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2016 (10) TMI 431 - ITAT MUMBAI

2016 (10) TMI 431 - ITAT MUMBAI - TM - Penalty u/s 271(1)(c) - tenancy rights receipts - deduction u/s 54F allowance - cost of improvements in the property - Held that:- The consent terms awarded by the Hon’ble Court of small cause both original and revised are placed at paper book page 17-28. The assessee had a belief and came out with an explanation that since 1996 the tenancy rights were converted into ownership rights since the assessee is entitled for 1000 square feet of the constructed are .....

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se no cost is paid by the tax-payer to acquire the tenancy rights. The assessee has also produced valuation report dated 27-04-2009 valuing tenancy rights as on 01-04-1981 which is placed in paper book page 14-16 and the same was stated to be the basis for making claim of FMV as on 01-04-1981. In our considered view, based on these explanations submitted by the assessee along with documentary evidences it could not be said that these explanations were not bona fide explanations . Thus, it could .....

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ty although in different building than the building where the residential flat was acquired by the assessee as in the building where new residential flat was located, garages were not available . This was also got verified by the Revenue by deputing inspector to verify the contentions of the assessee during quantum assessment proceedings which was found to be correct by the Revenue. The assessee had submitted that garages are part and parcel of residential house keeping in view the definition of .....

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d to take garages in nearby building in the same locality as garages in the same building in which residential flat was acquired by the assessee were not available which was verified by the Revenue. In any case , it is not the case set up by the Revenue that the second garage was never acquired by the assessee and he has set up a ex-facie bogus claim, in-fact it is the claim set up by the assessee which did not found favour with the Revenue and in our considered view, the assessee has a prima fa .....

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he benefit of cost of improvements in the property where tenancy rights were held by the assessee and legal expenses paid by the assessee with respect to the transfer of the tenancy rights were denied to the assessee by the AO although the claim was set up on the grounds that the improvement cost incurred by the assessee led to better realization of compensation on account of surrender of tenancy rights as well legal expenses were incurred which are inextricably linked to transfer of tenancy rig .....

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se where a claim was set up based on bona fide belief based on expert advise which claim is neither patently wrong nor ex-facie illegal keeping in view facts and circumstances of the case , while the claim set up by the assessee did not found favour with the Revenue which the assessee chose to accept and not agitate with higher appellate authorities . The assessee did make disclosures and also backed the same with explanations during assessment proceedings which did not found favour with Revenue .....

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avour of assessee - I .T.A. No.7053/Mum/2013 - Dated:- 25-8-2016 - SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri A. Ramachandran For The Assessee : Shri Reepal Tralshawala ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 7053/Mum/2013, is directed against the appellate order dated 26th September, 2013 passed by learned Commissioner of Income Tax (Appeals)- 29, Mumbai (hereinafter called the CIT(A) ), .....

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s of the case and in law, the Ld. CIT(A) erred in deleting the penalty u/s.271 (1 )(c) of the I.T. Act, 1961 of ₹ 42,29,880/- for AY.2009-10 without appreciating the fact that the assessee claimed the cost of acquisition of tenanted property at ₹ 26,06,640/- i.e,. value as on 01.04.1981 and arrived at indexed cost of ₹ 1,51,70,645/- though the assessee had not paid any consideration for acquisition of the tenanted property and hence the assessee was not entitled for it. This cl .....

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ting the penalty u/s.271 (1 )(c) of the LT.Act,1961 of ₹ 42,29,880/- for A Y.2009-10 without appreciating the fact that if the transaction of the assessee was not detected by the AIR on the basis of which the case was selected for scrutiny, the sum of ₹ 1,86,61 ,620/- would have escaped assessment. 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty u/s.271 (1)(c) of the I.T.Act,1961 of ₹ 42,29,880/- for AY.2009-10 by relying on .....

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c) of the I.T.Act,1961 of ₹ 42,29,8801- for AY.2009-10 without appreciating the fact that in the decision of the Delhi High Court vide order dated 10-08- 2013 in the case of HCIL Kalindee ARSSPL, it has been held that dubious and fanciful claims under the garb of interpretations, are a mere pretense and not bonafide. It has also been held that Bonafides have to be shown and cannot be assumed and merely because the assessee complies with the statutory procedural requirement of filing such c .....

