Section 271(1)(c) – Penalty – Concealment – Merely because the quantum appeal is admitted by High Court penalty does not become unsustainable – However as issue is debatable, therefore penalty could not be imposed

4. The Pr. CIT-1 vs. Rasiklal M. Parikh [Income tax Appeal No. 169 of 2017, Dated 19^th March, 2019 (Bombay High Court)]

[Rasiklal M. Parikh vs. ACIT-19(2); ITA. No. 6016/Mum/2013, Mum. ITAT]

Section 271(1)(c) – Penalty – Concealment – Merely because the quantum appeal is admitted by High Court penalty does not become unsustainable – However as issue is debatable, therefore penalty could not be imposed

The assessee is an individual. He filed his ROI for the A.Y. 2006-07. The assessment of his return gave rise to disallowance of exemption u/s. 54F of the Act. During the year the assessee had transferred the tenancy rights in a premises for consideration of Rs. 1.67 crore and claimed exemption of Rs. 1.45 crore u/s. 54F of the investment in residential house. Such exemption was disallowed by the A.O. He also initiated penalty proceedings. The disallowance was confirmed up to the stage of the Tribunal, upon which the Assessee filed an appeal before the High Court, which was admitted. The A.O. imposed a penalty of Rs. 50 lakh.

This was challenged by the Assessee before the CIT (A) and then the Tribunal. The Tribunal, by the impugned judgement, deleted the penalty only on the ground that since the High Court has admitted the assessee’s quantum appeal, the issue is a debatable one.

Being aggrieved with the ITAT order, the Revenue filed an appeal to the High Court. The High Court was not in agreement with the observations of the Tribunal that merely because the High Court has admitted the appeal and framed substantial questions of law, the entire issue is a debatable one and under no circumstances the penalty could be imposed. In this context, reference was made to a decision of a division bench of the Gujarat High Court in the case of Commissioner of Income Tax vs. Dharamshi B. Shah [2014] 366 ITR 140 (Guj).

However, the Hon’ble Court held that despite the above-cited decision, this appeal need not be entertained. This is so because independently, too, one can safely come to the conclusion that the entire issue was a debatable one. The dispute between the assessee and the Revenue was with reference to actual payment for purchase of the flat and whether, when the assessee had purchased one more flat, though contagious, could the assessee claim exemption u/s. 54F of the Act.

It can thus be seen that the Assessee had made a bona fide claim. Neither any income nor any particulars of the income were concealed. As per the settled legal position, merely because a claim is rejected it would not automatically give rise to penalty proceedings. Reference in this respect can be made to the decision of the Supreme Court in the case of Commissioner of Income Tax, Ahmedabad vs. Reliance Petroproducts Pvt. Ltd. Under the above circumstances, for the reasons different from those recorded by the Tribunal in the impugned judgement, the Revenue’s appeal was dismissed.