2020 (5) TMI 302 - AT - Income Tax

Penalty u/s 271(1)(c) - addition on account of Short Term Capital Gains against the amount declared under the head Long Term Capital Gains - HELD THAT - Co-ordinate Bench of ITAT 2014 (6) TMI 933 - ITAT DELHI in the case of the assessee has deleted the addition made on account of Short Term Capital Gains. The matter was further remanded back to the AO for examination of re-investment of LTCG in the new asset. Since as on date, the quantum addition stands deleted by the Tribunal, the penalty levied on such income is hereby set aside with liberty to revive the proceedings based on the outcome of the re-investment of the Long Term Capital Gains. Short Term Capital Gain on house property after claiming repair expenses - CIT (A) confirmed the disallowance made by the AO on the grounds that even during the appellate proceeding, the assessee was unable to justify the claim by producing relevant documentary evidence in support of repair expenses - HELD THAT - Assessee has made payment to four parties on account of the repairs undertaken in the property which has been sold for which the Short Term Capital Gains have been offered to tax. CIT (A) would have been inadvertently ignored the payments made while confirming the disallowance in absence of anything contra brought by the revenue about the payment of the repair charges to the four persons mentioned above. Hence, we hereby direct the disallowance made by the revenue is liable to be deleted. Addition u/s 14A - suo moto disallowance by assessee - HELD THAT - Provisions of Section 14A(2) have not been adhered to by the revenue and keeping in view the fact that the assessee suo moto has disallowed nearly 30% of the exempt income received, we find that the invocation of Rule 8D in this case is legally not tenable. The disallowance made is directed to be deleted. In the result, the appeal of the assessee is allowed.

Summary

Issues:
1. Penalty under section 271(1)(c) for concealed income.
2. Legality of penalty when the addition based on which the penalty was levied stands deleted.
3. Disallowance of repair expenses and disallowance under section 14A of the IT Act.

Issue 1: Penalty under Section 271(1)(c) for Concealed Income:
In the case, the assessee appealed against the penalty imposed under section 271(1)(c) of the IT Act for concealed income. The grounds raised included the failure to provide accurate particulars, lack of merit examination by the CIT(A), and penalty imposition without proper opportunity. The Tribunal noted that the addition on which the penalty was based had been deleted by the ITAT in a previous appeal. Consequently, the penalty was set aside with the possibility of revival based on the outcome of further proceedings.

Issue 2: Legality of Penalty When Addition Stands Deleted:
The Assessing Officer (AO) had made an addition on account of Short Term Capital Gains, which was later deleted by the ITAT. As the quantum addition was no longer valid, the penalty levied on that income was set aside. The Tribunal emphasized that penalties should be based on valid additions, and in this case, since the addition was deleted, the penalty could not be sustained.

Issue 3: Disallowance of Repair Expenses and Section 14A Disallowance:
Regarding the disallowance of repair expenses and under section 14A of the IT Act, the assessee declared Short Term Capital Gain on a property after claiming repair expenses. The AO disallowed the repair expenses due to lack of supporting details. The CIT(A) upheld this disallowance, stating that the assessee failed to justify the claim even during the appellate proceedings. However, the Tribunal found that the assessee had made payments to various parties for repairs, which were not considered by the CIT(A). Consequently, the disallowance was directed to be deleted. Additionally, in the case of disallowance under section 14A, the Tribunal ruled that the invocation of Rule 8D was not legally tenable, and the disallowance was directed to be deleted.

In conclusion, the Tribunal allowed the appeals of the assessee for statistical purposes, setting aside the penalties and disallowances based on the detailed analysis of the issues involved in the judgment delivered by the ITAT Delhi.