2022 (8) TMI 1570 - AT - Income Tax

LTCG - Indexation on the cost of acquisition - indexation on the installments paid for the flat should be allowed from the date of allotment of flat i.e. the F.Y. 2004-05 or payment of installments in the year of actual payment - HELD THAT - We hold that the assessee is entitled to the benefit of indexation on the total cost of acquisition from the year of allotment of flat dehors the fact that the assessee has paid installments over a period of time subsequent to the date of allotment. Thus assessee succeeds on ground No.2 of the appeal. Penalty levied u/s. 271(1)(c) - notice issued u/s. 274 r.w.s. 271 is vague hence defective as notice has been issued in a Performa without striking off the irrelevant limb of section 271(1)(c) - HELD THAT - The irrelevant clause of section 271(1)(c) of the Act has not been struck off while issuing the notice. The notice mentions both the limbs of section 271(1)(c) of the Act i.e. concealed the particulars of income and/or furnished inaccurate particulars . The Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh 2021 (3) TMI 608 - BOMBAY HIGH COURT (LB) has held that non-striking of irrelevant matter in the notice render the notice defective and hence the entire penalty proceedings are vitiated. In the assessment order the AO has recorded satisfaction for levy of penalty u/s. 271(1)(c) on the charge of furnishing inaccurate particulars of income . However while levying penalty vide order dated 31/03/2016 the Assessing Officer has time and again mentioned both the limbs/charge of section 271(1)(c) of the Act i.e. inaccurate particulars of income and concealment of income . This expression have been used in the penalty order repeatedly in varied forms. Thus there was ambiguity in the mind of Assessing Officer about the exact charge under section 271(1)(c) of the Act for which penalty is to be levied. The Hon ble Apex Court in the case of T. Ashok Pai 2007 (5) TMI 199 - SUPREME COURT has held that concealment of income and furnishing inaccurate particulars carry different connotations. Hence these expressions cannot be used inter changeably - Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment is whether the benefit of indexation on the installments paid for the acquisition of a flat should be allowed from the date of allotment of the flat or from the year of actual payment of installments. Additionally, the judgment addresses whether the penalty levied under section 271(1)(c) of the Income Tax Act is valid when the notice issued under section 274 is vague and defective.

ISSUE-WISE DETAILED ANALYSIS

Indexation Benefit on Cost of Acquisition

- Relevant Legal Framework and Precedents: The relevant legal framework involves the interpretation of sections 2(14) and 48 of the Income Tax Act, 1961, which define 'capital asset' and 'indexed cost of acquisition' respectively. The Tribunal considered precedents such as Lata G. Rohra vs. DCIT, Divine Holdings Pvt. Ltd., and others, which have dealt with similar issues regarding indexation from the date of allotment versus the date of payment.

- Court's Interpretation and Reasoning: The Tribunal interpreted that the rights in the property, as per section 2(14), are acquired on the date of allotment, and hence, indexation should commence from that date. The Tribunal emphasized that the explanation to section 48 refers to the cost of acquisition and not the actual payment dates.

- Key Evidence and Findings: The assessee had purchased flats and received an allotment letter in 2004, with payments made over several years. The Tribunal found that the assessee had acquired rights in the property upon receipt of the allotment letter, thus entitling them to indexation from that date.

- Application of Law to Facts: The Tribunal applied the law by determining that the assessee held the asset from the date of the allotment letter, allowing for indexation from that date rather than the dates of installment payments.

- Treatment of Competing Arguments: The Department argued that ownership rights were not transferred until the execution of the registered agreement. However, the Tribunal rejected this argument, relying on precedents that support indexation from the date of allotment.

- Conclusions: The Tribunal concluded that the assessee is entitled to the benefit of indexation from the date of allotment, thereby succeeding on this ground of appeal.

Penalty under Section 271(1)(c)

- Relevant Legal Framework and Precedents: The validity of the penalty notice was assessed under sections 271(1)(c) and 274 of the Income Tax Act. The Tribunal relied on the decision in Mohd. Farhan A. Shaikh vs. DCIT, which held that a vague notice renders penalty proceedings invalid.

- Court's Interpretation and Reasoning: The Tribunal found the notice issued to be defective as it did not specify the exact charge under section 271(1)(c), thereby violating the principles laid down by the jurisdictional High Court.

- Key Evidence and Findings: The notice included both limbs of section 271(1)(c) without striking off the irrelevant one, creating ambiguity. The penalty order also used both charges interchangeably.

- Application of Law to Facts: The Tribunal applied the legal principles by determining that the ambiguity in the notice and penalty order rendered the penalty proceedings unsustainable.

- Treatment of Competing Arguments: The Department defended the penalty, but the Tribunal found the procedural defects in the notice and order to be determinative.

- Conclusions: The Tribunal set aside the penalty order, allowing the appeal of the assessee on this ground.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted, "As per section 2(14) read with section 2(14)(iv) of the Act, the rights in flat, acquired by the assessee on execution of purchase agreement... come within the purview of the term 'capital asset'."

- Core Principles Established: The Tribunal established that the benefit of indexation should be calculated from the date of allotment of the property, as rights in the property constitute a capital asset from that date. Additionally, a penalty notice under section 271(1)(c) must clearly specify the charge to be valid.

- Final Determinations on Each Issue: The Tribunal allowed the appeal regarding indexation, granting the benefit from the date of allotment. It also set aside the penalty proceedings due to the defective notice, allowing the appeal on this ground as well.