2021 (8) TMI 107 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee had sold a plot of land in respect of which deduction u/s 54B claimed - withdrawal of deduction u/s 54B - AO in co-owners case disallowed claim u/s 54B as agriculture activities should have been carried out of the land within 2 years immediately prior to the date of transfer of land which was not fulfilled - assessee is the co-owner and therefore he withdrew the claim u/s 54B of the Act when he was confronted regarding the agriculture activities - HELD THAT - We note that having withdrawn the deduction under section 54B of the Act, the assessee has agreed to pay the taxes alongwith interest and assessee, had in fact, paid the taxes alongwith interest on account of withdrawal of deduction under section 54B - AO has imposed the penalty u/s 271(1)(c) of the Act stating that withdrawal of deduction under section 54B of the Act, is kind of a furnishing of inaccurate particulars of income and concealment of income. We do not agree with the AO, as the assessee had furnished all the details of its deduction u/s 54B in the return of income, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on assessee s part. It was up to AO to accept assessee s claim in the Return of Income or not. The assessee was having bona fide belief that he is entitled to claim deduction under section 54B as he was having land at various places. Thus, merely because the assessee had claimed the deduction under section 54B which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c) of the Act. As conscious of landmark decision in the case of CIT Vs. Reliance Petroproducts 2010 (3) TMI 80 - SUPREME COURT holding that just merely claim of wrong deduction in the return of income does not attract penalty under section 271(1)(c) - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act.
2. Validity of the assessee's claim for deduction under section 54B of the Income Tax Act.
3. Classification of income from the sale of milk as agricultural income.

Issue-wise Detailed Analysis:

1. Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act:
The primary grievance of the assessees was that the CIT(A) erred in confirming the penalty under section 271(1)(c) of the Income Tax Act. The assessee had initially claimed a deduction under section 54B of the Act and also classified income from the sale of milk as agricultural income. Upon scrutiny, the Assessing Officer disallowed these claims and imposed a penalty of ?3,52,414 under section 271(1)(c) for furnishing inaccurate particulars of income. The CIT(A) upheld this penalty, leading the assessee to appeal further.

2. Validity of the Assessee's Claim for Deduction under Section 54B of the Income Tax Act:
The assessee claimed a deduction under section 54B for the sale of agricultural land, which was subsequently disallowed by the Assessing Officer. The officer found that no agricultural activities had been carried out on the land in the last two years, a prerequisite for the deduction under section 54B. The assessee withdrew the claim voluntarily during the assessment proceedings, stating a bona fide belief in eligibility for the deduction. The Tribunal noted that the claim was made in good faith and that the assessee had furnished all necessary details. The Tribunal cited the Supreme Court's decision in CIT Vs. Reliance Petroproducts, stating that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income.

3. Classification of Income from Sale of Milk as Agricultural Income:
The assessee also classified income from the sale of milk as agricultural income, which the Assessing Officer reclassified as income from other sources. The Tribunal acknowledged that the assessee, being a farmer, might have mistakenly believed that income from the sale of milk qualified as agricultural income. The Tribunal again referred to CIT Vs. Reliance Petroproducts, emphasizing that an incorrect claim does not necessarily imply inaccurate particulars of income.

Conclusion:
The Tribunal concluded that the assessee had not furnished inaccurate particulars of income or concealed income. The claims were made in good faith, and all relevant details were provided. The Tribunal held that the penalty under section 271(1)(c) was not justified and should be deleted. This decision applied mutatis mutandis to the co-owner's case as well.

Result:
The appeals filed by the assessees were allowed, and the penalties imposed were deleted. The order was pronounced on 27/07/2021 by placing the result on the Notice Board.