2019 (7) TMI 740 - AT - Income Tax

Penalty u/s 271(1)(c) - transfer of assets and liabilities of the proprietary concern to the company - addition sustained by denying the exemption u/s 47(xiv) to the extent of self-generated Goodwill - HELD THAT - We find from the materials available on record that all these facts were duly reflected in the return of income itself by the assessee and subsequently during the course of assessment proceedings. Ultimately it is only disallowance of claim of exemption u/s 47(xiv) of the Act made by the ld AO. All the details necessary for assessment were very much available in the return of income itself and the entire facts of proprietory concern getting converted into public limited company were made known to the department. There was no detection as such by the ld AO in this regard. There was absolutely no malafide on the part of the assessee in making the claim of exemption u/s 47(xiv) of the Act as could be seen from the findings rendered hereinabove. We find that the decision that would be applicable to the facts of the instant case would be the decision of Reliance Petroproducts Ltd 2010 (3) TMI 80 - SUPREME COURT wherein it was held that when no information given in the return was found to be incorrect or inaccurate or the details supplied by the assessee was found to be factually incorrect, then primafacie, the assessee cannot be held guilty of furnishing inaccurate particulars. It may at best result in making incorrect claim in law. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. It held that merely because a claim made by the assessee is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Accordingly we hold that the CIT-A had rightly deleted the penalty in respect of denial of exemption u/s 47(xiv) on self generated Goodwill portion partially. Accordingly, we do not find any infirmity in the order of the CIT-A. Penalty u/s 271(1) (c) - denial of deduction u/s 54 - AR argued that it was a bonafide belief on the part of the assessee that since the last payment for purchase of new house was made within the prescribed limitation period by the assessee i.e within one year prior to the date of transfer , he was entitled to claim deduction u/s 54 - HELD THAT - Assessee's claim was partially negated by the order of this tribunal in quantum proceedings. But this does not mean, that the assessee had furnished inaccurate particulars. It is a genuine difference of opinion on the facts already available on record between the assessee and the AO. There was no detection by the AO on any fresh facts in this regard. All the details were already available with him on record. The assessee did not have any malafide intention to furnish any inaccurate particulars thereon. AO was able to justify his rejection of claim of deduction u/s 54 of the Act only from the details filed by the assessee with regard to the agreement entered for new house on 26.5.2006 and payments made thereon on various dates. Hence it is only a simple disallowance of claim of deduction u/s 54 of the Act by the ld AO. The findings given by us in respect of penalty on self-generated Goodwill hereinabove would hold good for this issue also and the same are not reiterated for the sake of brevity herein. Accordingly, we hold that the ld CITA had rightly deleted the penalty - Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
2. Denial of deduction under Section 54 of the Income Tax Act, 1961.

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

The core issue is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, for the Assessment Year 2009-10. The assessee, an individual running a proprietary concern, converted it into a public limited company and transferred all assets, including self-generated goodwill, to the company in exchange for equity shares. The assessee claimed exemption under Section 47(xiv) of the Act, which the Assessing Officer (AO) denied on the grounds that the self-generated goodwill was not recorded in the books and thus not eligible for exemption.

The CIT(A) observed that the proprietary concern had been in existence for 30 years, generating considerable goodwill, and the absence of goodwill in the balance sheet did not negate its existence. The CIT(A) found the assessee's explanation bona fide, noting that the AO had accepted part of the goodwill claim and granted partial exemption. The CIT(A) concluded that the assessee had not furnished inaccurate particulars of income, as all relevant details were provided in the return of income, and there was no malafide intention.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided a reasonable explanation for not reflecting the goodwill in the balance sheet and that the AO had partially accepted the goodwill claim. The Tribunal emphasized that the assessee's belief in the exemption was bona fide and that the case involved a genuine difference of opinion rather than furnishing inaccurate particulars. The Tribunal also distinguished the case from the Supreme Court decision in Mak Data, noting that there was no malafide intention or incorrect information provided by the assessee.

Issue 2: Denial of Deduction under Section 54

The second issue pertains to the penalty levied due to the denial of deduction under Section 54 of the Act. The assessee sold a house property and claimed a deduction for the purchase of a new property. The AO denied the deduction on the grounds that the new property was purchased outside the stipulated period and was jointly held with the assessee's wife. The AO levied a penalty for furnishing inaccurate particulars of income.

The CIT(A) deleted the penalty, noting that the Tribunal had allowed the deduction to the extent of payments made within the prescribed period. The CIT(A) found that the assessee had a bona fide belief in the deduction claim and that the details provided were accurate. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had no malafide intention and that the AO's denial of the deduction was based on details already provided by the assessee.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s deletion of penalties under Section 271(1)(c) for both the denial of exemption under Section 47(xiv) and the deduction under Section 54. The Tribunal concluded that the assessee had provided bona fide explanations and accurate particulars, and the disputes involved genuine differences of opinion rather than malafide intentions or inaccurate information.