2022 (3) TMI 125 - AT - Income Tax

Penalty levied u/s 271(1)(c) - deduction of LTCG u/s 54F - HELD THAT - LTCG was disallowed by Assessing Officer by taking view that in the balance-sheet of assessee, the assessee owned more than one residential flat. It is further matter of recorded that disallowance of capital gains was upheld by CIT(A) and on further appeal again upheld by Hon'ble Tribunal. Before us, the assessee, besides the other submissions, submits before us that assessee computed LTCG after due deliberation and on legal advice and the same is not accepted by the Revenue authorities, the assessee cannot subject to levy of penalty under section 271(1)(c), we find merit in the submission of Ld. AR of the assessee. The assessee acted in bona fide belief and made the claim is not acceptable due to any reason and was disallowed the same cannot be subject to levy of penalty under section 271(1)(c) . We are of the constrained view that if the claim of assessee for deduction of LTCG was not found admissible for deduction under section 54F, the assessee cannot be subject to levy of penalty under section 271(1)(c). Thus, we direct the AO to delete the entire penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the show cause notice issued under section 271(1)(c) read with section 274 of the Income Tax Act.
2. Legitimacy of the penalty levied under section 271(1)(c) for disallowance of exemption under section 54F of the Income Tax Act.
3. Quantum of penalty levied.

Detailed Analysis:

1. Validity of the Show Cause Notice:
The first issue raised by the assessee pertained to the validity of the show cause notice issued under section 271(1)(c) read with section 274 of the Income Tax Act. The assessee argued that the notice was invalid as it was a general notice without specifying the specific charge, i.e., whether the assessee concealed income or furnished inaccurate particulars of income. The assessee relied on several judicial precedents, including the Hon'ble Supreme Court's decision in Dilip N Shroff vs. JCIT, which emphasized the necessity for clarity in the notice about the specific charge. The Tribunal noted the assessee's contention that the notice did not strike out the inappropriate portion, leading to ambiguity. However, since the appeal was decided on merit, the issue of the notice's validity became academic and was not adjudicated upon.

2. Legitimacy of the Penalty Levied:
The second issue involved the legitimacy of the penalty levied under section 271(1)(c) for the disallowance of exemption under section 54F. The assessee claimed exemption for investment in a residential property against Long Term Capital Gains (LTCG). The Assessing Officer disallowed the claim on the basis that the assessee owned multiple residential properties, contrary to the conditions stipulated under section 54F. The Tribunal upheld the disallowance due to lack of evidence supporting the assessee's claim that one of the properties was used for business purposes. The Tribunal emphasized that the mere disallowance of a claim does not automatically lead to the levy of penalty if the claim was made in a bona fide manner. The Tribunal referenced the Hon'ble Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., which held that merely making an unsustainable claim does not amount to furnishing inaccurate particulars of income.

3. Quantum of Penalty Levied:
The third issue concerned the quantum of penalty. The assessee argued that the penalty amount calculated by the Assessing Officer was excessive. The CIT(A) partially agreed, directing the Assessing Officer to re-compute the penalty based on the correct tax rate applicable to LTCG. The Tribunal, however, went further and directed the deletion of the entire penalty amount, accepting the assessee's argument that the claim was made based on a bona fide belief and legal advice. The Tribunal concluded that the assessee's actions did not warrant the imposition of a penalty under section 271(1)(c).

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, directing the deletion of the entire penalty of ?3,08,738/-. The decision was based on the finding that the assessee's claim for exemption under section 54F, though disallowed, was made in a bona fide manner and did not constitute furnishing inaccurate particulars of income. The issue of the validity of the show cause notice became academic and was not adjudicated. The order was pronounced in the open court on 16/02/2022.