2019 (3) TMI 1256 - AT - Income Tax

Penalty levied u/s 271(1)(c) - claim of deduction u/s.54 - Tribunal while deciding quantum additions had granted relief to the assessee based on facts and circumstances of the case held that the gains arising from sale of property were long term capital gains and the assessee is entitled for deduction u/s 54 - HELD THAT - The quantum additions have been decided in favour of the assessee by tribunal 2016 (8) TMI 60 - ITAT MUMBAI wherein gains arising on sale of property were held to be long term capital gains chargeable to tax in AY 2012-13 and not in AY 2011-12 and tribunal further held that the assessee is entitled for deduction u/s 54 of the 1961 Act meaning thereby adverse findings of the AO in quantum are reversed by tribunal. Since, the tribunal has held that gains earned by the assessee on sale of property are long term capital gains chargeable to tax for the AY 2012-13 and further that the assessee is entitled for deduction u/s 54 of the 1961 Act, the whole edifice on which penalty u/s 271(1)(c) was levied by the AO goes. The said order of the tribunal has attained finality as appeal filed against the said order before Hon‟ble Bombay High Court has been dismissed as not pressed owing to low tax effect, consequently penalty levied by the AO u/s 271(1)(c) cannot stand. - decided against revenue

Issues Involved:
1. Deletion of penalty levied under section 271(1)(c) of the Income-tax Act, 1961.
2. Determination of whether the capital gains from the sale of property were short-term or long-term.
3. Eligibility for deduction under section 54 of the Income-tax Act, 1961.

Detailed Analysis:

1. Deletion of Penalty under Section 271(1)(c):

The primary issue in this appeal is whether the penalty of ?24,14,101/- levied under section 271(1)(c) of the Income-tax Act, 1961, for concealment of income should be deleted. The penalty was initially imposed by the Assessing Officer (AO) because the assessee did not declare capital gains in the return of income filed with the Revenue. The AO considered the gains arising from the sale of the property as short-term capital gains chargeable to tax in AY 2011-12, leading to the penalty for concealment of income.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the penalty, relying on the appellate order dated 22.07.2016 by the Income Tax Appellate Tribunal (ITAT), which held that the gains were long-term capital gains and chargeable to tax in AY 2012-13, and that the assessee was entitled to deduction under section 54. The CIT(A) noted that once the additions on which the penalty was based were deleted, the penalty could not survive. Various judicial precedents were cited to support this view, including the Supreme Court's ruling in K.C. Builders Vs. ACIT and other High Court decisions, which held that penalty cannot stand if the assessment itself is set aside.

2. Determination of Capital Gains:

The second issue revolves around whether the gains from the sale of the property were short-term or long-term. The AO and CIT(A) initially held that the property was a short-term capital asset as it was held for less than 36 months. The property was gifted to the assessee by his father on 29.04.2008, and sold on 06.01.2011. The AO argued that the holding period was only 32 months, thus treating it as short-term capital gain.

However, the ITAT in its order dated 22.07.2016, held that the gains were long-term capital gains. The ITAT considered the date of possession, which was mutually agreed to be 14.05.2011, extending the holding period beyond 36 months. The ITAT referenced the case of Azad Zabarchand Bhandari Vs ACIT and the Bombay High Court decision in Chaturbhuj Dwarkadas Kapadia Vs. CIT, which emphasized the importance of possession in determining the transfer of property under section 2(47) of the Act. Based on these precedents, the ITAT concluded that the holding period exceeded 36 months, making the gains long-term capital gains.

3. Eligibility for Deduction under Section 54:

The third issue is whether the assessee was eligible for deduction under section 54 of the Income-tax Act, 1961. The AO initially disallowed the deduction, arguing that the gains were short-term capital gains, thus not qualifying for the deduction under section 54, which applies to long-term capital gains.

The ITAT, however, held that the gains were long-term and that the assessee had invested the sale proceeds in the purchase of a new residential flat for ?87,88,500/-, thus qualifying for the deduction under section 54. The ITAT directed that the assessment of this transaction be made in AY 2012-13, not AY 2011-12.

Conclusion:

The ITAT upheld the CIT(A)'s deletion of the penalty under section 271(1)(c), affirming that the gains were long-term capital gains chargeable to tax in AY 2012-13 and that the assessee was entitled to deduction under section 54. The Revenue's appeal was dismissed, and the penalty levied by the AO was confirmed to be deleted. The ITAT's decision was based on the finality of its earlier order in the quantum appeal, which had been upheld by the Bombay High Court due to low tax effect, thus affirming the CIT(A)'s well-reasoned order.

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