Darshansingh Chadha , Mumbai vs Department Of Income Tax

This appeal has been preferred by the Revenue against order dated 29.11.2012, passed by the Ld.CIT(A)-27, Mumbai in relation to penalty proceeding u/s 271(1)(c) for the A.Y. 2004-05. In grounds of appeal the revenue has raised following ground:-

"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty levied u/s 271(1)(C) of the Act considering initiation of proceedings as in- valid without appreciation that such imposing of penalty after receipt of order ITAT was valid as per section 275(1A) of the I.T. Act."

2 ITA No. 1286/Mum/2013 Assessment Year: 2004-05

2. Brief facts of the case are that assessee is an individual carrying on the business of construction. The original return of income was filed on 29.08.2004 declaring total income of Rs.9,20,940/- under the head business. Later on assessee filed a revised return of income on 27.10.2005 declaring capital gain of Rs.28,39,703/- in addition to the income returned originally. The aforesaid capital gain was offered on the ground that on 01.05.2003 the assessee has converted his capital assets, namely, land with structures of an old bungalow into stock in trade, therefore, he was liable for the capital gains which is to be taxed at the time of sale of stock in trade. During the course of scrutiny proceedings the assessee filed revised computation of income on 15.12.2006, wherein the long term capital gain was shown at Rs.20,61,218/- In the assessment order passed u/s 143(3) on 28.12.2006, the Assessing Officer adopted sale value of the newly built flat sold as stock in trade, on the stamp duty rate as fair market value on the date of conversion of capital asset into stock in trade and after allowing indexed cost of acquisition, he computed the capital gains at Rs.79.08 lakhs. He further disallowed the assessee's claim u/s 54 F. In the first appeal, the Ld. CIT(A), vide order dated 26.02.2009 allowed the assessee's claim for deduction u/s 54F however with regard to the assessee's claim that FMV of the property on the date of conversion of capital assets into stock in trade on 01.05.2003, should be considered as per the valuation report furnished by the assessee before the AO, the Ld. CIT(A) held that such a claim is not tenable in view of the decision of Hon'ble Supreme Court in the case of Goetz India. After giving effect to the first appellate order, the income was determined at Rs.29,87,660/-, which included long term capital gains of Rs.20,61,218/-. In the second 3 ITA No. 1286/Mum/2013 Assessment Year: 2004-05

appeal filed by the revenue as well as the assessee, the assessee's claim of exemption u/s 54F was denied on the ground that the investment was made by the assessee in four flats in a residential unit. As regards the consideration of valuation report filed by the assessee before the AO for arriving at the FMV of the property on the date of conversion of capital asset into stock in trade, the Tribunal set aside the issue to the file of the AO to examine the same and held that decision of Hon'ble Supreme Court in the case of Goetz India Ltd. is not applicable. In the order giving effect, to the Tribunal order the AO accordingly disallowed the claim u/s 54F.

3. In the penalty proceedings, the assessee submitted that the capital gain was offered in the revised return which was filed before the date of survey was carried out on 12.12.2005, as the revised return was filed on 27.10.2005. Thus, disclosure of capital gain was voluntarily. The claim u/s 54F made in the revised return was bona fide and appeal u/s 260 A has already been filed before the Hon'ble High Court, against the order of the Tribunal which has been admitted by the Hon'ble High Court. However, the Assessing Officer had levied the penalty, on the ground that assessee's claim of exemption u/s 54F was wrong and therefore, the ITAT had denied the claim.

4. The Ld. CIT(A) has deleted penalty after observing and holding as under:-

"I have carefully considered the contents of the penalty order and the appellant's submissions. At the outset, the only issue for consideration in levying the penalty was the impugned capital gains on conversion of capital assets into stock-in- trade u/s. 45(2) of the Act. Having considered the appellant's submissions dated 26.02.2010, the AO. has dropped the penalty proceedings, which fact is also acknowledged by the present AO 4 ITA No. 1286/Mum/2013 Assessment Year: 2004-05

