2025 (7) TMI 44 - AT - Income Tax

Penalty u/s. 271(1)(c) - furnishing inaccurate particulars of income with respect to the deduction claimed u/s 54F - CIT(A) deleted addition - onus to prove - diversified view - matter referred to third member - HELD THAT - Admittedly it is established that whenever there is a difference between the returned income and assessed income there is an inference of concealment and Explanation 1 to Section 271(1)(c) of the Act raises a presumption which is always rebuttal. There is no quarrel about the cases of B.A. Balasubramaniam Bros. Co. 1998 (1) TMI 7 - SC ORDER B.A. Balasubramaniam Bros. 1984 (2) TMI 39 - MADRAS HIGH COURT ; Mussadilal Ram Bharose 1987 (1) TMI 1 - SUPREME COURT ; K.R. Sadayappan 1990 (7) TMI 1 - SUPREME COURT ; Jeevan Lal Sah 1993 (9) TMI 11 - SUPREME COURT and K.P. Madhusudanan 2001 (8) TMI 8 - SUPREME COURT . In these case laws admittedly the onus is on the assesse to rebut the inference of concealment and absence of plausible explanation itself would attract penalty u/s. 271(1)(c) of the Act for concealment of income or furnishing of inaccurate particulars of income as the case may be. But in the present case the assesse offered the explanation corroborating with the evidences justifying the claim of deduction u/s 54F of the Act. But there is no reason that the assesse is not at all entitled to claim of deduction and ultimately the same was surrendered by the assesse during the assessment proceedings. The reasons was that ultimately construction of building could not take place due to inability of the builder and/or default on the part of the builder. In regard to the decision of the Hon ble Supreme Court in the case of MAK Data P. Ltd. 2013 (11) TMI 14 - SUPREME COURT as per Explanation 1 to Section 271(1)(c) of the Act admittedly the disclosure of concealed income does not absolve assesse of rigours of section 271(1)(c) of the Act if the assesse fails to offer any explanation which is bonafide. Similar is the situation with the decision of K.P.Madhusudanan 2001 (8) TMI 8 - SUPREME COURT In the present case before us the assesse has explanation which is supported by the documentary evidences as the assesse has furnished all the relevant details alongwith return of income or during the course of scrutiny assessment proceedings and this disclosure of information in regard to claim of deduction u/s. 54F of the Act in respect of the long term capital gain earned during the year is sufficient for not confirming the levy of penalty u/s. 271(1)(c) of the Act. The facts of the present case clearly indicates that the issue in dispute is squarely covered by the decision of the Hon ble Supreme Court in the case of Reliance Petroproducts P. Ltd. 2010 (3) TMI 80 - SUPREME COURT which has been relied by the Ld. Judicial Member in his order. Questions referred by the Ld. Judicial Member - whether the Tribunal can travel beyond the facts recorded in the assessment order or the order of penalty u/s. 271(1)(c) of the Act or the order of CIT(A) for adjudicating the appeal? - Whether the Tribunal can bring new facts on record gathered from external sources / public domain whereas such facts do not form part of the orders passed by lower authorities for imposition of penalty u/s. 271(1)(c) of the Act? - This issue is settled by the Hon ble Supreme Court of India in the case of Kishan Chand Chella Ram 1980 (9) TMI 3 - SUPREME COURT wherein it has been held that cross examination is must where AO relies upon only on the statement of Third Party unconnected with the assessee. Hon ble Supreme Court held that the letters dated 18.2.1955 and 09.03.1959 did not constitute any material evidence which the Tribunal could legitimately taken into account for the purpose of arriving at the finding that the amount of Rs. 1, 07, 350/- was remitted by the assessee from its Madras Office. Accordingly Hon ble Supreme Court eliminated these two letters from consideration and held that there was no material evidence at all before the Tribunal which could support its finding. It was further held that what the Manager wrote in his letters could not possibly be based on his personal knowledge but was based on hearsay. Even otherwise if revenue authorities ought to have called upon the Manager to produce the documents and papers of which he made a statement and confronted the assessee with these documents and papers. In the present case we are of the view that information gathered from the Google Search Engine cannot be the basis for arriving at a decision. If at all information from the public domain is to be collected then that has to be confronted to the assessee which the Tribunal failed to do in this case. Hence Tribunal cannot travel beyond the facts recorded in the orders of the authorities below or on the record of the AO. Tribunal cannot bring new facts on record specially gathered from external sources/ public domain which do not form part of the orders passed by the lower authorities without confronting the same to the assessee. THIRD MEMBER CONCLUSION - Whether on the facts and circumstances of the case and in law the CIT(A) was justified in deleting the penalty u/s. 271(1)(c) of the Income Tax Act? - Ans framed by the Ld. Accountant Member - Yes. In view of the aforesaid facts and circumstances of the case and in the background of the aforesaid discussions the Ld. CIT(A) was justified in deleting the penalty in dispute. Whether the Tribunal can travel beyond the facts recorded in the assessment order or the order of penalty u/s. 271(1)(c) of the Act or the order of CIT(A) for adjudicating the appeal? - Ans. framed by the Ld. Judicial Member - No. In view of the aforesaid facts and circumstances of the case and in the background of the aforesaid discussions the Tribunal cannot travel beyond the facts recorded in the orders of the authorities below. Tribunal cannot bring new facts on record gathered from external sources / public domain without confronting to the assessee. Penalty in dispute cannot be sustained. Wrong claim of deduction u/s. 54F cannot be included in furnishing inaccurate particulars of such income . Third member agree with the order of Ld. Judicial Member. And do not agree with the order of Ld. Accountant Member on the given facts and circumstances of the case.

