No penalty for concealment if property sold wasn’t residential and Sec 54 deduction disallowed : HC

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(Last Updated On: September 22, 2018)

An appeal lies under Section 260A of the 1961 Act, only when there is a substantial question of law. We find that there is no question of law involved in this appeal much less any substantial question of law. The learned Tribunal, which is the highest fact finding body, has found on facts that the respondent assessee had neither concealed his income nor furnished inaccurate particulars of income. Such factual findings cannot be interfered with in an appeal under Section 260A of the 1961 Act.

HIGH COURT OF MADRAS

Commissioner of Income-tax, Chennai

v.

D.Harindran

MS. INDIRA BANERJEE, CJ.
AND MS. P.T. ASHA, J.

T.C.(APPEAL) NO. 360 OF 2018

JULY  10, 2018

T.R. Senthil Kumar, Sr. Standing Counsel for the Appellant.

JUDGMENT

Ms. Indira Banerjee, CJ – This appeal filed by the Revenue is against a judgment and order dated 23.9.2016 passed by the Income Tax Appellate Tribunal ‘C’ Bench, Chennai (hereinafter referred to as “the Appellate Tribunal”), allowing the appeal, being I.T.A.No.233/Mds/2016, filed by the respondent assessee in respect of the assessment year 2011-2012.

2. The facts giving rise to the instant appeal are enumerated very briefly hereinafter. The respondent assessee filed his return of income on 31.7.2011 for the assessment year 2011-2012 declaring total income of Rs.7,745/-, and claiming exemption of Rs.3,27,06,437/- under Section 54 of the Income-tax Act, 1961 (hereinafter referred to as “the 1961 Act“).

3. The return filed by the respondent assessee was duly processed, but later selected for scrutiny and a notice was issued to the respondent assessee under Section 143(2) of the 1961 Act on 27.9.2013. The notice was apparently served on the respondent assessee on 28.9.2013.

4. The assessee was represented before the Assessing Authority by his authorised representative. Materials before the Assessing Officer revealed that the respondent assessee was a Law Graduate, residing with his parents in the address specified in the return, that is, No.4/212A, MGR Salai, Palavakkam, Chennai – 600 041.

5. By a registered deed of settlement executed on 19.11.2010, the respondent assessee was given property at Injambakkam by his father, a partner in a flat promoting concern. The said property is hereinafter referred to as “the Injambakkam property”.

6. On 6.12.2010, the respondent assessee sold the Injambakkam property for a consideration of Rs.4,00,00,000/-, from which the respondent assessee has purchased property measuring 6.95 acres at Nallanpillai Petral Village on 15.7.2011. The purchase was made by a registered deed of conveyance No.2953/2011, registered with the Sub Registrar Officer, Thirukazhukundram, for an amount of Rs.86,87,500/-. The respondent assessee also claimed to have spent Rs.2,25,87,500/- for developing the said property. The assessee claimed exemption under Section 54 of the 1961 Act for the total investment of Rs.3,12,75,000/-.

7. The Assessing Officer observed that the Injambakkam property had been received by the assessee as a gift from his father, who purchased the same vide two deeds – Document Nos.5021/2006 and 5022/2006 during the financial year 2006-2007. At the time of purchase, the nature of the land was agricultural. Subsequently, the respondent assessee’s father obtained approval of the Chennai Metropolitan Development Authority for sub-division of the land into four housing plots.

8. The Assessing Officer found that there was no evidence that the superstructure was used for residential purpose and the total area of the superstructure was only 200 Sq. Ft. of value of Rs.2,00,000/-.

9. On the face of the assessment order, the authorised representative of the respondent assessee had produced a copy of the house property tax to substantiate the claim of the respondent assessee that the settled property was residential property.

