ITO 18(3)(1), MUMBAI vs. ASHOK BHIMRAO MOKASHI, MUMBAI

सुनवाई क" तार"ख /Date of Hearing : 07-06-2016 घोषणा क" तार"ख /Date of Pronouncement : 25-08-2016 आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

ITA 7053/Mum/2013 2

2. The grounds of appeal raised by the Revenue before Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) in the memo of appeal filed with the Tribunal read as under:-

“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty u/s.271 (1 )(c) of the I.T. Act, 1961 of Rs.42,29,880/- for AY.2009-10 without appreciating the fact that the assessee claimed the cost of acquisition of tenanted property at Rs.26,06,640/-- i.e,. value as on 01.04.1981 and arrived at indexed cost of Rs.1,51,70,645/- though the assessee had not paid any consideration for acquisition of the tenanted property and hence the assessee was not entitled for it. This clearly shows that the assessee had furnished inaccurate particulars of income.

2. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty u/s.271 (1 )(c) of the LT.Act,1961 of Rs.42,29,880/- for AY.2009-10 without appreciating the fact that the assessee had not disclosed the sale transaction in his return of income, therefore, the claim of exemption does not arise.

3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty u/s.271 (1 )(c) of the LT.Act,1961 of Rs.42,29,880/- for A Y.2009-10 without appreciating the fact that if the transaction of the assessee was not detected by the AIR on the basis of which the case was selected for scrutiny, the sum of Rs.1,86,61 ,620/- would have escaped assessment.

4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty u/s.271 (1)(c) of the I.T.Act,1961 of Rs.42,29,880/- for AY.2009-10 by relying on the judgment of Chandra Pal Bagga Vs. ITAT & ANR (261 ITR 67)(Raj) and CIT Vs. Sri Saradha Textile Processors Pvt. Ltd.(286 ITR 499)(Mad) as in these case laws, the transaction on which penalty was levied were disclosed by the assessee in their return of incomes whereas in the instant case, the transaction on which penalty was levied was not disclosed in the return of income.

5. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred deleting the penalty u/s.271 (1 )(c) of the I.T.Act,1961 of Rs.42,29,8801- for AY.2009-10 without appreciating the fact that in the decision of the Delhi High Court vide order dated 10-08- 2013 in the case of HCIL Kalindee ARSSPL, it has been held that dubious and fanciful claims under the garb of interpretations, are a mere pretense and not bonafide. It has also been held that “Bonafides have to be shown and cannot be assumed and merely because the assessee complies with the statutory procedural requirement of filing ITA 7053/Mum/2013 3 such claim cannot absolve the assessee of its liability if the act of. attempt in claiming the deduction was not bonafide. For these and other reasons it is submitted that the order of the CIT(A) may be set aside and that of the AO be restored.”

The AIR information in this case was received by the AO in respect of investment made by the assessee in property as well as bonds/mutual funds. The assessee was asked to explain the source & proof of the said investments. The assessee submitted that he has received consideration in lieu of transfer of tenancy rights as per consent order passed by the Small Cause Court, Misc. Notice No. 40 of 2008 bearing No. 1011/3068 of 1988 dated 16/4/2008 amounting to Rs. 2,66,00,000/- which had been invested in a house property at Shanti Dharma Co-op. Housing Society, at Mogul Lane, Mahim, Mumbai- 400 016 and in two garages in the building 'B" Balgovind Co-op. Hsg. Society Ltd., Manorama Nagarkar Marg (South), Talkawadi Road., Mahim, Mumbai and also the assessee invested in mutual fund/bonds. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act , the A.O. observed that the assessee has taken cost of acquisition of tenancy rights at Rs.20,06,640/- i.e. value as on 1st April, 1981 and arrived at indexed cost The assessee has claimed exemption u/s 54F of the Act in respect of purchase of house property i.e. flat at Shanti Dharma Co-op. Housing Society, at Mogul Lane, Mahim, Mumbai together with two garages in another building. The assessee has also claimed cost of improvement and ITA 7053/Mum/2013 4 legal expenses of Rs. 25,97,310/- in respect of property purchased at Shanti Dharma Co-operative Housing Society . It was observed by the A.O. that since the capital gain is on account of transfer of tenancy right and the assessee has not paid any consideration for acquisition of the tenancy rights , the cost of acquisition was taken as Nil in view of provisions of Section 55(2)(a) of the Act by denying assessee’s claim of indexed cost of acquisition. The assessee had also claimed exemption u/s 54F of the Act for the purchase of two garages out of the above stated compensation received from tenancy right. But as per the agreement of the garages, it was observed by the AO that the garages are not situated in the same building where the assessee has purchased property i.e. Shanti Dharma Co-op. Housing Society. When asked as to why the purchase price of the garage should not be disallowed since it is not within the premises of the house property purchased, the assessee submitted that during the year assessee purchased a residential house at Shanti Dharma Co-operative Housing Society, but no garage was available for parking the car and hence he purchased a garage in the same locality. The AO allowed cost of one garage while rejecting the cost of second garage while computing deduction u/s 54F of the Act. Similarly, with respect to the cost of improvement and legal expenses of Rs. 25,97,310/- w.r.t. house property purchased at Shanti Dharma Co-op. Housing Society , no supporting documentary evidences were furnished by the assessee and accordingly the same were disallowed by the AO vide assessment order dated 30-12-2011 passed u/s 143(3) of the Act . The A.O. also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income.The AO issued notices u/s 274 r.w.s. 271(1)(c) of the Act.

