Income-tax Act, 1961 — Section 271(1)(c). Penalty u/s.271(1)(c) is not leviable on addition arising u/s.50C.

ITAT ‘D’ Bench, Mumbai

A.Y. : 2006-2007. Decided on : 22-12-2010

Counsel for assessee/revenue : Vipul Joshi/

Jitendra Yadav

The assessee inter alia sold a residential flat for
a consideration of Rs.63,00,000, whereas the value of this flat as per the Stamp
Valuation Authorities was Rs.72,00,824. Thus, there was a difference of
Rs.9,00,824. The assessee in her return of income computed capital gains with
reference to sale consideration as per sale agreement. In the course of the
assessment proceedings, upon being asked to show cause why the difference should
not be added back to the total income, the assessee agreed to the same.
Accordingly, the said sum of Rs.9,00,824 was added to the total income of the
assessee by applying the provisions of section 50C of the Act. The AO initiated
penalty proceedings u/s.271(1)(c) and vide order dated 20-3-2009 levied the
penalty of Rs.1,98,181 (being 100% of tax sought to be evaded).

Aggrieved by the levy of penalty, the assessee
preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved by the order of the CIT(A), the assessee
preferred an appeal to the Tribunal.

The Tribunal having noted that — (i) the AO had not
questioned the actual consideration received by the assessee, but the addition
was purely on the basis of deeming provisions of section 50C of the Act; (ii)
the AO had not given any finding that the actual sale consideration was more
than the sale consideration admitted and mentioned in the sale agreement; and
(iii) the assessee had furnished all the relevant facts, documents/material
including the sale agreement, the genuineness and validity whereof was not
doubted by the AO, observed that the assessee’s agreement to an addition on the
basis of valuation by the Stamp Valuation Authority would not be a conclusive
proof that the sale consideration as per agreement was incorrect and wrong. It
held that the addition because of the deeming provisions does not ipso facto
attract penalty u/s.271(1)(c). In view of the decision of the Apex Court in the
case of CIT v. Reliance Petroproducts Pvt. Ltd., (322 ITR 158) (SC), the
penalty levied was held to be not sustainable.

The appeal filed by the assessee was allowed.