEALED PARTICULARS OF INCOME UNDE R EXPLN. 1 TO S. 271(1)(C). THIS EXPLANATION PROVIDES THAT T HE ASSESSEE WILL BE DEEMED TO HAVE CONCEALED PARTICULA RS OF INCOME WHERE IN RESPECT OF ANY FACTS MATERIAL TO TH E COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (I) WHEN THE ASSESSEE FAILS TO PROVIDE AN EXPL ANATION, (II) WHEN THE ASSESSEE PROVIDES AN EXPLANATION WHIC H IS FOUND TO BE FALSE, AND (III) WHEN THE ASSESSEE PROV IDES AN EXPLANATION WHICH HE FAILS TO SUBSTANTIATE AND HE F AILS TO PROVE THAT THE EXPLANATION WAS BONA FIDE AND THAT A LL THE FACTS NECESSARY FOR THE SAME AND MATERIAL FOR COMPU TATION OF INCOME HAVE BEEN DULY DISCLOSED BY THE ASSESSEE. IN THE LIGHT OF THIS LEGAL POSITION, COMING TO THE FACTS O F THIS CASE, WE FIND THAT IT IS NOT EVEN ASSESSING OFFICER S CASE, NOR CAN IT BE HIS CASE, THAT THE ASSESSEE WAS UNDER A STATUTORY OBLIGATION TO DISCLOSE THAT THE ASSESSEE COULD POSSIBLY BE HELD LIABLE TO BE TAXED IN RESPECT OF C APITAL GAINS ON DISSOLUTION OF FIRM AND YET THE ASSESSEE H AS NOT MADE SUCH A DISCLOSURE. THE ASSESSEE CAN BE FAULTED FOR NOT DISCLOSING SOMETHING UNLESS THE ASSESSEE HAS AN OBL IGATION TO DO SO AND HE DOES NOT DO SO. THAT IS OBVIOUSLY N OT THE CASE IN THE PRESENT SITUATION. CLEARLY, THEREFORE, THE PENALTY CAN ONLY BE INVOKED IN THE EVENT OF DEEMING FICTION COMING TO PLAY. AS FOR THIS DEEMING FICTION, IT CAN COME INTO PLAY WHEN EITHER THE ASSESSEE DOES NOT GIVE AN EXPLANATION OR WHEN ASSESSEE GIVES AN EXPLANATION W HICH IS FOUND TO BE FALSE, OR IN RESPECT OF WHICH BONAFIDES ARE NOT PROVED, IN ADDITION, OF COURSE TO A SITUATION IN WH ICH THERE IS A FAILURE TO DISCLOSE FACTS NECESSARY OF COMPUTATION OF INCOME. NON DISCLOSURE OF FACTS NECE SSARY I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 9 OF 11 FOR COMPUTATION OF INCOME, AS WE HAVE NOTED ABOVE, IS NOT EVEN ALLEGED IN THIS CASE. COMING TO THE EXISTENCE OF EXPLANATION OF THE ASSESSEE, AND ITS BONAFDIDES, WE FIND THAT IN THE CASE OF CIT VS. NATHULAL AGARWALA & SONS [(1985) 153 ITR 292 (PAT)(FB)] FULL BENCH OF HON'BLE PATNA HIGH COURT HAD, INTER ALIA, OBSERVED AS FOLLOWS : 'AS TO THE NATURE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE, IT SEEMS PLAIN ON PRINCIPLE THAT IT I S NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION IS GIVEN, THE BURDEN PLACE D UPON HIM WOULD BE DISCHARGED AND THE PRESUMPTION REBUTTED. IT IS NOT THE LAW AND PERHAPS HARDLY CAN BE THAT ANY AND EVERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. IN MY VIEW, THE EXPLANATION OF THE ASSESS EE FOR THE PURPOSE OF AVOIDANCE OF PENALTY MUST BE AN ACCEPTABLE EXPLANATION. HE MAY NOT PROVE WHAT HE ASSERTS TO THE HILT POSITIVELY BUT AS A MATTER OF F ACT MATERIALS MUST BE BROUGHT ON THE RECORD TO SHOW THA T WHAT HE SAYS IS REASONABLY VALID .' 9. THE ABOVE VIEWS WERE APPROVED BY THE HON'BLE SUP REME COURT IN THE CASE OF CIT VS. MUSSADILAL RAM BHAROSE [(L987) 165 ITR 14 (SC)] WHEREIN THEIR LORDSHIPS, INTER ALIA, OBSERVED THAT ' THE PATNA HIGH COURT EMPHASISED THAT AS TO THE NATURE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE, IT WAS PLAIN ON PRINCIPLE THAT IT WAS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLA NATION WAS GIVEN, THE BURDEN PLACED UPON HIM WOULD BE DISC HARGED AND THE PRESUMPTION REBUTTED. WE AGREE. WE FURTHER AGREE THAT IT IS NOT THE LAW THAT ANY AND EVERY EXPLANATI ON BY THE ASSESSEE MUST BE ACCEPTED. IT MUST BE ACCEPTABL E EXPLANATION, ACCEPTABLE TO A FACT-FINDING BODY .' 