Investment made and declared after claiming Sec. 54B is not willful tax evasion: HC

Case Details: H. Ameerdeen v. ITO - [2022] 136 taxmann.com 350 (Madras)

Judiciary and Counsel Details

• • N. Sathish Kumar, J.
  • S. Ashok Kumar, Sr. Counsel and M. Deivanandam for the Petitioner. 
  • L. Muralikrishnan, Spl. Public Prosecutor for the Respondent.

Facts of the Case

The assessee sold agricultural land and paid sale proceeds to a firm for purchasing land. The assessee claimed exemption under section 54B. During a survey conducted at the premises of said firm, it was found that no land was purchased in the assessee’s name. Thus, the Assessing Officer (AO) issued a reassessment notice on the ground that the assessee’s exemption against capital gain was incorrect.

Consequently, the assessee filed a revised return after excluding the incorrect claim of deduction under section 54B assessment order under section 143 was passed.
AO initiated the penalty proceeding on the grounds of willful evasion of the tax by the assessee. On appeal, the CIT(A) confirmed the penalty imposed by AO. On further appeal, the Tribunal set aside the penalty proceedings.

In the meantime, the prosecution was also initiated against the assessee under sections 276C and 277. In the instant petition, the assessee had challenged the initiation of prosecution proceedings.

High Court Held

The Madras High Court held that AO had not examined the assessee’s claim and found whether they had given money to the firm for investment in the property. In the absence of any materials, he had presumed that the assessee claiming exemption was false or bogus.
Merely because an exemption under section 54B is claimed on sale of the property and the investment has not been made, the wilful evasion cannot be presumed if there was no suppression of facts by the assessee. Therefore, initiation of prosecution on similar allegations is nothing but a futile exercise.

Case Review

• • K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461/265 ITR 562 (SC) (para 18) followed.

List of Cases Referred to

• • Karti P. Chidambaram v. Dy. DIT (Investigation) [2020] 122 taxmann.com 146/[2021] 431 ITR 261 (Mad.) (para 5)
  • K.C. Builders v. Asstt. CIT [2004] 135 Taxman 461/265 ITR 562 (SC) (para 5)
  • Radheshyam Kejriwal v. State of West Bengal [2011] 12 taxmann.com 107/108 SCL 406 (SC) (para 7)
  • Standard Chartered Bank v. Directorate of Enforcement [2006] 67 SCL 2 (SC) (para 7)
  • N. Athimoolam v. ITO [2010] 327 ITR 603 (Mad.) (para 7)
  • G.L. Didwania v. ITO [1997] 224 ITR 687 (SC) (para 14)
  • CIT v. Bhupen Champak Lal Dalal [2001] 248 ITR 830 (SC) (para 15).