2019 (1) TMI 853 - AT - Income Tax

Penalty u/s 271(1)(c) - deduction u/s 54F - Held that - Coming to examine the case under explanation 1 to 271(1)(c), we have to examine whether the case in question falls within the other two limbs viz. clause (A) and (B) and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions (1) Whether the assessee has been able to show that his explanation was bona fide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. The assessee satisfies the twin conditions, penalty is not be imposed. As far as the explanation to the section 271(1)(c) is concerned, the assessee has stated all the facts and there is no allegation that she has not furnished the full facts and materials. She had stated that she had reasonable grounds to hold the view that she was entitled to deduction under section 54F, as she had done everything under her control and invested the consideration for a residential house. Although the explanation could not be substantiated, the explanation could not be said to be lacking in bona fide. It is also seen that the assessee had filed return for the assessment year 09-10 in July 2009 whereas the house was to be reconstructed within the outer limit by January 2011. Thus, the assessee cannot be accused of furnishing inaccurate particulars of income as at the time of filing return of income she had no idea that the house she was investing in will not get completed within the stipulated time - On the facts of the case, a case of furnishing of inaccurate particulars of income is not made out - Decided against revenue.

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the claim under Section 54F of the Act.
3. The department's appeal against the deletion of penalty.
4. The assessee's Cross Objection (CO).

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act, 1961:
The primary issue in this case is whether the penalty of ?46,15,157/- imposed under Section 271(1)(c) for furnishing inaccurate particulars of income was justified. The penalty was imposed after the assessee's claim under Section 54F was partially disallowed. The Ld. CIT (Appeals) deleted the penalty, holding that it was not a fit case for such imposition. The Tribunal upheld this decision, noting that the penalty cannot be automatically levied simply because the quantum addition has been confirmed. The Tribunal emphasized that the conditions under Section 271(1)(c) must be strictly met for the penalty to be imposed, which was not the case here.

2. Validity of the Claim Under Section 54F of the Act:
The assessee had claimed an exemption under Section 54F for expenditure on constructing a house. The Assessing Officer disallowed ?4,97,42,426/- of this claim, which was later partially allowed by the Ld. CIT (Appeals) to the extent of ?3 crores. The remaining amount was disallowed because it was not spent within three years from the transfer of the capital asset. The Tribunal noted that the disallowance was due to the timing of the expenditure, not because the claim was false or inflated.

3. The Department's Appeal Against the Deletion of Penalty:
The department argued that since the Ld. CIT (Appeals) had partially confirmed the disallowance, the penalty was justified. They relied on the judgment of CIT vs. Zoom Communications Pvt. Ltd. However, the Tribunal found that the penalty under Section 271(1)(c) requires a separate and distinct consideration from the assessment proceedings. The Tribunal cited several judgments, including CIT vs. Reliance Petroproducts Pvt. Ltd., to support the view that making an incorrect claim does not automatically mean furnishing inaccurate particulars of income.

4. The Assessee's Cross Objection (CO):
The assessee's CO was not pressed during the proceedings and was therefore dismissed as not pressed.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the Ld. CIT (Appeals)'s decision to delete the penalty. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and require separate consideration. The assessee's CO was also dismissed as not pressed. The final result was the dismissal of both the department's appeal and the assessee's CO.