2018 (6) TMI 54 - AT - Income Tax

Penalty u/s 271(1)(c) - payment of retrenchment compensation to employees - Held that - Assessee initially claimed such amount as revenue expenditure. The Tribunal, vide its order in the second round, has accepted the assessee s alternate plea for allowing such expenditure as an improvement cost u/s 48 of the Act. It is obvious that the genuineness of payment of retrenchment compensation is not disputed. As against the assessee s stand of claiming such amount as a revenue expenditure, the Tribunal has adopted another route of allowing such deduction in the computation of capital gain by treating it as cost of improvement. These facts do not warrant imposition of penalty Attributed sale consideration of ₹ 1 lac to building with cost of acquisition at ₹ 70,085/- and computed capital gain at ₹ 29,912/- - Held that - It is only a case of estimation of sale consideration of super structure. Admittedly, no separate sale consideration of super structure was assigned in the sale deed. Whereas the assessee estimated ₹ 1 lac as sale consideration of building sold, the Assessing Officer estimated the same at ₹ 32.70 lac, which got finally settled by means of appellate order at ₹ 16.35 lac. These facts indicate that penalty is based on mere estimate. As in CIT vs. Aero Traders Pvt. Ltd. 2010 (1) TMI 32 - DELHI HIGH COURT has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of revenue deduction for retrenchment compensation.
2. Imposition of penalty under section 271(1)(c) for computation of capital gain.

Analysis:
1. The case involved two properties owned by the assessee, one of which was sold during the assessment year. The assessee claimed a revenue deduction of ?66.88 lac as retrenchment compensation, which the AO did not allow. The Tribunal, in the second round of proceedings, accepted the alternate plea of the assessee for allowing the expenditure as a cost of improvement under section 48 of the Income-tax Act, 1961. The Tribunal found that the genuineness of the payment was not disputed, and hence, the penalty was deleted by the ld. CIT(A) in this regard.

2. In the computation of capital gain, the assessee attributed ?1 lac towards the constructed portion of the building sold, while the AO estimated the sale consideration at ?32.70 lac. The Tribunal reduced the estimate to ?16.35 lac. The penalty under section 271(1)(c) was imposed and confirmed based on this estimation. However, it was observed that the penalty was solely based on an estimate, as no separate sale consideration for the super structure was assigned in the sale deed. Citing legal precedents, it was noted that penalties cannot be imposed when income is determined on an estimate basis. Therefore, the Tribunal ordered to delete the penalty imposed in this regard.

In conclusion, the appeal of the assessee was allowed, and that of the Revenue was dismissed, with the penalty being deleted based on the above analysis.