No penalty if there are conflicting views of the judiciary on the issue: ITAT Rajkot

 

Here is an interesting case before Rajkot ITAT wherein it has been held that

 

The case detail is as under:

 

Ajaybhai I Gogia

[2022] 139 taxmann.com 125 (Rajkot – Trib.)

 

Let us have a short overview of the case:

 

The case was pertaining to the definition of transfer under section 2(47), read with sections 45 and resultant penalty proceeding U/s 271(1)(c), of the Income-tax Act, 1961. The relevant assessment year involved was AY 2011-12.

 

In this case, the Assessee mortgaged his property with the bank as guarantor of loan.

 

In view of default in loan repayment for which assessee stood guarantor, said property was taken over by bank and sold in auction.

 

The resultant sale Proceeds from sale were taken by bank and adjusted against dues.

 

Assessee did not declare long term capital gain on sale of said property on ground that his right in property was extinguished when property was taken over by bank and he did not receive any money from sale proceeds.

 

The Assessing Officer rejected said claim of assessee during assessment proceeding and further proceeded with the levy of the penalty under section 271(1)(c) for non-disclosure of capital gains. One may note that section 271(1)(c) of the Income-tax Act, 1961 provides for a penalty for concealment of income.

 

 

ITAT noted that there were conflicting judicial precedents on the issue under consideration. The issue before ITAT was, merely because Assessee’s appeal in respect of addition on the basis of which penalty under section 271(1)(c) was levied, had been admitted by High Court, it could not be said that issue was debatable so as to delete the penalty?

 

The judicial precedent has held that if consideration did not flow to assessee, then transfer of mortgaged asset would amount to transfer of asset or not and whether capital gains would accrue to assessee or not.

 

The ITAT observed that since Assessee’s appeal was admitted in quantum proceedings by High Court, Assessee’s view that no capital gains were accrued in his hands would be assumed to be plausible and penalty levied under section 271(1)(c) was to be deleted.

 

The court decided the issue in favour of the assessees and held that penalty in such a case needs to be deleted.

 

 

 Conclusion:

Where assessee stood guarantor for a bank loan and his mortgaged property was taken over and sold in auction by bank, since there were conflicting judicial precedents on issue under consideration as to whether transfer of mortgaged asset would amount to transfer of asset or not where no consideration flew to assessee, Assessee’s view that no capital gains accrued in his hands would be a plausible one and no penalty could be levied on assessee under section 271(1)(c) for non-disclosure of capital gains