Skip to content


income-tax Officer Vs. H. A. Sodhan (Greater-huf). - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Reported in(1986)17ITD479(Ahd.)
Appellantincome-tax Officer
RespondentH. A. Sodhan (Greater-huf).
Excerpt:
.....the assessee-huf and urged that even though the assessee was aware of the fact of the sale of the land question, necessary particulars were not furnished in section f of the return. he further submitted that since the assessee was assisted by the able chartered accountant, he cannot plead ignorance of law for not furnishing any information in section f of other return. he further submitted that since the land in question was sold to a non-agriculturists, it was not an agricultural land land, therefore, the assessee should not have avoided giving information in section f of the return. therefore, he invited our attention to the order of the commissioner (appeals) (reproduced above) and submitted that in order to impose penalty under section 271(1) (c) the ito has not to bring any fresh.....
Judgment:
Per Shri U. T. Shah, Judicial Member - The revenue has come up in appeal against the order of the Commissioner (Appeals) wherein he has cancelled the penalty of Rs. 2,68,712 imposed by the ITO under section 271(1) (c) of the Income-tax Act, 1961 (the Act).

2. The assessee is an HUF. The assessment year is 1963-64 and the relevant previous year is the financial year ended on 31-3-1963.

The assessee submitted its return of income originally on 27-3-1965 declaring total income of Rs. 12,804. Thereafter, the assessee filed a revised return on 15-3-1966 wherein the total income declared was of Rs. 12,144. the ITO framed the assessment on 30-8-1967 accepting the income returned by the assessee. The sources of income shown were from property and interest. While scrutinising the case of the assessee for the subsequent year, the ITO came to know that the assessee had sold immovable property in the accounting year, relevant to the assessment year under consideration in respect of which, according to him, capital gains was exigible to tax. He, accordingly, initiated the proceedings under section 148 of the Act, requiring the assessee to file its return of income.

4. In compliance with the notice issued under section 148, the assessee filed its return of income on 17-3-1972 showing therein total income of Rs. 13,067 in which additional interest income of Rs. 923 was also disclosed. On 10-9-1975, the ITO framed the assessment on a total income of Rs. 82,329 which included capital gains of Rs. 69,262 on account of sale of land amounting to Rs. 1,76,495. The cost of acquisition of the said land admeasuring 3,209 sq yds. was taken at Rs. 30 per sq. yd. as on 1-1-1954. The assessee went up in appeal against the said order of the ITO. The AAC, vide his order dated 5-10-1977, set aside the assessment and directed the ITO to frame the assessment afresh. On 17-1-1979, the ITO framed a fresh assessment on a total income of Rs. 1,46,499 which included capital gains of Rs. 1,33,432.

The main reason for assessing the capital gains of Rs. 1,33,432 as against the original figure of capital gains of Rs. 69,262 was that instead of taking the value of the said land at Rs. 30n per sq. yd. as on 1-1-1954, the ITO adopted the value on that date at Rs. 10 per sq.

yd. The assessee went up in appeal before the Commissioner (Appeals) and contended that since the land in question was an agricultural land, no capital gains tax was attracted on the sale of it. In this connection, reliance was placed on the decision of the Honble Gujarat High Court in the cases of CIT v. Manilal Somnath [1977] 106 ITR 917 and Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664. After considering the submissions made on behalf of the assessee, the Commissioner (Appeals) deleted Rs. 1,33,432 being the capital gains worked out by the ITO from the total income of the assessee, vide his order dated 5-3-1983. Thereafter, the revenue came up in appeal before the Tribunal and submitted that the Commissioner (Appeals) was not justified in deleting the capital gains included in the total income of the assessee. Accordingly to the revenue, the land in question sold by the assessee was a non-agricultural land. Reliance was placed on the decision of the Honble Gujarat High Court in the case of CIT v.Sarifabibi Mohmed Ibrahim [1982] 136 ITR 621. The assessee, on the other hand, strongly; argued that the Commissioner (Appeals) was fully justified in holding that the land in question was an agricultural land. In this connection, reliance was placed on the decision of the Honble Gujarat High Court in the case of CIT v. Siddharth J. Desai [1983] 139 ITR 628, which was decided after the decision in the case of Sarifabibi Mohmed Ibrahim (supra). After discussing the case law at great length, the Tribunal held that the land in question was a non-agricultural land and, therefore, the Commissioner (Appeals) was not justified in accepting the submissions made on behalf of the assessee. The Tribunal, vide its order dated 17-8-1982 reversed the order of the Commissioner (Appeals) on this point.

