SHRI RAJESH MOOLCHAND DAYARAMANI,,NAGPUR vs. ACIT-CIRCLE-8,, NAGPUR

PER AMARJIT SINGH, J.M.

The instant appeal by the assessee is directed against the

impugned order dated 3rd February 2014, passed by the learned

Commissioner (Appeals)–II, Nagpur, confirming penalty imposed

under section 271(1)(c) of the Income Tax Act, 1961 (for short “the

Act”) for the assessment year 2009–10.

“1. The learned CIT(A) erred in confirming the penalty of ` 18,00,000 under section 271(1)(c).

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assessee is a contractor and executes construction of roads for various

State Government Authorities as well as PWD etc. During the course of

assessment proceedings, it was noted by the Assessing Officer that the

assessee had sold one property for consideration of ` 1,19,00,000 and

had made a claim of exemption under section 54F of the Act

amounting to ` 42,44,846 and after deducting indexed cost of

acquisition, had offered ` 38,48,320 as taxable long term capital gain.

The Assessing Officer also examined the various purchase and sale

documents for the original and newly acquired properties and came to

the conclusion that the assessee would not be entitled to claim the

said deduction under section 54F. The withdrawal of exemption under

section 54F of the Act was made by the Assessing Officer for the

following reasons:–

(i) It was noted by the Assessing Officer that for making a claim of exemption u/s 54F the appellant should have purchased a residential house within one year before or two years after the date on which the transfer of the original asset took place. Alternatively he should have constructed a residential house within a period of three years after the date on which the transfer of the original assets took place. In the case of the assessee, however, transfer of

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the said property took place on 09-06-2008 while the new residential house was brought by the appellant on 29-05-2006 that is more than two years prior to the date of transfer. Since the basic condition for making the claim u/s 54F was not met, the Ld. AO came to the conclusion that the said exemption cannot be given to the appellant.

(ii) It was further noted by the Ld. AO that as per the proviso a(ii) to section 54F(1), exemption cannot be given to the appellant if he purchases a residential house, other than the new asset, within a period of one year after the date of transfer of the original asset. In the case of the appellant it was seen by the Ld. AO that the appellant had acquired one property on 12-09-2008 and on perusal of the schedule of property as stated in the purchase document it was a house being a residential house bearing city of Nagpur Corporation No. 706, City Survey no. 451, plot no. 29, Jaripatka colony. The Ld. AO deputed an Inspector to enquire about the nature of the property wherein it was ascertained that the said properties was a residential property. This fact was brought to the knowledge of the appellant vide order sheet dated 03-11-2011. It was stated by the appellant that the said property is a godown. The Ld. AO however came to the conclusion that in view of the above facts also the appellant was not entitled to the claim of exemption u/s 54F and the same was required to be withdrawn.

(iii) It was also noted by the Ld. AO that the appellant had purchased a residential property and had carried out extensive construction thereon which was not residential construction but was more in the nature of furnishing and renovation. The Ld. AO was of the opinion that exemption u/s 54F is allowable only when the sale consideration is invested either in purchase of residential house or for construction of a residential house and since the appellant's claim to have done both the claim u/s 54F would have to be rejected on this ground also.

(iv) It was also noted by the Ld. AO that the appellant had borrowed money from HDFC Bank and PNB which clearly showed that the appellant had not invested sale proceeds from the sale of the original assets individually acquired property and since this was the primary requirement of section 54F the appellant would not be entitled to exemption under section 54F.”

rejecting the contentions of the assessee held that the assessee had

deliberately sought to conceal his taxable (real) income through

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inaccurate particulars and accordingly, penalty proceedings for

furnishing inaccurate particulars of income and concealment of income

under section 271(1)(c) of the Act were initiated on two grounds:–

i) Assessee had claimed exemption under section 54 of the Act, when he was not eligible to do so;

ii) Assessee had furnished inaccurate details of sale consideration received for one of the properties for the purpose of calculation of capital gain.

271(1)(c) of the Act, the assessee filed appeal before the first

appellate authority, wherein, the learned Commissioner (Appeals) has

confirmed the penalty imposed by the Assessing Officer. The assessee

feeling aggrieved filed appeal before us.

written submission, which is reproduced herein below:–

“A) On merits additions made by A.O. itself is unsustainable in law no penalty can be levied in respect to such addition. Reliance on:

i) Gist of submission made in ITA No.449/Nag./2013 in the case of assessee.

B) Genuine and bonafide claim of exemption u/s 54F of IT. Act 1961 by assessee. A.O. has not disputed the genuineness of expenditure incurred on construction of residential house. Entire expenditure incurred on construction of residential house has been reflected in balance sheet and details thereof have been submitted by assessee. Nothing is hidden by assessee. Particulars furnished are not found to be inaccurate. No concealment of income. Penalty u/s 271 (1 )(c) is unsustainable.

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C) It is settled position of law that no penalty can be levied in respect to debatable issues. From the decisions relied by assessee in gist of submission in ITA No.449/Nag/2013 it is clear that issue under consideration is debatable issue and same cannot be visited with penalty u/s 271 (1 )(c).

Reliance on: i) 231 Taxman 0665 (Bom.) CIT vs. Nayan Builders and Developers

D) Mere making of a claim which is not sustainable in law will not amount to furnishing of inaccurate particulars of income.

Reliance on: i) 322 ITR 158(SC) CIT vs. Reliance Petro Products

E) Mere disallowance of bonafide disputed claim cannot be visited with penalty u/s 271(1)(c) of Act 1961.

