SHRI VIJAY CHAMPAK PATEL,SURAT vs. THE INCOME TAX OFFICER, WARD-6(4), SURAT

By way of this appeal, the assessee has challenged correctness of the order dated 06.01.2016 passed by the learned CIT(A), in the matter of Penalty order under section 271(1)(c ) of the Income Tax Act 1961 ( ‘the Act’), for the assessment year 2011-12. Grievances raised by the assessee are as follows: “1. On the facts and in the circumstances of the case as well as law on the subject, the Commissioner of Income Tax has erred in confirming the action of the Assessing Officer in levying penalty of Rs.31,35,750/- u/s.271(1)(c) of the I.T. Act.

In order to claim deduction under section 54EC of the Act, the assessee had invested Rs.1,50,00,000/- in specified bonds, the details of the investments are as follows: Date Amount (In Rs) Certificate No. 31.03.2010 50,00,000 00078462 28.02.2011 50,00,000 00091846 30.04.2011 34,00,000 0100672 30.09.2011 16,00,000 01206329 Total 1,50,00,000

The assessing officer examined the above investments and noted that out of the total investment of Rs. 1,50,00,000/- deduction u/s. 54EC of the Act, to the extent of Rs.50,00,000 /-, which was invested by the assessee on 31.03.2010, within the time limit, was allowed and for balance investments of Rs. 1,00,00,000/- ( 50,00,000 + 34,00,000 +16,00,000), the deduction u/s. 54EC of the Act was denied. While making the addition by way of disallowance of deduction u/s.54EC of the Act, the Assessing Officer had initiated penalty proceedings u/s.271(1)(c) of the Income Tax Act observing as follows:

The assessee also claimed deduction under section 54F of the Act, at Rs.52,04,000/-against the long term capital gain earned by him. The Assessing Officer examined the veracity of the claim of deduction under section 54F of the Act and observed that assessee had deposited the amount of Rs.54,04,000/- in Bank of Baroda, Capital Gains Account Scheme (CGAS) on 02/02/2012. The assessing officer noticed that the asset (land) in question, out of which capital gains arose, was sold on 12/08/2010. As per the provisions of sub-section (4) of section 54F of the Act, such deposit has to be made in the Capital Gains Account Scheme before the due date of filing of return of income for that year. As per explanation (2) to sub- section (1) of section 139 of the Act, the due date of filing return of income for A.Y. 2011-12 was 30/09/2011, however, the Assessing Officer observed that assessee has failed to deposit such amount in the Capital Gain Account Scheme on or before the due date of filing his returned on income, but was deposited late on 02/02/2012.

The Assessing Officer also noted that the amount so deposited in the Capital Gain Account Scheme on 02/02/2012 was withdrawn by the assessee from the said capital account on 28/08/2012 and the assessee paid Long Term Capital Gains (LTCG) on the said withdrawn amount in the assessment year 2013-14. The assessee was asked to furnish the explanation as to why the deduction so claimed u/s.54F of the Act should not be disallowed. Since, the Authorized Representative (AR) of the assessee did not offer any explanation, therefore the Assessing Officer was of the view that assessee has not purchased any new residential house within the time frame allowed u/s.54F of the Act, therefore the Assessing Officer disallowed the claim of the assessee u/s.54F of the Act observing as follows:

During the penalty proceedings vide penalty order u/s.271(1)(c) dated 24/09/2014, the Assessing Officer noted that deduction u/s.54EC of the Act was to be allowed to the assessee on the amount of Rs.50,00,000/- invested within the specified period and not on the amount of Rs.50,00,000/-, 34,00,000/- and 16,00,000/- invested after the specified period. Therefore, Assessing Officer was of the view that the assessee had not brought the income to the tune of Rs.52,40,028/- (1,00,00,000/- + 52,04,028/-) within the ambit of taxation which was brought on record as a result of the assessment proceedings. Therefore, Assessing Officer vide his penalty order, imposed the penalty u/s.271(1)(c) at Rs.31,35,750/- observing as follows: “7. In view of the above facts and circumstances, this is a fit case for levy of penalty u/s.271(1)(c) of the Act for concealment and furnishing inaccurate particulars of income. The amount of penalty leviable is worked out as under:- Concealed income/inaccurate particulars of Rs.1,52,40,028/- income Tax sought to be evaded on above income Rs.31,35,750/- Minimum penalty @10% of the tax sought to be Rs.31,35,750/- evaded Maximum penalty @300% of the tax sought to be Rs.94,07,250/- evaded 8. Considering the full facts and circumstances of the case, minimum penalty @100% of the tax sought to be evaded to the tune of Rs.31,35,750/- hereby levied and the Assessee is directed to pay an amount of Rs.31,35,750/- by way of penalty u/s.271(1)(c) of the Act within stipulated time as per the demand notice and challan issued and enclosed with this order.”