5. On the aforesaid facts, the ITO initiated the proceedings under section 274/271(1) (c) of the Act, and called upon the assessee to show cause why penalty should not be imposed under section 271(1) (c) in respect of non-disclosure of the capital gains on the sale of the land in question. The assessee in its letter dated 15-2-1983 requested the ITO to drop the penalty proceedings, in the following manner : "In reply to the above, I have to state that I have not concealed the particulars of income read with explanation and hence the penalty proceedings are illegal and bad in law.

I further submit that the proceedings are time barred and as such should be dropped.

Without prejudice to the above, I have to state that the issue under disputes as to whether the land was agricultural or otherwise, was highly debatable and hence there was no mens rea in not including the capital gain on sale of agricultural land as per our bona fide belief.

In view of the above facts, the penal proceedings are not applicable and hence the same be dropped." 6. The ITO however, was not satisfied with the assessees explanation.

He, therefore, vide his order dated 30-3-1983, imposed penalty of Rs. 2,68,712 with the following remarks : "The submissions is not acceptable, It is true that the question is debatable but at the same time the assessee was not prevented to show the income. When the department issued notices under section 148 then also no disclosure came from the assessee. When the ITO treated the land as N. A. land then the debate started. Further the tax assessment of the assessee and, therefore, it is very clear that there was mens rea in not disclosing the capital gain. Had there been no mens rea the assessee ought to have shown the capital gain or transfer earlier or even in revised returns or even return under section 147(a). Nowhere and at no stage the assessee has come forwarded for disclosing material facts necessary for assessment. In view of above I am satisfied that the assessee had committed a clear default of concealing particulars of his income which has attracted provisions of section 271(1) (c) of the Income-tax Act read with Explanation." 7. Being aggrieved by the order of the ITO, the assessee went up in appeal before the Commissioner (Appeals) and attracted the order of the ITO on various grounds. One of the submissions made before the Commissioner (Appeals) was that even if the Explanations to Section 271(1) (c) could be pressed into service by the ITO, the scope of the Explanations shall have to be examined. The assessee took up a stand that it was not that in every case where there is a substantial difference between the returned income and the assessed income, penalty for concealment can be imposed straightway. In this connection, it was also submitted that the assessee had not to prove his bona fide belief beyond the shadow of doubt. It was further urged that if an assessee offers some explanation which a prudent person considers reasonably probably then the onus which casts on the assessee by virtue of the Explanation stands discharges by him and thereafter, it was for the ITO to prove that the assessee had acted in the dishonest manner or was guilty of contumacious conduct. In this connection, reliance was placed on a number of decisions of the Honble Gujarat High Court, Andhra Pradesh High Court and Madhya Pradesh High Court, mentioned in paragraph 2.6 of the order of the Commissioner (Appeals).

3. The Commissioner (Appeals) cancelled the penalty after discussing at great length the submissions made on behalf of the assessee. Since we are in full agreement with the order of the Commissioner (Appeals) on this issue, lit is necessary to reproduce below the relevant portions thereof : "2.7 I have considered the submissions of Shri Patel in some depth and I find considerable merit in the same. The Gujarat High Court in the case of D. V. Patel & Co. v. CIT reported in 100 ITR 524 has explained the scope of the Explanation to section 271(1) (c). In the words of their Lord-ships : The Explanation to section 271(1) (c) adds to the rigour of a highly penal provision and must be construed in a fair and reasonable manner.

