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Principal Commissioner of Income Tax-Vadodara-2 v. Sun on Peak Hotel (P.) Ltd.
Factual and Procedural Background
The Revenue appealed against the judgment of the Income Tax Appellate Tribunal, Ahmedabad dated 27th June 2017, which had deleted the concealment penalty imposed under Section 271(1)(c) of the Income-tax Act on the assessee regarding the transfer of immovable property known as "Hotel Sunset Inn" in Mount Abu. The respondent-assessee, a private company, sold the property during the assessment year 2009-2010, declaring a sale consideration of Rs. 2.75 Crores and reporting a short-term capital gain of Rs. 2.50 Crores. The Assessing Officer noted that the stamp duty valuation was Rs. 3.40 Crores and invoked Section 50C of the Income-tax Act, which deems the stamp duty valuation as the full value of consideration for capital gains tax purposes.
Initially, the assessee disputed the stamp valuation citing restrictions and market conditions but later accepted the liability and revised the return accordingly. The Assessing Officer imposed a penalty for concealment, which the Tribunal deleted, leading to the present appeal by the Revenue.
Legal Issues Presented
- Whether the Tribunal erred in upholding the deletion of the concealment penalty under Section 271(1)(c) of the Income-tax Act imposed on the assessee with respect to the transfer of the property "Hotel Sunset Inn".
- Whether the Tribunal erred in deleting the penalty of Rs. 20,10,700/- under Section 271(1)(c) without appreciating that the assessee failed to disclose all facts and did not show capital gain in accordance with Section 50C, and whether the penalty was supported by Explanation 1 to Section 271(1)(c) and the decision in Zoom Communication [321 ITR 51].
Arguments of the Parties
Revenue's Arguments
- Section 50C mandates capital gains to be computed on the valuation adopted by the Stamp Valuation authorities, and the assessee was required to declare this valuation in its return.
- The Tribunal erred in deleting the penalty since the assessee concealed facts by not initially declaring income based on the stamp valuation.
- Penalty under Section 271(1)(c) can be imposed despite the deeming nature of Section 50C, as the penalty relates to tax evasion.
- Relied on the Division Bench decision of Orissa High Court in CIT v. Ganpatrai Gajanand [108 ITR 403] which held that deemed income provisions do not preclude imposition of penalty under Section 271(1)(c).
Assessee's Arguments
- The preparation of the sale deed and payment of stamp duty were done by the purchaser, and the Director was unaware of the stamp valuation until the notice under Section 142(1) was received.
- The assessee acted bona fide by revising the return and offering additional tax based on the stamp valuation once it was pointed out.
- Initially disputed the stamp valuation citing restrictions and market conditions, showing a challenge to the valuation before accepting it.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Chimanlal Manilal Patel v. ACIT [IT Appeal No. 508 (Ahd.) of 2010, dated 22-6-2012] | Penalty cannot be levied merely on the basis of deeming provisions of Section 50C where the assessee has furnished all facts and documents. | The Tribunal relied on this precedent to delete the penalty, holding that acceptance of deemed consideration does not amount to furnishing inaccurate particulars. |
| CIT v. Ganpatrai Gajanand [1977] 108 ITR 403 (Orissa High Court) | Deemed income provisions under Section 68 do not preclude imposition of penalty under Section 271(1)(c). | Revenue relied on this decision to argue that penalty can be imposed despite deeming provisions; however, the Court distinguished it due to differing statutory contexts. |
| Zoom Communication [321 ITR 51] | This precedent was cited by the Revenue in support of imposition of penalty for concealment. | The Court noted the citation but did not expressly adopt or reject the principle as the facts differed. |
Court's Reasoning and Analysis
The Court analyzed the interplay between Section 50C and Section 271(1)(c) of the Income-tax Act. Section 50C introduces a deemed consideration for capital gains tax purposes based on stamp duty valuation when it exceeds the declared sale consideration. However, the Court emphasized that this deeming provision does not automatically trigger penalty proceedings under Section 271(1)(c).
The Court noted that the assessee initially disputed the stamp valuation, indicating no concealment or intention to evade tax. The assessee subsequently revised the return and offered additional tax upon acceptance of the stamp valuation, demonstrating bona fide conduct.
