No question of concealment when surrender made on the condition that penalty u/s 271(1)(c) not to be initiated

When assessee surrendered exemption claimed on the condition that penalty proceedings u/s 271(1)(c) are not initiated there was no question of concealment of income or furnishing of inaccurate particulars of income.

ABCAUS Case Law Citation:
ABCAUS 2698 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
CIT vs. Manjunatha Cotton and Ginning Factory & Ors. 359 ITR 565 (Karn.),
Reliance Petro Products Pvt. Ltd. – 322 ITR 158

The appellant assessee had filed the instant appeal, seeking to set aside the impugned order passed by CIT (Appeals) confirming the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961 (the Act).

The assessee had sold her immovable property and had computed the long term capital gain after deducting the indexed cost of acquisition and exemption u/s 54 of the Act for purchase of a villa. However, on failure of the builder to deliver the possession of the property purchased, the assessee surrendered the amount of exemption claimed to buy peace and to avoid further litigation with the Department subject to the condition, penalty proceedings u/s 271(1)(c) of the Act were not to be initiated.

Accordingly, the Assessing Officer completed the assessment u/s 143 (3) of the Act by making a disallowance u/s 54 of the Act on the ground that the assessee had failed to fulfil the condition lay down u/s 54 and sought to initiate penalty proceedings u/s 271(1)(c) of the Act read with section 274 of the Act.

During the penalty proceedings, rejecting the contentions raised by the assessee, AO proceeded to levy the penalty @ 100% on the tax evaded.

The Assessee carried the matter by way of an appeal before the CIT (A) who confirmed the penalty by dismissing the appeal.

The Tribunal observed that the Assessing Officer (AO) had sought to initiate the penalty proceedings without applying his mind by recording that, “Penalty proceedings u/s 271(1)(c) read with section 274 of the Income Tax Act, 1961 are initiated. Charge Interest, Issue necessary forms. Give credit of taxes paid.” The AO had not made up his mind at the time of passing assessment order as to whether the penalty proceedings were being initiated under which limb of section 271(1)(c) viz. “as to whether the assessee had concealed the particulars of income or had furnished inaccurate particulars of income.

Further, the Tribunal noted that even, during the penalty proceedings, AO was not aware or satisfied if he is levying the penalty for concealment of particulars of income or furnishing inaccurate particulars of income by the assessee, but abruptly came to the conclusion in the last para of the penalty order that the assessee has “furnished inaccurate particulars of income”.

The Tribunal observed that Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory & Ors. 359 ITR 565 (Karn.), affirmed by Hon’ble Supreme Court, dealt with identical issue and has held that when assessee has not been specifically made aware of the charges leveled against her “as to whether there is concealment of income or furnishing of inaccurate particulars of income on her part”, the penalty u/s 271(1)(c) is not sustainable. But, in the instant case, till levying the penalty, AO himself was not aware as to under which limb of the section 271 (1)(c) the penalty is being levied.

On merits, the Tribunal observed that the assessee did book a Villa with a builder company by making the initial payment vide cheque and paid another instalment vide cheque. However, when The Builders were not been granted permission by the Development Authority and the project had not taken off, the assessee surrendered the amount claimed as exemption u/s 54 of the Act.

The Tribunal opined that the above fact was duly proved from bank statement and no malafide could be attributed to the assessee in investing the sale proceed of the house property to claim the exemption u/s 54 of the Act, particularly when it was proved from the licence of the Builderswhich was revoked later for nonfulfilling certain conditions.

The Tribunal stated that in these circumstances, findings returned by AO as well as CIT (A) that the assessee had neither purchased the property nor has constructed the property within the prescribed period as per provisions contained u/s 54 of the Act and as such, proceeded to initiate penalty proceedings u/s 271(1)(c) of the Act were not sustainable being not based on the facts.

The Tribunal also opined that moreover, when the assessee had categorically intimated AO that due to recession in real estate, the builders/ developers were not able to deliver the Villa within 3 years as per their commitment, she had surrendered the exemption claimed u/s 54 of the Act to buy peace and to avoid further litigation with the department on the condition that “penalty proceedings u/s 271(1)(c) are not initiated”, there was no question of concealment of income or furnishing of inaccurate particulars of income.

Also, the Tribunal opined that merely the fact that claim of exemption of the assessee u/s 54 had been rejected by the AO was no ground to levy the penalty u/s 271(1)(c) in view of the decision of the Hon’ble Supreme Court in Reliance Petro Products Pvt. Ltd. – 322 ITR 158 wherein it was held that unless the detail supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of initiating penalty u/s 271(1)(c) of the Act.

Accordingly, the Tribunal ordered the deletion of the penalty levied by AO and confirmed by CIT (A).

Download Full Judgment Click Here >>

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