The legal fiction enacted in the Explanation can be displaced if the assessee proves that the failure to return the correct income, that is the total income assessed, did not arise from any fraud or gross or wilful neglect on his part. This burden is not of the same nature as the burden which rests on the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income. It is a burden akin to that in a civil case where the determination is made on a preponderance of probabilities. It is not necessary that any positive material should be produced by the assessee in order to discharge the burden by relying on the material which is on record in the penalty proceedings irrespective of whether it was produced by him or the revenue. The only question to which the income-tax authority has to address itself is whether on the material on record in the penalty proceedings it can be said in a preponderance of probabilities that the failure to return the total assessed income has arisen on account of fraud or gross or wilful neglect on the part of the assessee. All the facts and circumstances commencing with filing of the original return and ending with the assessment may be taken as relevant for considering the assessees lilability to penalty. In the light of the observations of the Gujarat High Court one has to view whether on the facts of the instant case the appellant Civil Appeal No.be said to have discharged its burden under the Explanation to section 271(1) (c) or not.

The appellant-HUF owned a plot of land which it though was agricultural land. The said plot was situated on Ashram Road and was sold to the Educational Society of Ahmedabad. According to the revenue records the land in question was being shown as agricultural land. The appellant was, therefore, under a bona fide belief that even if no agricultural operations were being performed the land in question was agricultural land because it was not put to any other use either. The ITO was of the view, that because agricultural operation had not been performed and the land in question was lying fallow, the nature and character of the land was non-agricultural. He, accordingly, assessed the land as non-agricultural and included capital gains arising as a result of transfer of that land. When the matter went to the learned Commissioner (Appeals) he came to the conclusion that the facts of the the conclusion that the facts of the instant case were on all fours with those of the case decided by the Gujarat High Court and reported in Gordhanbhai Kahandas Dalwadi v. CIT [1981] 127 ITR 664. This is what the learned Commissioner (Appeals) wrote in his appellate order : In my view, the facts of the case of the assessee appear to be exactly similar to that of the case decided by the Honble Gujarat High Court, on which reliance has been placed by the assessee. Merely because the agricultural operations were not do the land, it does not amount ceasing to be agricultural land. The ITOs presumption that if has become non-agricultural land is preposterous and is not based upon any evidence whatsoever. I, therefore, delete the addition made by the ITO on this ground. the assessee thus gets relief of Rs. 1,32,432.

The department went in appeal to the Tribunal and the Tribunal vide its order dated 17-8-1982 allowed the appeal of the revenue after relying on the decision of the Gujarat High Court in the case of CIT v.Sarifabibi Mohmmad Ibrahim [1982] 136 ITR 621. The ITO while levying penalty, has not brought any new facts on record. His main contention is that the appellant has not disclosed all the facts in this case and if he wanted to claim exemption from capital gains, then he should have at least claimed such an exemption in Part IV of the return.

2.8 In my opinion, there is considerable weight in the submission of the learned counsel of the appellant, viz., that it is a highly debatable issue as to whether a particular land is agricultural or non-agricultural. The Gujarat High Court has given a catena of decisions on this point. The decision in the case of Sarifabibi Mohmmad Ibrahim (supra) was rendered on 17-4-1981. The decision in the case of CIT v. Siddharth J. Desai [1983] 139 ITR 628 was given on 18th, 21st and 22nd September, 1981. There is another decision in the case of Arundhati Balkrishna v. CIT [1982] 138 ITR 245 which was rendered on 14th and 17th August, 1981. the Gujarat High Court has laid down certain broad tests for the determination of the issue as to whether a particular land is agricultural or non-agricultural in character. This development has taken place in the year 1981. The present assessment relates to assessment year 1963-64. The Tribunal has also discussed the Gujarat High Court decision in the case of Sarifabibi Mohmmad Ibrahim (supra) and then came to a conclusion that, on the facts of this case the land in question was non-agricultural in character. Now the point to be noted is that when the appellant filed the return in March 1965, whether it could be anticipated that the Gujarat High court would lay down certain tests and the matter would be examined in the light of those tests and the land in question would be held as non-agricultural.

In my view, such an anticipation or prediction would require exceptional power of clairvoyance on the part of an assessee. It is an admitted position that in the revenue records the land had been shown as agricultural land. The appellant was paying land revenue in respect of that land as agricultural land. The only thing is that agricultural operations were not being performed and the land is that agricultural operations were not being performed and the land was lying fallow. I have been given to understand that the Tribunals decision in the case of the appellant has not been accepted by the appellant and the matter is now before the Gujarat High Court. Under the above circumstances I hold that the appellant cannot be charged with fraud or willful neglect in not disc losing the capital gains on the sale of land in question.

