2016 (10) TMI 431 - AT - Income Tax

Penalty u/s 271(1)(c) - tenancy rights receipts - deduction u/s 54F allowance - cost of improvements in the property - Held that - The consent terms awarded by the Hon ble Court of small cause both original and revised are placed at paper book page 17-28. The assessee had a belief and came out with an explanation that since 1996 the tenancy rights were converted into ownership rights since the assessee is entitled for 1000 square feet of the constructed area in newly constructed building in the same plot of land and the same shall date back to the period when the tenancy rights were granted to the father of the assessee and the assessee claimed fair market value of tenancy rights as on 01-04-1981 an allowable deduction while computing long term capital gains on surrender of tenancy rights, despite the specific provision as contained u/s 55(2)(a) of the Act, whereby the cost of acquisition in the case of tenancy right shall be taken to be Nil in case no cost is paid by the tax-payer to acquire the tenancy rights. The assessee has also produced valuation report dated 27-04-2009 valuing tenancy rights as on 01-04-1981 which is placed in paper book page 14-16 and the same was stated to be the basis for making claim of FMV as on 01-04-1981. In our considered view, based on these explanations submitted by the assessee along with documentary evidences it could not be said that these explanations were not bona fide explanations . Thus, it could not be said that the assessee set up patently wrong claim with an intention to defraud revenue although it is a different matter the claim and the explanations submitted by the assessee before Revenue did not found favour with the Revenue and in our considered view, the explanations which are not accepted by the Revenue does not ceases to be a bona fide explanation merely on the grounds that the same were not accepted by the Revenue. The assessee has acquired two garages in the same locality although in different building than the building where the residential flat was acquired by the assessee as in the building where new residential flat was located, garages were not available . This was also got verified by the Revenue by deputing inspector to verify the contentions of the assessee during quantum assessment proceedings which was found to be correct by the Revenue. The assessee had submitted that garages are part and parcel of residential house keeping in view the definition of the word house . However, the assessee was allowed deduction u/s 54F of the Act with respect to one garage only . Again,we are of the considered view, that the explanation offered by the assessee is bona fide as the house does not mean four walls and the amenities like garden, garage etc are part and parcel of the residential house in modern times. We also did not find that there is any restriction imposed by the Act on having only one garage with a residential house. The assessee was compelled to take garages in nearby building in the same locality as garages in the same building in which residential flat was acquired by the assessee were not available which was verified by the Revenue. In any case , it is not the case set up by the Revenue that the second garage was never acquired by the assessee and he has set up a ex-facie bogus claim, in-fact it is the claim set up by the assessee which did not found favour with the Revenue and in our considered view, the assessee has a prima facie good arguable case on merits on the instant disallowance made by the Revenue, it is different matter that the assessee did not challenge the quantum assessment framed by the Revenue. Thus, in our considered view the assessee came out with a bona fide explanation which did not found favour with the Revenue and the assessee on his part also chose to accept the disallowance as was made in quantum assessment and decided not to agitate the matter with the appellate authorities. Similarly, the benefit of cost of improvements in the property where tenancy rights were held by the assessee and legal expenses paid by the assessee with respect to the transfer of the tenancy rights were denied to the assessee by the AO although the claim was set up on the grounds that the improvement cost incurred by the assessee led to better realization of compensation on account of surrender of tenancy rights as well legal expenses were incurred which are inextricably linked to transfer of tenancy rights as the said matter was subjudice with the Hon ble Court of small cause, which in our considered view is a bonafide explanation albeit did not found favour with the Revenue and the assessee on its part chose to accept the assessment in quantum and decided not to agitate the matter with the appellate authorities. Thus it is not a case where bogus claim was set up and the assessee was cornered by the Revenue and then assessee had to surrender the amount to buy peace etc. rather it is a case where a claim was set up based on bona fide belief based on expert advise which claim is neither patently wrong nor ex-facie illegal keeping in view facts and circumstances of the case , while the claim set up by the assessee did not found favour with the Revenue which the assessee chose to accept and not agitate with higher appellate authorities . The assessee did make disclosures and also backed the same with explanations during assessment proceedings which did not found favour with Revenue which in our considered view is not sufficient enough to saddle the assessee with penalty u/s 271(1)(c) of the Act. We do not find any infirmity in the well reasoned appellate order dated 26-09- 2013 passed by the ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) of the Act. Keeping in view the facts and circumstances of the case, we do not find any merit in the appeal of the assessee and are of the considered view that the penalty is not exigible in the instant case - Decided in favour of assessee

Issues Involved:
1. Deletion of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Claim of cost of acquisition of tenanted property and indexed cost.
3. Non-disclosure of sale transaction in the return of income.
4. Detection of transaction by AIR and scrutiny selection.
5. Reliance on judicial precedents and bonafide claim.

Issue-wise Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Revenue's appeal against the deletion of penalty by the CIT(A) was based on the assertion that the assessee furnished inaccurate particulars of income by claiming the cost of acquisition and indexed cost of a tenanted property, which was not paid for. The Tribunal upheld the CIT(A)'s decision, stating that the assessee provided a bonafide explanation and disclosed all particulars in the return of income and during assessment proceedings. The Tribunal found no deliberate attempt to conceal income or furnish inaccurate particulars.

2. Claim of Cost of Acquisition of Tenanted Property and Indexed Cost:
The assessee claimed the cost of acquisition of tenanted property as the value as of 01.04.1981 and arrived at an indexed cost. The AO disallowed this claim, stating that the cost of acquisition was nil as per Section 55(2)(a) of the Act since no consideration was paid for acquiring the tenancy rights. The Tribunal noted that the assessee acted on the advice of a Chartered Accountant and believed the claim was bonafide. The Tribunal found that the claim, although disallowed, was not made with an intention to defraud the Revenue.

3. Non-disclosure of Sale Transaction in the Return of Income:
The Revenue argued that the assessee did not disclose the sale transaction in the return of income, thus the claim of exemption did not arise. The Tribunal observed that the assessee had disclosed the particulars regarding the sale of tenancy rights, cost of acquisition, cost of improvement, and legal fees in the return of income and during assessment proceedings. The Tribunal found that there was no concealment of particulars of income.

4. Detection of Transaction by AIR and Scrutiny Selection:
The AO contended that the transaction would have escaped assessment if not detected by the AIR, leading to scrutiny selection. The Tribunal noted that the assessee had filed the return of income late, but the details of the transaction were provided in the return and during assessment proceedings. The Tribunal found that the assessee had not concealed any particulars of income.

5. Reliance on Judicial Precedents and Bonafide Claim:
The CIT(A) relied on several judicial precedents, including Chandra Pal Bagga v. ITAT, CIT v. Sri Saradha Textile Processors Pvt. Ltd., and CIT v. Reliance Petroproducts Pvt. Ltd., to conclude that the assessee's claim was bonafide. The Tribunal upheld this view, stating that merely because the claim was disallowed, it did not mean the assessee had concealed income or furnished inaccurate particulars. The Tribunal found that the assessee had provided a bonafide explanation, and the penalty under Section 271(1)(c) was not exigible.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal found that the assessee had made a bonafide claim based on expert advice, disclosed all particulars, and provided explanations that were not found to be false. The penalty was deemed not applicable under the circumstances.

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