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of M/s Ashok Electricals. The source of income during the year under consideration is income from business, capital gain & income from other sources. The AIR information in this case was received by the AO in respect of investment made by the assessee in property as well as bonds/mutual funds. The assessee was asked to explain the source & proof of the said investments. The assessee submitted that he has received consideration in lieu of transfer of tenancy rights as per consent order pa .....

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edings u/s. 143(3) read with Section 143(2) of the Act , the A.O. observed that the assessee has taken cost of acquisition of tenancy rights at ₹ 20,06,640/- i.e. value as on 1st April, 1981 and arrived at indexed cost The assessee has claimed exemption u/s 54F of the Act in respect of purchase of house property i.e. flat at Shanti Dharma Co-op. Housing Society, at Mogul Lane, Mahim, Mumbai together with two garages in another building. The assessee has also claimed cost of improvement and .....

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u/s 54F of the Act for the purchase of two garages out of the above stated compensation received from tenancy right. But as per the agreement of the garages, it was observed by the AO that the garages are not situated in the same building where the assessee has purchased property i.e. Shanti Dharma Co-op. Housing Society. When asked as to why the purchase price of the garage should not be disallowed since it is not within the premises of the house property purchased, the assessee submitted that .....

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porting documentary evidences were furnished by the assessee and accordingly the same were disallowed by the AO vide assessment order dated 30-12-2011 passed u/s 143(3) of the Act . The A.O. also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income.The AO issued notices u/s 274 r.w.s. 271(1)(c) of the Act. The assessee in penalty proceedings reiterated the submissions what were made during the assessment proceedings and submitted that the claim o .....

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1st April, 1981 and the assessee claimed the indexed cost of acquisition, however, the claim of the assessee was disallowed by the AO and cost of acquisition was deemed to Rs. Nil. The assessee also submitted that assessee s claim for cost of improvement and legal fees amounting to ₹ 25,97,310/- was also disallowed in the AO order on the ground that the same were incurred in respect of the property and not for the tenancy rights. It was also submitted that the assessee claimed deduction u .....

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g the course of assessment proceedings . The assessee submitted that the claim was bonafide.It was submitted that Section 55(2) gives an option to the assessee to substitute the fair market value of the asset as on 01-04-1981 and despite the cost of acquisition of tenancy rights being Nil , the assessee cannot be prevented from exercising the option provided to it under law as the tenancy rights became property of the assessee prior to 01-04-1981. It was submitted that it was a bonafide claim an .....

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ment of the property which should be allowed. It was submitted that the consideration of ₹ 2.66 crores in lieu of the transfer of tenancy rights was awarded to the assessee as per the Consent order passed by the Small Cause Court, hence, legal fees incurred towards the same is deductible u/s 48 of the Act as the same is incurred in connection with the transfer of the tenancy rights. The assessee submitted that the assessee acquired flat at Shanti Dharma Co-operative Hsg. Society where ther .....

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particulars of income or furnished inaccurate particulars of income. The assessee had furnished full details of the transactions during the course of assessment proceedings, hence, no penalty can be levied on the assessee. It was submitted that all the facts regarding the deduction/expenses were made available in the return of income as well during assessment proceedings , hence the assessee has not furnished any inaccurate particulars of income and hence the levy of penalty does not arise. The .....

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ducts Private Limited (2010) 322 ITR 158(SC) 10. D M Manasavi v. CIT (1973) 3 SCC 207(SC) 11. Anantharam Veerasinghaiah v. CIT (1980) Supp SCC 13 The A.O. observed that the assessee has filed return of income late i.e. beyond the period stipulated u/s. 139(1) of the Act. The AO observed that had the AIR not detected the assessee s transaction and the case would not have been selected for scrutiny under CASS, a sum of ₹ 1,86,61,620/- would have escaped assessment. The AO observed that the a .....

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ied upon by the assessee are materially separate and distinguishable. The AO held that these case laws are merely an afterthought to escape the levy of penalty u/s. 271(1)(c) of the Act . The assesseee did not have any further evidences to support his claim to support his claim of indexation and legal fees. The AO relied upon the decision of Hon ble Kerala High Court in the case of CIT v. Shree Krishna Trading Co. 253 ITR 645 wherein the court held that the burden is on assessee to establish tha .....

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71(1)(c) of the Act, the assessee has filed first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) , the assessee submitted that the assessee had disclosed the particulars regarding sale of tenancy rights, cost of acquisition, cost of improvement and the legal fees and the deduction claimed u/s 54F of the Act in the return of income filed with the Revenue as well during assessment proceedings The assessee had claimed the benefit of cost of acquisition of the tenancy right from 1st April, 1 .....

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e Act. Complete details were filed in support of working of LTCG and no discrepancy was found by the AO .The documentary evidences in support of claim of LTCG are not found to be forged,false or fabricated. All the particulars in support of working of LTCG were duly furnished . The AO disallowed FMV of the tenancy rights adopted as on 01- 4-1981 as well indexation thereof. The A.O. allowed exemption of one garage instead of two garages and did not allow the cost of improvement including the lega .....

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ed is not a ground for levying penalty as held by the Hon ble Supreme Court in the case of Reliance Petroproducts Private Limited v. CIT 322 ITR 158(SC). The ld. CIT(A) accepted the contentions of the assessee whereby he observed that the assessee had disclosed the entire facts regarding the sale of the tenancy rights, receipt of ₹ 2.66 crores and the claim of FMV as on 1st April, 1981, indexation and claim of exemption u/s 54F of the Act in the return of income filed with the Revenue for .....

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Nil as per provisions of Section 55(2)(a) of the Act. No new facts had been brought on record by the A.O. to prove that the assessee had concealed any particulars of income. All the facts on the basis of which additions were made were available in the return of income filed for the year under consideration which is on record. The ld. CIT(A) observed that the return of income was prepared under the advice of Chartered Accountant who advised him that since the tenancy rights got converted into own .....

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ns accordingly by considering the FMV of the property as on 1st April, 1981 and indexing the same under mistaken belief and the wrong advise to claim the deduction. The ld. CIT(A) accepted the contention of the assessee that the issue of the taxation of capital gains on the sale of tenancy rights being highly technical issue could not have been finalized without the help and advice of the professional Chartered Accountant. When the A.O. pointed out the mistake of the assessee in computing the ca .....

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ld that there appears to be no deliberate attempt on the part of the assessee to file any inaccurate particulars of income by claiming the deduction and indexation in computing the capital gains. The assessee made a legal claim of deduction u/s 54F of the Act and indexation benefit in the return of income filed with the Revenue which was not accepted by the Revenue and merely making a claim which did not found favour with the Revenue will not make the assessee exigible for penalty u/s 271(1)(c) .....

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03) 261 ITR 67 (Raj.) 2. CIT v. Sri Saradha Textile Processors (P) Ltd. (2006) 286 ITR 499(Mad.) 3. CIT v. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 4. ACIT v. Malu Electrodes (P) Ltd. (2010) 127 TTJ (Nag) 599. 5. Dilip N. Shroff v. JCIT & Anr. 291 ITR 519 (SC) 6. Aggrieved by the appellate order dated 26-09-2013 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. 7. The ld. D.R. submitted that the consideration of ₹ 2.66 crores on surrender of tenancy .....

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asset as on 1st April, 1981 on a mistaken belief that the assessee is entitled for adopting FMV as on 01-04-1981 and to apply indexation despite specific provision as contained u/s 55(2)(a) of the Act that cost of acquisition in these case will be taken to be NIL. The assessee claimed the indexed cost of acquisition , however, the claim of the assessee was disallowed and cost of acquisition was taken to be Nil in the quantum proceedings which was accepted by the assessee in quantum proceedings . .....

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om tenancy right. But the claim of the assessee is allowed for only one garage in quantum proceedings and the claim with respect to second garage was disallowed by the AO which decision was accepted by the assessee as no appeal was filed with the appellate authorities. The assessee has accepted the quantum additions and paid due taxes as no appeal was filed by the assessee against quantum additions in the assessment framed u/s. 143(3) of the Act. The Ld. DR relied upon the decision of CIT v. Zoo .....

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of the Revenue that the assessee has claimed FMV for the tenancy rights and its indexation which is otherwise not allowable due to Section 55(2)(a) of the Act as cost of acquisition of tenancy right is Nil , while the fact is that the details were submitted by the assessee while filing return of income. He relied upon decision of the Tribunal in the case of ITO v. Smt Chandrika B. Shah in ITA no. 1790/Mum/2009 vide orders dated 07-05- 2010. The ld. Counsel submitted that the assessee s father go .....