Further, the Court distinguished the Revenue’s reliance on the Ganpatrai Gajanand case, which dealt with Section 68 and deemed income in a different context, not directly applicable to Section 50C. The Court also referred to the Tribunal’s decision in Chimanlal Manilal Patel, which held that acceptance of deemed consideration does not amount to furnishing inaccurate particulars warranting penalty.
The Court concluded that the penalty was rightly deleted by the Tribunal, as the facts did not support a finding of concealment or evasion within the meaning of Section 271(1)(c).
Holding and Implications
The appeal by Revenue is dismissed and the deletion of penalty under Section 271(1)(c) by the Tribunal is upheld.
As a direct consequence, the assessee is not liable to pay the penalty initially imposed for concealment of income relating to capital gains computed on the transfer of the property. The decision clarifies that acceptance of deemed consideration under Section 50C, especially after initial dispute and subsequent revision of return, does not automatically attract penalty under Section 271(1)(c). The Court refrained from endorsing the ratio of the Tribunal’s decision in Chimanlal Manilal Patel for future cases, indicating that such issues would be examined separately when presented.
ORDER
Akil Kureshi, J. - Revenue is in appeal against the judgment of the Income tax Appellate Tribunal, Ahmedabad ["Tribunal" for brevity] dated 27th June 2017, raising the following questions for our consideration :
2. Issue pertains to penalty imposed by the Assessing Officer which eventually was deleted by the Tribunal by the impugned judgment. The issue arises in the following factual background.
3. The respondent-assessee is a private company registered under the Companies Act, 1956. During the period relevant to the assessment year 2009-2010, the assessee had sold immovable property in the nature of land and building called "Hotel Sun Set Inn" situated at Mount Abu for a declared sale consideration of Rs. 2.75 Crores. The sale deed was executed on 5th August 2008. In the return that the assessee filed for AY. 2009-2010, the assessee had declared a short term capital gain of Rs. 2.50 Crores arising out of the said transaction.
4. During the course of assessment proceedings, the Assessing Officer, however, called for further details and noticed that for the purpose of stamp duty valuation, the competent authority had valued the property at Rs. 3.40 Crores [rounded off]. In the opinion of the Assessing Officer, therefore, in view of Section 50C of the Income-tax Act, 1961 ["the Act" for brevity], capital gain was to be charged on the basis of such deemed consideration.
5. The assessee initially opposed valuation adopted by the Stamp Valuation authorities by contending inter alia that the stamp duty was to be borne by transferee, there were restrictions on account of forest department claiming over the property and there was even otherwise slump in hotel business.
During the course of assessment proceedings, however, later on, assessee accepted the liability to pay capital gain on the basis of stamp valuation and in fact made a revision in the return. Accordingly, Assessing Officer passed the order of assessment in which besides making appropriate addition, he ordered initiation of penalty proceedings.
6. In the penalty proceedings, the assessee mainly contended that the work of preparation of sale deed and payment of stamp duty was done by the purchaser and the Director of the assessee company was not aware about the stamp valuation and came to know about the same only upon receipt of a notice under Section 142 [1] of the Act. The assessee had shown bona fide by offering additional tax on the basis of revised valuation.
7. The Assessing Officer, however, was not convinced about such explanation. He was of the opinion that the assessee was required to offer capital gain on the deemed consideration as envisaged under Section 50C of the Act. The assessee had revised the income only after the Assessing Officer had specifically pointed out the defect. There was thus lack of bona fide on the part of the assessee. He also believed that the Director of the company was aware about the stamp valuation. The Tribunal, by the impugned judgment, followed its decision in the case of Chimanlal Manilal Patel v. ACIT [IT Appeal No. 508 (Ahd.) of 2010, dated 22-6-2012] and quoted the following portion from such judgment :
"5. We have heard the rival contentions and perused the material on record. It is a fact that the addition has been made by the Assessing Officer in the revisionary proceedings. The additional has been made on the basis of provisions of Section 50C. It is not the case of the AO that the assessee has received consideration over and above than that declared in the sale deed. The AO had not disputed the consideration received by the assessee. The addition has been made on the basis of deeming provisions of Section 50C. The assessee has furnished all the facts of sale, documents/material before the AO. The AO has doubted the genuineness of the documents /details furnished by the assessee. Only because the assessee agreed to the additions because of the deeming provisions, it cannot be construed to be filing of inaccurate particulars on the part of the assessee. The assessee agreed to addition on the basis of valuation made by the stamp valuation authority cannot be a conclusive proof that the sale consideration as per the sale agreement is seemed to be incorrect and wrong. In view of these facts, we are of the considered view that penalty cannot be levied on the basis of deeming provision. We accordingly delete the same."