10. A copy of the electricity bill connection taken from the website of the Tamil Nadu Electricity Board showed that the electricity connection was commercial from 2009 to 2012. Relying, inter alia, on the aforesaid electricity bill and on other factors, the Assessing Officer negatived the claim of the assessee that the property purchased by him, measuring 6.95 acres at Nallanpillai Petral Village, was residential house and, accordingly, disallowed the claim of exemption under Section 54 of the 1961 Act. The Assessing Officer recomputed the long term capital gain of the assessee at Rs.3,49,33,220/-.

11. The assessee accepted the order made by the Assessing Officer and paid the tax as computed. However, the initiation of penalty proceedings under Section 271(1)(c) of the 1961 Act has given rise to the instant proceedings.

12. Aggrieved by an order under Section 271(1)(c) of the 1961 Act imposing penalty of Rs.71,64,880/-, the respondent assessee filed an appeal, being I.T.A.No.199/CIT(A)-15/14-15 before the Commissioner of Income Tax (Appeals)-15. By an order dated 18.12.2015, the Appellate Commissioner dismissed the appeal, whereupon the respondent assessee filed appeal, being I.T.A.No.233/Mds/2016, before the Appellate Tribunal, which has given rise to the order dated 23.9.2016 under appeal. By the order under appeal, the Appellate Tribunal has allowed the appeal of the respondent assessee and set aside the penalty under Section 271(1)(c) of the 1961 Act holding the same not to be justified.

13. The learned Appellate Tribunal held that the respondent assessee had furnished all details of sale and purchase of the Injambakkam property and had claimed deduction under Section 54/54F of the 1961 Act. After careful perusal and analysis of Section 271(1)(c) of the 1961 Act, the Appellate Tribunal found, on facts, that it could not be said that the assessee had furnished inaccurate particulars of income or he concealed any part of income. The Appellate Tribunal held that the respondent assessee had furnished details of the transactions relating to the Injambakkam property and the sale of the Injambakkam property for Rs.4,00,00,000/- had been disclosed.

14. The Appellate Tribunal observed that the respondent assessee had computed the capital gain and disclosed the capital gain, but claimed exemption under Section 54/54F for investment in another land and property, which, according to the assessee, was a residential house. The Revenue claimed that the reinvestment was in agricultural land and not residential house. It was not the case of the Assessing Officer that the respondent assessee had concealed any part of the sale proceedings and thereby concealed the capital gain that had accrued to him. Making of a statutory claim under Section 54/54F of the 1961 Act could not be said to be concealment of particulars of income.

15. Relying on the judgment of the Supreme Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 the learned Appellate Tribunal held that unless the case is strictly covered by the provisions of Section 271(1)(c) of the 1961 Act, penalty provision cannot be invoked. Making of an incorrect claim in law would not tantamount to inaccurate particulars. Reliance was also placed on a judgment of this Court in CIT v. Gem Granites [2014] (Mad).

16. Assailing the said order passed by the Appellate Tribunal, the Revenue has filed this appeal under Section 260A of the 1961 Act, which provides:

“Section 260A. Appeal to High Court.

(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law.

(2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or an Assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be-

(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the Assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

(b)******

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.

(2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period.

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall at the hearing of the appeal, be allowed to argue that the case does not involve such question:

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

(6) The High Court may determine any issue which –

(a)has not been determined by the Appellate Tribunal; or
(b)has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1).

(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.”

17. An appeal lies under Section 260A of the 1961 Act, only when there is a substantial question of law. We find that there is no question of law involved in this appeal much less any substantial question of law. The learned Tribunal, which is the highest fact finding body, has found on facts that the respondent assessee had neither concealed his income nor furnished inaccurate particulars of income. Such factual findings cannot be interfered with in an appeal under Section 260A of the 1961 Act.

18. In Sir Chunilal V. Mehta & Sons Ltd. v. Century Spg. & Mfg. Co. Ltd. AIR 1962 SC 1314, the Supreme Court agreed with and approved a Full Bench Judgment of this Court in Rimmalapudi Subba Rao v. Noony Veeraju AIR 1951 Mad. 969 and laid down the principles for deciding when a question of law becomes a substantial question of law.