who levied the penalty. In other words, the present AO. sought to reinitiate the penalty proceedings which were already dropped on consideration of the facts. I am of the considered opinion that such reinitiating is not allowed in law, there being no provision to do so. In other words, the AO is clearly wrong in levying penalty in a matter in which his predecessor has already reached a satisfaction that it is not a fit case for levy of penalty. Secondly, the A. O. at present has not fully given effect to the order of the Hon'ble IT AT that he has not taken a decision as to the fair market value of the property on the date 0 conversion, and without arriving at such fair market value it is not possible to compute the correct quantum of capital gains. Therefore, without arriving at the correct quantum of capital gains, the A.O. cannot allege that the appellant has furnished inaccurate particulars of the same. Further, appellant offered capital gains to tax u/s. 45(2) of the Act in the revised return filed on 27-10-2005 which was prior to the date of survey. Similarly, the notice u/s. 143(2) of the Act issued on 12-07-2005 was also a statutory notice and as on the date of issuing the said notice no enquiry was done by the A.O. as to the impugned capital gains. In circumstances, it cannot be stated that the appellant was compelled to disclose the impugned capital gains on account of the action taken by the AO a voluntarily. Further, the required details including that of the valuation re arriving at the fair market value of the property, were placed before the AO at the time of the assessment proceedings and thus all the material facts were by the appellant. In such circumstances, appellant cannot be alleged to be guilty furnishing inaccurate particulars."

5. Before us, Ld. DR strongly relied upon the order of the AO and submitted that firstly, the income under the head capital gain was declared only when the scrutiny proceedings had commenced and secondly, the assessee's claim for benefit under section 54F has been decided against the Tribunal. Therefore, penalty has rightly been levied.

6. On the other hand, learned counsel submitted that against the order of the Tribunal denying the exemption u/s 54F, the appeal has been admitted by the High Court on this issue therefore, no penalty should be levied as it is a debatable issue. Further, the assessee's claim 5 ITA No. 1286/Mum/2013 Assessment Year: 2004-05

was bona fide and such a bona fide claim is strongly supported by catena of decision of High Courts wherein it has been held that if the two residential houses have been purchased adjacent to each other even with two different sale agreement, the assessee is entitled for exemption u/s 54/54F. In support of his contention HE relied upon following cases:-

i) CIT Vs. D. Ananda Basappa [(2009) 309 ITR 329 (Karn)]

ii) CIT Vs. Smt. V.R. Karpagam [(2014) 272 CTR 184 (Mad)]

iii) CIT Vs. Smt. K.G. Rukminiamma [(2011) 331 ITR 211 (Karn)]

iv) CIT Vs. Smt. Jyothi K. Mehta [(2011) 201 Taxman 79 (Karn) (MAG)]

v) CIT Vs. Syed Ali Adil [(2013) 352 ITR 418 (AP)]

vi) CIT Vs. Gita Duggal [[(2013) 357 ITR 153 (Del)]

vii) CIT Vs. Khoobchand M. Makhija [(2014) 43 taxmann.com 143 (Karn)]

7. After considering the rival submissions and on perusal of the impugned order, it is seen that Ld. CIT(A) has noted a very important fact that, earlier the Assessing Officer has dropped the penalty proceedings after considering the assessee's explanation. Later on the said penalty has been reinitiated without giving complete affect to the order of the Tribunal and hence Ld. CIT(A) has rightly concluded that the AO cannot be satisfied that the assessee has furnished the inaccurate particulars of the income, when he has not arrived at the correct quantum of capital gains. Till the time of issuance of notice u/s 143(2) and filing of revised return, there was no query or inquiry by the AO with regard to the capital gains offered by the assessee therefore, it cannot be held that revised return was not voluntary. Finally the penalty has been levied on the ground that exemption u/s 54F is not available to the assessee as the capital gain was invested in four flats. Assessee's 6 ITA No. 1286/Mum/2013 Assessment Year: 2004-05

claim for exemption u/s 54F can be held to be bona fide in view of in various decisions of the Hon'ble High Court as well as the Tribunal, wherein it has been held that, even if the assessee has bought/constructed two or more flats which are adjacent to each other, then same can be considered as "residential house", even if there are different agreements for each units. In all the decisions relied upon by the learned counsel these proposition has been upheld consistently. Accordingly, we hold that no penalty is leviable on such a claim made by the assessee u/s 54F as it was a bona fide claim. Accordingly, the order of the Ld. CIT(A) deleing the penalty is upheld.

8. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on this 10th day of April, 2015.

Sd/- Sd/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 10.04.2015 *Srivastava

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "D" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.