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The Income-tax Officer-24 (1) (1) , Mumbai Versus Smt. Chandrika B, Shah, L/H of Late Shri Bharat L. Shah,

I.T.A.No. 1790/Mum/2009 - Dated:- 7-5-2010 - Shri D.K. Agarwal, JM and Shri T.R. Sood, AM Appellant by : Shri Arun Bharat Respondent by : Shri Vijay Kothari O R D E R PER T.R. SOOD, AM: In this appeal the Revenue has raised various grounds. But the only issue involved in this appeal is deletion of penalty of ₹ 27,30,000/- levied under section 271(1)(c) of the Income-tax Act, 1961. 2. Brief facts of the case are that Mrs. Chandrika B. shah is the legal heir of late Shri Bharat L. Shah, her .....

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nancy right at ₹ 37,90,012/-. It was claimed by the assessee during the assessment proceedings that tenancy right was acquired in 1973 by M/s. Elrex Corporation, a partnership firm in which late Shri Bharat L. Shah was a partner. The partnership was dissolved in 1979 and after that business was taken over and carried on as proprietary concern by late Shri Bharat L.Shah. accordingly, the property was received on dissolution of the firm by the mode of transfer prescribed under section 49(1). .....

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reiterated and some documents were also filed. The learned CIT(A) sought a remand report for verification of these documents. In the remand report the Assessing Officer reported that M/s. Elrex Corporation was a partnership firm and had taken tenancy rights vide Leave and License Agreement dated 16.07.1973 and the firm was dissolved in 1979. Late Shri Bharat L.Shah continued the business in the same name and the same premises as the proprietor of the concern after dissolution of the firm. Howeve .....

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e and submissions of the appellant carefully. Late Mr. Bharat L. Shah had disclosed the proceed of ₹ 1,30,00,000/- in respect of the surrender of the tenancy right under consideration. While making the computation f the LTCG he claimed the value of the tenancy right as on 01/04/1981 as the substituted cost of acquisition. As per the provisions of section 55(2)(a)(ii) of the I.T.Act, the cost of acquisition of certain capital assets including the tenancy right shall be taken at Nil exceptin .....

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ex Corporation became the proprietorship concern of Late Mr. Bharat L. Shah and he was holding the tenancy right of the said property thereafter which he surrendered in the assessment year under consideration for the aforesaid sum of ₹ 1,30,00,000/-. So his claim that the tenancy right was received by him by way of distribution of assets on dissolution of the firm and the consequent claim of substituted cost as on 01/04/2001 cannot be equated with concealment of income or filing of inaccur .....

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he income tax documents of the firm M/s. Elrex Corporation filed by the subsequently show that the firm was holding the tenancy right for the period thereafter. The one crucial document she could not produce at any state is the deed of distribution of assets of the firm on its dissolution. The Assessing officer was justified in opining that the claim of section 49(1)(iii)(b) and the consequent claim of substituted cost can not be allowed for want of such direct evidence. However, it cannot be sa .....

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ome. 3.3 There are several judgments of various courts that the penalty should not be imposed on the facts similar to the present case. Hon ble Delhi High Court held in the case of CIT v. Nath Brothers Exim International Ltd. (2007) 288 ITR 670 that where facts are disclosed but the claim of deduction is wrongly made concealment penalty u/s.271(1)(c) cannot be imposed. Hon ble Madras High Court held in the case of CIT v. Caplin Point Lab. Ltd. [2007] 293 ITR 524 that when disallowance is made on .....

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ssessee conceals the particulars of income or furnishes inaccurate particulars of income with an intention to mislead the revenue and it should not be imposed in every case where the return is not accepted and the assessment is framed at the income higher than the returned income. 4. Before us the learned Departmental Representative while strongly supporting the order of the AO submitted that in this case Explanation 1 to Section 271(1)(c) would be attracted because the assessee has not been abl .....

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rika Shah could not locate the Dissolution Deed and other papers at the time of hearing of adjudication of quantum appeal and that is why the appeal in respect of addition, i.e. quantum appeal was withdrawn by the assessee. Later on some documents were located which were filed during appeal proceedings under penalty provisions and which have been duly referred to the Assessing Officer by the CIT(A). In the remand report it was specifically accepted that M/s. Elrex Corporation, a partnership firm .....

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(b) of the Act. Then he referred to Section 55(1)(b)(2)(ii) wherein it is clearly provided that if the properties acquired by any other mode specified in sub-section (1) of section 49, than such cost of acquisition is to be taken as cost to previous owner. He further referred to section 55(2) clause (b)(ii), which gives option to the assessee to adopt the fair value of the asset as on 1st April 1981. Thus, it is clear that the assessee had the right to adopt the market value as on 1.4.1981. In a .....

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the A.O. in the remand report sent to the CIT(A). Para 2.5 of the appellate order in this regard reads as under: As some of the documents filed by the appellant during the appeal proceeding were not looked into by the Assessing Officer during the penalty proceeding, the submissions of the appellant along with the documents were sent to her for verification and report. The Assessing Officer reported that M/s.Elrex Corporation, partnership firm had taken the tenancy right of the property vide liv .....

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firm, she further reported. She opined that in such circumstances section 49(1) was not applicable to this case and as the property was not purchased by incurring any cost, the cost of acquisition was correctly taken as Nil. 7. The above clearly shows that late Shri Bharat L. Shah was partner of the firm M/s. Elrex Corporation which had acquired property tenancy rights on 16.7.1973 and the said firm was dissolved in 1979. The A.O. has further accepted that late Shri Bharat L. Shah continued the .....

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roperty of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) (a) by succession, inheritance or devolution, or [(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987 . Meaning of adjusted , cost of improvement and cost of acquisition . 55. (1) For the purpos .....

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making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and (ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in [sub-section (1) of] section 49 by the previous owner, but does not include any expenditure wh .....

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any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section49, shall be taken to be nil. (b) in relation to any other capital asset,-] (i) where the capital asset became the property of the assess .....

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the fair market value of the asset on the [1st day of April, [1981]], at the option of the assessee. 9. A plain reading of these provisions show that cost in the case of acquisition by modes of transfer under section 49 has to be taken the cost of the previous owner. Further, section 55(2) gives the mode of calculating the cost of acquisition which includes tenancy right also. Normally the cost has to be taken at the purchase price or Nil cost but this principle does not apply in the cases falli .....

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ovisions further it can be easily said that atleast the assessee had a bonafide belief that the assessee had a right to estimate the fair market value of the asset as on 1st day of April 1981. Further, we attach no importance to the fact that copy of the Dissolution Deed could not be filed in this case because tenancy rights were sold by late Shri Bharat L. Shah, who is the husband of the assessee, who unfortunately died in a road accident on 9th October, 2004. The widow of late Shri Bharat L. S .....

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acquisition cost could be taken at fair market value in terms of section 55(2)(b)(ii) of the Act. 11. In any case, the Hon ble Supreme Court in the recent decision in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (supra) has observed as under: A glance at the provisions of section 271(1)(c) of the Income-tax act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccura .....

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