2022 (7) TMI 17 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - disallowance of claim of exemption u/s. 54F - CIT- A deleted the addition - HELD THAT - As assessee had furnished all particulars relating to the claim of exemption by way of investment in residential properties, that the claim was made under the bonafide belief that all investment would be made within the period specified but could not be done so for reasons beyond his control as the construction was not completed in time and noting that on the requirement of investment in capital gains account scheme there was a judgment of the Hon'ble Karnataka high court 1986 (6) TMI 7 - KARNATAKA HIGH COURT holding the requirement to be merely procedural and directory in nature. The Ld. CIT(A) accordingly deleted the penalty on the ground that all particulars with respect to the claim having been truly furnished, mere disallowance of claim in law would not tantamount to charging the assessee with concealing/furnishing inaccurate particulars of income so as to levy penalty u/s. 271(1)(c) of the Act. We are entirely in agreement with the findings of the Ld. CIT(A) in this regard and find no infirmity in the same. - Decided against revenue.

Issues Involved:
1. Delay in filing the appeal.
2. Legality of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
3. Eligibility for exemption under Section 54F of the Income Tax Act, 1961.
4. Procedural and substantive compliance regarding the penalty and exemption claims.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was marked as delayed by 43 days. However, due to the COVID-19 pandemic, the Supreme Court extended the limitation period for filing appeals. Consequently, there was no delay in filing the appeal, as it fell within the extended period prescribed by the Supreme Court.

2. Legality of Penalty Proceedings under Section 271(1)(c):
The penalty under Section 271(1)(c) was levied for concealment/furnishing inaccurate particulars of income amounting to Rs. 2,92,210/-. However, there was a legal infirmity in the order as the penalty proceedings were initiated on a different charge than the one on which the penalty was ultimately levied. The Assessing Officer (AO) initially recorded satisfaction for penalty based on the assessee's incorrect claim of long-term capital gains and exemption under Section 54F. However, the penalty was levied based on the assessee's ineligibility to claim exemption under Section 54F due to failure to meet specific conditions. This discrepancy rendered the penalty proceedings illegal.

3. Eligibility for Exemption under Section 54F:
The AO initially denied the exemption under Section 54F, treating the gains as short-term capital gains from a depreciable asset. However, the CIT(A) held that the deeming fiction under Section 50, treating depreciable assets as short-term capital gains, was confined to the mode of computation and did not affect the exemption under Section 54F. The AO, upon further verification, denied the exemption again, citing reasons such as the construction of the new property starting before the sale of the original asset, non-deposit of the unutilized amount in the capital gain account scheme, and the claim of deduction for two residential properties.

4. Procedural and Substantive Compliance:
The AO initiated penalty proceedings based on the initial assessment order but did not record satisfaction in the subsequent order. This inconsistency in the basis for penalty proceedings was highlighted as a glaring legal infirmity. The CIT(A) deleted the penalty, noting that the assessee had furnished all particulars regarding the claim and that the denial of the claim was due to interpretation issues rather than concealment or furnishing inaccurate particulars. The CIT(A) also noted conflicting judicial views on procedural requirements, such as the capital gain account scheme, further supporting the deletion of the penalty.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the penalty, agreeing that the penalty proceedings were conducted on a different charge than the one on which they were initiated. The Tribunal also concurred with the CIT(A)'s view that the assessee had furnished all relevant particulars and that mere denial of the claim did not justify the penalty. Therefore, the appeal filed by the Revenue was dismissed, and the penalty order was set aside as illegal.

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