2015 (3) TMI 46 - AT - Income Tax

Penalty u/s 271(1)(c) - withdrawal of claim of section 54 by the assessee - Held that - In the instant case, the assessee tried hard to purchase a flat from Mr. Vrijesh Kumar Gupta to enjoy effect of section 54 of the Act but the deal failed due to dispute in the family of the seller and finally during the year under consideration, the assessee offered the amount of long term capital gain for taxation and also paid the tax within prescribed limit, therefore, the authorities below were wrong in holding that the assessee did not furnish any explanation in this regard and the AO grossly erred in holding that the case of the assessee is found covered by clause (a) of Explanation 2 to section 271(1)(c) of the Act because the assessee furnished a plausible explanation during the quantum proceedings which was also filed before the AO during penalty proceedings. Hence, we reach to a logical conclusion that the AO imposed penalty on the basis of wrong premises and erroneous interpretation of the provisions of the Act and the same was wrongly upheld by the CIT(A). Accordingly, we are inclined to hold that penalty is not leviable on the assessee in the present case. - Decided in favour of assessee.

Summary

Issues:
Penalty under section 271(1)(c) of the Income Tax Act, 1961 upheld by CIT(A) - Appeal against the penalty order - Whether penalty justified based on the explanation provided by the assessee - Interpretation of Explanation-1 to section 271(1)(c) - Comparison with a similar case of CIT vs MAK Data Ltd - Applicability of section 54 of the Act in the case - Whether penalty correctly imposed by the AO and upheld by CIT(A) - Justification for setting aside the penalty.

Analysis:

1. Penalty Imposed under Section 271(1)(c):
The appeal was filed against the penalty order upheld by CIT(A) under section 271(1)(c) of the Income Tax Act, 1961. The AO imposed a penalty of Rs. 8,22,041 on the assessee for concealing income of Rs. 39,90,498 related to long term capital gain. The AO concluded that the explanation provided by the assessee was not supported by corroborative evidence, leading to the penalty imposition.

2. Comparison with CIT vs MAK Data Ltd Case:
The CIT(A) upheld the penalty by referring to a judgment in the case of CIT vs MAK Data Ltd, where a similar penalty was imposed for disclosed income. The judgment highlighted the importance of providing explanations regarding the nature and source of income surrendered. In the MAK Data Ltd case, the penalty was justified due to the lack of explanation from the assessee, leading to the inference of concealment of income.

3. Applicability of Section 54 of the Act:
In the present case, the assessee withdrew the claim under section 54 due to circumstances beyond their control, involving the cancellation of a property purchase agreement. The assessee offered the long term capital gain for taxation and paid the tax within the prescribed limit. The assessee's explanation during both quantum and penalty proceedings was considered sustainable, demonstrating sincerity and truthfulness.

4. Incorrect Penalty Imposition:
The Tribunal found that the AO erred in holding that the assessee did not provide any explanation regarding the long term capital gain. The Tribunal concluded that the assessee's explanation during the proceedings was plausible and sustainable, contrary to the AO's interpretation. The penalty was set aside, emphasizing that the penalty imposition was based on wrong premises and erroneous interpretation of the Act.

5. Decision and Outcome:
The Tribunal allowed the appeal of the assessee, setting aside the penalty imposed by the AO and upheld by CIT(A). The Tribunal directed the AO to cancel and delete the penalty levied on the assessee. The judgment was pronounced on 22.12.2014, highlighting the incorrect imposition of the penalty and the justification for setting it aside based on the assessee's explanations and circumstances surrounding the case.