Penalty u/s 271(1)(c) for mistake of not disclosing Long Term Capital Gain LTCG on the land part comprised in the block of Factory Building sold

In a recent judgment, ITAT Delhi has set aside penalty u/s 271(1)(c) and remanded the matter to CIT(A) for mistake of assessee not disclosing Long Term Capital Gain LTCG on the land comprised in the block of Factory Building sold.

Case Law Details:
ITA No. 5939/Del./2013 : Asstt. Year : 2009-10
Brijbasi Art Press Ltd vs. ACIT
Date of Order: 29/04/2016

Brief Facts of the Case:
The assessee was claiming depreciation on the total cost of the factory land and building situated at Shivakashi, Tamilnadu, as it was not possible to segregate the cost of land from total cost of building. The factory was sold subsequently and the assessee reduced the amount of the WDV block of factory buildings and the profit earned on the sale of factory building was shown as income under the head ‘Other Income’ and no long term capital gain was shown on the land.

The case of the assessee was processed u/s 143(1) and later it was selected for scrutiny. The Assessing Officer objected to the fact that the assessee had not segregated factory building and accordingly declared LTCG on the sale of land comprised in the block of factory land and building. During the course of regular assessment, the assessee segregated the cost of land and building on the basis of formula adopted by the AO (being 70% land and 30% as factory building) and offered the capital gain tax, on the value of land. Accordingly the AO made the addition on account of long term capital gain. The AO also initiated the penalty proceedings u/s 271(1)(c) of the Act for concealment and/or furnishing inaccurate particulars of income.

The assessee submitted that it deducted the whole amount of consideration from the assets block under the bona fide belief and as soon as it came to know about the mistake, it offered the long term capital gain on the value of land to be included in its income. The assessee also submitted to the AO that By deducting the full value of consideration it had also forgone the depreciation claim on the value of factory building. The AO however did not agree with the submissions and imposed a penalty u/s 271(1)(c).

CIT(Appeals) however did not find merit in the submissions of the assessee and sustained the penalty levied.

Before ITAT, the assessee applied for admission of additional evidences by way of computation of income for the assessment years 2010-11 to 2014-15 with balance sheets and the assessment orders. However the Income Tax Departmental Representative (DR) opposed the admission of the additional evidences on the ground that the assessee did not furnish these documents either before the CIT(A) or the AO, therefore, these should not be admitted.

Important Excerpts of ITAT Judgment: 

These documents are vital to decide the issue under consideration and go to the root of the matter, therefore, these are admitted. However, since these documents were not available to the ld. CIT(A) for his consideration, we, therefore, deem it appropriate to set aside this issue back to the file of the Ld. CIT(A) to be adjudicated afresh in accordance with law, after considering the additional evidence furnished by the assessee first time before the ITAT and by providing due & reasonable opportunity of being heard to the assessee.