2022 (11) TMI 828 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee could not prove during the former proceedings to have re-invested the capital gains for the purpose of claiming Section 54 deduction since plot in issue was found to be a vacant one only - HELD THAT - We find no merit in the Revenue s vehement contentions supporting the impugned penalty. It is an admitted fact that the assessee s plot formed part of a group housing society s lay-out plan which ultimately was found as not constructed, which in turn, made the assessee to surrender the impugned deduction claim itself. DR could hardly rebut the clinching settled legal preposition that quantum and penalty are parallel proceedings wherein each and every disallowance/addition made in course of the former does not ipso facto attract to penal mechanism as per CIT vs., Reliance Petro Products 2010 (3) TMI 80 - SUPREME COURT . We thus note that even if the assessee is ultimately found to have not been able to prove her plot in question as a constructed one, that itself would not make him liable for the impugned penalty. We further make it clear that this is not the Revenue s case that assessee had not although re-invested his capital gains in a housing society plot which could not ultimately be completed owing to various issues amongst the members thereof. Assessee s appeal is allowed.

Summary

Issues:
1. Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2008-09.

Analysis:
The appeal before the Appellate Tribunal ITAT Nagpur involved challenging a penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2008-09. The case was heard by Shri Satbeer Singh Godara, Judicial Member, and Dr. Dipak P. Ripote, Accountant Member. The appellant did not appear, leading to the proceedings being conducted ex-parte against him. The Tribunal carefully considered the impugned penalty of Rs.1.35 lakhs imposed by the Assessing Officer and upheld by the CIT(A). The penalty was related to the appellant's claim of exemption u/s 54 and non-inclusion of interest income in the return. The appellant's explanations for the claims were found to be incorrect and not bonafide, leading to the application of Explanation 1 to section 271(1)(c) for furnishing inaccurate particulars of income.

The Revenue supported the penalty by arguing that the appellant failed to prove reinvestment of capital gains for claiming Section 54 deduction as the property in question was found to be vacant. However, the Tribunal did not find merit in the Revenue's contentions. It was noted that the appellant's plot was part of a group housing society's layout plan that was not constructed, leading the appellant to surrender the deduction claim. The Tribunal emphasized that quantum and penalty proceedings are separate, and not every disallowance or addition automatically attracts the penal mechanism. Citing legal precedent, the Tribunal concluded that the appellant not proving the plot as constructed did not make him liable for the penalty. The Tribunal clarified that the Revenue did not dispute the reinvestment of capital gains, which could not be completed due to issues within the housing society. Consequently, the Tribunal found the penalty unsustainable and deleted the same.

In conclusion, the Tribunal allowed the appellant's appeal against the penalty imposed under section 271(1)(c) for the Assessment Year 2008-09. The order was pronounced in open court on 16.11.2022.