ITO 19(1)(2), MUMBAI vs. BHARATIBEN A SHAH, MUMBAI

The sole ground of the raised by the Revenue in this appeal is that the ld. CIT(A) erred in deleting the penalty u/s 271(1)(c) of the Act.

Briefly stated, the facts are that the assessee filed her return of income for the AY 1998-99 on 21.01.1999 declaring total income of Rs.92,897/-. During the relevant year, the assessee had received Rs.5.5 crores as her share of sale proceed of a property named Sakina Manjil situated at S.V. Road, Bandra (W) Mumbai. The assessee claimed exemption of long term capital gains u/s 54 on purchase of a new property of Rs.4.85 crores. The new property was stated to have been purchased on 20.08.1998. The AO vide his order u/s 143(3) of the Act dated 22.03.2002 had rejected the claim of the assessee as it was found that the construction of a building in which the assessee had agreed to purchase seven flats on different floors was still in progress and possession of the flat was not given to the assessee till date. The AO, therefore made an addition of Rs.4,67,93,367/- as long term capital gains in the assessment made by him u/s 143(3) of the Act. Then the AO imposed a penalty of Rs. 93,58,673/- being 100% of the tax sought to be evaded. In further appeal filed by the assessee, the ld CIT(A) has cancelled the penalty imposed by the AO.

The Ld. DR supported the order of penalty passed by the AO u/s 271(1)(c) of the Act.

The Ld. Counsel of the assessee supported the order dated 19.01.2015 passed by the Ld. CIT(A). He also submitted that the Hon’ble Bombay High Court has admitted the following substantial question of law in the case of the assessee for the impugned assessment year on 25.10.2016 in ITA No. 1021/2014. The same reads as under:- “1. Heard. This appeal relates to Assessment Year 1998-99. 2. Admit on the following substantial questions of law:- (i) Whether on facts and in the circumstances of the case and in law, the Tribunal is justified in denying the deduction u/s 54 claimed by the appellant ? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal is justified in not appreciating that there is substantial compliance of law by the appellant and the balance of convenience is also in favour of the appellant ? 3. Registry is directed to communicate a copy of this order to the Tribunal. This would enable the Tribunal to keep the papers and proceedings relating to the present appeal available, to be produced when sought for by the Court.”

The ld. Counsel of the assessee thus submitted that as the assessee’s appeal in quantum proceeding has been admitted on substantial questions of law, the question of penalty being debatable should be cancelled.

We find that the Hon’ble Bombay High Court has admitted the substantial question of law in respect of the deduction u/s 54 of the Act claimed by the assessee. We note that the Hon’ble jurisdiction High Court vide order dated 08.07.2014 in the case of CIT vs. Nayan Builder and Developer (ITA No. 415/2012) has held that on such debatable issue no penalty is imposable u/s 271(1)(c) of the Act. In view of the above position of law, we uphold the order of the Ld. CIT(A) deleting the penalty of Rs.93,58,673/- imposed by the AO u/s 271(1)(c) of the Act. However, it is made clear that if at any stage, the order of the Tribunal on quantum addition is upheld by the Hon’ble High Court, the Department is free to proceed in accordance with law on penalty proceedings. 8. In the result, appeal filed by the Revenue is dismissed.