19. In Hero Vinoth v. Seshammal [2006] 5 SCC 545, the Supreme Court followed Sir Chunilal V. Mehta & Sons (supra) and other judgments and summarized the tests to find out whether a given set of questions of law were mere questions of law or substantial questions of law.

20. The relevant paragraphs of the judgment of the Supreme Court in Hero Vinoth (supra) are set out herein below :

“21. The phrase “substantial question of law”, as occurring in the amended Section 100 CPC is not defined in the Code. The word substantial, as qualifying “question of law”, means-of having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contradistinction with-technical, of no substance or consequence, or academic merely. However, it is clear that the legislature has chosen not to qualify the scope of “substantial question of law” by suffixing the words “of general importance” as has been done in many other provisions such as Section 109 of the Code or Article 133(1)(a) of the Constitution. The substantial question of law on which a second appeal shall be heard need not necessarily be a substantial question of law of general importance. In Guran Ditta v. Ram Ditta [(1927-28) 55 IA 235 : AIR 1928 PC 172] the phrase “substantial question of law” as it was employed in the last clause of the then existing Section 100 CPC (since omitted by the Amendment Act, 1973) came up for consideration and their Lordships held that it did not mean a substantial question of general importance but a substantial question of law which was involved in the case. In Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] the Constitution Bench expressed agreement with the following view taken by a Full Bench of the Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju [AIR 1951 Mad 969 : (1951) 2 MLJ 222 (FB)] : (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR p. 557)”

“When a question of law is fairly arguable, where there is room for difference of opinion on it or where the Court thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular fact of the case it would not be a substantial question of law.”

This Court laid down the following test as proper test, for determining whether a question of law raised in the case is substantial: (Sir Chunilal case [1962 Supp (3) SCR 549 : AIR 1962 SC 1314] , SCR pp. 557-58)

“The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.”

22. In Dy. Commr. v. Rama Krishna Narain [1954 SCR 506 : AIR 1953 SC 521] also it was held that a question of law of importance to the parties was a substantial question of law entitling the appellant to a certificate under (the then) Section 100 CPC.

23. To be “substantial” a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law “involving in the case” there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case or not, the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. (See Santosh Hazari v. Purushottam Tiwari [(2001) 3 SCC 179] .)

24. The principles relating to Section 100 CPC relevant for this case may be summarised thus :

‘(i)An inference of fact from the recitals or contents of a document is a question of fact. But the legal effect of the terms of a document is a question of law. Construction of a document involving the application of any principle of law, is also a question of law. Therefore, when there is misconstruction of a document or wrong application of a principle of law in construing a document, it gives rise to a question of law.
(ii)The High Court should be satisfied that the case involves a substantial question of law, and not a mere question of law. A question of law having a material bearing on the decision of the case (that is, a question, answer to which affects the rights of parties to the suit) will be a substantial question of law, if it is not covered by any specific provisions of law or settled legal principle emerging from binding precedents, and, involves a debatable legal issue. A substantial question of law will also arise in a contrary situation, where the legal position is clear, either on account of express provisions of law or binding precedents, but the court below has decided the matter, either ignoring or acting contrary to such legal principle. In the second type of cases, the substantial question of law arises not because the law is still debatable, but because the decision rendered on a material question, violates the settled position of law.
(iii)The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to “decision based on no evidence”, it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.’

21. In M. Janardhana Rao v. CIT [2005] 273 ITR 50 (SC), the Supreme Court held that the principles contemplated under Section 100 of the Code of Civil Procedure would apply to Section 260-A of the 1961 Act too.

22. Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal restricted only to cases which involve substantial questions of law, it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal.

23. The questions raised in this appeal do not meet the tests laid down by the Supreme Court for holding that the questions are substantial questions of law. We are constrained to hold that there is no question of law, let alone any substantial question of law, involved in this appeal.

The appeal is, therefore, not entertained and the same is dismissed. No costs.

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