2017 (6) TMI 70 - AT - Income Tax

Levy penalty u/s 271(1)(c) - denying the claim of the assessee towards the cost of improvement of land - Held that - It cannot be said that the assessee has furnished inaccurate particulars of income where there is due disclosure in the return of income and necessary explanation and supporting evidence has been provided in support of such expenditure. The incurrence of the expenditure has thus not been doubted by the Revenue but given the peculiar facts of the case involving long period during which such expenditure has been incurred and that too, by different co-owners and the fact that the assessee doesnt maintain regular books of accounts , an estimation approach was adopted by the lower authorities while denying the claim of the assessee towards the cost of improvement of land. In our view, the disallowance of expenditure in such peculiar facts of the case cannot be basis for levy of penalty under section 271(1)(c) - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Disallowance of cost of improvement/development of land.
3. Validity of revised return under section 139(5) of the Income Tax Act.
4. Claim of exemption under section 54B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The central issue in these appeals is the levy of penalty under section 271(1)(c) of the Income Tax Act. The penalty was initiated by the Assessing Officer (AO) due to the disallowance of the cost of improvement/development of land claimed by the assessee in the original return of income. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee furnished inaccurate particulars of income as the assessee could not provide satisfactory evidence for the claimed cost of improvement.

2. Disallowance of Cost of Improvement/Development of Land:
The assessee had initially claimed a cost of improvement of ?17,83,600 in the original return, which was later revised. The AO restricted the indexed cost of land to ?1,12,769 due to the lack of documentary evidence provided by the assessee. The CIT(A) allowed a partial cost of improvement at ?4,54,500 based on an estimation approach, considering the specific mention of improvements in the sale deeds and the fact that the land was jointly held with other family members. The CIT(A) admitted additional evidence under Rule 46A(1)(c) and estimated the cost of improvement due to the absence of regular books of accounts.

3. Validity of Revised Return under Section 139(5):
The AO did not accept the revised return filed by the assessee as the original return was filed beyond the time limit specified under section 139(1). Consequently, the revised return under section 139(5) was deemed invalid. This issue was not pressed further by the assessee before the CIT(A).

4. Claim of Exemption under Section 54B:
The assessee's additional claim for exemption under section 54B, made in the revised return, was also not pressed before the CIT(A). The AO had restricted the deduction under section 54B to ?4,79,333 as shown in the original return.

Findings and Judgment:
The Tribunal noted that the CIT(A) had acknowledged the existence of the expenditure towards the cost of improvement as evidenced by the sale deeds, which mentioned the construction of a boundary wall and house. The CIT(A) also considered the fact that the assessee did not maintain regular books of accounts and the land was jointly held with family members, which justified the inability to furnish detailed evidence during the assessment proceedings.

The Tribunal emphasized that the disallowance of expenditure based on an estimation approach in such peculiar facts could not form the basis for the levy of penalty under section 271(1)(c). The Tribunal referred to the decisions of the Hon'ble Rajasthan High Court in the cases of CIT vs. Mahendra Singh Khedla and CIT vs. Krishi Tyre Retreading & Rubber Industries, which held that penalties could not be levied where additions were based on estimates.

Separate Judgments for Other Assessees:
In the cases of Vipin Jeet Singh and Narendra Pal Singh HUF, the Tribunal followed a similar reasoning and deleted the penalties levied under section 271(1)(c). The Tribunal noted that the fact patterns were identical, and the findings and directions in the case of Shri Nitin Pal Singh applied mutatis mutandis to these cases.

Conclusion:
The Tribunal allowed all the appeals filed by the respective assessees and deleted the penalties levied under section 271(1)(c). The order was pronounced in the open court on 29/05/2017.

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