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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI INTURI RAMA RAO
आदेश / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
This appeal of the assessee is directed against the order of the
Commissioner of Income-tax (Appeals)-5, Chennai dated 29.06.2018 for
assessment year 2010-11. Since, the issues are common, the appeals are
heard together and disposed off by the common order. For the sake of
ITA Nos.2680 & 2681/Chny/2018 :- 2 -:
convenience, we take up the assessee’s quantum appeal in ITA No.
2680/Mds/2018.
ITA No. 2680/Mds/2018: 2. The brief facts of the case are that the appellant is an individual,
engaged in the Two wheeler financing. The return of income for the AY 2010-
11 was filed on 31.03.2011 disclosing total income of Rs. 1,99,990/-. Against
the said return of income, the assessment was completed by Income Tax
Officer, Non-Corporate Ward 5(1), Chennai vide order dated 26.03.2013
passed u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) at total
income of Rs. 44,10,950/-. Subsequently, when the Assessing Officer noticed
that while computing the capital gains, the assessee had claimed a sum of
Rs.5,50,381/- towards addition to the cost of improvement to the asset, which
was incurred by the previous owner in the year 2001-02 whereas the property
was settled in favour of assessee on 13.09.2012 by registered document, the
value of property was declared at Rs.1,90,000/-. Based on this information,
the Assessing Officer was of the opinion that the income of Rs.4,49,990/- had
escaped from assessment and accordingly, issued notice u/s.148 of the Act on
17.03.2017. The assessee filed return of income on 24.06.2017 in response to
said notice u/s.148 of the Act, disclosing income of Rs.44,10,950/-, which is
the same as the original assessed income and this was revised on 11.08.2017
at total income of Rs.40,40,990/-. Against the said return of income,
assessment u/s.143(3) r.w.s. 147 of the Act was completed vide order dated
ITA Nos.2680 & 2681/Chny/2018 :- 3 -:
19.12.2017 at a total income of Rs.51,89,118/-. While doing so, the Assessing
Officer had only taken cost of purchase in the hands of original owner of
Rs.90,224/- without considering the cost of improvement borne by the
previous owner while computing the capital gains.
Being aggrieved, an appeal was preferred before ld. CIT(A), who vide
impugned order confirmed the action of the Assessing Officer. Being
aggrieved, the appellant is in appeal before us in the present appeal.
It is submitted by ld.AR that the lower authorities have totally ignored
the cost of improvement borne by the previous owner and the value adopted
for the purpose of registration of settlement deed has no relevance.
On the other hand, Senior ld.DR placed reliance on the orders of lower
Authorities.
We have heard the rival contentions and perused the material available
on record. The only issue involved in the present appeal relates to whether the
cost of improvement borne by the previous owner in the case of acquisition of
the property by one of the modes specified u/s.49 of the Act is allowable
deduction for the purpose of calculating gains. The issue was considered by
the Hon’ble Bombay High Court in the case of C.I.T Vs. MANJULA J. SHAH
reported in [2012] 204 Taxman 691 (Bom) wherein it has been held as
follows:-
“22. The object of giving relief to an assessee by allowing indexation is with a view to offset the effect of inflation. As per the CBDT Circular No. 636 dated 31/8/1992 [see 198 ITR 1(St)] a fair method of allowing
ITA Nos.2680 & 2681/Chny/2018 :- 4 -:
relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under Section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, the first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee.
Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee, the indexed cost of acquisition has also to be determined on the very same basis.
In the result, we hold that the ITAT was justified in holding that while computing the capital gains arising on transfer of a capital asset acquired by the assessee under a gift, the indexed cost of acquisition has to be computed with reference to the year in which the previous owner first held the asset and not the year in which the assessee became the owner of the asset.”.
The ratio of the decision of the Hon’ble Bombay High Court is clearly
applicable to the facts of the case. Accordingly, we direct the Assessing Officer
to allow the cost of improvement borne by the previous owner as inflated by
indexation.
ITA Nos.2680 & 2681/Chny/2018 :- 5 -:
In the result, the appeal of assessee is allowed.
ITA No. 2681/Mds/2018: 8. This appeal of the assessee is directed against the Commissioner
of Income-tax (Appeals)-5, Chennai dated 02.02.2016 for assessment year
2010-11 confirming the penalty levied u/s.271(1)(c) of the Income Tax Act,
1961 (in short “the Act”) by the Assessing Officer.
At the outset, it is noticed that the appeal has been filed with a delay
of 897 days. The Assessee filed condonation petition, praying for
condoning the delay by stating that the delay had occurred on account of
fact that the Appellant is an aged person and suffering Chronic Renal Failure,
Hypertension, Hypothyroidism, depression, etc. and therefore, they could not
follow up the Auditor, who was entrusted with the job of filing the appeal and
the delay had occurred on account of lapse of the Chartered Accountant. The
learned Sr.D.R opposed the condoantion of delay.
We have heard the rival submissions. Considering the fact that the
Appellant is aged and suffering from complexity of diseases, it is a fit case for
condonation of delay and accordingly we condone the delay of 897 days in
filing the appeal and admit the appeal accordingly.
The assessee raised the following grounds of appeal.