The appellant could reasonably entertain a bona fide belief that the land in question was agricultural in character and the sale thereof did not attract capital gains. The burden cast upon the appellant by the Explanation to section 271(1) (c) can be said to have been discharged by the appellant. It was, therefore, for the ITO to discharge the onus of proving dishonest or contumacious conduct or mens rea on the apart of the appellant in not disclosing the particulars with regard to the sale of land in question. The ITO has failed to prove any conscious concealment on the part of the appellant. In the body of the penalty order the ITO accepts the proposition that the matter is a debatable one when he says that it is true that the questions debatable. The ITOs grievance appears to be that when the department issued a notice under section 148 even then the appellant did not disclose the facts of sale, etc., of the land. According to him, it was very clear that there was mens rea in not disclosing the capital gains. The ITO has further opined in the penalty order that at no stage did the assessee come forward opined in the penalty order that at no stage did the assessee come forward for disclosing material facts necessary for assessment.

2.9 I have quoted extensively from ITOs order with a view to highlighting his warped thinking. On the other hand, he concedes that the question as to whether the land was agricultural or non-agricultural was a debatable one. On the other hand,; he expected the appellant to disclose capital gains in the return. The law does not enjoin on an assessee to disclose all things whether relevant or irrelevant lin return of income. If an assessee entertains a genuine belief that a particular receipt is not income then he need not make a specific mention of it in the exemption column in the return.

Non-disclosure of certain material facts may be relevant for reopening of assessment proceedilngs but that cannot be a spring-board for charging the assessee with concealment of income.

2.10 In view of the foregoing discussion, I am satisfied that the ITO has not been able to establish a case of dishonest or contumacious conduct on the part of the appellant and so the penalty order passed by him is not sustainable. I, therefore, Civil Appeal No. cel the penalty of Rs. 2,68,712." 9. Being aggrieved by the order of the Commissioner (Appeals), the revenue has come up in appeal before the Tribunal. the learned representative for the department vehemently argued that the Commissioner (Appeals) was not justified in cancelling the penalty imposed by the ITO under section 271(1) (c). At the outside, he was fair enough to state that he did not dispute the fact that the assessee was under a bona fide belief that the land in question was an agricultural land and, therefore, no capital gains tax could be attracted on the sale of the same. However, accordingly to the learned representative for the department, the assessee ought to have disclosed the fact regarding the sale of the land in question for claiming exemption from the capital gains in section F of the return, which reads as under : "In this section should be shown any amount which is not included in section A, B and C, and which the assessee claims to be not taxable for any reason such as that the receipt is of a casual nature not arising from any business or profession or occupation or that it is exempt under any other provision of the Income-tax Act, 1961." In this connection, he invited our attention to the original, revised and the return filed in compliance with section 148, and highlighted the fact that in neither of those returns, the assessee had cared to furnish details in section F of the return. He, further submitted that by filing a revised return on 15-3-1966 and not disclosing the fact about the sale of land in question in section F, the assessee had attempted to mislead the ITO. According to the learned representative for the department, thus. `keeping the department in dark, the assessee had committed positive fraud and, therefore, was liable to be penalised under section 271(1) (c). He also invited our attention to the verification of the returns by the Karta of the assessee-HUF and urged that even though the assessee was aware of the fact of the sale of the land question, necessary particulars were not furnished in section F of the return. He further submitted that since the assessee was assisted by the able chartered accountant, he cannot plead ignorance of law for not furnishing any information in section F of other return. He further submitted that since the land in question was sold to a non-agriculturists, it was not an agricultural land land, therefore, the assessee should not have avoided giving information in section F of the return. Therefore, he invited our attention to the order of the Commissioner (Appeals) (reproduced above) and submitted that in order to impose penalty under section 271(1) (c) the ITO has not to bring any fresh in the penalty proceedings other than that already brought in the quantum proceedings. He further submitted that in order to decide the point at issue all the facts and circumstances commencing with the filling of the original return and ending with the assessment should be taken into account for considering whether the assessee was liable to penalty under section 271(1) (C) - D. V. Patel & Co. v. CIT [1975] 100 ITR 524 (Guj.). In the instant case, according to othe learned representative for the department, if we were to keep in mind the facts and circumstances commencing with the filling of the original return and ending with the assessment, it is quite apparent that the assessees case clearly fell within the mischief of section 271(1) (C) read with explanation thereto. He also submitted that the assessee has not come forward with any explanation as to why he has not shown the information regarding the sale of land in question in section F of the return. He also submitted that since the assessees plea that the land in question was an agricultural land was not reflected in returns, there is a clear gross or wilful negligence on the part of the assessee which would attract the provisions of the Explanation to section 271(1) (C). He also invited our attention to sub-section (6) of section (6) of section 139 of the Act, as it stands today and submitted that it was obligatory on the part of the assessee to furnish the particulars of income exempt from tax. Further, he invited our attention to section 277 of the Act, captioned False statement in verfication, etc., and submitted that the assessee could have been penalised under that section for false verification in the return. He also relied on the decision of the Honble Patna High Court in the case of CIT v. Patna Timber Works [1977] 106 ITR 452. He, therefore, urged that the order of the Commissioner (Appeals) should be set aside and that of the ITO should be restored.

