Amit Shukla, J.M.
1. The present appeal has been preferred by the Revenue challenging the impugned order 6th January 2012, passed by the learned Commissioner (Appeals)-X, Mumbai, for the assessment year 2003-04, in the matter of penalty levied under section 271(1)(c) for ` 4,41,000, by the Assessing Officer and confirmed by the learned Commissioner (Appeals).
2. Facts in brief:- The assessee is engaged in the business of builders and developers. It has developed a residential project at Vashi, Navi Mumbai, which was completed in the assessment year 1996-97. The return of income for the assessment year 2003 -04 was filed on 27th November 2003, declaring total income of ` 3,07,780. Thereafter the assessment was completed under section 143(3) accepting the return of income. Later on, such an assessment was set aside by the learned Commissioner under the revisionary jurisdiction under section 263 and in pursuance thereof, the Assessing Officer completed the assessment vide order date d20th December 2007, after disallowing loss of ` 12 lakhs on sale of row house. The facts relating to the disallowance of loss are that the assessee has taken unsecured loans of ` 6 lakhs from Ms. Kanta Saraf and ` 13 lakhs from Ms. Anju Saraf aggregating to ` 19 lakhs in the financial year 1996-97. Such losses were duly disclosed in the balance sheet as at 31st March 1997. In order to safeguard their interest, these two parties insisted on some kind of security against loan of ` 19 lakhs. The assessee has entered into an agreement for sale of one row house which was valued by the assessee in his books of account at ` 39 lakhs. Such an agreement was executed on 19th January 1997, however, it was not shown as sale in the books of account. Later on, in the assessment year 1998 -99, such a transaction was booked as sales and was credited to the sale account. After adjusting ` 19 lakhs, received by way of balance loan amount of ` 20 lakhs was shown under the head "debtors" as on 31st March 1998. The assessee further received loan of ` 2.50 from these parties and the outstanding amount in the debtors list was reduced to ` 17.50 lakhs, which continued to be as such in the balance sheet of the assessment year 2002-03. In this case, neither the sale agreement was registered nor the possession of row house was given to the two lenders of the loans. According to the assessee, this was some kind of a financial arrangement. In the financial year relevant to the assessment year 2003-04, the assessee reversed the sale transaction of the row house and was shown to have purchased again for ` 39 lakhs. Later on, this flat was actually sold for ` 27 lakhs to a third party in this year. Accordingly, the loss of ` 12 lakhs was booked in the books of account. The Assessing Officer rejected the assessee's claim for loss of ` 12 lakhs. Such an action of the Assessing Officer in disallowing the loss stood confirmed up to the stage of the Tribunal by a very speaking order.
3. In the course of penalty proceedings, the assessee gave detail submissions as to the nature of loss and why such a loss has accrued to the assessee in the books of account. The Assessing Officer rejected the assessee's explanation and levied penalty of ` 4,41,000. Before the learned Commissioner (Appeals), it was submitted by the assessee that, all throughout the assessee has given the explanation about the nature of re-purchase and re-sale of the row house and all the relevant details were filed before the authorities. The detail contentions of the assessee and also reliance on various case laws have been dealt by the learned Commissioner (Appeals) at Page-4 and 5 of the appellate order. The learned Commissioner (Appeals) accepted the assessee's contention and deleted the penalty after observing and holding as under:-
"Decision - It is an undisputed fact that denial of the claim of loss of Rs.12,00,000/- arising out of the matter of sale, re-purchase and re-sale of the impugned row-house has been upheld by the Hon'ble Tribunal. It is also an undisputed fact that the appellant has made a full disclosure of all the relevant facts before the AO. The issue involved in this case is a claim made by the appellant, for which all supporting details and documentation was before the AO. When the AO refers to the explanation furnished by the assessee and concludes that he would not have filed this explanation but for the efforts of the CIT and the AO, he is not making a statement of fact. The explanation had already been available to the AO in the first round of appeal. It was accepted by the AO. On noticing it, the CIT directed that the AO should re- examine the matter. This resulted in denial of the claim of loss made by the appellant. Nowhere has the AO established that there was any incorrect, wrongful, inadequate or inaccurate filing of particulars. The recent judgment by the Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. (322 ITR 158), wherein it had been held that a claim which was unacceptable would by itself not attract concealment penalty and that debatable matters by themselves would not lead to the inference that concealment of particulars of income or furnishing of inaccurate particulars of income has taken place. After carefully considering the facts and circumstances of the case as also respectfully following the ratio decidendi of the judgment of the Hon'ble Apex Court (supra), I am of the considered opinion that this is not a fit case for levy of penalty under section 271(1)(c) of the Act. The same is accordingly deleted."
4. Before us, the learned Departmental Representative submitted that the entire arrangement of re-purchase and re-sale has been found to be sham not only by the learned Commissioner (Appeals) but also by the Tribunal in the quantum proceedings. He drew our attention to the observation of the Tribunal as given in the order dated 11 th March 2011 (ITA no.2833/Mum./2009). He further submitted that the assessee could not prove before the authorities as to how the property which was valued at ` 39 lakhs in the assessment year 1996-97 has been sold at ` 27 lakhs in the assessment year 2003-04. This, it is a clear cut case of concealment of income within the meaning of Explanation 1 to section 271(1)(c).