The assessee in penalty proceedings reiterated the submissions what were made during the assessment proceedings and submitted that the claim of the assessee was bonafide and complete details of the transaction were submitted in the return of income as well in the assessment proceedings . The assessee ITA 7053/Mum/2013 5 submitted that the assessee has received a consideration of Rs.2,66,00,000/- in lieu of transfer of tenancy rights as per consent order dated 16/04/2008 passed by the Small Cause court. The assessee submitted that the since the tenancy rights were acquired prior to 1st April, 1981 hence the assessee substituted FMV of the asset as on 1st April, 1981 and the assessee claimed the indexed cost of acquisition, however, the claim of the assessee was disallowed by the AO and cost of acquisition was deemed to Rs. Nil. The assessee also submitted that assessee’s claim for cost of improvement and legal fees amounting to Rs. 25,97,310/- was also disallowed in the AO order on the ground that the same were incurred in respect of the property and not for the tenancy rights. It was also submitted that the assessee claimed deduction u/s. 54F of the Act in respect of investment in Flat at Shanti Dharma Co-operative Housing Society including cost of two garages which were a part of the said residential house although located at different building as garages were not available in the same building. The assessee submitted that deduction u/s. 54F of the Act was disallowed for the second garage premises. The assessee submitted that the assessee has furnished full details of the transactions and had also furnished the details during the course of assessment proceedings . The assessee submitted that the claim was bonafide.It was submitted that Section 55(2) gives an option to the assessee to substitute the fair market value of the asset as on 01-04-1981 and despite the cost of acquisition of tenancy rights being Nil , the assessee cannot be prevented from exercising the option provided to it under law as the tenancy rights became property of the assessee prior to 01-04-1981. It was submitted that it was a bonafide claim and that there was no intention to defraud the revenue. The assessee submitted that he had incurred an expenditure of Rs. 25,97,310/- towards cost of improvement and legal fees which led to improvement in the capital asset which led to increase in value / price of the tenancy rights. The assessee submitted that as a result of the above expenditure incurred by the assessee has led to the realisation of Rs. ITA 7053/Mum/2013 6 2.66 crores for the tenancy rights.Thus, it was submitted the same is cost of improvement of the property which should be allowed. It was submitted that the consideration of Rs. 2.66 crores in lieu of the transfer of tenancy rights was awarded to the assessee as per the Consent order passed by the Small Cause Court, hence, legal fees incurred towards the same is deductible u/s 48 of the Act as the same is incurred in connection with the transfer of the tenancy rights. The assessee submitted that the assessee acquired flat at Shanti Dharma Co-operative Hsg. Society where there was no car parking facility available, hence, the assessee acquired garages in the residential house in the nearby society in the locality , it was submitted that the garages ought to be considered as part of a residential house and hence, it is eligible for deduction u/s 54F of the Act being a part of a residential house. It was submitted that merely because the assessee’s stand was not accepted by Revenue and the disallowance was made then it does not mean that the assessee had concealed any particulars of income or furnished inaccurate particulars of income. The assessee had furnished full details of the transactions during the course of assessment proceedings, hence, no penalty can be levied on the assessee. It was submitted that all the facts regarding the deduction/expenses were made available in the return of income as well during assessment proceedings , hence the assessee has not furnished any inaccurate particulars of income and hence the levy of penalty does not arise. The assessee relied on the following case laws:-