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the penalty imposed by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

Shri Rasesh Shah, ld. Counsel for the assessee, begins by pointing out that there is inconsistency in the assessment order framed by the Assessing Officer under 4

On merits, the ld. Counsel submitted before us that first of all, the assessee has made a bona fide claim of deductions under section 54EC and under section 54F of the Act and it is not a false claim made by the assessee to deceive the revenue, therefore, the assessee`s case falls in the category of bona fide claim of deductions therefore penalty should not be levied and for that ld. Counsel relied on the Judgment of the Hon`ble Supreme Court in the case of CIT Vs. Reliance Petroproducts, 322 ITR 158 (SC). The Ld. Counsel of the assessee in his written submissions explained the facts in respect of deduction under section 54EC of the Act, in the following manner:

The ld. Counsel submitted before the Bench that during the assessment proceedings, assessee tendered his bonafide explanation that he was under the bonafide belief supported by various judicial pronouncements by different courts/lTAT Benches that he was entitled to get deduction from Long Term Capital Gain on such investments made by him in Infrastructure Bonds u/s.54EC of the Act. Regarding the claim of deduction u/s.54F of the Act, the ld. Counsel explained the Bench that because assessee could not utilize the said amount for purchasing a 'new residential house’ within the prescribed limit and therefore, the assessee had withdrawn the amount of Rs.52,04,000/- on 29.08.2012 and offered the said amount as Long Term capital Gain (LTCG) in the subsequent year`s Return of Income filed 6

On the other hand, the ld. DR for the Revenue submitted that the assessee has claimed false deductions under section 54EC and under section 54F of the Act and therefore it is tantamount to furnish “inaccurate particulars of income”. The ld.. DR also contends that to mention the different accusation/charge in the assessment order under section 143(3) and penalty order under section 271(1) (c ) of the Act does not vitiate the penalty levied by the assessing officer as it is only a typographical error in quoting the charge in assessment order as ‘assessee has furnished inaccurate particulars of his income’ and in penalty order as ‘concealment and furnishing inaccurate particulars of income’ . Since the assessee has claimed false deductions under section 54EC and under section 54F of the Act therefore penalty under section 271(1)(c) of the Act, may be levied on both limbs, that is, “concealment and furnishing inaccurate particulars of income’. Apart from this, the ld. DR relied on the stand taken by the assessing officer in his penalty order u/s.271(1)(c) of the Act which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We have considered the submissions of both the parties and carefully gone through the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld. CIT(A) and other materials brought on record. We note that assessing officer in the assessee`s case held that assessee made wrong claim of deductions u/s.54EC and 54F of the Act against the Long Term Capital Gain (LTCG) earned on sale of land situated at Vesu, Surat. The impugned land, along with, other co-owners was sold on 12.08.2010 wherein the assessee received his l/6th share at Rs.2,03,04,000/-. The details of sale consideration have Vijay Champak Patel Assessment Year: 2011-12 been mentioned in Para 3 of the penalty order. After claiming indexed cost of acquisition of Rs.63,972/-, net taxable LTCG was worked out at Rs.2,02,40,028/-. Till this point, there is no dispute between the assessee and department. Against this Long Term Capital Gain (LTCG), the assessee claimed deduction of Rs.1,50,00,000/- u/s.54EC by making investing in NHA1 Bonds & Rs.52,04,000/- u/s.54F of the Act by depositing this amount under Capital Gain Account Scheme of I.T. Act. The details of investment in NHAI Bonds u/s.54EC are as under: Date of Investment Amount (Rs.) Certificate No.

During the assessment proceedings, the Id. AO allowed deduction of Rs.50,00,000/- made in Bonds on 31.03.2010 (made prior to date of transfer) but disallowed the other claims amounting to Rs.1,00,00,000/- because investments were not made within 6 months from date of transfer which falls on 13.02.2011. However, the C1T(A) allowed claimed for deduction u/s.54EC against the investment of Rs.50,00,000/- made on 28.02.2011 instead of Rs.50,00,000/- made on 31.03.2010 (prior to the date of transfer). Accordingly, the amount of disallowance of claim of deduction u/s.54EC remained unchanged. Further, the ld. AO observed that the amount of Rs.52,04,000/- was made in the specified Capital Gain Account beyond the stipulated time. The AO has levied penalty against both these wrong claims of deductions made u/s.54EC at Rs. 1,00,00,000/-and u/s.54F at Rs.52,04,000/-. On appeal ld. CIT(A) has confirmed the penalty imposed by the assessing officer.

