Loading judgment…
Facts
The assessee claimed capital loss on the exchange of plots, which was set off against Long-Term Capital Gain. The AO re-computed the capital gains under Section 50C and levied a penalty under Section 271(1)(c) for furnishing inaccurate particulars. The CIT(A) confirmed the penalty.
Held
The Tribunal held that the AO did not record proper satisfaction before initiating penalty proceedings and did not specify the limb under which the penalty was levied. The Tribunal also noted that the issue was debatable, with a substantial question of law admitted by the High Court, and relied on Supreme Court and High Court decisions that a debatable claim does not automatically attract penalty.
Key Issues
Whether penalty under Section 271(1)(c) is sustainable when the primary issue is debatable and a substantial question of law has been admitted by the High Court.
Sections Cited
143(3), 50C, 271(1)(c), 45
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2014-15 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 20.06.2025 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) dated 26.12.2016.
There is a delay of 25 days in filing the appeal by the assessee.
The assessee has filed condonation petition/affidavit stating the reasons for delay in filing the appeal. We have considered the petition/affidavit of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is hereby condoned.
The assessee is an individual and has filed return of income declaring total income of Rs. 1,50,03,250/-. The assessee has claimed capital loss of Rs. 83,06,380/-, which was set off against the Long- Term Capital Gain (LTCG). The capital loss was computed on the exchange of plots. The Assessing Officer (A.O.) re-computed the capital gains on the exchange of plots by applying the provisions of Section 50C of the Act at Rs. 2,43,68,627/-. The A.O. levied penalty of Rs. 4,04,156/- u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income in the computation of LTCG, after the addition was confirmed by the Ld. CIT(A). On appeal, the Ld. CIT(A) further confirmed the penalty.
At the outset, the Learned Authorized Representative (Ld. A.R.)
1. submitted that the A.O. has not recorded any satisfaction before initiating penalty proceedings u/s 271(1)(c) of the Act in the assessment order. The Ld. A.R. further submitted that the A.O. has not specified under which limb of Section 271(1)(c) of the Act, the penalty has been initiated whether for furnishing inaccurate particulars of income or for concealment of income. He also argued that the penalty has been levied merely on the re-computation of capital gains on exchange of plots, where the assessee had computed capital gain on the basis of net consideration, whereas the A.O. recomputed the value by applying the provisions of Section 50C of the Act. The Ld. A.R. contended that mere making of a claim which is not sustainable in law by itself does not amount to furnishing inaccurate particulars of income. He further submitted that the issue is debatable, as the substantial question of law arising from the quantum addition has been admitted by the Hon’ble Madras High Court in TCA No. 201 of 2023 dated 18.04.2023, and therefore penalty is not leviable.
The Ld. Departmental Representative (DR), on the other hand, relied upon the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. The A.O. has levied penalty u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income based on the re- computation of capital gains. The assessee computed the capital gains on the exchange of plots based on the net sale consideration, whereas the A.O. invoked Section 50C of the Act in respect of such exchange and held that the assessee had furnished inaccurate particulars of income. The addition has been sustained by the ITAT, and the assessee has filed an appeal before the Hon’ble Madras High Court, which has been admitted the appeal on the following substantial questions of law:
1. “Whether, in the facts and circumstances of the case, the Tribunal is right in law in holding that the computation of capital gains for exchange of lands ought to consider both legs of the transaction and that it is only the net value arising out of such exchange, after considering the market value of both properties exchanged, that the provisions of Section 45 of the Act are to be applied?”
2. “Whether, in the facts and circumstances of the case, the Tribunal is right in law in rejecting the additional grounds filed by the Appellant, without appreciating that the grounds sought to be raised go to the root of the matter and involve a legal issue which can be raised at any stage?”
The Ld. A.R. has argued that since the issue is debatable, and merely because the assessee has made a claim which is not sustainable in law does not amount to furnishing inaccurate particulars of income, penalty cannot be sustained. The Ld. A.R. has relied on the decision of the Hon’ble Bombay High Court in CIT v. Nayan Builders & Developers [2015] 56 taxmann.com 335 (Bom.) and the decision of the Hon’ble Delhi High Court in PCIT v. Harsh International (P.) Ltd. [2021] 128 taxmann.com 88 (Del.), wherein it was held that when a substantial question of law has been admitted in quantum proceedings on the very issue forming the basis of penalty, the penalty is not sustainable.
8. The Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 22 ITR 158 (SC) has held that merely because a claim made by an assessee is not accepted by the revenue, it does not automatically mean a penalty is leviable. There must be proof of either the concealment of income or the furnishing of inaccurate particulars of income. A claim that is not allowed, even if incorrect, is not necessarily evidence of concealment or furnishing inaccurate particulars, especially if the primary facts were disclosed.
We, accordingly, reverse the order of the Ld. CIT(A) and cancel the penalty levied by the A.O.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 04th day of December, 2025 at Chennai.