DCIT, CIRCLE 22(2), NEW DELHI, NEW DELHI vs. SAHIL VACHANI, DELHI

The para-6& 7 of the draft order is reproduced as under: - “6. We find that the assessee had furnished all the relevant details in the return of income including Long Term Capital Gains on sale of shares. Hence, there was no concealment of income. The Assessing Officer has levied penalty for furnishing in accurate particulars of income. It is not the case where the details furnished by the assessee were found to be incorrect with respect to LTCG earned during the year. It was the claim of exemption u/s. 65F which was found to be incorrect. If the claim of exemption u/s. 54F of the Act made by the assessee after disclosing all the relevant information relating thereto is found to be unacceptable by the Revenue, under such circumstances penalty provision u/s. 271(1)(c) are not attracted. The Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) held: ‘It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood (A.Y.2016-17) in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.’ 7. Thus, in facts of the case and in light of the decision of the Hon’ble Apex Court, we find no infirmity in the order of First Appellate Authority in deleting levy of penalty u/s. 271(1)(c) of the Act. Ergo, the impugned order is upheld and appeal of the Revenue is dismissed being devoid of any merit.”

In view of the facts mentioned above in para-2, I am unable to persuade myself with the finding of the draft order that in facts of the case and in light of the decision of the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra), there is no infirmity in the order of CIT(A) deleting the penalty.

For proper appreciation of the case, it is pertinent to reproduce the relevant facts of Reliance Petroproducts Pvt. Ltd. (supra), in verbatim, as under: - (A.Y.2016-17) “4. The assessee is a company and the relevant Assessment Year is 2001-02. The Return was filed on 31.1.2001 declaring loss of Rs.26,54,554/-. This assessment was finalized under Section 143(3) of the Act on 25.11.2003 whereby the total income was determined at Rs.2,22,688/-. In this assessment the addition in respect of interest expenditure was made. Simultaneously penalty proceedings under Section 271(1)(c) of the Act were also initiated on account of concealment of income/furnishing of inaccurate particulars of income. The said expenditure was claimed by the assessee on the basis of expenditure made for paying the interest on the loans incurred by it by which amount the assessee purchased some IPL shares by way of its business policies. However, admittedly, the assessee did not earn any income by way of dividend from those shares. The company in its Return claimed disallowance of the amount of expenditure for Rs.28,77,242/- under Section 14A of the Act.

The case in hand is quite similar to that of the case of Zoom Communication (P.) Ltd. 327 ITR 510 and Escorts Finance Ltd. 328 ITR 44, wherein the Hon’ble Delhi High Cour theld that if the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation 1 to section 271(1)(c) of the Act would (A.Y.2016-17) come into play and assessee will be liable to penalty. The relevant para of decision of the Hon’ble Delhi High Court in the case of Escorts Finance Ltd. (supra) is pertinent to reproduce hereunder: “15. We are in agreement with the aforesaid submission of learned counsel for the revenue. We fail to understand as to how the Chartered Accountants who are supposed to be expert in tax laws, could give such an opinion having regard to the plain language of section 35D of the Act. It would be important to note that assessee has nowhere pleaded that return was filed claiming benefit of section 35D of the Act on the basis of the said opinion. What was stated was that in the prospectus it was mentioned that as per the opinion given by the Chartered Accountants, the company would be entitled for relief under section 35D of the Act. Therefore, it is not the case of the assessee that while filing the return it got assistance from the Chartered Accountants who opined that the aforesaid expenses qualify for amortization over a period of 10 years under section 35D of the Act. That apart, when we find that it is not a case where two opinions about the applicability of section 35D were possible. Therefore, it cannot be a case of a bona fide error on the part of the assessee. As has been pointed out above, the relief available under section 35D of the Act to a finance company is ex facie inadmissible as that is confined only to the existing industrial undertaking for their extension or for setting up a new industrial unit. It was, thus, not a 'wrong claim' preferred by the assessee, but is a clear case of 'false claim'. In CIT v. Vidyagauri Natverlal [1999] 238 ITR 91, Gujarat High Court made a distinction between wrong claim as opposed to false claim and held that if the claim is found to be false, the same would attract penalty. We may also take note of the following observations of the Supreme Court in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277. In such a case it is difficult to accept the plea that error was bona fide.”

