Nadella Munikannaiah , Tirupati V. Asst. Commissioner of Income Tax, Circle-1(1), Tirupati

ITA 444/Hyd/2019

AI Insights

The case revolves around the penalty imposed on the assessee, N.Dathri, for not disclosing capital gains from a Joint Development Agreement (JDA) in the relevant assessment years. The JDA was registered on April 17, 2013, and involved the transfer of land for development in exchange for a share of the constructed flats. The Assessing Officer (AO) and the CIT(A) found that the capital gains were chargeable in AY 2014-15, the year in which the JDA was registered, and not in AY 2013-14 as contended by the assessee. The assessee argued that the capital gains should not be taxed in AY 2014-15 as possession was not handed over to the developer, a claim the Tribunal found unsubstantiated. The Tribunal agreed with the CIT(A) that the assessee had concealed income by not disclosing the capital gains in the returns filed for the relevant assessment years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122399 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 02-05-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 28-03-2019
• Other Referred Cases: Balbir Singh Maini, ABVS Prakash, Manjunatha Cotton & Ginning Factory, Banta Singh Kartha Singh, MAK Data Pvt Ltd, Khandelwal Steel & Tube Traders
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Cost of acquisition; Reasonable cause; Agreed addition; Capital Gains
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad Before Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member O R D E R Per Shri Laliet Kumar, JM. This appeal filed by the assessee is directed against the order dated 28.02.2019 of Learned Commissioner of Income Tax (Appeals), Tirupati relating to AY 2014-15. 2. The assessee raised the following grounds of appeal: 1. The penalty order u/s. 271(1)(c) passed by the learned Commissioner of Income tax (Appeals), in the facts and circumstances, is not justified both on facts and in law. 2. The learned Commissioner of Income tax (Appeals), in the facts and circumstances of the case, is not justified in initiating penalty proceedings u/s. 271(1)(c) of the Income-tax Act, 1961 3. The learned Commissioner of Income tax (Appeals), in the facts and circumstances of the case, is not justified in levying the penalty u/s. 271(1)(C) of the I.T.Act, 1961 4. The learned Commissioner of Income tax (Appeals) is not justified in not considering the fact that the year of taxability of capital gain in the case of Joint Development Agreement is controversial issue ITA No.444/Hyd/2019 Assessment Year: 2014-15 N.Dathri L/R of late Nadella Muni Kannaiah C/o. Katrapati & Associates 1-1-298/2/B/3, 1 st Floor Ashok Nagar,Street No.1 Hyderabad-500 020 PAN : ASRPM2224R Vs. ACIT, Circle-1(1) Tirupati Andhra Pradesh (Appellant) (Respondent) Assessee by: Shri K.A.Sai Prasad, CA Revenue by : Shri K.P.R.R.Murthy, Sr.AR Date of hearing: 03.05.2023 Date of pronouncement: .05.2023 2 ITA 444/Hyd/2019 and this was a reasonable cause for non-disclosure of such capital gain by appellant in the assessment year under appeal. 5. The appellant craves leave to add, amend, delete or substitute any ground or grounds during the course of hearing. 3. In the present case the assessing officer had completed the scrutiny assessment after determining the total income the assessee for Rupees 45, 81, 730/-for the assessment year 2014- 15. Feeling aggrieved by the assessment order, the assessee preferred the appeal before the Ld. CIT(A) for the assessment year 2013 – 14 and also for 2014-15. The Ld. CIT(A) while deciding the appeal for the assessment year 2013-14, in paragraph 4.4 of order dated 14 August 2018 it was mentioned as under:- 4.4 On plain reading of the documents No. 2819/2013 registered on 17 April 2013 and applying the ratio of the decision of the Hon’ble Supreme Court of India in the case cited supra and Punjab and Haryana High Court decision in the case cited supra, I’m of the considered view that the capital gain does not arise in a by 2013 – 14 and appropriate action is being taken in appeal proceedings pending for 2014 – 15 4. The Ld. CIT(A) while adjudicating the appeal for the assessment year 2014-15 in paragraph 5.2 to 5.4 had held as under 5.2 I have considered the submissions of the appellant carefully. The appellant accepted for enhancement of the capital gains for A.Y.2014-15 by an amount of Rs.32,39,000/- subject to condition that an amount of Rs.8,35,535/- shall not be enhanced further in view of the findings given by the Assessing Officer in the order of assessment for A.Y.2013-14. On the issue, the AR of the appellant vide submission dated 30-5-2018 Submitted in the proceedings for A.Y.2013-14 as under: "CACLCULATION OF CAPITAL GAINS FOR TRANSFER OF LAND AT THE OF JOINT DEVELOPMENT AGREEMENT: Without prejudice to the assessment year In which the Capita! gains are assessable 28 submitted above, the appellant beg to submit that the method / principle followed by the AO in determining Capital gains at the time of JDA is not justifiable. While passing the exparte assessment order the AO has taken the proportionate of land as cost or acquisition for deriving the capital gains which is not justifiable. In detail, it is to submit that the appellant along with the other has given their total land of 6933 sq.ft, to the