Summary

The core legal issue considered in this appeal is whether the Commissioner of Income Tax (Appeals) was correct in deleting the penalty of Rs. 1,45,59,592/- levied under section 271(1)(c) of the Income Tax Act, 1961, on account of furnishing inaccurate particulars of income relating to the deduction claimed under section 54F of the Act for the Assessment Year 2016-17.

The principal legal questions examined include:

• Whether the claim of deduction under section 54F, which was subsequently disallowed due to non-compliance with statutory conditions, attracts penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
• Whether the assessee concealed particulars of income or furnished inaccurate particulars within the meaning of section 271(1)(c) by claiming deduction without actual purchase or construction of a residential house within the prescribed time.
• Whether the explanation offered by the assessee regarding delay in construction attributable to the builder constitutes a bona fide explanation sufficient to negate penalty liability.
• Whether the Tribunal can rely on facts not recorded in the assessment or penalty orders or gathered from external/public domain sources without confronting the assessee.
• Whether the penalty can be sustained when the claim is merely rejected by the Assessing Officer on grounds of non-compliance with section 54F.
• Whether the limb of penalty can be changed from "furnishing inaccurate particulars" to "concealment of income" by the Tribunal when the Assessing Officer invoked only the former.

Issue-wise Detailed Analysis:

1. Applicability of Penalty under Section 271(1)(c) for Wrong Claim of Deduction under Section 54F

Legal Framework and Precedents: Section 271(1)(c) penalizes concealment of particulars of income or furnishing inaccurate particulars thereof. The Hon'ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (322 ITR 158) clarified that mere disallowance of a claim or rejection of a deduction does not automatically attract penalty under section 271(1)(c) if the assessee has disclosed all relevant particulars and the claim was bona fide. The Court emphasized that if the details furnished in the return are not inaccurate or do not amount to concealment, penalty provisions should not be invoked merely because the claim was not accepted by the revenue.

Court's Reasoning and Application: The Judicial Member relied on this precedent and noted that the assessee had disclosed all relevant details, including the long-term capital gains and the agreements evidencing the intention to purchase and construct a residential house. The claim under section 54F was made in good faith based on the agreements and payments made. The subsequent rejection was due to non-completion of construction within the stipulated time, a statutory condition for the deduction.

The assessee surrendered the deduction during assessment and paid the due taxes with interest, indicating bona fide conduct. Hence, the penalty for furnishing inaccurate particulars was not attracted because there was no concealment or inaccurate particulars at the time of filing the return.

Competing Arguments and Findings: The Revenue contended that the assessee never owned up to the ineligibility at the time of filing the return and delayed disclosure until confronted, thus attracting penalty. The Accountant Member, dissenting, emphasized that the assessee was a director of the builder company, and the delay in construction was not beyond the assessee's control. He relied on public domain information to assert that the particular property was not constructed or sanctioned as claimed, indicating a bogus claim. The Accountant Member held that the assessee concealed particulars and furnished inaccurate particulars deliberately, thus penalty was justified.

Conclusion: The Judicial Member found the assessee's explanation and disclosure sufficient to negate penalty liability, applying the principle from Reliance Petroproducts. The Accountant Member found concealment and inaccurate particulars, relying on external facts and absence of corroborative evidence from the assessee, thus sustaining penalty.

2. Treatment of Explanation Regarding Delay in Construction

Legal Framework: Explanation 1 to section 271(1)(c) raises a rebuttable presumption of concealment or furnishing inaccurate particulars when there is difference between returned and assessed income. The onus lies on the assessee to prove bona fide explanation with corroborative evidence.

