Tribunal rules in favor of Assessee in Chennai appeals on capital gains assessment and penalty

The tribunal in Chennai allowed both appeals of the Assessee in ITA No. 2680/Mds/2018 and ITA No. 2681/Mds/2018 on 14th August 2019. In the first issue regarding the assessment of capital gains, the tribunal held that the cost of improvement borne by the previous owner should be considered for calculating gains, leading to the appeal being allowed. Concerning the penalty under Section 271(1)(c), the tribunal ruled that the mere inability to substantiate a claim does not warrant a penalty, resulting in the appeal being allowed as well.

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Issues Involved:
1. Assessment of capital gains including cost of improvement borne by previous owner.
2. Penalty levied under section 271(1)(c) for non-disclosure of capital gains and alleged wrong claim.

Issue 1: Assessment of Capital Gains
The appellant, engaged in two-wheeler financing, filed a return of income for AY 2010-11, disclosing total income. The assessment was completed initially, but the Assessing Officer later noticed an omission related to the cost of improvement to the asset incurred by the previous owner. The AO issued a notice under section 148, and upon filing a revised return, the assessment was completed at a higher income. The appellant contended that the cost of improvement by the previous owner was ignored. The key issue was whether the cost of improvement borne by the previous owner should be considered for calculating gains. The tribunal referred to a Bombay High Court case and held that the cost of improvement borne by the previous owner, inflated by indexation, should be allowed. Consequently, the appeal of the assessee was allowed.

Issue 2: Penalty under Section 271(1)(c)
The appellant's return for AY 2010-11 declared total income, but the AO made additions related to long-term capital gains and disallowed a claim under section 35(1)(iii) of the Act. Penalty proceedings were initiated under section 271(1)(c) for alleged non-disclosure of capital gains and a wrong claim. The appellant argued that the penalty was not justified as the additions were made due to failure to produce evidence for the claim. The tribunal noted that the additions were made based on the appellant's inability to substantiate claims. Citing a Supreme Court decision, it was held that mere inability to substantiate a claim does not warrant a penalty under section 271(1)(c). Therefore, the tribunal allowed the appeal of the assessee, concluding that it was not a fit case for the levy of a penalty.

In conclusion, both appeals of the Assessee in ITA No. 2680/Mds/2018 and ITA No. 2681/Mds/2018 were allowed by the tribunal in Chennai on 14th August 2019.

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