Developer on JDA for construction of Flats and divisible in 60%-40% sharing ratio. As per the 3 ITA 444/Hyd/2019 assessment order, the AO's contention is the landlords have received back 40% of flats which includes undivided share of land [2772sq.ft] and hence this is not available as cost of acquisition for calculating the Capital Gains. In this connection, it is to submit that if the total land is not given for development, the entire apartment building could not be constructed by the developers and the undivided share of land pertaining to the landowners are not identifiable and inseparable from the flats received by them. in other words, the landowners cannot retain the undivided share of land and sell the flats to the third parties. This undivided share of land may pertain to common area such as the land occupied by lifts, stair case, walking path within the compound etc. On the other hand, the appellant bet t submit that the receipt of flats are nothing but the sale consideration of the total land given for development at the time of entering of JDA. Further, it is pertinent to mention here that the AO has assessed the Capital gains at the time of entering of JDA and no building structure was existing at that time and the AO’s presumption is not proper and unjustifiable. In the circumstances, the appellant beg to submit that the entire land and its value has to be taken for deriving capital gains at the time of entering of JDA and this may kindly be considered and direct the AO." 5.3. On consideration of the submissions made by the appellant, I find that the contention of the Assessing Officer to increase capital gains by Rs.8,35,535/- has no basis. Since the total land of 6933 sq. ft. was given for development under Joint Development Agreement, the hypothetical calculation made by the Assessing Officer is Incorrect. Hence, the recomputation or capital gains of Rs.32,39,000/- excluding an amount of Rs.8,35,535/- as worked out by the AR of the appellant below in the course of appellate proceedings is legally correct. Sale consideration on JDA 53,28,785 (Total cost of the project) 2,66,42,720 Including car parking Land owner's share 40% thereof 26642720 x 40/100 1,06,57,088 Assessee's share 50% 53,28,785 Deduct: Cost of acquisition 20,89,785 (Total Cost = Rs.41 ,79,570 assessee's share 50% Rs.20,89,785) 32,39,000 Sate of two flats during the F.Y.2013-14 relevant to A.Y.2014-15 Sale consideration (11,20,000 + 10,70,000) as per registered documents 21,90,000 Cost of acquisition as per JDA as adopted by Assessing Officer 17,08,672 4,81,328 4 ITA 444/Hyd/2019 Total short term capital gains 37,20,328 However, the indexation benefit shall be made available to the appellant as per the law. The Assessing Officer is directed to recompute the capital gains as directed above and enhance the assessable income accordingly. 5.4 Penalty proceedings are initiated separately u/s.271(1)( c) read with explanation 1of the I.T.Act for concealment of income of Rs.32,39,000/- 5. The assessee was given the show cause notice for imposition of penalty on 16 August 2018. The assessee had filed the reply to the said show cause notice and requested for dropping the penalty proceedings against the assessee. The lower authority after considering the reply of the assessee, in the detail order had imposed penalty. The finding of the Ld. CIT(A) is available at page 11 to 16 of the impugned order which is to the following effect: The assessee was given opportunity of being heard due to change in incumbent. The explanations submitted by the assessee are also considered. The material facts as available on record have also been considered. The assessee. entered into an agreement with M/s. Srija Constructions on 30.3.2013 and the same was registered on 17.4.2013. By virtue of this agreement, the assessee has to get 40% of the "super built up area", on account of transfer of land belonging to the assessee, along with another co-owner. Smt.O. Nalini is co-owner and party to the said JDA. The assessee has not offered capital gains on account of transfer of land in view of the JDA for AY 2013-14 or 2014-15. The assessee offered short term capital gains on account of sale of flats received in consideration of transfer of said land to the developer for AY 2014-15, but not offered capital gains on the transfer of land. As discussed above, while disposing appeals, notice has been given for enhancing the income for AY 2014- 15 and the same was consented accordingly appellate order was passed. The assessee all through in the assessment proceedings and before the appellate authority during the proceedings for AY 2013-14, contended that capital gains will not arise in that AY, which means the assessee is aware that capital gain is chargeable to tax in the AY2014-15, as the JDA is registered in the FY 2013- 14. The assessee in the submissions, contended that the AO considered the JDA in the assessment proceedings and stated that as the super built up area was received during the FY 2013-14, in the year in which the JDA was entered and hence, capital gains separately does not arise on account of JDA. It was also contended that possession was not given to the builder as per clauses and the project was carried out jointly with the builder, the assessee being also a contractor. The assessee relied on the decision of Hon'ble