Court's Reasoning: The Judicial Member accepted the assessee's explanation that delay was due to the builder's default and that the assessee had made payments and agreements in good faith. The assessee's surrender of deduction and payment of taxes with interest further supported bona fide conduct.

Conversely, the Accountant Member found the explanation unsubstantiated, noting absence of approved construction plans or completion certificates for the specific property, and that the builder was controlled by the assessee. He concluded that the assessee knowingly made a bogus claim and failed to discharge the onus to rebut the presumption under Explanation 1.

Application to Facts: The Judicial Member emphasized that penalty cannot be imposed merely because the claim was disallowed; the explanation and disclosure must be considered. The Accountant Member stressed that without documentary evidence, the explanation is fanciful and insufficient.

Conclusion: The Judicial Member held the explanation bona fide and penalty unwarranted. The Accountant Member found the explanation inadequate and upheld penalty.

3. Reliance on External/Public Domain Facts by the Tribunal

Legal Framework: It is settled law that the Tribunal cannot base its decision on facts not recorded in the assessment or penalty orders or not confronted to the assessee. The Supreme Court in Kishan Chand Chella Ram vs. CIT (125 ITR 713) held that cross-examination is necessary when relying on third-party statements not connected with the assessee.

Court's Reasoning: The Judicial Member held that the Accountant Member erred in relying on Google search and public domain information without confronting the assessee. Such reliance violates principles of natural justice and is impermissible.

Conclusion: The Tribunal cannot bring new facts on record gathered from external sources without confronting the assessee. The Judicial Member answered negatively to questions whether the Tribunal can travel beyond facts recorded or bring new external facts without confrontation.

4. Whether Penalty Can Be Sustained When Claim Is Merely Rejected on Non-Compliance of Section 54F

Legal Framework: Mere rejection of a claim for deduction on grounds of non-compliance with statutory conditions does not attract penalty under section 271(1)(c) if the claim was bona fide and all particulars were disclosed. This principle is reinforced by the Reliance Petroproducts judgment.

Court's Reasoning and Application: The Judicial Member held that since the assessee disclosed all relevant facts and the claim was made in good faith, the penalty cannot be sustained merely because the claim was rejected by the Assessing Officer.

Conclusion: The penalty is not sustainable on the basis of mere disallowance of deduction under section 54F.

5. Whether Tribunal Can Change the Limb of Penalty from Furnishing Inaccurate Particulars to Concealment of Income

Legal Framework: The penalty under section 271(1)(c) can be levied for either concealment of particulars of income or furnishing inaccurate particulars of income. However, the limb invoked by the Assessing Officer at the time of recording satisfaction is determinative. The Tribunal should not change the basis of penalty without jurisdiction or proper record.

Court's Reasoning: The Judicial Member held that since the Assessing Officer invoked penalty only for furnishing inaccurate particulars, the Tribunal cannot change the limb to concealment of income.

Conclusion: This question was answered in the negative and held not to arise in the facts of the case.

Significant Holdings and Core Principles:

"Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature."

"The Tribunal cannot travel beyond the facts recorded in the orders of the authorities below or bring new facts on record gathered from external sources/public domain without confronting the same to the assessee."

"Explanation 1 to section 271(1)(c) raises a rebuttable presumption of concealment or furnishing inaccurate particulars when there is difference between returned and assessed income. The onus lies on the assessee to prove bona fide explanation with corroborative evidence."

"Penalty under section 271(1)(c) is a civil liability and willful concealment is not an essential ingredient. However, absence of plausible explanation or submission of false explanation attracts penalty."

Final Determinations:

• The penalty levied under section 271(1)(c) for furnishing inaccurate particulars of income with respect to the deduction claimed under section 54F was rightly deleted by the Commissioner of Income Tax (Appeals) as the assessee had made a bona fide claim supported by agreements and payments, and had disclosed all relevant particulars in the return of income.
• The assessee's surrender of the deduction and payment of taxes with interest during assessment proceedings further negated the applicability of penalty.
• The Tribunal is not empowered to rely on facts outside the record of the assessment or penalty proceedings or external sources without confronting the assessee.
• The penalty cannot be sustained merely because the claim was disallowed for non-compliance with statutory conditions of section 54F.
• The limb of penalty invoked by the Assessing Officer cannot be altered by the Tribunal.
• However, on dissent, the Accountant Member held that the assessee had concealed particulars and furnished inaccurate particulars deliberately, relying on the control over the builder and absence of corroborative evidence, thus sustaining penalty.
• The Third Member concurred with the Judicial Member, thereby dismissing the Revenue's appeal and upholding deletion of penalty.