10. As we did not find any substance in any of the submission made on behalf of the revenue, we did not call upon the learned counsel for the assessee to make his submissions. However, the learned counsel for the assessee filed a paper book containing the orders of the ITO, Commissioner (Appeals) and the Tribunal in the quantum proceedings, assessees reply to the show-cause notice issued under section 274/271(1) (C) and a copy of the statement of the case dated 29-6-1983 in Reference Application No. 868 (Ahd.) of 1982 to point out that the assessee has not accepted the order of the Tribunal in the quantum proceedings and a reference is pending before the Honble High Court. He also invited our attention to sub-section (6) of section 139, as it stands today and pointed out that since the said sub-section was inserted 1-4-1976, the leanred representative for the department ought not to have wasted the time of the Tribunal in the manner he did.

11. We have carefully considered the submissions made on behalf of the revenue and we are constrained to observe that when the point involved in the appeal was a simple one, the revenue had unnecessary dragged the matter for quite some time in the Court. We make this observation as the learned representative for the departmental was fair enough to state in the beginning that the revenue is not disputing the fact that the assessee was under bona fide belief that the land in question was an agricultural land and, therefore, no capital gains tax could be attracted. In fact, the Commissioner (Appeals) in his order (reproduced above) has also pointed out that the ITO himself had no doubt in his mind that the question regarding exigibility of the capital gains tax was debatable. It appears that the ITO initated penalty proceedings and imposed penalty under section 271(1) (C), mainly on the ground that the assessee had failed to show in section F of the return that he had sold the land in question. In fact, as it would appear from the above that the entire line of argument of the revenue before the Tribunal was that the penalty under section 271(1) (C), could be imposed on the assessee for his failure to disclose the fact about the sale of land in question in section F of the return. We are not prepared to accept the stand taken on behalf of the revenue, which is to say the least, has no foundation whatsoever. We are dealing with penalty for concealing particulars of income or furnishing inaccurate particulars of such income by the assessee. In the instant case, the stand of assessee all throughout the quantum proceedings was that since the land in question was an agricultural land, no capital gains tax could be attracted.

Further, this is not a mere imagination of the assessee but the stant of the assessee is clearly supported by some of the decisions of the Honble Gujarat High Court. With this background in mind, can it be said that the assessee could be penalised under section 271(1) (C), merely on the ground that he had failed to show the particulars of the sale of the land in question in section F of the return. We may mention here that during his course of argument, the learned representative for the department was fair enough to state that if assessee had shown the fact about the sale of the land in question in section F of the return, perhaps the revenue would not have come in appeal against the order of the Commissioner (Appeals) deleting the penalty imposed under section 271(1) (C). We have already reproduced above the relevant portion of the order of the Commissioner (Appeals) as we fully agree with the conclusion arrived at by him. In fact, it is difficult to find any infirmity in the order of Commissioner (Appeals) cancelling the penalty imposed under section 271(1) (C). We have, therefore, no hesitation in upholding his order under appeal.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //