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TMI Blog2010 (8) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... . Khan Road, Worli, Mumbai to M/s. Udhe India Limited, for a total consideration of Rs. 4.90 crores, out of which assessee's share was Rs. 2.40 crores. Shri Champalal K. Vardhan, the other assessee before us, was the other co-owner of the said flat and the remaining amount or sale consideration fell to his share. Shri Umedraj K. Vardhan worked out indexed cost of acquisition at Rs. 24,85,080 resulting into long term capital gain of Rs. 2,15,14,920. Exemption was claimed under section 54 for investment made in purchase of above referred flat thereby leaving income under the capital gain at Rs. Nil. The assessee was called upon to substantiate the claim under section 54 requiring production of copy of agreement in respect of purchase of flat. In response to that the assessee filed copy of four agreements signed by him on the same day i.e. 4-3-1999 with M/s. Sapphire Capital & Infin Pvt. Ltd. ('Sapphire'). It was found by the Assessing Officer that Sapphire was a closely held private company with the assessee as its permanent director holding 50 per cent share. The other shareholder was also related to the assessee. On perusal of the agreements, it was noticed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r fact that Shri Champalal K. Vardhan was also director of Sapphire, the Assessing Officer denied exemption under section 54. The facts of Shri Champalal K. Vardhan are similar inasmuch as he also claimed exemption under section 54 on account of investments of Rs. 2.25 crores made in flats, which was not allowed by the Assessing Officer and capital gain of Rs. 2.22 crores was computed. 4. Both the assessee remained unsuccessful before the learned CIT(A) as well as Tribunal on the question of grant of exemption under section 54. Copy of Tribunal order dated 27-6-2007, dismissing both the appeals in ITA No. 6055/Mum./02 and ITA No. 3530/Mum./05, is available on record. Penalty was inflicted under section 271(1)(c) amounting to Rs. 43,02,980 on Shri Umedraj K. Vardhan and Rs. 44,56,532 on Shri Champalal K.Vardhan. However, the learned CIT(A) was pleased to delete the penalty in both the cases, against which the Revenue has come up in present appeals before us. 5. We have heard the rival submissions at length and perused the relevant material on record in the light of the precedents cited before us by both the sides. It as undisputed position that the disallowance of exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. The effect of this Explanation is that if the necessary criteria as stated herein are satisfied, viz., (i) the person fails to offer the explanation, or (ii) he offers the explanation which is found by the authorities to be false, or (iii) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, then the amount disallowed in computing the total income shall for the purposes of clause (c) of this section, be deemed to represent the income in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Every case of penalty pre-supposes that there has been the rejection of assessee's stand qua some disallowance or addition etc. in the quantum proceedings. Whereas penalty is always the outcome of addition etc., but its converse is not true, that is, addition etc. does not always lead to penalty. So every rejection of a claim may or may not invite penalty. If the assessee makes a bona fide claim, which is negatived and addition is made, then penalty cannot follow. If however the claim itself is mala fide, that is, it lacks good faith or some sort of deception is inherent, then penalty would be justified. Whereas cases involving rejection of bona fide claims would fall with in the class of cases as considered in Reliance Petroproducts (P.) Ltd. (supra) held to be not attracting penalty under section 271(1)(c), the cases involving rejection of mala fide claims would be caught within the mischief of section 271(1)(c). The position has been set straight by the Supreme Court in Reliance Petroproducts (P.) Ltd.'s case (supra) by holding that : 'When such particulars are found to be inaccurate, the liability would arise.' It, therefore, transpires that if information given in the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a "bona fide claim" is made by the assessee, which does not find favour with the Revenue authorities, that cannot be a ground for imposition of penalty under section 271(1)(c) of the Act. If however the claim itself is mala fide then no one can save the assessee from facing the music. 15. Primarily it is noticed that Sapphire is a company in which the assessee is 50 per cent shareholder and the other 50 per cent is held by some other relative. That is, it is a closely held company fully controlled by the assessee and his family members. It is trite law that the transactions with the related persons or concerns can never be a ground for branding an otherwise genuine transaction as non-genuine. If however, other attending facts and circumstances leave nothing to doubt that the related concerns have been used as a tool for giving the colour of genuineness to the otherwise non-genuine transaction, then such transactions do not merit acceptance. Returning to the facts before us, it is seen that both the assessees claimed to have booked four flats each with Sapphire on 4-3-1999 in a building which was proposed to be constructed. It is interesting to note that but for these two assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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