The Hon'ble Gujarat High Court in the case of AM Shah & Co. 238 ITR 415 observed as under:

The respondent/assessee, neither during the assessment proceedings nor penalty proceedings, submittedthe details and documents justifying the genuineness of his claim under section 54F of the Act. In these circumstances, it does not lie in the mouth of the assessee that it was not concealing his income by furnishing inaccurate particulars thereof in the ITR. In the course of penalty proceedings, the respondent/assessee did not (A.Y.2016-17) bring any material before the Ld.CIT (A) to rebut the inferences drawn by the AO. Even then the CIT (A) allowed the appeal without discussing the merit of the case. The Ld. CIT (A) allowed the appeal as under:

The Hon’ble Supreme Court in the case of MAK Data P. Ltd 358 ITR 593held that Under Explanation 1 to section 271(1)(c) of the Act, voluntary disclosure of concealed income does not absolve assessee of rigours of section 271(1)(c) of the Act if the assessee fails to offer an explanation which is bona fide and proves that all the material facts have been disclosed. “9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.”

The Hon'ble Supreme Court in the case of K.P.Madhusudanan (supra) while affirming the aforesaid view held that "We find it difficult to accept as correct the two judgments aforementioned. The Explanation to section 271(1)(c) is a part of section 271. When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent. of the total income assessed under section 143 or (A.Y.2016-17) 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right."

According to me this case is squarely covered by the decisions of the Hon’ble Jurisdictional High Court in the cases of Zoom Communication (P.) Ltd. 327 ITR 510, Escorts Finance Ltd. 328 ITR 44 and Mohd Raza [2016- TIOL-2026-HC-DEL-IT], where the Hon’ble Delhi High Court held that it is open to the AO to levy penalty in a case, where only upon the assessment being picked up in scrutiny for further enquiry, the assessee has come out with the details and has surrendered the income for taxation. The Hon’ble Supreme Court in the case of B. A. Balasubramaniam & Bros. Co 236 ITR 977 held that the difference between income assessed and income returned being more than 20 per cent, Explanation to section 271(1)(c) became applicable and assessee having failed to discharge onus being cast on assessee by virtue of said Explanation, Assessing Officer was justified in imposing penalty. The Hon’ble Kerala High Court in the cases of Gates (A.Y.2016-17) Foam & Rubber Co 91 ITR 467 and India Seafood 105 ITR 708 held that claiming excessive deduction also amounts to concealment of income. Similarly the Hon’ble Madhya Pradesh High Court in the case of Steel Ingots Ltd. 296 ITR 228 held that in case of concealment of true income chargeable to tax by making bogus claim, levy of penalty u/s 271(1)(c) read with Explanation 1 is justified.

I find that while imposing penalty under section 271(1)(c) of the Act, the AO did not categorically mention the Explanation 1 to section 271(1)(c) of the Act though he mentioned that the explanation offered by the assessee was not found acceptable. Thus, the AO has indirectly invoked the Explanation 1 to section 271(1)(c) of the Act. The Hon’ble Punjab & Haryana High Court in the case of Rajeshwar Singh 162 ITR 173, have held that Explanation 1 to section 271(1)(c) of the Act can be invoked for the first time by the ITAT. By following the aforesaid judgment of the Hon’ble Punjab & Haryana High Court in the case of Rajeshwar Singh the ITAT, Chandigarh Bench in the case of Roshan Lal Madan 245 ITR 36 (AT)(Chd.), has taken the same view that Explanation 1 to section 271(1)(c) of the Act can be invoked for the first time by the Tribunal. Thus, it is held that the Explanation 1 to section 271(1)(c) of the Act is clearly attracted here.

A very heavy onus was placed on the respondent/assessee to explain the difference between the assessed income and returned income and the (A.Y.2016-17) respondent/assessee, in the case in hand, did not discharge the said onus corroborated by documentary evidence. Since the assessee failed to establish the bonafide of his claim under section 54F of the Act, therefore, in terms of explanation 1 to section 271(1)(c) of the Act, the onus is not properly discharged by the respondent/assessee. In the light of the discussion made above, it is thus clear that all the material facts and particulars relating to the assessee's computation of income were not disclosed by the assessee unless he was cornered. Even otherwise the breach of civil obligation which attracts a penalty under the provisions of the Act would immediately attract the levy of penalty irrespective of the fact that whether the contravention was made by the defaulter with any guilty intention or not [Dharmendra Textile Processors and others, in civil appeal nos.10289 -10303 of 2003].In this view of the matter and in the light of decisions of the Hon'ble Supreme Court and jurisdictional High Court referred to above, I am of the opinion that the respondent/assessee has not been able to discharge the burden that lay upon them by Explanation 1 to section 271(1)(c) of the Act. Therefore, I have no hesitation in reversing the impugned order of the CIT(A) and upholding the penalty imposed by the AO under section 271(1)(c) of the Actparticularly when the Ld. CIT(A)’s order is not well reasoned and devoid of any merit. Consequently, the appeal of the Revenue is allowed.

Now upon reference, the matter was heard.

The above noted facts as narrated in paras 2 to 5 of this order are undisputed. Admittedly, assessee sold shares of Dixon Appliances Private Limitedfor a total consideration of ₹10,00,00,000/- resulting in long-term capital gain of Rs. 9,01,50,051/- and claimed that the sale proceeds of these shares were utilized towards purchase of theproperty vide agreement dated 27.07.2016 and thereafter vide amended agreement dated 29.07.2016 between the assessee and Trophy Estates Private Ltd., a construction of residential property was agreed to. The assessee advanced a sum of ₹7,00,00,000 for purchase of the above said property on 27.07.2016. The assessee has enclosed copy of agreements dated 27.07.2016 as well as 29.07.2016, which were already before the AO during the original assessment proceedings and before the CIT(A) during appellate proceedings. Admittedly, the Assessee furnished all requisite details vide submissions dated 02.11.2018 and 13.12.2018 before the AO during the scrutiny assessment proceedings and AO was also apprised that the registration of sale deed could not be materialized till date owing to the delay in construction of the building, which is attributable to the builder. However, to abstain from the protracted litigation and the issue being debatable, the assessee decided to (A.Y.2016-17) withdraw its claim of exemption u/s. 54F of the Act and paid due taxes alongwith interest thereon. The questions referred by the learned Judicial Member from serial No. (iii) to (v) as mentioned above and question referred by the Ld. Accountant Member are relating to issue of levy of penalty u/s. 271(1)(c) for non- compliance of provisions of Section 54F of the Act. These questions are being answered as under: 7.1 Admittedly the assessee’s case was selected for scrutiny assessment by issuing notice u/s. 143(2) of the Act dated 06.07.2017 and thereafter notice under section 142(1) of the Act alongwith questionnaire was issued requiring the assessee to furnish explanation in relation to exemption claimed u/s. 54F of the Act alongwith evidences. In response to these notices, the assessee vide submissions dated 02.11.2018 and 13.12.2018 furnished the agreement dated 27.07.2016 by virtue of which sale proceeds were utilized towards purchase of the property and also a construction agreement dated 29.7.2016 signed between the assessee and Trophy Estates Private Limited, envisaging construction of residential property on the property were submitted. The assessee also apprised the AO that registration of sale deed and completion of construction building could not happen till date owning to the delay in construction attributable to the builder. However, to avoid all protracted litigation and the issue being debatable, the assessee decided to withdraw his claim of deduction under section 54 of the Act and paid the due tax along with interest. 7.2 Now before me, the Ld. Counsel for the assessee argued that the claim of assessee only became bad and impermissible on 19.07.2018 because the builder could not complete the construction of building and consequently the sale deed (A.Y.2016-17) could not be materialized. It was the claim that any income had to be offered, would ideally have been offered in the return of income for financial year 2018-19 relating to assessment year 2019-20 and not for the relevant assessment year 2016-17 as has been done in the present case. He argued that at this juncture, what would be relevant to highlight and would also add credence to the bonafides of the assessee is that the assessee filed complete details before the AO and also surrendered the amount at the first instance. Although, the assessee could have declared this long term capital gain in financial year 2018-19 relevant to assessment year 2019-20. The only reason why this point is highlighted, argued by the Ld. Counsel for the assessee, is to evidence the bona fides of the assessee since if such income was offered to tax in assessment year 20019-20, the interest element would be minimal. The bonafide of the assessee can be examined from the point of view that after surrendering the amount, the assessee paid due taxes and interest and decided not to pursue the litigation, any further. He further argued that the penalty proceedings initiated against the assessee which culminated in the levy of penalty u/s. 271(1)(c) of the Act vide order dated 26.06.2019 on the premise that the assessee has furnished inaccurate particulars of income. Ld. Counsel for the assessee argued that the assessee’s case is fully covered by the decision of the Hon’ble Supreme Court in the case of Reliance Petroproducts P. Ltd. (Supra) wherein it is categorically held that the merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attracts the penalty u/s. 271(1)(c) of the Act. Hon’ble Supreme Court further noted that if the contention of the Revenue is accepted then in case of every return where the claim made is not accepted by the AO for any reason, the (A.Y.2016-17) assessee will invite penalty under section 271(1)(c) of the Act. That is not the intendment of the Legislature. Accordingly, Ld. Counsel for the assessee argued that there was a legal principle as propounded by the Apex Court, the claim needs to be seen from the return of income and where such claim was correct at such point of time. Ld. Counsel also relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. Neenu Dutta [2013] 357 ITR 525; New Holland Tractors (India) Pvt. Ltd. vs. CIT [2015] 275 CTR 291; and Pawan Garg vs. ACIT [2022] 94 ITR (T) 159 (ITAT, Chandigarh Tribunal). 7.3 On the other hand, Ld. SR. DR submitted that the assessee sold shares of Dixon Appliances P Ltd. against which the deduction 54F of the Act was claimed by the assessee on 20.07.2015, hence, the assessee must have purchased a residential house on or before 19.07.2018. It was submitted that assessee filed his return of income for the relevant assessment year on 29.07.2016 i.e. almost a year after the share sale transaction on which LTCG was earned by the assessee. No evidence has been brought on record before the lower authorities that the assessee and the contract put in any sincere efforts to complete the construction of house before filing the ITR by the assessee. Further it is submitted that notice u/s. 143(2) of the Act informing the assessee of the fact that his case for the relevant assessment year has been selected for scrutiny by the Department, was issued to the assessee on 06.07.2017 i.e. almost 2 years after the share sale transaction, and the status of the residential house was still not complete and no evidence has been brought on record before the lower authorities in this regard and no efforts have been made by assessee and contractor to complete the building before the due date for claiming deduction u/s. 54Fof the Act. It was the further contention of the revenue that during the assessment proceedings, vide (A.Y.2016-17) notice dated 23.10.2018 the assessee was asked to justify the claim of deduction u/s. 54F of the Act alongwith evidence, but assessee in response thereof submitted an agreement to sell with Trophy Estates P Ltd. wherein the assessee had purchased the property. On the said notice dated 23.10.2018, more than 3 years had already lapsed for the purchase / construction of the said residential house, assessee is ineligible to claim deduction u/s. 54F of the Act as on 23.10.2018 and still chose not to disclose this fact that he is ineligible to claim deduction u/s. 54F of the Act as on 23.10.2018 and instead submitted an agreement to sell before the AO, that too of a plot of land. It was further submitted that vide order sheet entry dated 28.11.2018, when the assessee was again asked by the AO to show cause as to why his claim of deduction u/s. 54F of the Act should not be disallowed on account of his failure to purchase/ construct a new residential within 3 years, assessee vide letter dated 13.12.1018 against chose not to disclose the fact of his ineligibility for the claim of deduction before the AO and instaed furnished a copy of an agreement by which the assessee entered into a contract for purchase/ construction of new residential house on the same property. When the assessee was confronted by the AO then only vide letter dated 13.12.2018 assessee surrendered his claim of deduction u/s. 54F of the Act, which only shows that assessee wishes to escape the panel provisions. It was further submitted that assessee has not submitted his balance sheet/ statement of affairs before the lower authorities in order to prove that he did not own more than one residential house, other than the new residential house, on the date of transfer of original asset. Besides above, the Ld. Sr. DR relied upon the order of the Ld. Accountant Member, dissenting the draft order and submitted that order of the CIT(A) is bad in law and needs to be reviewed and correct to (A.Y.2016-17) ensure a fair and accurate determination of the assessee’s liability under the Income Tax Act, 1961.

I noted that the assessee during the course of scrutiny assessment proceedings for the relevant Assessment year 2016-17 vide letter dated 2.11.2018 filed following evidences for claim of deduction u/s. 54F of the Act:- a) Copy of agreement dated 27.07.2016 &29.07.2016 with Trophy Estates Pvt. Ltd. b) Copy of relevant extract of bank statements in evidence of payment of Rs. 6,93,00,000/- (net off TDS @1% u/s. 194I) to Trophy Estates Pvt Ltd. c) Copy of TDS certificate for Rs. 7,00,000/- issued to Trophy Estates Pvt, Ltd.. 8.1 From the above details filed by the assesse vide letter dated 02.11.2018 before the AO during the course of assessment proceedings, it is clear that the assessee has filed evidences for claim of deduction u/s. 54F of the Act and furnished the explanation in relation to exemption claimed u/s. 54F of the Act. The assesseevide his letter dated 13.12.2018 furnished all the requisite details and also apprised the AO that the registration of sale deed and non-construction of building could not happen due to the reasons attributable to the builder. Accordingly, the issue being debatable, the assessee surrendered the claim of exemption u/s. 54F of the Act and paid the due taxes alongwith interest. These facts clearly established the bonafide of the assesse in the factum that the assesse has claimed exemption u/s. 54F of the Act under bonafide belief. That the (A.Y.2016-17) assessehad purchased the property and also entered into an agreement with the builder for construction of house thereon. 8.2 In the case of case of UOI vs. Dharmendra Textile Processors [2007] 295 ITR 244 (SC) the matter was referred to a Larger Bench by observing that there is a conflict of opinion between the judgements of Division Bench of Hon’ble Supreme Court in the case of Dilip N. Shroff vs JCIT [2007] 161 Taxman 218 (SC) on the one hand, and on the other hand, SEBI Chairman vs. Shriram Mutual Fund [2006] 4 SCC 361, the Hon’ble Supreme Court observed that object behind the enactment of section 271(1)(c) read with explanation indicates that the said section has been enacted to provide for a remedy of loss of revenue and the penalty is a civil liability. Further, it is observed by the Hon’ble Supreme Court that willfull concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution under section 276C. However, Hon’ble Supreme Court very categorically held that while considering the appeal against the order made under section 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding there had been concealment, that would be sufficient to sustain the penalty. It means that each case is to be seen from the independent fact of that case. In the present case, facts clearly reveal that from the penalty order and the assessment order that the assesse has filed explanation before the AO that the assesse has purchased the property and entered into an agreement with the builder for construction of house on the same plot of land and on the basis of such agreements, the assesse had claimed the benefit of deduction u/s. 54F of the Act. Simplicitor the AO levied the penalty only on one premise that the assesse is unable to construct the house within the (A.Y.2016-17) statutory time period which is a pre-requisites for claiming the deduction u/s. 54F of the Act. The relevant findings of the AO in penalty order reads as under:- “From the above it is clear that the section clearly states that the assesse invests the net sale consideration of the capital asset to construct a residential house within a period of three years of the sale of asset or purchases an already built house within one year before or two years after the sale of original asset. Hence, the section cast the onus on the assesse to prove that the assesse has purchased or constructed the house within the prescribed period. But the assesse could not able to construct the residential house within the statutory time period which is a prerequisites condition as prescribed by the section 54F of the Act. Also upon confirming the assesse himself surrendered the amount of deduction claimed under section 54F of the Act, subject to no penalty. But the offer of surrender subject to no penalty was not accepted as the assesse has not complied with the provision of section 54F of the Income Tax Act. Moreover, the case laws relied upon by the assesse in his reply are not applicable to the facts and circumstances of the case. The facts and circumstances of the case have been considered in the assessment order passed u/s. 143(3) of the I.T. Act dated 19.12.2018 wherein it has evidently been established that the assesse has furnished inaccurate particulars of income.” 8.3 In regard to another judgements of Hon’ble Delhi High Court in the case of CIT vs. Zoom Communication P Ltd. [2010] 327 ITR 510 (Delhi) and in the case of CIT vs. Escorts Finance Ltd. [2010] 328 ITR 44 (Delhi) the Hon’ble Delhi High Court is categorical while confirming the penalty that if the assesse makes a claim which is not only incorrect in law, but also without any basis and explanation furnished by him for making such a claim and such claim is found not bonafide. I noted that (A.Y.2016-17) facts in the present case before me are clearly distinguishable for the reasons that the assesse has furnished complete explanation alongwith evidences for purchasing of the property and thereafter entering into an agreement for construction of house with the builder, but the builder could not complete the construction of house or could not start the construction on time. But admittedly, the explanation of the assessee is nowhere held to be false or without any basis by the AO in the penalty order. Whereas I consider the explanation offered is a bonafide one. Once the explanation offered is a bonafide explanation, it does not attract the penalty u/s. 271(1)(c) of the Act for furnishing of inaccurate particulars of income. 8.4 Similarly, the decision of the Hon’ble Gujarat High Court in the case of A M Shah & Co. 238 ITR 415 also speaks about furnishing of information and explanation, which is bonafide. In the present case before me, the assessee during assessment proceedings filed the complete details as noted above including the purchase of the property and entering into an agreement for construction of house with the builder. 8.5 Admittedly, it is established that whenever there is a difference between the returned income and assessed income, there is an inference of concealment and Explanation 1 to Section 271(1)(c) of the Act raises a presumption which is always rebuttal. There is no quarrel about the cases of B.A. Balasubramaniam & Bros. Co. 157 CTR 556 (SC); B.A. Balasubramaniam & Bros. 152 ITR 529 (Mad.); Mussadilal Ram Bharose 165 ITR 14 (SC); K.R. Sadayappan 185 ITR 49 (SC); Jeevan Lal Sah 205 ITR 244 (SC) and K.P. Madhusudanan 251 ITR 99 (SC). In these case laws, admittedly the onus is on the assesse to rebut the inference of (A.Y.2016-17) concealment and absence of plausible explanation itself would attract penalty u/s. 271(1)(c) of the Act for concealment of income or furnishing of inaccurate particulars of income as the case may be. But in the present case, the assesse offered the explanation corroborating with the evidences justifying the claim of deduction u/.s 54F of the Act. But there is no reason that the assesse is not at all entitled to claim of deduction and ultimately the same was surrendered by the assesse during the assessment proceedings. The reasons was that ultimately construction of building could not take place due to inability of the builder and/or default on the part of the builder. 8.6 In regard to the decision of the Hon’ble Supreme Court in the case of MAK Data P. Ltd. V CIT, (2013) 358 ITR 593 (SC) as per Explanation 1 to Section 271(1)(c) of the Act, admittedly the disclosure of concealed income does not absolve assesse of rigours of section 271(1)(c) of the Act if the assesse fails to offer any explanation which is bonafide. Similar is the situation with the decision of the Hon’ble Supreme Court in the case of K.P.Madhusudanan vs CIT (2001) 251 ITR 99 (SC). 8.7 In the present case before us, the assesse has explanation which is supported by the documentary evidences as the assesse has furnished all the relevant details alongwith return of income or during the course of scrutiny assessment proceedings and this disclosure of information in regard to claim of deduction u/s. 54F of the Act in respect of the long term capital gain earned during the year is sufficient for not confirming the levy of penalty u/s. 271(1)(c) of the Act.

In view of above, I agree with the order of Ld. Judicial Member. I do not agree with the order of Ld. Accountant Member on the given facts and circumstances of the case.

In the light of the above discussions, the matter may now be placed before the regular bench for an appropriate order, in accordance with law.

The appeal was filed by the Revenue assailing the order of Commissioner of Income Tax (Appeals), New Delhi [hereinafter referred to as ‘the CIT(A)] dated 25.05.2026 for AY 2016-17 deleting penalty of Rs.1,45,59,592/- u/s. 271(1)(c) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’).

After hearing the appeal, the Judicial Member upheld the order of CIT(A) and dismissed the appeal of Revenue. The Accountant Member opined otherwise and wrote a separate order confirming penalty and allowing the appeal of Revenue. On account of difference of opinion between the Members constituting the Bench, a reference was made to the Hon’ble President ITAT u/s. 255(4) of the (A.Y.2016-17) Act. The Hon’ble President vide order dated 04.09.2024 nominated Third Member to decide the reference. The ld. Third Member vide order dated 13.06.2025 concurred with the view of Judicial Member. Consequent to the opinion of Third Member, appeal of the Revenue stands dismissed.