Income Tax Appellate Tribunal - Mumbai
Chandrika B. Shah, Mumbai vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'C', MUMBAI
Before Shri D.K. Agarwal, JM and Shri T.R. Sood, AM
I.T.A.No. 1790/Mum/2009
Assessment Year : 2003-04
The Income-tax Officer-24(1)(1),C- Smt. Chandrika B, Shah,
13, 607, Pratyaksha Kar Bhavan, L/H of Late Shri Bharat L. Shah,
Bandra Kurla Complex, Bandra (E), 306, Premsons Industrial Estate,
Vs.
Mumbai 400 051. Caves Road, Jogeshwari (E),
Mumbai 400 060.
PAN: AAEPS 7020 G
(Appellant) (Respondent)
Appellant by : Shri Arun Bharat
Respondent by : Shri Vijay Kothari
ORDER
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 Rs. 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 husband. Shri Bharat L. shah had received a sum of Rs. 1,30,00,000/- against surrender of the tenancy right in respect of the property namely 'Yatan Sadan' 24-A Moghul Lane, Mahim, Mumbai-400 016, during the previous year relevant to the assessment year 2003-04. He had taken the fair market value as on 1.4.1981 at Rs.20,60,400/- and after indexation the indexed value of the tenancy right was worked at Rs. 92,09,988/- and the return was filed declaring long term capital gains on the tenancy right at Rs. 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). Later on this right was 2 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah surrendered on 21.11.2002 by selling this right to Kanyakumari Builders Pvt. Ltd. for a sum of Rs. 1,30,00,000/-. This claim was rejected during the assessment proceedings because the assessee could not produce any document regarding dissolution etc. and acquisition cost of the tenancy rights was adopted at 'NIL'. During the penalty proceedings also these contentions were raised and the same were rejected by the Assessing Officer.
3. On appeal, similar contention was 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. However, since copy of the Dissolution Deed was not provided and therefore it could not be proved that the property in question i.e. tenancy rights were received by late Shri Bharat L. Shah on dissolution of the firm and, therefore, no cost was incurred on acquisition of the rights and the cost of the same has to be taken at Nil. The learned CIT(A) after considering of the submissions deleted the penalty vide paras 3.1 to 3.3 of his order which read as under:
"3.1 I have considered the facts of the case and submissions of the appellant carefully. Late Mr. Bharat L. Shah had disclosed the proceed of Rs. 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' excepting in the cases falling under section 49(1)(i) to (iv). The acquisition of a capital asset by an assessee by way of distribution of assets on the dissolution of a firm is one of the modes specified in section 49(1)(iii)(b). In this case the documents clearly show that M/s. Elrex Corporation, partnership firm had acquired the tenancy right of the property vide live and license agreement dated 16/07/1973 and the appellant was one of the partners of the firm. The firm was dissolved in 1979. M/s. Elrex Corporation became the proprietorship concern of 3 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah 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 Rs. 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 inaccurate particulars of income.
3.2. Moreover the claim of substituted cot was made by Mr. Bharat L. Shah in the return of income filed by him on 28/11/2003. He died in a road accident on 09/10/2004 and his legal heir and wife Mrs. Chandrika B. Shah could not collect all the necessary documents and furnish the same during the assessment proceeding in support of the claim of the substituted cost. For the same reason she had withdrawn the appeal in the quantum case. The live and license agreement and the 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 said as a wrongful claim made for the purpose of misleading the revenue. It was a legal claim which could not be substantiated by the legal heir by the direct evidence that the tenancy right was received by her late husband by way of distribution of assets on dissolution of firm. The inability of the legal heir in collecting and filing such direct evidence for substantiating the claim made by her late husband cannot be categorized as concealment of income or filing of inaccurate particulars of income.
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 the basis of different interpretation it cannot be said that particulars of income are concealed or inaccurate particulars are filed. Hon'ble Calcutta High curt held in the case of CIT v. Calcutta Credit Corporation Ltd. 166 ITR 29 that where two opinions are possible on facts of the case penalty u/s.271(1)(c) cannot be imposed. Hon'ble Delhi High Court held in the case of CIT v. P.H.I. Seeds India Ltd. [2008] 301 ITR 13 that the penalty u/s.271(1)(c) is attracted in those instances where the assessee 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 4 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah 271(1)(c) would be attracted because the assessee has not been able to substantiate the explanation because copy of the dissolution deed was never filed and therefore, penalty levied by the A.O. was justified.
