2022 (5) TMI 522 - AT - Income Tax

Tax Deduction Under Section 54F Upheld: Technical Timing Breach Not Grounds for Penalty, Tribunal Finds Procedural Lapse Insufficient for Punitive Action

In a tax dispute involving Section 54F deduction, the Tribunal canceled a penalty under Section 271(1)(c). The court found that a technical breach in ... Penalty u/s 271(1)(c) - disallowance of deduction u/s 54F of the Act - denial of deduction u/s 54F is that the purchase of the property i.e. new asset was beyond the period of one year vis-à-vis sale of the old asset in this regard - It is the case of the assessee that although the purchase of new asset is beyond one year vis-à-vis sale of the old asset, the security deposit for sale of old asset was taken within a period of one year, and therefore, the action for sale of old asset started rolling within the stipulated period. It is the case of the assessee that the provisions of Section 54F are beneficial in nature and the Courts have always accorded liberal interpretation and a small delay of few days have been condoned for the eligibility purposes - HELD THAT:- We find merit in the plea of the assessee for cancellation of penalty. While the admissibility of deduction under Section 54F in the circumstances may be somewhat debatable due to non compliance of strict letter of law. However, this by itself, would not result in imposition of penalty as a consequential measure. The case of the assessee is fully supportable by the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt . Ltd. [2010 (3) TMI 80 - SUPREME COURT] Admittedly, no inaccuracy was found in the particulars of deduction claimed as such. The assessee also has a basis for claim of deduction in the light of the fact that security deposit was accepted from the brokers against the sale of property which ultimately materialized 20-25 days later resulting in slight delay in actual execution of sale agreement of old asset. In such circumstances, small breach in the stipulated period of one year between purchase and sale of assets would not justify imposition of onerous penalty. - Decided in favour of assessee. Issues:Imposition of penalty under Section 271(1)(c) for disallowance of deduction under Section 54F of the Income Tax Act, 1961.Analysis:1. Imposition of Penalty:The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the imposition of a penalty under Section 271(1)(c) for disallowance of deduction under Section 54F of the Act. The assessee challenged the penalty, arguing that the rejection of the claim for deduction under Section 54F in the quantum proceedings did not imply concealment of income or furnishing inaccurate particulars. The assessee contended that a mere incorrect claim for deduction should not automatically lead to the penalty specified under Section 271(1)(c) of the Act. Citing the decision in CIT vs. Reliance Petro Products Pvt. Ltd., the assessee sought cancellation of the penalty imposed by the Assessing Officer.2. Justification for Penalty:The core issue revolved around the justification for imposing a penalty under Section 271(1)(c) for the disallowance of the deduction claimed under Section 54F. The assessee argued that although there was a delay in the purchase of the new asset concerning the sale of the old asset, the acceptance of a security deposit within the stipulated period indicated the initiation of the sale process within the required timeframe. The assessee highlighted the beneficial nature of Section 54F and the courts' tendency to interpret it liberally, often condoning minor delays. The Tribunal agreed with the assessee, emphasizing that a technical breach should not warrant a penalty under Section 271(1)(c) when no inaccuracy was found in the particulars of the deduction claimed. The Tribunal referred to the decision in CIT vs. Reliance Petro Products Pvt. Ltd. to support its conclusion and canceled the penalty imposed by the Assessing Officer.3. Conclusion:After considering the arguments from both sides, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and canceled the penalty imposed by the Assessing Officer. The Tribunal found merit in the assessee's plea for the penalty's cancellation, emphasizing that a slight breach in the stipulated period between the purchase and sale of assets should not result in an onerous penalty. Consequently, the appeal of the assessee was allowed, and the order was pronounced in the open court on 09/05/2022.