ITAT, Hyderabad, in the case of ABVS Prakash for proposition that a symbolic possession given to the developer, is not a transfer as per Sec.2(47)(v) of the Act. The assessee claimed that he has not concealed any particulars or documents at any time during the course of regular assessment itself. The assessee also contended that only on the basis of computation sheet furnished, while disposing the appeal for AY 2013-14, enhancement notice has been given. Hence, the details 5 ITA 444/Hyd/2019 of capital gains was worked out and submitted voluntarily and finally consented for enhancement with an intention to purchase peace. Hence, requested to drop the proceedings. The assessee mainly contended that he has not concealed the particulars of income and voluntarily consented for enhancement though possession was not given to the developer as per the clauses. The contention of the assessee is strange. Without giving possession to the developer, how come the assessee got super built up area and sold two flats out of the same and also offered short term capital gains for AY 2014-15. This itself shows the hollowness in the arguments of the assessee that no possession was given to the builder/ developer. As per Explanation 1 of Sec.271 (1 )(c) of the Act, penalty is leviable. Explanation 1 is as under: '[Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the [Principal Commissioner or] Commissioner] to be false, or (B) such person offers an explanation which he- is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." In the light of the above provision, it has to be seen whether the assessee disclosed the particulars and material facts for the computation of total income. It has to be seen that the explanation offered by the appellant is substantiated or not. Further, one has to see the explanation offered is bona fide or not. The assessee has not disclosed capita: gains on the transfer of land by virtue of JDA, either in the AY 2013-14 or 2014-15. For the AY 2014-15, the assessee offered short term capital gains on sale of two flats and not disclosed the transaction of transfer of land and consequential capital gains on the same. The assessee stated that the capital gains was not eligible in the AY 2014-15, as no possession was given to the builder relying on certain decisions. This contention is also not tenable for the reason that the project which was envisaged as per JDA was accomplished and the share of flats were received by the assessee. Unless the land was given possession to the builder/developer, constructing the apartment or receipt of super built up area to his share by the appellant, does not arise. The assessee has not substantiated the claim that no possession was given to the builder in the above facts. When the assessee received super built up area in the form of flats, the claim made that no possession was given to the builder and no capital arises for the AY 201..1-15, appears to be not a bona fide explanation. Knowing fully well, the clauses of the agreement and also on receipt of flats, the assessee cannot claim that the capital gain does not arise in the AY 20"14-15. In view of this, it is held that the contentions of the assessee are baseless and against the material facts. The assessee contended that the AO was not initially raised/ assessed the capital gains on account of JDA registration in the AY 2014-15 in view of various Clauses of the agreement. Hence, it was contended that capital gain is 6 ITA 444/Hyd/2019 not liable for taxation in the AY 2014-15 and the concealment of income was not established. In this connection, on perusal of the assessment order, it is noticed that the AO considered supplementary agreements and brought certain amounts to tax in the said AY and nowhere the clauses of the agreement as claimed by the assessee were discussed. The assessee has not furnished the required details to compute capital gains on transfer of the land to the developer. The concealment of Income was established beyond doubt in the appellate proceedings. Vide letter filed on 27.2.2019, the assessee contended that all the material I documents were furnished before the AO at the time of assessment for the AY 2014-15. The AO called for the details for examining the claim of shortage of capital gains of the assessee for the AY and the assessee has not furnished the details required for computing capital gains on the transfer of land. During the appellate proceedings for the AY 2014-15, enhancement notice was given by CIT(A) for the reason that the capital gain is chargeable to tax for the AY 2014-15 on-transfer of land to the builder having regard to the date of registration of JDA. Considering the decision of the Hon'ble Supreme Court in the case of Balbir Singh Maini, the capital gains were brought to tax. In view of this, the contention of the assessee that there is no basis or reason for enhancement is baseless. CIT(A) is empowered to enhance 'he income and a valid notice has been given for which the assessee also consented. In view of this, the assessee cannot 'claim that the enhancement is beyond the jurisdiction. The assessee contended that CIT(A) made enhancement on a new source of income, which is not permitted under law and hence, initiation of penalty on such enhancement is not eligible and requested to drop the penalty proceedings, The AO assessed capital