5. On the other hand, the learned counsel for the assessee submitted that the present assessee i.e. Smt. Chandrika B. Shah is the wife of late Shri Bharat L. Shah, who unfortunately died in a road accident on 9.10.2004. He reiterated the submission made before the Assessing Officer regarding acquisition of this tenancy right and submitted that Mrs. Chandrika 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 had originally taken the tenancy rights of the premises vide leave and license agreement datred 16.07.19973. It was also accepted that the firm was dissolved in the year 1979 and late Shri Bharat L. Shah continued the business in the same name at the same premises as proprietor. It is, therefore, clear that these rights were acquired originally by the partnership firm which was dissolved in 1979 and the assessee in turn received the same on dissolution of the firm in terms of section 49(1)(iii)(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 any case it was a bonafide claim of the assessee and the same could not have been 5 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah rejected merely because the Department was holding a different view. In this regard he relied on the latest decision of the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (322 ITR 158).
6. We have considered the rival submissions carefully in the light of the relevant material on record. We find that the claim of the assessee regarding acquisition of tenancy right was partly accepted by 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 live and license agreement dated 16/07/1973 and the firm was dissolved in 1979. late Mr. Bharat L. Shah continued the business in the same name and at the same premise as proprietor of the concern after dissolution of the firm. However the appellant did not file any dissolution deed of the firm showing the distribution of assets and liabilities of the firm and so it could not be proved that the property in question i.e. the tenancy right was received by late Mr. Bharat L. Shah on dissolution of the 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 business in the same name and in the same premises as proprietary concern after dissolution of the firm. However, this claim was still rejected in the absence of the Dissolution Deed. In any case, this claim was rejected during the assessment because according to the A.O. the cost of acquisition of the tenancy right has to be taken at Nil because of section 55(2)(a)(ii) of the Act.
8. Now, let us have to look at the relevant provisions of the Act.: 6 ITA No.1790/M/09
M/s. Smt. Chandrika B . Shah "
49. [(1)] Where the capital asset became the property 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 purposes of [section 48 and 49],--
(a) [***] [(b) "cost of any improvement",--
(1) in relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing] [or right to carry on any business] shall be taken to be nil ; and (2) in relation to any other capital asset,--]
(i) where the capital asset became the property of the previous owner or the assessee before the [1st day of April, [1981]], [***] means all expenditure of a capital nature incurred in 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 which is deductible in computing the income chargeable under the head "Interest on securities", "Income from house property", "Profits and gains of business or profession", or "Income from other sources", and the expression "improvement" shall be construed accordingly. (2) [For the purposes of section 48 and 49, "cost of acquisition", [(a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process 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 assessee before the [1st day of April, [1981]], means the cost of acquisition of the asset to 7 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah the assessee or the fair market value of the asset on the [1st day of April, [1981]], at the option of the assessee ;
(ii) where the capital asset became the property of the assessee by any of the modes specified in [sub-section (1) of] section 49 and the capital asset became the property of the previous owner before the [1st day of April, [1981]], means the cost of the capital asset to the previous owner or 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 falling under clause (ii) of this provision i.e. cases falling under sub-clause (1) to (4) of sub-section (1) of section 49 of the Act. Clause (b) of this section deals with the determination of cost in respect of assets acquired under sub-section (1) of section 49 and it clearly states that acquisition cost in such cases means the cost of capital asset to the previous owner or the fair market value of the asset on the lst day of April 1981 at the option of the assessee.
10. Before analyzing these provisions 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. Shah might have been ill advised to withdraw her claim during the appeal proceedings in quantum appeal. But that does not lead to the inference that she has conceded that the wrong particulars were filed. The firm was dissolved in the year 1979 and it may not be possible to locate the documents like Dissolution Deed after 25 years that too after the sad 8 ITA No.1790/M/09 M/s. Smt. Chandrika B . Shah demise of Shri Bharat L.Shah who was looking after the business. In this background, it is very clear that the assessee had bonafide belief that 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 inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
This decision was taken after considering the decisions of the Hon'ble Supreme Court in the case of UOI vs. Rajasthan Spg. & Wvg. Mills [2010] 1 GSTR 66, CIT v. Atul Mohan Bindal [2009] 317 ITR 1, Dilip N. Shroff v. JCIT [2007] 291 ITR 519 and the Union of India v. Dharamendra Textile Processors [2008] 306 ITR
277.
12. Therefore, in view of the fact that assessee had raised a bonafide claim and has not filed any inaccurate particulars of income, we are of the view that penalty has been rightly deleted by the learned CIT(A) and therefore, we confirm this order.
9 ITA No.1790/M/09
M/s. Smt. Chandrika B . Shah
13. In the result, the appeal is dismissed.
Order pronounced in the Open Court on this 7th day of May, 2010.
Sd. Sd.
(D.K. Agarwal) (T. R. Sood)
Judicial Member Accountant Member
Mumbai dated the 7th May, 2010.
kn
Copy to:
1. The Assessee
2. The Revenue
3. The CIT, City -24, Mumbai
4. The CIT(A)-XXIX, Mumbai
5. The DR 'C' Bench, Mumbai By order
/True copy/
Asst. Registrar, ITAT, Mumbai
10 ITA No.1790/M/09
M/s. Smt. Chandrika B . Shah