5. On the other hand, the learned Counsel for the assessee, Mr. J.P. Bairagra, after explaining the entire facts, submitted that in the assessment year 1996-97, the assessee has completed the project and the row house which is a subject matter of the dispute here was shown in the closing stock and was valued at the market price. At that time, the assessee has valued the said row house at ` 39 lakhs, whereas the actual cost was ` 17,93,350 only. The profit of ` 21,06,650 was offered for tax in the assessment year 1996-97. Thus, at the time of sale of row house in the assessment year 2003-04, which was made at ` 27 lakhs, the assessee has incurred a book loss and not actual loss. The transaction of re-purchase and re-sale was only on account of some kind of guarantee of the loan which was given by two parties in the assessment year 1997-98. These two parties had insisted for security and in order to oblige such a demand, the assessee entered into an agreement for sale to satisfy the lenders. The said loan was duly disclosed in the balance sheet and after the agreement of sale corresponding entry on the debtor side was also made. Once these lenders were not interested in the re-purchasing, then later on sold to a third party to clear the loan liability. The loss which has been incurred is actually reflected in the books of account and was only due to the fact that the assessee had already offered a tax on a higher sale price in the assessment year 1996-97. Moreover, no facts have been concealed or any inaccurate particulars have been furnished. Thus, this cannot be a case of levy of penalty under section 271(1)(c).
6. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. From the records, it is seen that the assessee has taken a loan of ` 19 lakhs which has been disclosed in the balance sheet as at 31 st March 1997. The assessee has shown the closing stock of row house which was valued at ` 39 lakhs in the financial year relevant to the assessment year 1996-97, whereas, actual cost of the flat was ` 17,93,350. Accoridngly, the assessee has shown profit of ` 21,06,650, in the assessment year 1996-97, which has been offered for tax in that year. Thereafter, the assessee has sold this property in the assessment year 2003-04 at ` 27 lakhs, which has resulted into book loss of ` 12 lakhs. Even if the entire transaction vis-a-vis the lenders for securing the loan amount by way of agreement of sale and then the assessee purchasing the same from the said lenders and re-selling them is considered to be non-genuine or make believe arrangement, then also, it cannot be held that such a loss claimed by the assessee is not bonfide. The reason for that is once the assessee had shown the cost price of the row house at ` 17,93,350 and valued the same at ` 39 lakhs in the books of account in the closing stock, then such a value is the book value as recorded in the books of account. It is not disputed anywhere that the assessee has valued the stock (row house) at ` 39 lakhs in the assessment year 1996-97 and the profit has been shown on this value in that year. If in the difference between the cost and the book value, the assessee has offered the tax in the earlier assessment year and such property has actually been sold in the assessment year 2003-04 at ` 27 lakhs, then there is a direct book loss of ` 12 lakhs. On the other hand, if the actual cost is taken into consideration, then the assessee has earned a profit of approximately ` 10 lakhs. It is not the case of the Revenue that the said property which was sold in the assessment year 2003 -04 at ` 27 lakhs is not the actual market value. Once this fact has been accepted, then what the assessee has claimed as loss in the books, is the difference between the property valued at ` 39 lakhs and actually sold for ` 27 lakhs. Thus, such a claim made by at the time of filing of return of income can be said to be purely bonafide which is based on the actual entries appearing in the books of account.
7. The findings given in the quantum proceedings up the stage of the Tribunal is mainly on account of disbelieving the agreement for sale with the lenders for the purpose of securing the loan, re -purchasing and re-selling. Such a finding cannot be adversely viewed in the penalty proceedings when the claim of the loss of the assessee is otherwise found to be bonafide on the basis of actual book entries as discussed above. The findings given in the quantum proceedings may have certain probative value, but such findings alone may not justify the imposition of penalty in a given case, because it is a settled law that the penalty proceedings are separate and distinct from the assessment proceedings. In the penalty proceedings, the matter has to be examined afresh and the same material can be relied upon by the assessee to show that he is not guilty of concealment of income or of furnishing of inaccurate particulars of income. The presumption raised by the Explanation-1 is a rebuttable presumption which can be rebutted by pointing out the circumstances and the material placed on record that at the time of filing of return of income, the assessee had bonafide belief while making any such claim in the return of income and that he is not guilty of either concealment of income or furnishing of inaccurate particulars of income. As found in the facts of the case discussed above, the loss claimed by the assessee was a direct result of valuation of the stock in the books of account (in the present case row house) and the actual sale, the sale value of which is not in dispute. Under these facts and circumstances, we do not find any reason to disturb the order passed by the learned Commissioner (Appeals) and decline to interfere in the matter of deletion of the penalty. Accordingly, the order passed by the learned Commissioner (Appeals) is upheld.
8. In the result, Revenue's appeal is treated as dismissed.