2015 (7) TMI 168 - AT - Income Tax

Entitlement to deduction u/s 54F - disallowance of expenses on property and interest paid on loan - Held that - Assessee had advanced claim in regard to computation of long term capital gain after giving the details of purchase cost and the improvement cost over 4 years. The indexed cost of acquisition was accordingly computed. The assessing officer, however, only took into consideration the amount paid as per allotment letter and expenses on conveyance deed. The assessee in its reply, as reproduced earlier, stated that all the payments were made through DD. The AO did not accept the entire cost of acquisition claimed at ₹ 4,20,323/-.Mere disallowance of certain expenses claimed by assessee as cost of acquisition could not lead to the conclusion that assessee had advanced any false claim only because assessee was unable to substantiate the same with reference to specific vouchers. Penalty u/s 271 (1) (c) - Regarding assessee s claim u/s 54F. Ld. CIT(A) has clearly observed that assessee is entitled to proportionate deduction u/s 54F and, therefore, it cannot be said that assessee had advanced any false claim. It is not in dispute that assessee had been allotted a residential plot in CHD City Sector 45 Karnol on the basis of which he ha advanced claim u/s 54 F which was in principle accepted by Ld. CIT(A) but since the total consideration was only ₹ 5,55,00/- as against ₹ 10,000/- being the sale consideration therefore, he allowed only proportionate deduction. This was solely on account of difference in opinion between assessee and Ld. CIT(A). Under these facts there is no question of levying penalty in view of various case laws relied by Ld. Counsel for the assessee in the written submission. Levy of penalty apropos disallowance of interest paid to Smt. Prem Lata Jain the disallowance has been made only because the capital of the assessee was much lower than the investments made by assessee in properties and shares. However, it is not in dispute that assessee had shown business assets aggregating to ₹ 3,28,856/-. The assessing officer had required the assessee to show as to why interest paid to Smt. Prem Lata Jain ₹ 32,600/- be not disallowed as investment in non business assets, properties and shares was much more than capital. On this basis it was inferred that loan of Smt. Prem Lata Jain had not been utilized for business purpose. The assessing officer has not demonstrated any nexus between the amounts received from Smt. Prem Lata Jain and its utilization for non business purposes. Thus it cannot be a basis for at least levying penalty because there is no finding that loan was actually utilized for non business purposes. - Decided in favour of assessee.

Summary

Issues involved:
1. Computation of capital gain and deduction u/s 54.
2. Claim of deduction u/s 54F.
3. Disallowance of interest paid.
4. Penalty under section 271(1)(c).

Detailed Analysis:
1. The assessee filed an appeal against the order of CIT(A) regarding the computation of capital gain and deduction u/s 54. The assessing officer noted discrepancies in the assessee's claimed deduction u/s 54 for the sale of a residential plot. The officer required documentary evidence for the purchase and improvement expenses, which the assessee failed to provide initially. However, the assessee later submitted details of investments made through DD and a conveyance deed. The assessing officer accepted the cost of acquisition as &8377; 3,24,000 and computed the long-term capital gain at &8377; 6,11,249 after disallowing certain expenses claimed by the assessee.

2. The assessing officer raised concerns about the assessee's claim of deduction u/s 54F instead of u/s 54. The officer found that the assessee had invested in a plot with CHD Developers, contradicting the claim of investing in a flat. The assessing officer denied the deduction u/s 54F as the entire sale consideration was not invested in a new asset as required by the law. The assessee argued that the membership of a flat society was covered under u/s 54F, citing a court verdict. The CIT(A) allowed a proportionate deduction u/s 54F, leading to a difference of opinion between the assessee and the officer.

3. The assessing officer disallowed the interest paid to Smt. Prem Lata Jain, citing that the assessee's investments in non-business assets exceeded the capital. The officer concluded that the loan was not utilized for business purposes based on the financial statements. However, the Tribunal found no evidence of the loan being used for non-business purposes and overturned the disallowance, stating that there was no nexus established between the loan and non-business investments.

4. The penalty under section 271(1)(c) was levied by the assessing officer, which was upheld by the CIT(A). The assessee contended that the disallowances did not amount to concealment of income or furnishing inaccurate particulars. The Tribunal considered the submissions and case laws cited by the assessee, ultimately canceling the penalty due to the lack of evidence supporting the allegations of false claims or concealment of income.

In conclusion, the Tribunal allowed the assessee's appeal, setting aside the orders of the lower revenue authorities and canceling the penalty imposed under section 271(1)(c).