2018 (2) TMI 1336 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of Deduction u/s.54 and eligibility for set off of brought forward losses - status of the assessee - Held that - We find a clear observation of the Tribunal that the status of the assessee is Association of Person (AOP). This being so, the assessee was clearly not entitled in law to claim deduction under plain and unequivocal provisions of section 54 of the Act. This finding clearly goes to support that there is no scope whatsoever for any debate on non-availability of deduction of section 54 of the Act. Significantly, we further notice that the assessee itself has treated the aforesaid trust as an AOP in line with provisions of s.164 of the Act. As observed, the claim of deduction under s.54 carried is clearly in contravention of statutory mandate and hence cannot be bracketed in league of bonafide action. The assessee has totally failed to demonstrate the bonafide of its action except ex-parte admission of the appeal before the Hon ble Gujarat High Court against the quantum proceedings. The Hon ble Gujarat High Court in the case of CIT vs. Dharanshi V.Shah (2014 (7) TMI 98 - GUJARAT HIGH COURT) has held that the admission of appeal is under S.260A per se is inconsequential for determination of imposition of penalty. As we notice that the action of the assessee prima-facie lacks bonafide both on facts as well as on law, the consequences of penalty is inescapable. Therefore, we do not find any error in the conclusion drawn by the CIT(A) On the other aspect namely bonafides of claim of carried forward LTCLs purportedly arose in AY 2006-07 mitigating circumstances exists to prove the bonafides for possibility of carry forward of claim of capital losses under s.80 in the light of the fact that the assessee is assessable entity as an AOP. In the given circumstances, we do not see any culpability or impropriety in claiming set off of carry forward loss claimed as per return of income filed within the extended due date under s.139(1) of the Act. Hence, the plea raised on behalf of the assessee for cancellation of penalty on this issue is quite plausible. The assessee has shown the LTCL in the ROI and also apprised the AO at the time of assessee. Thus, notwithstanding the fact that Capital Loss does not appear in the statutory firm for filing ROI, the benefit of ambiguity must go in favour of the assessee in so far as penalty proceedings are concerned. Consequently, we find merit in plea of assessee for cancellation of penalty on additions made owing to disallowance of carry forward capital losses. We therefore direct the AO to delete the penalty levied on this score. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 for wrongful claim of exemption under section 54.
2. Imposition of penalty under section 271(1)(c) for wrongful claim of set-off of brought forward Long Term Capital Losses (LTCL).

Detailed Analysis:

1. Penalty under Section 271(1)(c) for Wrongful Claim of Exemption under Section 54:
The assessee filed a return for AY 2008-09 declaring Long Term Capital Gain (LTCG) of ?92,76,732/- on the sale of a Farm House and claimed an exemption of ?36,85,222/- under section 54. The Assessing Officer (AO) denied this exemption, leading to penalty proceedings. The CIT(A) and ITAT upheld the AO's decision. The Tribunal noted that the assessee trust was assessed as an Association of Person (AOP) and not as an individual or Hindu Undivided Family (HUF), which are the only entities eligible for exemption under section 54. The Tribunal found that the claim was "prima-facie contrary to the statutory provision" and lacked any "bonafide action," thus justifying the imposition of penalty. The Tribunal rejected the assessee's reliance on judicial precedents like CWT vs. Trustees of H.E.H. Nizam’s Family Trust and CIT vs. Deepak Family Trust (No.1), as the facts were dissimilar and the assessee had declared its status as AOP.

2. Penalty under Section 271(1)(c) for Wrongful Claim of Set-off of Brought Forward LTCL:
The assessee claimed a set-off of brought forward LTCL of ?55,91,510/- from AY 2006-07. The AO denied this claim on the grounds that the return for AY 2006-07 was not filed within the stipulated time under section 139(1) and the loss was not declared in the return. The Tribunal noted that the return for AY 2006-07 was filed within the extended due date prescribed by the CBDT and that the assessee had shown the LTCL in the return of income (ROI) and apprised the AO during assessment. The Tribunal found "mitigating circumstances" proving the bonafides of the assessee's claim and ruled that the benefit of ambiguity should go in favor of the assessee in penalty proceedings. Consequently, the Tribunal directed the AO to delete the penalty levied on this score.

Conclusion:
The Tribunal upheld the penalty for the wrongful claim of exemption under section 54, finding it "prima-facie contrary to the statutory provision" and lacking bonafide. However, it directed the deletion of the penalty for the wrongful claim of set-off of brought forward LTCL, recognizing the bonafides of the assessee's claim and the benefit of ambiguity in penalty proceedings. The appeal of the assessee was partly allowed.