AMOL VASANT DESHMUKH,PUNE vs. INCOME TAX OFFICER, WARD 6(2), PUNE

From perusal of the grounds of appeal, we notice that common grievance of the assessees is against the levy of penalty u/s.271(1)(c) of the Act at ₹ 18,00,580/-, ₹18,75,645/- and ₹14,60,970/- namely Amol Vasant Deshmukh in ITA No.1837/PUN/2025; Tulsabai Vasant Deshmukh in ITA No. 1838/PUN/2025; and, Rohini Maruti Deshmukh in ITA No.1839/PUN/2025 respectively. 4. Since in all these appeals commons issues have been raised, therefore, there were heard together and being disposed of by this common order for the sake of convenience and brevity. For adjudication of issues raised, we take up ITA No.1837/PUN/2025 and our decision shall apply mutatis mutandis on the remaining appeals ITA Nos. 1838 & 1839/PUN/2025. 5. Grounds of appeal raised by the assessee, namely Amol Vasant Deshmukh in ITA No.1837/PUN/2025 reads as under:- “1. Under the facts and circumstances of the case and in law, Ld Assessing Officer has erred in levying Penalty u/s 271(1)(c) of Rs. 18,00,580/-.

Under the facts and circumstances of the case and in law, the assessee's case was selected for limited scrutiny for the specific purpose of examining the issue "large deduction claimed u/s 54B, 54C, 54D, 54G and 54GA & Large Investment in property (AIR) as compared to total income". However, Ld Assessing Officer has travelled beyond the scope of limited scrutiny by reclassifying the nature of income and making an addition under the head "Business Income", which is contrary to the scope of enquiry permitted under the limited scrutiny guidelines. Hence addition is not sustainable. Accordingly, penalty cannot be levied on such addition.

Under the facts and circumstances of the case and in law, in the Assessment Proceedings, Ld Assessing Officer has reclassified the capital receipts as business income. However, while making the addition, the entire gross receipts have been considered without allowing any deduction for related expenses. The assessee has not maintained books of accounts, and therefore, in such circumstances, the income should have been computed on a presumptive basis under section 44AD of the Act, wherein 8% of the gross receipts may be reasonably taken as income. Accordingly, if at all penalty proceedings are to be initiated, the same should be with reference to the deemed income under section 44AD, and not on the entire gross receipts.

The appellant craves the permission to add, amend, modify, revise, substitute, delete or alter any/all of the above grounds of appeal if deemed necessary at the time of hearing of the appeal.”

Brief facts of the case are that assessee is an individual and e-filed the return of income for A.Y. 2015-16 on 31/08/2015 declaring income of ₹ 30,190/- after claiming deduction u/s. 54F at ₹ 64,01,600/- and u/s. 54B at ₹ 28,80,560/- and has shown Long Term Capital Gain (LTCG) at ₹ NIL. Case selected for limited scrutiny under CASS and valid notices u/s. 143(2) & 142(1) of the Act were served upon the assessee. Ld.AO observed that assessee has shown LTCG at ₹ 90,95,120/-, and against this income, has claimed deduction u/s. 54F & 54B of the Act and declared NIL income under capital gain. Ld.AO, further on examination of records, observed that on account of transaction of conversion of capital asset into stock-in-trade during the F.Y. 2010-11, the assessee’s share of capital gain is ₹ 1,64,17,638/- and the same is required to be offered to tax in the year when consideration is received. Ld.AO further observed that out of 5 ITA.Nos.1837-1839/PUN./2025 (Amol Vasant Deshmukh & Ors.)

On the other hand, Ld. Departmental Representative (DR) vehemently argued supporting the order of Ld. CIT(A).

We have heard rival contentions and perused the records placed before us. The grievance of the assessee namely Amol Vasant Deshmukh in ITA No. 1837/PUN/2025 is against the levy of penalty u/s. 271(1)(c) of the Act at ₹18,00,580/-, which has been levied by the Ld.AO for excess claim of deduction

We further observe that Ld.AO on noticing that as against the remaining amount of LTCG of ₹ 27,14,877/- the benefit of exemption u/s. 54F & 54B, could not exceed ₹ 27,14,877/-. We note that assessee has claimed excess benefit of ₹ 63,80,243/-. We further observe that the last date for revising the return of income for A.Y. 2015-16 is 31/03/2017 and prior to the expire of the said date, assessee has been served with notice u/s. 143(2) of the Act on 29/09/2016. Assessee has furnished revised computation of income and has reduced the claim of deduction u/s. 54F & 54B only to ₹27,14,877/- and had opted for not revising the return of income during the course of assessment proceedings. 12. Now for such excess claim of deduction u/s. 54F & 54B of the Act in the income tax return at ₹63,80,243/-, whether such mistake is liable to be visited by penalty u/s. 271(1)(c) of the Act. Here, we would like to take a note of the judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra) wherein Hon'ble Court has held that “A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars”. The judgment of the Hon'ble Apex Court reads as under (relevant extract):- “2. The only question in this appeal which has been filed by the Commissioner of Income-tax-III is as to whether the respondent-assessee is liable to pay the penalty amounting to Rs. 11,37,949 under section 271(1)(c) of the Income-tax Act

Few facts would be relevant.