8. In the present appeal, counsel for the Revenue vehemently contended that Section 50C of the Act makes a mandatory provision. The assessee ought to have offered capital gain tax on the basis of valuation adopted by the Stamp Valuation authorities. The Tribunal committed an error in deleting the penalty in respect of the same which the assessee has concealed. Merely because Section 50C refers to deeming income, it does not mean that penalty under Section 271 [1](c) cannot be imposed, since the penalty is to be levied for tax sought to be evaded. In this respect, counsel for the revenue relied upon decision of Division Bench of Orissa High Court in the case of CIT v. Ganpatrai Gajanand [1977] 108 ITR 403 in which, in the context of addition under Section 68 of the Act, it was held that merely because Section 68 makes provision for certain deemed income, would not imply that the penalty under Section 271 [1](c) of the Act cannot be imposed.
9. The facts are not in dispute. The assessee having sold the immovable property, offered net consideration of Rs. 2.50 Crores by way of short term capital gain out of the total of Rs. 2.75 Crores of sale consideration, as per the sale deed. The Stamp valuation authorities, however, adopted the valuation at Rs. 3.40 Crores and levied the stamp duty accordingly. Upon being pointed out, the assessee revised the return and offered additional income to capital gain. The question in such background was the A.O correct in insisting on levying penalty as a whole.
10. Section 50C of the Act pertains to special provision for full value of consideration in certain cases. As per sub-section [1] of Section 50C, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset is less than the value assessed or assessable by the Stamp Valuation authority, for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed would, for the purposes of Section 48 of the Act, be deemed to be the full value of consideration received or accruing as a result of such transfer.
11. As is well settled, capital gain can be levied on actual sale consideration and not on fair market value. Sub-section [1] of Section 50C of the Act makes a deviation in this principle and introduces a concept of deemed consideration for the purpose of Section 48 of the Act. There is thus a clear distinction between sale consideration actually received and deemed to have been received in terms of sub-section [1] of Section 50C of the Act. Application of sub-section [1] of Section 50C therefore cannot automatically give rise to penalty proceedings.
12. Counsel for the Revenue strongly argued that the assessee was required to declare the valuation adopted by the Stamp Valuation authority and offer capital gain on the basis of such valuation which he failed to do, and therefore, the assessee was guilty of providing inaccurate particulars of income. To examine this contention, we must refer to sub-section [2] of Section 50C which starts with an expression, "without prejudice to the provisions of sub-section [1] ". As per sub-section [2], where the assessee claims before any Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub-section [1] of Section 50C has not been disputed in any appeal or revision, or no reference has been made before any other authority or the Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation officer.
13. Under sub-section [2] of Section 50C thus, the assessee has an opportunity to dispute the stamp duty valuation of a property in question before the Assessing Officer upon which the Assessing Officer would refer the question of valuation to the Valuation Officer. Application of sub-section [1] of Section 50C is not automatic and is subject to an opportunity to the assessee to question such valuation during the assessment proceedings also.
14. In the present case, the assessee had in fact at one stage disputed such valuation by pointing out inter alia that the property was facing certain restrictions from the forest department, and that therefore, the valuation prescribed by the stamp valuation authority could not be automatically adopted.
15. In the facts of the case, we do not find any reason to interfere with judgment of the Tribunal. This is so since the assessee had, as noted above, initially disputed the stamp valuation. However, once the assessee gave up the challenge, revised the return and offered additional deemed income to tax. The judgment of Orissa High Court in the case of Ganpatrai Gajanand [supra] was rendered in the background of Section 68 of the Act which contains vastly different provisions; as compared to Section 50C of the Act.
16. We should not be seen to have confirmed ratio of the judgment of the Tribunal in case of Chimanlal Manilal Patel [supra]. We will examine such an issue in appropriate case, when presented before us.
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