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rking facility in the new building to be constructed on the same plot of land in lieu of the premises occupied by him as well on payment of ₹ 13 lacs for 200 square feet area in the year 1996, however the employer could not provide the said new constructed area and then it was mutually agreed that the compensation of ₹ 2.66 crores for surrender of the tenancy right shall be granted by the said employer of the father of the assessee who was owner of the premises to the assessee vide c .....

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ancy rights.The Chartered Accountant of the assessee guided the assessee on the same as this matter which was highly complex , the assessee relied upon the expert guidance and advise of CA. The copy of consent terms award are filed in the paper book page 17-28. It was submitted that all the particulars were submitted while filing return of income with the Revenue as well during assessment proceedings . There was no attempt made to conceal the income as all particulars were filed. The assessee in .....

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material available on record including the case laws relied on by both the parties. We have observed that the assessee has received ₹ 2.66 crores on the surrender of tenancy rights under the consent terms awarded by the Hon ble Court. The said tenancy was granted to the father of the assessee by his employer prior to 01-04-1981. The employer of the father of the assessee was owner of the said premises . There was a litigation between the assessee s father and his employer. The father of t .....

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payment of ₹ 13 lacs. The assessee would have been the owner of the newly acquired 1000 square feet in terms of consent terms awarded by the Court. The employer could not provide newly constructed area of 1000 square feet built up in the same complex for 10 years and fresh consent term as mutually agreed was entered into by both the parties which was filed with the Hon ble Court whereby the assessee in place of earlier consent term will now receive an amount of ₹ 2.66 crores from the .....

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the same shall date back to the period when the tenancy rights were granted to the father of the assessee and the assessee claimed fair market value of tenancy rights as on 01-04-1981 an allowable deduction while computing long term capital gains on surrender of tenancy rights, despite the specific provision as contained u/s 55(2)(a) of the Act, whereby the cost of acquisition in the case of tenancy right shall be taken to be Nil in case no cost is paid by the tax-payer to acquire the tenancy ri .....

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h an intention to defraud revenue although it is a different matter the claim and the explanations submitted by the assessee before Revenue did not found favour with the Revenue and in our considered view, the explanations which are not accepted by the Revenue does not ceases to be a bona fide explanation merely on the grounds that the same were not accepted by the Revenue. The assessee also acquired two garages in the same locality although in different building than the building where the resi .....

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54F of the Act with respect to one garage only . Again,we are of the considered view, that the explanation offered by the assessee is bona fide as the house does not mean four walls and the amenities like garden, garage etc are part and parcel of the residential house in modern times. We also did not find that there is any restriction imposed by the Act on having only one garage with a residential house. The assessee was compelled to take garages in nearby building in the same locality as garage .....

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y the Revenue, it is different matter that the assessee did not challenge the quantum assessment framed by the Revenue. Thus, in our considered view the assessee came out with a bona fide explanation which did not found favour with the Revenue and the assessee on his part also chose to accept the disallowance as was made in quantum assessment and decided not to agitate the matter with the appellate authorities. Similarly, the benefit of cost of improvements in the property where tenancy rights w .....

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e, which in our considered view is a bonafide explanation albeit did not found favour with the Revenue and the assessee on its part chose to accept the assessment in quantum and decided not to agitate the matter with the appellate authorities. In our considered view the assessee has come out with bona fide explanations to support and substantiate his claim as filed in the return of income albeit the same were not accepted by Revenue as we discussed in preceding para s. Explanation 1 to Section 2 .....

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d its burden by coming out with an explanation which was a bona fide explanation. On the claim being disallowed in quantum assessment proceedings, the assessee accepted the same and deposited the due taxes with the Revenue and did not persue further litigation with the appellate authorities . We are of considered view that the ratio of law laid down by Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd. (supra) is directly applicable in this case as the claim has been set .....

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essee has made a bonafide claim for which explanations were duly submitted which are found not to be false neither it was an ex facie illegal claim, albeit the same did not found favour with the Revenue. Merely because the claim set up by the assessee was disallowed by the Revenue as in the present case, in our considered view , the assessee is not liable for penalty u/s 271(1)(c) of the Act keeping in view the facts and circumstances of the case and the explanations with which the assessee came .....

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