2015 (8) TMI 217 - AT - Income Tax

Levy of penalty u/s 271(1) in relation to disallowance of excess claim of interest deduction under section 24(b) - Held that - The appellant has taken a plausible view that she was eligible for interest deduction to the extent of ₹ 150,000/-. In our view, where the claim of the appellant is not under dispute and on quantum of deduction, the appellant has taken a plausible view, the AO can differ with the said view by way of disallowing the excess claim but the same cannot be a basis for levy of penalty. In result, the levy of penalty on account of excess claim of interest deduction u/s 24(b) of the Act is deleted. - Decided in favour of assessee. Levy of penalty in relation to short computation of long term capital gains - Adjustment on account of increase in sale consideration - Held that - On reading of section 50C(1) of the Act and applying the same in context of subject facts, it is clear that it is a deeming provision where the value adopted for determining the stamp duty by the state Government authority is considered and replaced for the actual sale consideration accrued/received by the appellant. It is not the case of the Department that the appellant has received more than the value disclosed as sales consideration and has failed to disclose the same in her return of income. Where the actual sale consideration is less than the stamp duty value and by virtue of a deeming fiction, the latter is deemed by the AO to be the full value of consideration, it cannot be said that the appellant has concealed her income or furnished inaccurate particulars of income. All the primary facts have been duly disclosed by the appellant including DM Circle rate and the same have not been disputed. The fact that the assessee agreed to the addition is not conclusive proof that the sale consideration as per agreement was incorrect and wrong. We are therefore of the view that where the actual sale consideration is replaced by the sale consideration determined as per DM circle rate under the deeming provisions of section 50C, the same cannot be basis for levy of penalty under section 271(1)(C) of the Act. - Decided in favour of assessee. Adjustment on account of cost of acquisition/improvement - Held that - cost of acquisition and cost of improvement has been reduced from ₹ 45,76,000 to ₹ 38,32,240 resulting in disallowance of cost by ₹ 7,43,760 for want of documentary evidence. As far as penalty is concerned, nothing has been brought on record as to whether the appellant has concealed any income or has furnished inaccurate particulars of income. On account of nonacceptance of the explanation of the assessee, the additions can be made but penalty under section 271(1)(c) cannot be levied. Penalty levied deleted - Decided in favour of assessee.

Issues Involved:
1. Levy of penalty in relation to disallowance of excess claim of interest deduction under section 24(b) of the Income Tax Act.
2. Levy of penalty in relation to short computation of long-term capital gains.

Detailed Analysis:

A. Levy of penalty in relation to disallowance of excess claim of interest deduction under section 24(b) of the Act

4. The appellant claimed an interest deduction of Rs. 150,000 under section 24(b) for a self-occupied property jointly owned with her husband. The Assessing Officer (AO) reduced this deduction to Rs. 75,000 and levied a penalty under section 271(1)(C).

5. The appellant's counsel argued that the deduction under section 24(b) is available if the requisite conditions are met, regardless of whether the property is held individually or jointly.

6. The Departmental Representative (DR) supported the orders of the AO and CIT(A).

7. The AO mentioned that the appellant disclosed particulars incorrectly, thus furnishing inaccurate particulars of income, justifying the penalty. However, there was no finding that the appellant concealed income or furnished inaccurate particulars.

8. It was undisputed that the appellant was a joint owner, the property was self-occupied, and the appellant paid Rs. 150,000 in interest, eligible for deduction under section 24(b).

9. The dispute was whether the appellant, as a co-owner, concealed income or furnished inaccurate particulars by claiming a Rs. 150,000 deduction instead of Rs. 75,000.

10. The second proviso to section 24(b) limits the deduction to Rs. 150,000 for properties acquired or constructed with borrowed capital post-April 1, 1999, completed within three years.

11. The AO seemed to interpret this limit as applicable to the property, not individual co-owners, without detailed discussion.

12. Reading section 24(b) with sections 22, 23(2), and 26, it appears the income and deductions should be computed in the hands of the individual owner, regardless of joint ownership.

13. The appellant's view that she was eligible for a Rs. 150,000 deduction was plausible. The AO could disallow the excess claim but not levy a penalty based on this view. Thus, the penalty for excess interest deduction was deleted.

B. Levy of penalty in relation to short computation of long-term capital gains

14. The appellant disclosed a long-term capital loss of Rs. 12,10,870 from selling a commercial property. The AO recalculated this as a long-term capital gain of Rs. 10,18,210 and levied a penalty.

15. The appellant's counsel argued that AO's computation under section 50C should not be a basis for penalty, citing relevant judgments.

16. The DR supported the orders of the AO and CIT(A).

17. The AO made adjustments, increasing the sale consideration by Rs. 10,77,500 and reducing the cost of acquisition/improvement by Rs. 7,43,760.

18. After adjustments, the AO computed capital gains at Rs. 10,18,210.

19. Each adjustment was examined to determine if they warranted penalty.

Adjustment on account of increase in sale consideration by Rs. 10,77,500

20. The AO used the DM Circle rate of Rs. 64,36,500 instead of the actual sale consideration of Rs. 53,59,000, invoking section 50C. The CIT(A) confirmed the AO's order without detailed adjudication.

21. The appellant disclosed both the actual sale consideration and the DM Circle rate in her computation. The primary facts were not disputed by the AO, and the appellant conceded to the stamp duty valuation.

22. Section 50C deems the stamp duty value as the full consideration if it exceeds the actual sale consideration.

23. The Department did not claim the appellant received more than disclosed. The deeming provision of section 50C does not imply concealment or inaccurate particulars.

24. The ITAT Mumbai in Renu Hingorani vs. ACIT held that additions under section 50C do not constitute concealment or inaccurate particulars if the actual sale consideration is not questioned.

25. The ITAT Mumbai in Harish Voovaya Shetty and the Calcutta High Court in Madan Theatres held that section 50C adjustments do not justify penalty if there is no evidence of higher actual consideration.

26. The appellant disclosed all primary facts, and the substitution of DM Circle rate was revenue-neutral. Thus, the penalty on this account was deleted.

Adjustment on account of cost of acquisition/improvement amounting to Rs. 7,43,760

27. The AO reduced the cost of acquisition/improvement by Rs. 7,43,760 for lack of evidence. However, no evidence showed the appellant concealed income or furnished inaccurate particulars, making penalty under section 271(1)(c) unjustified.

28. The order of the CIT(A) was set aside, and the penalty of Rs. 2,18,300 was deleted. The appeal was allowed.

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