CASE LAW-Income Tax Appellate Tribunal, Mumbai

Income Tax Appellate Tribunal, Mumbai – Smt Chandrika B Shah, Assessee on 07/05/2010

COMPILED BY VR AVINASH KULKARNI

Judicial members – D K Agarwal & T R Sood

Assessment year – 2003-2004

In nut shell

The penalty u/s 271(1)(C) is attracted in those instances where the assessee conceals the particulars of income or furnishes inaccurate particulars of income with an intention to mislead the revenue and it should not be imposed in every case where the return is not accepted and the assessment is framed at the income higher than the returned income

Facts of case

1) issue involved in this appeal is deletion of penalty of Rs 27,30,000.00 levied under section 271(1)(C) of income tax act 1961

2) Chandrika B Shah is legal heir of late Bharat L Shah her husband

3) Bharat L Shah received a sum of Rs 1,30,00,000.00 against surrender of the tenancy right in respect of the property namely Yatan Sadan, 24-A Moghul lane, Mahim, Mumbai, during the previous year relevant to the assessment year 2003-2004

4) He had taken the fair market value as on 01/04/1981 at Rs 20,60,400.00

5) after indexation the index value of tenancy right was worked at Rs 92,09,988.00

6) the return was filed declaring long term capital gains on the tenancy right at Rs 37,90,012.00

7) it was claimed by the assessee during the assessment proceedings that tenancy right was acquired in 1973 by M/s Elrex Corporation, a partnership firm in which late Bharat L Shah was a partner

8) The partnership was dissolved in year 1979

9) after then business was taken over and carried out on as proprietary concern by late Bharat L Shah, accordingly, the property was received on dissolution of firm by the mode of transfer prescribed under section 49(1)

10) later on this right was surrendered by Chandrika B Shah on 21/11/2002 by selling this right to Kanyakumari Builders Put Ltd for a sum of Rs 1,30,00,000.00

11) This claim was rejected during the assessment proceedings because the assessee could not produce any document regarding dissolution etc and acquisition cost of the tenancy right was adopted nil

12) during the penalty proceedings also these contentions were raised and the same was rejected by the assessee officer

13) on appeal, similar contention was reiterated and some documents were also filed

14) the learned CIT(A) sought a remand report for verification of these documents

15) in this remand report, the assessing officer reported that the M/s Elrex Corporation was a partnership firm and had taken tenancy right wide Leave and License Agreement dated 16/07/1973 and the firm was dissolved in year 1979, and Bharat L Shah continued the business in same name

16) however, since copy of the dissolution deed was not provided and therefore it could not be proved that the property in question ie tenancy right were received by late Bharat L Shah on dissolution of firm, and, therefore, no cost was incurred on acquisition of the rights and the cost of the same has to be taken nil

17) late Bharat L Shah was holding the tenancy right of the said property thereafter which he surrendered in the assessment year under consideration for the aforesaid sum of Rs 1,30,00,000.00

18) so it can not be equated with concealment of income or filing inaccurate particulars of income

19) moreover the claim of substituted cost was made by Bharat L Shah in the return of income filed by him on 28/11/2003

20) Bharat L Shah, died in a road accident on 09/10/2004, and his legal heir and wife Chandrika B Shah could not collect all the necessary documents and furnish the same during the assessment proceedings in support of claim of the substituted cost

21) the one crucial document she could not produce at any state is the deed of distribution of assets of the firm on its dissolution

22) Assessing Officer was justified in opioning that the claim of section 49(1)(iii)(b) and the consequent claim of substituted cost can not be allowed for want of such direct evidence

23) however, it cannot be said as a wrongful claim maid for the purpose of misleading the revenue

24) it was a legal claim which could not be substantiated by the legal heir by the direct evidence that the tenancy right was received by her late husband by way of distribution of assets on dissolution of firm

25) the inability of the legal heir in collecting and filing such direct evidence for substantiating the claim made by her late husband cannot be categorized as concealment of income or filing of inaccurate particulars of income

26) there are several judgements of various courts that the penalty should not be imposed on the facts similar to the present case

a) Delhi High Court
CIT V/s Bath Brothers Exam International Ltd (2007) 288 ITR 670

b) Madras High Court
CIT V/s Caplin Point Lab Ltd (2007) 293 ITR 524

c) Calcutta High Court
CIT V/s Calcutta Credit Corporation Ltd 166 ITR 29

d) Delhi High Court
CIT V/s PHI Seeds India Ltd (2008) 301 ITR 13

27) section 55(2) clause (b)(ii), which gives opinion to the assessee to adopt the fair value of the asset as on 01/04/1981

28) in any case it was a Bonafied claim of the assessee and the same could not have been Chandrika B Shah rejected merely because the department was holding a different view

29) section 55(2) gives the mode of calculating the cost of acquisition which includes tenancy right also

30) the firm was dissolved in the year 1979, and it may not be possible to locate the documents like dissolution deed after 25 years that too after demise of Bharat L Shah who was looking after business

31) provisions of section 271(1)(C)

a) there has to be concealment of the particulars of the income of the assessee

b) the assessee must have furnished inaccurate particulars of his income

32) where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars

33) in order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked

34) where, there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(C)

35) the fact is that assessee had raised a bonafide claim and has not filed any inaccurate particulars of income, court is of the view that penalty has been rightly deleted, we confirm the order

Compiled by

Avinash Kulkarni