ITAT Hyderabad has ruled that the that imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 on account of addition made under the deeming provisions of section 50C is not valid.

Case Details:
Income Tax Appellate Tribunal, Hyderabad
ITA.No.565/Hyd/2015
Assessment Year 2008-2009
Bhavya Anant Udeshi (Appellant) vs The Income Tax Officer (Respondent)
Date of Order: 04-09-2015

Case Laws relied upon:
Renu Hingorani, Mumbai vs. ACIT ITA.No.2210/Mum/2010
Shri Chimanlal Manilal Patel, Surat vs. ACIT ITA.No.508/Ahd/2010
ACIT, Mumbai vs. M/s. Sunland Metal Recycling, ITA.No.6454/Mum/2011
C. Basker, Karur vs. The ACIT  ITA.No.997/Mds/2012; 998/Mds/2012.
CIT vs. Madan Theatres Ltd., GA.No.684 of 2013 Karnataka High Court
CIT vs Reliance Petroproducts Pvt. Ltd (SC)

Facts of the case:
The assessee was a non-resident Indian. For the AY 2008-09 she had filed her return of income which included short term capital gain (STCG) of Rs.3,06,625 from sale of shares as well as sale of immovable property at Hyderabad. During the course of assessment proceedings, Assessing Officer noticed that the assessee had declared sale consideration as per the sale deed at Rs.1 lakh, however, for the purpose of stamp duty, the registering authority of the State Government had valued the property at Rs.2,55,50,000. Therefore, AO invoked the provisions of section 50C of the Income Tax Act, 1961 (Act) and completed the assessment by computing capital gain accordingly. Both CIT(A) and ITAT on appeal by assessee upheld the assessment. In the meanwhile, A.O. issued a show cause notice to the assessee for imposing penalty under section 271(1)(c) for furnishing inaccurate particulars of income for the reason that the assessee has knowingly/deliberately disclosed the sale consideration lower than the value adopted by the registering authority.

Excerpts from the ITAT Order:

“……Though, it may be a fact that the ITAT while deciding assessee’s quantum appeal has upheld application of section 50C of the Act for the purpose of computation of capital gain but that itself will not lead to the conclusion that assessee either has furnished inaccurate particulars of income or concealed the particulars of income. As can be seen from the language of section 50C it is a deeming provision. In a case where A.O. finds that the value determined by the stamp duty authority for the purpose of stamp duty is more than the consideration claimed to have been received by the party, then the value adopted by the SRO shall be deemed to be the consideration received by the assessee for the purpose of computation of capital gain. Thus, for application of section 50C of the Act, it is not necessary for the A.O. to examine whether actually assessee has received anything over and above the amount mentioned in the sale deed as he simply has to go by the valuation adopted by the SRO. However, as far as imposition of penalty is concerned, there must be positive evidence before the A.O. to conclude that assessee has received the amount as valued by SRO for  stamp duty purpose. Unless there are positive evidence to indicate receipt of on money to the extent of valuation made by SRO by the assessee, penalty under section 271(1)(c) cannot be imposed. Further, in the present case as is evident from the materials on record, the assessee in the course of assessment proceeding has furnished all necessary and relevant documents relating to the transaction of the property in question including registered sale deed. The assessee has not suppressed any material fact from the notice of the A.O. In these circumstances, the imposition of penalty under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income or concealment of income, in our view, is not appropriate. The ITAT, Mumbai Bench in the case of Renu Hingorani, Mumbai vs. ACIT, Range 19(3), Mumbai (supra) while considering identical nature of dispute, deleted the penalty under section 271(1)(c) of the Act by holding as under:

“8. We have considered the rival contentions and relevant record. We find that the AO had made addition of Rs.9,00,824/- being difference between the sale consideration as per sale agreement and the valuation made by the Stamp Valuation Authority. Thus, the addition has been made by the AO by applying the provisions of section 50C of the Act. It is evident from the assessment order that the AO has not questioned the actual consideration received by the assessee but the addition is made purely on the basis of deeming provisions of the Income Tax Act, 1961. The AO has not given any finding that the actual sale consideration is more than the sale consideration admitted and mentioned in the sale agreement. Thus it does not amount to concealment of Income or furnishing inaccurate particulars of income. It is also not the case of the revenue that the assessee has failed to furnish the relevant record as called by the AO to disclose the primary facts. The assessee has furnished all the relevant facts, documents/material including the sale agreement and the AO has not doubted the genuineness and validity of the documents produced before him and the sale consideration received by the assessee. Under these facts and circumstances, it cannot be said that the assessee has not furnished correct particulars of income. Merely because the assessee agreed for addition on the basis of valuation made by the Stamp Valuation Authority would not be a conclusive proof that the sale consideration as per this agreement was incorrect and wrong. Accordingly the addition because of the deeming provisions does not ipso facto attract the penalty u/s 271 (1)(c). Hence in view of the decision of the Hon'ble Supreme Court in the case of CIT Vis Reliance Petroproducts Pvt.Ltd (supra), the penalty levied u/s 271 (1)(c) is not sustainable. The same is deleted.”

The principles laid down in other decisions relied upon by Ld. A.R. also express similar view. Following the consistent view expressed in the decisions referred to above, we are of the opinion that imposition of penalty under section 271(1)(c) of the Act in the present case is not valid. Accordingly, we delete the penalty.

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