2013 (9) TMI 1138 - AT - Income Tax

Penalty u/s 271(1)(c) - violation of provisions of section 80IB(10) - Held that - The charge levied by the Assessing Officer in the assessment order that the assessee has violated the conditions of constructing the unit (flats) of more than 1,000 sq.ft. is not correct, because insofar as the assessee is concerned, it has constructed all the units less than 1,000 sq.ft. and later on the purchasers have joined the two flats, this cannot be the ground for denying the benefit of the claim under section 80IB(10) to the assessee. At least this cannot be adversely viewed in the penalty proceedings and the assessee s explanation has not been found to be false or any material has been brought on record, that right from the development stage to the sale of flats, the assessee has constructed flats for more than 1,000 sq.ft. or has sold any unit for more than 1,000 sq.ft. Thus, on this charge, the assessee cannot be held to be guilty of furnishing of inaccurate particulars of income or for concealment of income. Thus, the penalty cannot be levied or confirmed on this score. Accordingly, we set aside the impugned order passed by the learned Commissioner (Appeals) and delete the penalty levied - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalty under section 271(1)(c) for violation of section 80IB(10) regarding the built-up area exceeding 1,000 sq.ft.
2. Applicability of penalty based on post-assessment events, specifically the non-completion of the project by 31st March 2008.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) for Violation of Section 80IB(10):
The assessee, a partnership firm engaged in real estate development, claimed a 100% deduction under section 80IB(10) for its housing project "Amartaru-VII." The Assessing Officer (AO) disallowed this deduction, noting that two flats sold to family members exceeded the 1,000 sq.ft. limit when combined. The AO initiated penalty proceedings under section 271(1)(c) based on this violation. The assessee argued that it sold the flats separately and was not responsible for the buyers joining them. The Tribunal found that the assessee had indeed sold two separate units, each less than 1,000 sq.ft., and that the subsequent joining of flats by purchasers should not adversely affect the assessee. The Tribunal concluded that the penalty could not be levied as the assessee did not furnish inaccurate particulars or conceal income.

2. Applicability of Penalty Based on Post-Assessment Events:
During the first appellate proceedings, the learned Commissioner (Appeals) confirmed the penalty, citing that the assessee admitted during a search and seizure operation that the project was not completed by 31st March 2008. The Tribunal noted that the penalty was initially based on the violation of the 1,000 sq.ft. limit, not the project's completion status. It emphasized that penalty proceedings must be based on the grounds present at the time of filing the return, not subsequent events. The Tribunal referred to CBDT Instruction No. 04/2009, which allows deductions on a year-to-year basis for projects showing partial completion. The Tribunal concluded that the learned Commissioner (Appeals) erred by confirming the penalty on different grounds than those cited by the AO. Therefore, the penalty was unwarranted and was deleted.

Conclusion:
The Tribunal set aside the order of the learned Commissioner (Appeals) and deleted the penalty levied by the AO, allowing the assessee's appeal. The decision emphasized that penalties must be based on the conditions at the time of filing the return and not on subsequent events, and that the assessee's explanation for the initial penalty grounds was valid.