gains on transfer of land for the AY 2013-14, considering the date of JDA. Once CIT (A) gave relief to the appellant for that AY., then the income i.e. capital gains required to be taxed in the year of taxability. This is not a completely new source of income. This income was considered by the AO for AY 2013-14. CIT(A) considering the Apex court decision, held that the income is chargeable for the AY 2014'-15 and brought to tax by enhancement. In view of this, there is no merit in the argument of the assessee that the enhancement was made altogether on a new source of income. The capital gains issue on account of transfer of land was not examined by the AO in the AY 2014-'15, hence, enhancement of income by CIT(A), cannot be treated as re-examination of the same issue, Moreover, the CIT(A) has not re- done the assessment which has' been completed by the AO for the AY 2014-15. In view of these reasons, all the contentions put forth by the assessee are rejected and the CIT (A) has exercised the power vested under law to bring the income which has to be taxed in the year under consideration. The assessee concealed the particulars of income specifically the capital gains on transfer of land and the same is attracted penal provision, as discussed above, as the assessee has not substantiated the explanation submitted by him. At this juncture, it is felt necessary whether the assessee concealed particulars of income or furnished inaccurate particulars or both. There is distinction between concealment of particulars of income and furnishing of inaccurate particulars of income. It 's necessary to understand the distinction between the two charges on the basis of which penalty can be levied i.e (1) concealment of particulars of income and (2) furnishing of inaccurate particulars of income. It is 7 ITA 444/Hyd/2019 the particulars of income which is the common subject matter of both the charges which will be discussed later. The word 'conceal' as per Webster's Dictionary means "to hide, withdraw, or remove from observation; cover or keep ,from sight; to keep secret; to avoid disclosing or divulging. That means non disclosure of particulars of income. On the other hand, where particulars are disclosed but such disclosure is not correct, true or accurate, it would amount to furnishing of inaccurate particulars of income. For example, in case of businessman, if a particular transaction of sale is not shown in the books, it would amount to concealment of particulars of income while Sale is shown but at a lesser value, it would amount to furnishing of inaccurate particulars of income. It is pertinent to note that thrust of the legislature is upon the particulars of income which are either concealed or furnished inaccurately by the assessee. Therefore, one Must understand the meaning of the words "particulars of income". The Hon'ble Tribunal had to consider the meaning of the expression "furnishing of inaccurate particulars of Income" appearing in section 271 (1)(c) in the case of Kanbay Software India (P) Ltd. 122 TTJ 121 (Pune). It was held that the expression 'particular' refers to facts, details, specifics or the-information about someone or something . Hon'ble High Court of Bombay in the case of Indian Hume pipe Co. Ltd., (340 ITR 439) discussed about disclosure of material facts fully and truly in connection with provisions of Sec.147 of the Act. The Hon'ble High Court held that disclosure must be specific and not covered one and held that Full and true disclosures must mean what the statute says. These disclosures cannot be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the Assessing Officer. The assessee must act with candour and the disclosure must be full and true. A full disclosure is a disclosure of all material facts which does not contain any hidden material or fact. A true disclosure is a disclosure which is truthful in all respects. .The capital gains could not have been brought to tax but for initiation of Department to bring to tax the same and only after enhancement notice is given the capital gains was accepted by the assessee. It is not a voluntary consent but due to the effort made by Department in establishing the concealment of income. Reliance is placed on the decision of the Hon'ble High Court of Karnataka in the case of Manjunatha Cotton & Ginning Factory (35 taxman.com 250) and also on the decision of the Hon'ble High Court of Punjab & Haryana in the case of Banta Singh Kartha Singh (125 ITR 239 P H) for the preposition that concealment penalty can be leviable even on agreed addition when the concealment was found & established by Department. Reliance is also placed on the decision given by the Hon'ble Supreme Court of India in the MAK Data Pvt Ltd (358 ITR 593), wherein it was held that surrender of income after detection by the Department is not a voluntary offer. It was also held that the Law does not provide when an assessee makes a voluntary disclosure of income he had to be absolved from penalty. Reliance is also placed on the decision of the Hon'ble High Court of Madras in the case of Khandelwal Steel & Tube Traders (256 taxman'305) for the proposition that Department is not precluded from initiating penalty proceedings even when assessee agreed for the addition with a condition that penalty could not be imposed. In view of this, the assessee's claim that