10. WHAT IS THUS REALLY REQUIRED TO BE SEEN BY THE AUTHORITIES BELOW WAS THERE WAS AN EXPLANATION OFFE RED BY THE ASSESSEE WHICH COULD BE ACCEPTABLE TO A FACT FI NDING BODY AND WHETHER SUCH AN EXPLANATION COULD BE SAID TO BE A BONAFIDE EXPLANATION. WE FIND THAT THE EXPLANATION OF THE ASSESSEE IS SUPPORTED BY THE DECISIONS OF THE TRI BUNAL IN THERMOFLICS CASE (SUPRA) AND BY HONBLE DELHI HIGH COURT I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 10 OF 11 IN MOPED AND MACHINES CASE (SUPRA ). THE EXPLANATION IS NOT ONLY AN ACCEPTABLE EXPLANATION BUT IT HAS BEEN INDEED ACCEPTED, ON MERITS, BY A COORDINATE BENCH OF THIS TRIBUNAL AS ALSO BY HONBLE DELHI HIGH COURT. THE LEGAL POSI TION AS IT STANDS TODAY, IN THE LIGHT OF SOME OTHER BINDING JUDICIAL PRECEDENTS, MAY OR MAY NOT BE DIFFERENT BU T WE ARE NOT REALLY CONCERNED WITH THAT ASPECT OF THE MATTER AT THIS STAGE OF EXAMINING ASSESSEES CONDUCT IN THE CONTEX T OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). SUCH A LEGAL POSITION IS RELEVANT ONLY IN THE CONTEXT OF THE TAX ABILITY UNDER THE LAW BUT THEN, AT THE COST OF REPETITION, RIGHT NOW WHAT WE ARE EXAMINING NOT THE TAXABILITY BUT ON LY THE BONAFIDES OF THE ASSESSEES CONDUCT IN TAKING A PAR TICULAR STAND ABOUT TAXABILITY. SUCH A STAND MAY BE INCORRE CT BUT IT CANNOT BE SAID TO BE NOT BONAFIDE AND THAT IS AL L THAT MATTERS TO US IN THE PRESENT CONTEXT. THE FACT THAT THE ASSESSEE DID NOT PURSUE THE MATTER AGAINST THIS QUA NTUM ADDITION, ON MERITS, CANNOT BE PUT AGAINST THE ASSE SSEE IN THE PENALTY PROCEEDINGS, BUT THEN THAT IS PRECISELY WHAT THE AUTHORITIES BELOW HAVE ENDED UP DOING. QUITE TO THE CONTRARY, THE FACT THAT THE ASSESSEE HAS NOT PROLON GED THIS ISSUE REACHING FINALITY BY NOT CHALLENGING, BEFORE THE APPELLATE FORUMS, THE ADDITIONS MADE BY THE ASSESSI NG OFFICER. SUCH A CONDUCT SHOULD NOT DEINCENTIVIZED. WE DISAPPROVE THIS APPROACH IN THE PENALTY PROCEEDINGS . IN ANY CASE, SO FAR AS THE PENALTY PROCEEDINGS ARE CONCERN ED, ALL THAT IS TO BE SEEN IS WHETHER EXPLANATION OF THE AS SESSEE IS A REASONABLE EXPLANATION OR NOT. IN OUR CONSIDER ED VIEW, FOR THE DETAILED REASONS SET OUT ABOVE, THE EXPLANA TION OF THE ASSESSEE SO FAR AS NON TAXABILITY OF CAPITAL GA INS, EVEN IF THAT BE SO, ON DISSOLUTION OF PARTNERSHIP F IRM WAS A REASONABLE EXPLANATION WHICH OUGHT TO HAVE BEEN A CCEPTED. AS REGARDS THE DISALLOWANCE OF RS 11,534 FOR WANT O F COMPLETE SUPPORTING EVIDENCE, SUCH A DISALLOWANCE C ANNOT BE REASON ENOUGH TO IMPOSE CONCEALMENT PENALTY UNDER S ECTION 271(1)(C). NOT ONLY THAT THE ASSESSEE HAS AN EXPLAN ATION FOR THIS CLAIM BUT THE EXPLANATION HAS BEEN SUBSTAN TIALLY ACCEPTED INASMUCH AS THE DISALLOWANCE IS ONLY FOR A SMALL PORTION OF THE EXPENSES. IN VIEW OF THIS FACT, AS A LSO BEARING IN MIND ENTIRETY OF THE CASE, IT WAS NOT A FIT CASE FOR IMPOSITION OF PENALTY ON THIS COUNT EITHER. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT IT IS A F IT CASE FOR DELETION FOR THE IMPUGNED PENALTY OF RS 6,99,89 0. WE DO I.T.A. NO. 285 (ASR) OF 2012 ASSESSMENT YEAR: 2006-07 PAGE 11 OF 11 SO. THE PENALTY STANDS DELETED. THE ASSESSE GETS TH E RELIEF ACCORDINGLY. 11. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT ON 2 ND JUNE 2015. SD/- SD/- A D JAIN PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT ME MBER) DATED THE 2 ND DAY OF JUNE 2015 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR