INCOME TAX OFFICER WARD 7 1, PUNE vs. SARSAN DEVELOPERS, PUNE

PER PAVAN KUMAR GADALE, JUDICIAL MEMBER

The appeal is filed by the Revenue against the order of the NFAC/CIT(A),Delhi passed u/sec 271(1)(C) and u/sec 250 of the Act. The revenue has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty of ₹. 1,73,26,556/- was levied for furnishing inaccurate particulars of the income by relying on the decision of the Hon'ble supreme court of India in the case of CIT Vs. Reliance Petroproduct in spite of the fact of the case is different.

Sarsan Developers 5,60,73,319/- paid by the assessee to Partner (Kumar Housing Corporation limited/KHCL) for giving up its interest in the partnership firm as retiring partner and claimed by assessee as development expenses in the profit and loss account is nothing but furnishing of inaccurate particular of income inspire of the fact that the Hon'ble ITAT has confirmed the action of the Ld.AO by treating this expenses as capital expenditure.”

“6. 2. Ground No. 1 to 4 are raised against the AO's action in levying penalty u/s 271(1)(c) of the Act of Rs. 1,73,26,656/- 6.2.1 The assessment was completed u/s 143(3) on 23 12.2016, wherein the AO disallowed the assessee's claim of Rs.5,60,73,319/- debited as development expenses, holding that the payment made to the retiring partner, M/s KHCL, was capital in nature and not allowable as revenue expenditure. Penalty proceedings u/s 271(1)(c) were simultaneously initiated for furnishing inaccurate particulars of income in appeal, the CIT(A) vide its order dated 13.12.2019 deleted the disallowance. However, on further appeal by the Revenue, the Hon'ble ITAT, Pune Bench "B", vide order dated 10.10.2023 in ITA No. 386/PUN/2020, reversed the CIT(A)'s order and confirmed that the payment to the retiringparther represented capital expenditure. Consequently, the AO levied minimum penalty of Rs. 1,73,26,656/-/s 271(1)(c). 6.2.2 During the appellate proceedings, that appellant that the issue involved only a difference of opinion regarding the nature of expenditure i.e, capital or revenue. While the AO treated it as capital, the CIT(A) had initially accepted it as revenue, and later the Hon ble ITAT reversed the relief. Such divergent judicial views show that the matter was debatable and as held in CIT v. Reliance Petroproducts (SC), a mere disallowance or incorrect claim does not attract penalty. The assessee further argued that all facts were correctly disclosed, and the claim was made in good faith, supported by judicial principles. There was no finding by the AO that any particulars furnished in the return were false. Hence, the basic conditions of section 271(1)(c) and Explanation 1 were not met. It was also submitted that the penalty notice u/s 274 was vague and did not specify whether Sarsan Developers the charge was "concealment" or "furnishing inaccurate particulars, violating settled law including SSA's Emerald Meadows. Moreover, no proper opportunity of hearing was granted before passing the penalty order The assessee also contended that the penalty order was time-barred u/s 275, because the proceedings were initiated in December 2016 but the penalty order was passed only in October 2024, far beyond the permissible period. Further the assessee submitted that the expense was genuinely disclosed, the disallowance was only interpretational, and no element of concealment existed, therefore penalty u/s 271(1)(c) was unwarranted and should be deleted. 6.2.3 I have carefully considered the penalty order and the submissions of the appellant. The sole basis for levying penalty u/s 271(1)(c) is the disallowance of expenditure of Rs.5.60.73,319/- claimed as development expenses. It is an undisputed fact that the assessee had fully disclosed the payment made to the retiring partner in the return of income as well as in the audited financial statements. The disallowance ultimately sustained by the Hon'ble ITAT arises only on account of the characterization of the expenditure whether it is Capital or revenue in nature. This is a matter on which two reasonable views were possible, es evident from the fact that the CIT(A) had allowed the claim earlier and the ITAT later took different view. Thus, the dispute is entirely interpretational and does not involve any finding of falsity or suppression of facts by the assessee. The Hon'ble Supreme Court in CIT v Reliance Petroproducts Pvt. Ltd. (322 ITR 158) has categorically held that a mere making of a claim that is not accepted by the Revenue does not amount to furnishing inaccurate particulars of income, and penalty cannot be levied merely because the claim is disallowed. The Court emphasized that where all particulars are correctly disclosed, and the dispute is only about the allowability of a deduction, the ingredients of section 271(1)(c) are not attracted. Applying this binding principle to the present case, I find that the assessee made a bona fide claim, supported by disclosure of all relevant facts. In view of the above and respectfully following the ratio of the Hon'ble Supreme Court in Reliance Petroproducts, I hold that the penalty lavied u/s 271(1)(C) is unsustainable. The penalty of Rs. 1,73,26,656/- is therefore deleted. Therefore, the Ground No. 1 to 4 raised in this regard by the assessee are Allowed.

“3. The Assessing Officer was of the opinion that the amount paid on retirement of partner cannot be allowed as deduction and, accordingly, added to the closing work-in-progress by disallowing the same as deduction u/s 37(1) of the Act.

Order pronounced on the open Court on 04th September 2026. MANISH BORAD PAVAN KUMAR GADALE (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Pune, Dated: 04th September 2026 Abhishek Abhishek Mohan Mohan Date: 2026.09.04 15:46:48 +05'30' आदेशकीप्रतितितिअग्रेतिि / Copy of the Order forwarded to : अिीिार्थी / The Appellant. 1. प्रत्यर्थी / The Respondent.

आदेशािुसार / BY ORDER,