he has disclosed material facts cannot be accepted. Moreover, as discussed above, the assessee has not filed the details of JDA with return of income for the AY 2014-15. In view of this also, it cannot be held that he has furnished information required for assessment. The income particulars were concealed and not disclosed to the Department. Moreover, as the explanation submitted by the assessee is not substantiated, 8 ITA 444/Hyd/2019 the same is attracted the provisions of Explanation 1 to Sec.271(1)(c) of the Act. The penalty proceedings were initiated on the charge of concealment of income and the concealment was established. As per the provisions of the said section, the minimum penalty leviable is 100% tax sought to be evaded i.e., Rs. 9,84,798/- and maximum penalty leviable is 300% of the tax sought to be evaded i.e., Rs. 29,54,394/-. Considering the facts and circumstances of the case, I hereby levy a minimum penalty of Rs.9,84,798/-. The assessee is directed to pay the above penalty of Rs. 9,84,7981- as per demand notice enclosed. The AO is hereby directed to take the demand on record and pursue the same as per Law. 6. The assessee has challenged the order passed by the Ld. CIT(A) on the various ground mentioned hereinabove. The Ld.AR for the assessee had submitted that the assessee had voluntary declared the capital gain on account of JDA in the appellate proceedings before the Ld. CIT(A). It was also contended by the Ld. AR that no possession was handed over to the developer by the assessee in terms of the agreement dated 30 March 2013. It was also submitted that the assessee has not concealed the particulars of income and rather he has voluntarily consented for enhancement at the appellate stage. 7. Per contra the Ld.DR relied upon the order passed by the lower authorities. It was the contention of the Ld.DR that the assessee has not disclosed the capital gain earned on account of the JDA either in the assessment year 2013-14 or 2014-15. The DR submitted that assessee in fact has declared the short-term capital gain on sale of two flats in the assessment year 2014-15 however the assessee has not disclosed the capital gain earned on the JDA. It was submitted by the Ld.DR that the capital gain have been brought to tax only on account of issuance of enhancement notice issued to the assessee at the appellate stage. It was submitted that there was no voluntary and or willingness on the part of the assessee to disclose the capital gain. In the light of the 9 ITA 444/Hyd/2019 above it was submitted that the order passed by the Ld. CIT(A) is in accordance with law. 8. We have heard the rival contentions of the parties and perused the material available on record. In the present case the important fact to be noticed is that the assessee in the quantuam appellate proceedings, after receipt of the enhancement notice had admitted an amount of ₹ 32,39,000/-subject to the condition that an amount of ₹ 8 35535/-shall not be enhanced by the Ld. CIT(A). However, the Ld. CIT(A) after recording the facts of the case had added the amount of ₹ 32,39,000/-to the income of the assessee. Admittedly the assessee has not disclosed the capital gain arose to him on account of the JDA in ROI/assessment proceedings. In fact as rightly pointed out by the Ld.DR that the assessee has not disclosed the capital gain in any of the two assessment years. The Hon’ble Supreme Court in the case of Balbir Singh Maini(supra) has held that the date of registration of JDA would be relevant for the purpose of determining as to when the capital gain was earned by the assessee. In the present case admittedly the capital gain was chargeable to tax for the assessment year 2014-15 being the year of registration of JDA and therefore the assessee was duty-bound to disclose the capital gain in this assessment year. Having failed to disclose the capital gain in the assessment year and filing the return of income disclosing capital gain and paying the due taxes, the Ld. CIT(A) had issued the enhancement notice to assessee. The additions were admitted by the assessee and thereafter the ld.CIT(A) had made the addition in the hands of the assessee. The disclosure of the capital gain at the appellate stage, was thus not voluntary as the said admission of capital gain only happened after receipt of the enhancement notice from the office of the CIT(A). Thus, the assessee had concealed the capital gain income while filing the ROI & before the AO. Hence, in our view the order passed by the Ld. CIT(A) is in accordance with law as 10 ITA 444/Hyd/2019 there was lack of bona fide-ness and voluntary-ness in declaring the capital gain in the return of income and thereafter also. Thus lower authority had committed no error in imposing the penalty for concealment of income. In view of the above, we do not find any merit in the appeal of the assessee and accordingly same is dismissed 9. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the Open Court on 25 th May, 2023 Sd/- Sd/- (RAMA KANTA PANDA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 25 th May, 2023 Thirumalesh/sps Copy to: S.No Addresses 1 N.Dathri L/R of late Nadella Muni Kannaiah C/o. Katrapati & Associates 1-1-298/2/B/3, 1 st Floor Ashok Nagar,Street No.1 Hyderabad-500 020 2 ACIT, Circle-1(1) Tirupati Andhra Pradesh 3 DR, ITAT Hyderabad Benches 4 Guard File By Order