Reliance on: i) 288 ITR 670 (Del.) CIT vs. Nath Bros. Exim International

ii) 288 ITR 570 (Del.) CIT vs. International Audio Visual

F) Imposition of penalty is not mandatory. Reliance on:

i) 83 ITR 26 (SC) Hindustan Steel Ltd. vs. State of Orissa

G) Assessee during assessment proceedings has submitted copy of registered sale deed in respect to sale of property. Assessee invites attention at page 4 of penalty order wherein A.O. observed from registered sale deed submitted by assessee that sale consideration of property sold is Rs.129 lacs. Accountant of assessee had committed an inadvertent and bonafide error by considering sale consideration at Rs.119 lacs. Correct amount of sale consideration was apparent from perusal of registered sale deed and it did not require to make any inquiry or investigation. It clearly depict bonafide mistake. No penalty ought to be levied u/s 271(1)(c) of IT. Act 1961.

Reliance on: i) 348 ITR 306 (SC) Price Water Coopers Pvt. Ltd. vs. CIT

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H) Registered sale deed is a disclosed transaction. Inadvertent bonafide mistake in taking the sale consideration cannot be taken as on act of concealment. I) Show cause notice speaks of concealment of income and furnishing particulars of income. Notice vague and consequent levy of penalty under section 271(1)(c) bad in law.

Reliance on:

i) Hon'ble Bombay High Court in ITA No. 1154 of 214 in the case of Shri Samson Perinchery vide order dated 05/01/2017.

ii) Supreme Court order in Petition(s) for SLP (C) 72016 (CC No.11485/2016) in the case of M/s. SSA's Emerald Meadows.

iii) Hon'ble Karnataka High Court in ITA No.380 of 2015 in the case of M/s. SSA's Emerald Meadows vide order dated 23/11/2015.

J) Perusal of penalty order would indicate that no discussion has been made in respect to levy of penalty on addition made on account of ALV of property. Infact, no penalty has been levied in respect to same. Hon'ble CIT(A) erred in observing that penalty is confirmed for ALV which has not been levied by A.O.

K) Decisions relied upon by A.O. and Hon’ble CIT(A) are distinguishable on facts and hence are not applicable in the case of assessee.”

observations of the authorities below.

available on record. The penalty has been levied at the hands of

assessee in respect to disallowance of claim under section 54F of the

Act as well as ALV assessed in respect to property shown in the

financial statement as godown. The addition made by the assessee on

account of disallowance under section 54F of the Act and addition

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made is respect to ALV were challenged in the appeal and has been

considered in the appeal filed by the assessee before us in ITA No.

449/Nag./2013. In the order passed in the appeal in ITA No 449/

Nag./2013 the addition made by the Assessing Officer on account of

disallowance of exemption under section 54F as well as addition on

account of ALV has been deleted. It is thus obvious that no penalty

would survive in respect to addition made on account of disallowance

of claim under section 54F and for ALV of property shown as Godown

In respect to sale consideration of property shown less by ` 10 lakh it

has been explained to be bonafide mistake of accountant. The

property sold by assessee having been declared in the return of

assessee explanation as to bonafide mistake of accountant of assessee

cannot be discarded. The explanation given by assessee is reasonable

and deserve acceptance for the purpose of penalty to be levied by

under section 271(1)(c) of the Act. Considering the totality of facts

and circumstances case of assessee it is held that penalty levied to be

unjustified and is directed to be cancelled. It is further seen that in

case of assessee notice issued for imposition of penalty under section

271(1)(c) of the Act, is in cyclostyle proforma notice where no specific

charge to show as to whether the penalty is exigible for concealment

of income or furnishing inaccurate particulars of income is to be levied

at the hands of assessee. The aforesaid legal issue has been

considered by the Co–ordinate Bench of the Tribunal, Mumbai Bench,

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Mumbai in case of Siddhi Home Makers, order dated 28th April 2017 in

ITA No. 4168/Mum./2013 and it has been held as under:–

“6. We have carefully considered the rival submissions with regard to the preliminary plea of the assessee in terms of which the validity of the proceedings initiated under section 271(1)(c) of the Act has been sought to be challenged. The sum-and- substance of the point raised by the assessee is that the notice issued by the Assessing Officer under section 274 r.w.s. 271(1)(c) of the Act dated 30/12/2010 does not reflect an appropriate application of mind, inasmuch as, the notice has been issued in a standard proforma where the irrelevant portion has not been struck off. At the time of hearing, Ld. Representative for the assessee has referred to the notice issued under section 274 r.w.s. 271(1)(c) of the Act dated 30/12/2010 in this regard. Factually speaking, it is clearly emerging that the notice has been issued in a standard proforma and the irrelevant limb of section 271(1)(c) of the Act has not been struck off. Notably, the penalty provisions of section 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer. The Hon’ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon’ble Supreme Court, in such a situation, levy of penalty suffers from non-application of mind. In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notice under section 274 r.w.s. 271(1)(c) of the Act dated 30/12/2010 without striking off the irrelevant words,

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the penalty proceedings show a non-application of mind by the Assessing Officer and is, thus, unsustainable. We hold so.”

hereinabove squarely applies to facts in case of assessee and

respectfully following the same penalty levied u/s 271(1)(c) of Income

Tax Act 1961 is not sustainable on the aforesaid legal ground also.

The Hon’ble Bombay High Court in case of Shri Samsung

Pericheryreported at 392 ITR 4 (Bom) has taken a similar view and

ratio laid down therein fully support the submission of assessee. The

ratio laid down by Hon’ble Jurisdictional High Court applies with full

force to the facts in case of assessee and considering the same penalty

levied is unsustainable. Considering the totality of facts and

circumstances in case of assessee we are of considered opinion that

the penalty levied is unjustified and is directed to be cancelled. The

ground of appeal is allowed.

Order pronounced in the open Court on 28.06.2017

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED: 28.06.2017

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Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur