2017 (10) TMI 940 - HC - Income Tax

Penalty u/s. 271(1)(c) - disallowance of exemption u/s. 54 - ITAT deleted penalty levy - Held that - Tribunal outlined three objections of the Revenue against granting the exemption to the assessee under section 54 of the Income Tax Act. The Tribunal thereafter proceeded to deal with each one of them threadbare and overruling each of the Revenue s objections. There is no element of any suppression on part of the assessee of material facts. The assessee had neither withheld the source of income nor provide accurate particulars about the income. Appellate Tribunal was right in law and on facts in deleting the penalty u/s. 271(1)(c) - Decided in favour of assessee.

Summary

Issues:
Challenge to deletion of penalty under section 271(1)(c) of the Income Tax Act for disallowance of exemption under section 54 of the Act.

Analysis:
The High Court considered the appeal filed by the Revenue challenging the deletion of penalty under section 271(1)(c) of the Income Tax Act for disallowance of exemption under section 54 of the Act. The Tribunal confirmed the view of the CIT(Appeals) in deleting the penalty, citing the reason of quantum additions being deleted. The High Court acknowledged that the Revenue had challenged the judgment concerning quantum additions pending before it, indicating a need for further examination of the penalty issue. However, the High Court noted that despite the pending appeal on quantum additions, it could still confirm the deletion of penalty based on different reasons. This was because the legal issue on which the penalty was imposed was highly debatable, as highlighted by the Tribunal's observations on the reasons for denying the exemption under section 54 of the Act.

The Tribunal outlined three main objections raised by the Revenue against granting the exemption to the assessee under section 54 of the Income Tax Act. These objections included: (1) the asset subject to transfer belonged to a separate assessable entity, not the assessee, (2) the transfer involved predominantly land and not a building with land appurtenant as required under section 54, and (3) the transferred asset had been converted to a commercial asset, no longer qualifying as a house property under section 22 of the Act. The Tribunal thoroughly examined each objection and ruled in favor of the assessee, finding no suppression of material facts or inaccurate particulars provided by the assessee. As a result, the Tribunal upheld the deletion of penalty imposed by the Assessing Officer.

In conclusion, the High Court dismissed the tax appeal, affirming the decision of the Tribunal to delete the penalty under section 271(1)(c) of the Income Tax Act for the disallowance of exemption under section 54 of the Act. The High Court's decision was based on the debatable nature of the legal issue underlying the penalty imposition and the Tribunal's detailed examination and rejection of the Revenue's objections regarding the exemption.