We note that the first grievance of the ld. Counsel is that there is no any definite charge/ accusation on the assessee, whether initiation of penalty proceeding is on account of ‘concealment of income’ or on account of ‘furnishing inaccurate 8

It is abundantly clear from above narrated facts, in (a) and (b) that assessing officer has initiated penalty proceedings for both the deductions u/s 54 EC and u/s 54F of the Act in the assessment order for “inaccurate particulars of his income”, whereas in the penalty order under section 271(1) (c ) of the Act the assessing officer imposed penalty for both the deductions u/s 54 EC and u/s 54F of the Act, “for concealment and furnishing inaccurate particulars of income.” Hence, there is no definite charge (fix charge), as pointed out by the ld. Counsel for the assessee.

As stated above, no clear finding was given by the assessing officer regarding the invocation of the limb in the penalty order the assessing officer levied the Vijay Champak Patel Assessment Year: 2011-12 penalty for both the limbs “for concealment and furnishing inaccurate particulars of income.” under section 271(1 )(c) of the Act, whereas in the assessment order the assessing officer initiated penalty only on one limb that is “for furnishing inaccurate particulars of his income”, . We note that Hon`ble Supreme Court in the case of T Ashok Pai - 292 ITR 11 (SC) held that “concealment of income” and “furnishing of inaccurate particulars of income” carry different connotations. The Hon`ble Gujarat High Court in case of Manu Engineering Works -122 ITR 306 (Guj.) held that the penalty order has to be clear as to limb for which it is levied and the position being unclear penalty is not sustainable. Further, on the identical facts, Hon`ble Gujarat High Court in case of Nayan C. Shah vs. ITO [Tax Appeal No. 543 of 2012 (Guj- HC)] held. as follows: "11. Another notable aspect of the matter is that while the Assessing Officer has imposed penalty on the ground that the assessee has furnished inaccurate particulars of income, the Tribunal has set aside the order of the Commissioner (Appeals) by holding that the assessee has suppressed the actual particulars of income by not making disallowance under section 40(a)(ia) of the Act. Thus, the Assessing Officer has imposed penalty on the ground of furnishing inaccurate particulars, whereas the Tribunal has upheld. the order of the Assessing Officer on the ground of concealment of particulars. It is by now well settled that while issuing a notice under section 271(1)(c) of the Act, the Assessing Officer is required to specify as to what is the default on the part of the assessee, as to whether the case is one of furnishing inaccurate particulars, or whether it is a case of concealment of income, or both. In the facts of the present case, the Assessing Officer has proceeded on the footing that inaccurate particulars were filed by the assessee, whereas the Tribunal has held. that the assessee had suppressed particulars for the year under consideration. Under the circumstances, the Tribunal, having confirmed the penalty imposed by the Assessing Officer on the ground of suppression of actual particulars in respect of which the assessee was not put to notice, the order of the Tribunal is rendered unsustainable on this ground also."

Thus, we note that the assessing officer has initiated the penalty proceedings on one footing and concluded on other footing. In instant case, the “Concealment of particulars of income” was not the charge against the assessee; the charge was “for furnishing inaccurate particulars of income”. Therefore, in our opinion, the basis of levy of penalty itself is not correct, hence penalty order under section 271(1)(c) of the Act needs to be quashed.

We note that the assessee has made a bona fide claim of deductions under section 54EC and under section 54F of the Act and it is not a false claim made by the assessee to deceive the revenue, therefore, the assessee`s case falls in the category of bona fide claim of deductions hence the penalty should not be levied. At this juncture it is appropriate to quote the judgment of the Hon`ble Supreme Court in the case of CIT vs. Reliance Petroproducts, 322 ITR 158 (SC), wherein it was held as follows:

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.

The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.”

The judgment of the hon`ble Supreme Court in the case of Reliance Petroproducts(supra) is squarely applicable to the facts of the assessee`s case under consideration. As the assessee has furnished all the particulars regarding claim of deduction u/s.54EC and 54F of the Act in the Return of Income, and during the course of assessment proceedings, all the material facts relating to investment in 12

In the result, appeal filed by the assessee is allowed.