“1. The order of the ld. Assessing Officer is contrary to law facts and circumstance, against the principles of natural justice, legitimate expectation, against evidence &
ITA Nos.2680 & 2681/Chny/2018 :- 6 -:
fair procedure and there is neither concealment or furnishing of inaccurate partakers to initiate proceedings u/s 271 (1) (c). 2. The learned CIT (A) fundamentally failed to appreciate that the impugned order is illegal due to non satisfaction in the light of the fact there exists neither concealment of income or furnishing inaccurate particulars The burden of proof placed on the assessee under the Explanation is subject to conditions therein. It is necessary that there should be an inference of concealment at the time of initiation of the proceedings in the no ice issued u/s 274 read with 271 (1)(c) of the Act. – Vs. L&T Finance Ltd.(Bombay High Court) 3. Without prejudice, the penalty is not imposable since the AO /CIT (A) based his reasons on the strength of the orders of the appellate order of the difference assesse without application of mind in regard to penalty proceedings in the case of the appellant (a) It is well settled that the assessment and penalty proceedings are separate distinct and hence the findings given in the assessment are not relevant and penalty cannot be based on such findings and hence the order is void and nullity. In the penalty proceedings, the authorities must consider the matter a fresh as the question has to be considered from different angle. (see (Ashok Pai (SC) (b) The explanation is bona fide and hence penalty is not leviable. (c) The supreme court in the case of T. Ashok Pai vs. CIT (2007) 292 ITR 11 (SC) pointed that the penalty issue should be decided on a different angle. 4. Capital gains: The learned CIT (A) fundamentally failed to appreciate (a) hence the impugned order is void. since it was cut and pasted of other assesse without application of mind (b) relief u/s 54 the Ac was negatived by the AO without any enquiry and it is duty of the AO is to inform relief available to the assessee (see ABHINITHA FOU\JDATION PVT. LTD.396 ITR 251 (Mad) (c) the additions made in the assessment had not become final and the matter has been taken before the Appellate authorities. 5. That the Appellant is entitled to relief u/s.35(1)(ii) of the Act (See Reliance Petro (322 ITR 158 SC) 6. The Appellant craves leave to file additional grounds.”
ITA Nos.2680 & 2681/Chny/2018 :- 7 -:
The brief facts of the case are that the return of income for
assessment year 2010-11 was filed by the assessee declaring total income
of Rs.1,99,990/-. Against the said return of income, the assessment was
completed vide order dated 26.03.2013 passed u/s.143(3) of the Act at
assessed income of Rs.39,60,961/- after making addition on account of
long term capital gains on sale of property and making disallowance of
Rs.2,50,000/- u/s.35(1)(iii) of the Act. The Assessing Officer had initiated
the penalty proceedings u/s.271(1)(c) of the Act on the ground that
assessee had failed to disclose the capital gains on sale of immovable
property and also made a wrong claim of Rs.2,50,000/- u/s.35(1)(iii) of
the Act. In respect of show cause notice, it is submitted that the addition
was made only for assessee’s inability to produce evidence in respect of
construction of a new house, which is eligible for deduction u/s.54 of the
Act and therefore, it is submitted that it is not a fit case warranting levy of
penalty u/s.271(1)(c) of the Act. However, the Assessing Officer rejected
the said explanation vide order dated 24.09.2013 and imposed penalty of
Rs.8,15,958/- u/s.271(1)(c) of the Act. Being aggrieved, an appeal was
preferred before ld. CIT(A), who vide impugned order confirmed levy of
penalty. Being aggrieved, the appellant is in appeal before us in the present
appeal.
We have heard the rival contentions and perused the material
available on record. Admittedly, the penalty was levied in respect of addition
made on account long term capital gains on sale of immovable property and
ITA Nos.2680 & 2681/Chny/2018 :- 8 -:
the addition on account of alleged bogus claim u/s.35(1)(iii) of the Act. In
respect of assessment of capital gains, the assessee has claimed exemption of
capital gains u/s.54 of the Act, but the assessee had failed to produce
evidences in respect of construction of a new house. In the circumstances, the
Assessing Officer had made an addition of capital gains. Thus, the addition
was made by the Assessing Officer for failure to prove the claim.
Similarly the addition u/s.35(1)(iii) of the Act was made by the
Assessing Officer only for assessee’s inability to produce necessary approval
from CBDT. Therefore, it is settled proposition of law that mere inability to
substantial claim does not entail levy of penalty u/s.271(1)(c) of the Act,
reliance in this regard can be placed on the decision of Supreme Court in
the case of C.I.T Vs. Reliance Petroproducts Pvt Ltd.,reported in 322 ITR
158(SC), accordingly, we are of the considered opinion that it is not a fit
case for levy of penalty.
In the result, the appeal filed by the assessee is allowed.
To sum up, both the appeals of the Assessee in ITA No. 2680/Mds/2018
and ITA No. 2681/Mds/2018 are allowed.
Order pronounced on the 14th August, 2019 in Chennai.
Sd/- Sd/- (इंटूर� रामा राव) (एन.आर.एस .गणेशन) (INTURI RAMA RAO) (N.R.S. GANESAN) लेखा सद�य/ACCOUNTANT MEMBER �या�यकसद�य/Judicial Member
ITA Nos.2680 & 2681/Chny/2018 :- 9 -:
चे�नई/Chennai, 2दनांक/Dated: 14th August, 2019. K S Sundaram
आदेश क, *�त3ल4प अ5े4षत/Copy to: 1. अपीलाथ)/Appellant 4. आयकर आयु6त/CIT 2. *+यथ)/Respondent 5. 4वभागीय *�त�न�ध/DR 3. आयकर आयु6त (अपील)/CIT(A) 6. गाड& फाईल/GF