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.

By way of response to the show-cause notice regarding the penalty in its reply dated 22-3-2006, the assessee claimed that all the details given in the Return were correct, there was no concealment of income, nor were any inaccurate particulars of such income furnished. It was pointed out that the disallowance made by the Assessing Authority in the assessment order under section 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. It was claimed that mere disallowance of the claim in the assessment proceedings could not be the sole basis for levying penalty under section 271(1)(c) of the Act. It was submitted specifically that it was an investment company and in its own case for assessment year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessment Officer and the Tribunal has also confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on the basis of this that the expenditure was claimed. It was further submitted that 11 ITA.Nos.1837-1839/PUN./2025 (Amol Vasant Deshmukh & Ors.) making a claim which is rejected would not make the assessee-company liable under section 271(1)(c) of the Act. It was again reiterated that there was absolutely no concealment, nor were any inaccurate particular ever submitted by the assessee-company.

Shri Bhattacharya, Learned ASG submits that Commissioner (Appeals), the Tribunal as well as the High Court have ignored the positive language of section 271(1)(c) of the Act. He pointed out that the claim of the interest expenditure was totally without legal basis and was made with the mala fide intentions. It was further pointed out that the claim made for the interest expenditure was not accepted by the Assessing Authority nor by the Commissioner (Appeals) and, therefore, it was obvious that the claim for the interest expenditure did not have any basis. He further pointed out that the contention about the earlier claims being finalized was also not correct as the appeal was pending before the High Court against the order of the Tribunal for the year 2000- 01. According to the learned ASG, even otherwise, the expenditure on interest could not have been claimed in law, as under section 36(1)(iii), only the amount of interest paid in respect of capital borrowed for the purposes of the business or profession could have been claimed and it was clear that the interest in the present case was not in respect of the capital borrowed. Our attention was also invited to section 14A of the Act, which provides that no deduction could be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The learned ASG also invited our attention to provision of section 10(33) to show that the income arising from the transfer of a capital asset could not be reckoned as an income which can form the part of the total income. In short, the contention was that the assessee in this case had made a claim which was totally unacceptable in law and thereby had invited the provisions of section 271(1)(c) of the Act and had, therefore, exposed itself to the penalty under that provision.

As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under :—

Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Jt. CIT [2007] 6 SCC 329, this Court explained the terms "concealment of 13 ITA.Nos.1837-1839/PUN./2025 (Amol Vasant Deshmukh & Ors.) income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of section 271(1) provided for a discretionary juri iction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff's case (supra) was upset. In Dharamendra Textile Processors' case (supra), after quoting from section 271 extensively and also considering section 271(1)(c), the Court came to the conclusion that since section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff's case (supra) was overruled by this Court in Dharamendra Textile Processors' case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors' case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff's case (supra), where the Court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff's case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff's case (supra) was overruled.

We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as :—

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 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 15 ITA.Nos.1837-1839/PUN./2025 (Amol Vasant Deshmukh & Ors.) assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu [2009] 23 VST 249 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. 12. 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.”

In the light of the above judgment and on examining the facts of the instant case, we find that assessee has furnished all the particulars of income properly in the income tax return and has shown the correct LTCG of ₹ 90,95,120/- as against the old amount calculated at ₹ 27,14,877/-. It is also not the case of the Revenue that claim of deduction u/s. 54F/54B made by the assessee is not as per the provisions of the Act and that any of the conditions provided u/s. 54F/54B of the Act, has not been fulfilled. The only mistake pointed out by the Ld.AO is that incorrect claim of higher deduction u/s. 54F/54B of the Act has been made by ₹ 63,80,243/-. It is 16 ITA.Nos.1837-1839/PUN./2025 (Amol Vasant Deshmukh & Ors.) further an admitted fact that assessee has revised the computation of income during the assessment proceedings itself in spite of the fact that assessee could have easily revised the income tax return. All these facts clearly demonstrate that inadvertent mistake has been committed by the assessee making a wrong claim of deduction u/s. 54F/54B of the Act, however, it is not a case of concealment of particulars of income or furnishing inaccurate particulars and therefore the ratio laid down by the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra) squarely applies on the facts of the instant case. Therefore, we are of the considered view that Ld.CIT(A) erred in confirming the action of the Ld.AO in levying penalty u/s. 271(1)(c) of the Act. Finding of the Ld.CIT(A) is set aside and impugned penalty is deleted. Grounds of appeal raised by the assessee are allowed. 14. So far as remaining ITA Nos. 1838 & 1839/PUN/2025 are there, since both the parties have agreed that the issues raised therein verbatim and also the facts are similar and arising out of the same transaction and the basis of levying penalty is the same, we therefore, apply our decision in ITA No. 1837/PUN/2025 mutatis mutandis on the remaining appeals ITA Nos. 1838 & 1839/PUN/2025 and set aside the findings of the Ld.CIT(A) and delete the impugned penalties. Grounds of appeals raised therein are allowed as per the terms indicated hereinabove.

In the result, all the appeals (ITA Nos. 1837, 1838 & 1839/PUN/2025) filed the Assessees are allowed.