ITA 7053/Mum/2013 7

The ld. CIT(A) accepted the contentions of the assessee whereby he observed that the assessee had disclosed the entire facts regarding the sale of the tenancy rights, receipt of Rs. 2.66 crores and the claim of FMV as on 1st April, 1981, indexation and claim of exemption u/s 54F of the Act in the return of income filed with the Revenue for the year under consideration. It is another matter that the claim made by the assessee on the sale proceeds of tenancy rights , indexation and claim of exemption of capital gain was not allowable to him. The AO rejected the working of long term capital gains of the assessee during assessment proceedings on the ground that the assessee has not paid any amount for acquiring the tenancy rights of the property in question and therefore the cost of acquisition of the tenancy rights is to be taken at Nil as per provisions of Section 55(2)(a) of the Act. No new facts had been brought on record by the A.O. to prove that the assessee had concealed any particulars of income. All the facts on the basis of which additions were made were available in the return of income filed for the year under consideration which is on record. The ld. CIT(A) observed that the return of income was prepared under the advice of Chartered Accountant who advised him that since the tenancy rights got converted into ownership rights by way of consent terms, the transfer in 2008 of right, title and interest was that of ownership rights and not tenancy rights and even though as at 1st April, 1981 the assessee had only tenancy rights but since the same was converted into ownership rights, the ownership right in the property would relate back to the acquisition of tenancy rights. The assessee as per the advice of the Chartered Accountant on this complicated and technical issue, ITA 7053/Mum/2013 10 agreed for computing the capital gains accordingly by considering the FMV of the property as on 1st April, 1981 and indexing the same under mistaken belief and the wrong advise to claim the deduction. The ld. CIT(A) accepted the contention of the assessee that the issue of the taxation of capital gains on the sale of tenancy rights being highly technical issue could not have been finalized without the help and advice of the professional Chartered Accountant. When the A.O. pointed out the mistake of the assessee in computing the capital gains, the assessee came forward to offer the capital gains to tax as per the working of the A.O. during the assessment proceedings. The assessee did not contest decision of the A.O and paid the due taxes thereon which prove the bona fide of the assessee. It was observed by the ld CIT(A) that the return of income was filed by the assessee under the bonafide belief that the assessee was entitled for exemption u/s 54 and the indexation as per advise of chartered accountant. The ld. CIT(A) held that there appears to be no deliberate attempt on the part of the assessee to file any inaccurate particulars of income by claiming the deduction and indexation in computing the capital gains. The assessee made a legal claim of deduction u/s 54F of the Act and indexation benefit in the return of income filed with the Revenue which was not accepted by the Revenue and merely making a claim which did not found favour with the Revenue will not make the assessee exigible for penalty u/s 271(1)(c) of the Act. The learned CIT(A) held that the case of the assessee is one of the bonafide mistakes which was duly corrected by the assessee immediately after realizing the mistake, hence, penalty is not exigible . The assessee came out with bonafide explanation as to the default committed by the assessee. Accordingly the learned CIT(A) deleted the penalty vide appellate orders dated 26-09-2013. The ld. CIT(A) relied on the following judicial decisions:-

1. Chandra Pal Bagga v. ITAT & Anr. (2003) 261 ITR 67 (Raj.)

ITA 7053/Mum/2013 11

7. The ld. D.R. submitted that the consideration of Rs. 2.66 crores on surrender of tenancy rights was received by the assessee as per the Consent order passed by the Hon’ble Small Cause Court. No cost of acquisition was paid for the acquisition of the tenancy rights which was acquired by the father of the assessee from his employer. The tenancy rights were granted prior to 01-04-1981 to father of the assessee by his employers. The ld. D.R. submitted that the tenancy rights were acquired prior to 1st April, 1981 without paying any consideration and the assessee substituted FMV of the asset as on 1st April, 1981 on a mistaken belief that the assessee is entitled for adopting FMV as on 01-04-1981 and to apply indexation despite specific provision as contained u/s 55(2)(a) of the Act that cost of acquisition in these case will be taken to be NIL. The assessee claimed the indexed cost of acquisition , however, the claim of the assessee was disallowed and cost of acquisition was taken to be Nil in the quantum proceedings which was accepted by the assessee in quantum proceedings . The assessee has wrongly claimed the cost incurred for improvement in respect of the property and also legal expenses , while no evidence were produced. Similarly, the assessee has also claimed exemption u/s 54F of the Act for the purchase of two garages although in same locality but located in different building on the ground that the garages were not available in the Building in which residential flat was acquired , which were although acquired out of the above stated ITA 7053/Mum/2013 12 compensation received from tenancy right. But the claim of the assessee is allowed for only one garage in quantum proceedings and the claim with respect to second garage was disallowed by the AO which decision was accepted by the assessee as no appeal was filed with the appellate authorities. The assessee has accepted the quantum additions and paid due taxes as no appeal was filed by the assessee against quantum additions in the assessment framed u/s. 143(3) of the Act. The Ld. DR relied upon the decision of CIT v. Zoom Communication Private Limited (2010) 327 ITR 510(Delhi) , UOI v. Dharmendra Textiles Processor (2008) 174 Taxman 571(SC) and Mak Data Private Limited v. CIT (2013) 358 ITR 593(SC).

