ITAT deleted penalty for making a wrong claim of deduction u/s 54F/54B

Wrong claim of deduction u/s 54F/54B was not a case of concealment of particulars of income or furnishing inaccurate particulars

In a recent judgment, ITAT Pune has held that making a wrong claim of deduction u/s. 54F/54B was not a case of concealment of particulars of income or furnishing inaccurate particulars.

ABCAUS Case Law Citation:
4969 (2026) (01) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (the Act).

The assessee was an individual and e-filed the return of income claiming deduction u/s. 54F and u/s. 54B and declared Long Term Capital Gain (LTCG) at ₹ NIL. The case selected for limited scrutiny under CASS and valid notices u/s. 143(2) & 142(1) of the Act were served upon the assessee. 

The AO observed that on account of transaction of conversion of capital asset into stock-in-trade in past, the assessee’s share of capital gain was much higher than declared. The AO further observed that assessee had claimed excess deduction. Further, during the course of assessment proceedings itself, assessee had filed a rectified/revised computation of income admitting the mistake and had paid due taxes.

The AO after finishing the assessment, initiated the penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income. Subsequently, penalty proceedings were initiated by issuing notice u/s. 274 of the Act and vide penalty order dated AO levied the penalty.

Before the Tribunal, the assessee contended that all the details were furnished in the return of income and only due to inadvertent mistake, he had claimed higher amount of deduction u/s. 54F & 54B of the Act that too, when he had made the investments as per the provisions of sections 54F & 54B of the Act.  He further submitted that on the moment it came to his knowledge about the mistake, he rectified and filed the revised computation of income and had claimed deduction u/s. 54F & 54B of the Act only to the extent of correct amount.

It was submitted that that assessee had rectified the mistake immediately on the issuance of notice u/s 143(2) of the Act.  He also submitted that he could have easily revised the return because the due date of filing revised return was not expired when the notice u/s. 143(2) was issued.

The Tribunal noted that due to conversion of capital asset In the instant appeal, the assessee had challenged the order of CIT(A) in confirming stock-in-trade, assessee was required to offer LTCG to tax as and when the sale consideration was received.  The assessee received sale consideration is spread over three years and due to mistake claimed excess deduction.

The Tribunal noted that Hon’ble Supreme Court in the case of Reliance Petroproducts has held that “A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars”. 

The Tribunal further observed that it was admitted fact that assessee had revised the computation of income during the assessment proceedings itself in spite of the fact that assessee could have easily revised the income tax return. 

The Tribunal opined that these facts clearly demonstrated that assessee committed an inadvertent mistake in making a wrong claim of deduction u/s. 54F/54B of the Act, however, it was not a case of concealment of particulars of income or furnishing inaccurate particulars and therefore the ratio laid down by the Hon’ble Supreme Court.

Accordingly, the Tribunal opined that the CIT(A) erred in confirming the action of the AO in levying penalty u/s. 271(1)(c) of the Act. 

As a result, the Tribunal set aside order of CIT(A) and impugned penalty was deleted. 

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