2016 (8) TMI 224 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee has claimed deduction u/s 54F seeking exemption of long term capital gains amounting to ₹ 1,13,73,000/- arising on account of surrender of sub-tenancy - Held that - The claim of the assessee made in the return of income to declare the income as long term capital gain on surrender of tenancy vide registered deed dated 12-04-2007 was in-fact wrong claim lodged to reduce the tax liability. The assessee himself withdrew the said claim when cornered and confronted by the Revenue and the contentions of the assessee that he withdrew the claim voluntarily in order to avoid long and protracted litigation with the Revenue and to buy peace of mind are not correct. The assessee has also not challenged the assessment order framed by the Revenue u/s 143(3) of the Act in the appellate forums which was framed after claims as set out by the assesssee in return of income was withdrawn by the assessee after being cornered and confronted by the Revenue. As the assessee made a wrong claim in the return of income of having sub-tenancy in the said premises while the fact of the matter in the present case before us is that the assessee did not had any such sub-tenancy in the said property as the assessee failed to prove the existence of sub-tenancy and the claim of the assessee was found to be false claim and explanations offered by the assessee were found by the Revenue to be false and clearly explanation1 to Section 271(1)(c) of the Act is hit and the assesse is liable for penalty u/s 271(1)(c) of the Act - Decided against assessee

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Furnishing of inaccurate particulars of income.
3. Concealment of particulars of income.
4. Bona fide mistake versus intentional tax evasion.
5. Application of legal precedents in penalty proceedings.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue appealed against the deletion of a penalty amounting to ?45,00,000/- levied under Section 271(1)(c) by the AO, which was deleted by the CIT(A). The CIT(A) held that the assessee's inability to prove sub-tenancy did not automatically mean that the assessee furnished inaccurate particulars of income. The CIT(A) relied on the Supreme Court's decision in CIT v. Reliance Petroproducts (P) Ltd, which stated that making an incorrect claim in law does not tantamount to furnishing inaccurate particulars of income.

2. Furnishing of Inaccurate Particulars of Income:
The AO observed that the assessee claimed receipts from the sale of long-term capital assets as exempt under Section 54F. However, the assessee could not provide evidence of sub-tenancy or any supporting documents, such as rent receipts, electricity bills, or a sub-tenancy agreement. The AO conducted inquiries with BEST and BMC, which confirmed no electricity connection or sub-tenancy in the assessee's name. The original tenant, Mr. Rajni C. Shah, also denied any sub-tenancy agreement with the assessee. Consequently, the AO concluded that the assessee furnished inaccurate particulars of income by falsely claiming sub-tenancy.

3. Concealment of Particulars of Income:
The AO initiated penalty proceedings under Section 271(1)(c) for filing inaccurate particulars of income. The AO rejected the assessee's contention that the claim was withdrawn voluntarily to avoid litigation and buy peace of mind. The AO emphasized that the assessee was cornered by the Revenue's inquiries and had no choice but to surrender the claim. The AO relied on the Supreme Court's decision in UOI v. Dharmendra Textiles Processors, which held that penalty under Section 271(1)(c) is justified for concealment of income or furnishing inaccurate particulars.

4. Bona Fide Mistake versus Intentional Tax Evasion:
The CIT(A) accepted the assessee's explanation that the claim was made in good faith and that the assessee had no contemporary evidence to support the sub-tenancy claim. The CIT(A) held that the assessee's case was covered by the Supreme Court's decision in Reliance Petroproducts, where making an incorrect claim does not amount to furnishing inaccurate particulars. However, the Tribunal noted that the assessee, being an estate broker, should have maintained proper records and that the absence of any evidence indicated an intentional attempt to evade taxes.

5. Application of Legal Precedents in Penalty Proceedings:
The Tribunal referred to the Supreme Court's decision in MAK Data (P) Ltd. v. CIT, which held that voluntary disclosure does not absolve the assessee from penalty if the disclosure is made after being cornered by the Revenue. The Tribunal also cited the Bombay High Court's decision in Virendra K. Mehta v. DCIT, where penalty was upheld for failing to prove the existence of tenancy rights. The Tribunal concluded that the assessee's claim of sub-tenancy was a colorable device to evade taxes and upheld the penalty under Section 271(1)(c).

Conclusion:
The Tribunal set aside the CIT(A)'s order deleting the penalty and confirmed the AO's levy of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income and attempting to evade taxes. The penalty was restricted to 100% of the tax evaded. The Tribunal emphasized that the assessee's explanation was found to be false and that the penalty was justified based on the detailed inquiries and investigations conducted by the Revenue.

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