The assessee also acquired two garages in the same locality although in different building than the building where the residential flat was acquired by the assessee as in the building where new residential flat was located, garages were not available . This was also got verified by the Revenue by deputing inspector to verify the contentions of the assessee during quantum assessment proceedings which was found to be correct by the Revenue. The assessee had submitted that garages are part and parcel of residential house keeping in view the definition of the word ‘house’. However, the assessee was allowed deduction u/s 54F of the Act with respect to one garage only . Again,we are of the considered view, that the explanation offered by the assessee is bona fide as the house does not mean four walls and the amenities like garden, garage etc are part and parcel of the residential house in modern times. We also did not find that there is any restriction imposed by the Act on having only one garage with a residential house. The assessee was compelled to take garages in nearby building in the same locality as garages in the same building in which residential flat was acquired by the assessee were not available which was verified by the Revenue. In any case , it is not ITA 7053/Mum/2013 16 the case set up by the Revenue that the second garage was never acquired by the assessee and he has set up a ex-facie bogus claim, in-fact it is the claim set up by the assessee which did not found favour with the Revenue and in our considered view, the assessee has a prima facie good arguable case on merits on the instant disallowance made by the Revenue, it is different matter that the assessee did not challenge the quantum assessment framed by the Revenue. Thus, in our considered view the assessee came out with a bona fide explanation which did not found favour with the Revenue and the assessee on his part also chose to accept the disallowance as was made in quantum assessment and decided not to agitate the matter with the appellate authorities.

Similarly, the benefit of cost of improvements in the property where tenancy rights were held by the assessee and legal expenses paid by the assessee with respect to the transfer of the tenancy rights were denied to the assessee by the AO although the claim was set up on the grounds that the improvement cost incurred by the assessee led to better realization of compensation on account of surrender of tenancy rights as well legal expenses were incurred which are inextricably linked to transfer of tenancy rights as the said matter was subjudice with the Hon’ble Court of small cause, which in our considered view is a bonafide explanation albeit did not found favour with the Revenue and the assessee on its part chose to accept the assessment in quantum and decided not to agitate the matter with the appellate authorities.

In our considered view the assessee has come out with bona fide explanations to support and substantiate his claim as filed in the return of income albeit the same were not accepted by Revenue as we discussed in preceding para’s. Explanation 1 to Section 271(1)(c) of the Act clearly mandates that the penalty shall be leviable when the tax-payer with respect to his claim in computation of income fails to offer an explanation or offers an explanation which is found ITA 7053/Mum/2013 17 to be false or an explanation is offered which the tax-payer is not able to substantiate and fails to prove that such explanation is bona fide , then in such cases penalty is leviable u/s 271(1)(c) of the Act. In the instant case ,we are of considered view that the assessee has discharged its burden by coming out with an explanation which was a bona fide explanation. On the claim being disallowed in quantum assessment proceedings, the assessee accepted the same and deposited the due taxes with the Revenue and did not persue further litigation with the appellate authorities . We are of considered view that the ratio of law laid down by Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd. (supra) is directly applicable in this case as the claim has been set up by the assessee which did not found favour with the Revenue as it could not be said that an attempt has been made to defraud Revenue or to set up an ex facie illegal claim and in-fact it can only be said that the claim was set up by the assessee in the return of income filed with the Revenue as discussed by us earlier but the same did not found favour with the Revenue, the penalty levied in the instant case by the A.O. in our considered view is not exigible under such circumstances as the assessee has made a bonafide claim for which explanations were duly submitted which are found not to be false neither it was an ex facie illegal claim, albeit the same did not found favour with the Revenue. Merely because the claim set up by the assessee was disallowed by the Revenue as in the present case, in our considered view , the assessee is not liable for penalty u/s 271(1)(c) of the Act keeping in view the facts and circumstances of the case and the explanations with which the assessee came forward to support his claim. The case laws relied upon by the ld. DR are distinguishable as it is not a case where bogus claim was set up and the assessee was cornered by the Revenue and then assessee had to surrender the amount to buy peace etc. rather it is a case where a claim was set up based on bona fide belief based on expert advise which claim is neither patently wrong nor ex-facie illegal keeping in view facts and circumstances of the case , while the claim set up by the assessee did not ITA 7053/Mum/2013 18 found favour with the Revenue which the assessee chose to accept and not agitate with higher appellate authorities . The assessee did make disclosures and also backed the same with explanations during assessment proceedings which did not found favour with Revenue which in our considered view is not sufficient enough to saddle the assessee with penalty u/s 271(1)(c) of the Act. We do not find any infirmity in the well reasoned appellate order dated 26-09- 2013 passed by the ld. CIT(A) deleting the penalty levied by the AO u/s 271(1)(c) of the Act. Keeping in view the facts and circumstances of the case, we do not find any merit in the appeal of the assessee and are of the considered view that the penalty is not exigible in the instant case and accordingly the penalty levied by the A.O. is hereby ordered to be deleted and the well reasoned order of the ld. CIT(A) is upheld / sustained. We order accordingly.