2023 (7) TMI 671 - AT - Income Tax

Tribunal grants exemption under Income Tax Act & deletes penalty for good faith disclosure

Hemant Shridhar Phatak Versus The Asst. Commissioner of Income Tax-35 (1), Mumbai

Hemant Shridhar Phatak Versus The Asst. Commissioner of Income Tax-35 (1), Mumbai - TMI Issues Involved:1. Disallowance of exemption claim under Section 54 of the Income Tax Act, 1961.2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.Summary:Issue 1: Disallowance of Exemption Claim under Section 54The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which dismissed the assessee's claim for exemption under Section 54 of the Income Tax Act, 1961. The assessee had sold a jointly owned flat on 04/08/2012 and booked two new flats on 18/04/2011, receiving possession on 26/11/2014. The Assessing Officer (AO) denied the exemption, stating that the new flats were booked beyond one year before the sale of the old flat and possession was received after two years from the sale date. The CIT(A) upheld the AO's decision.The assessee argued that the flats were under construction when booked, and possession was received within three years from the sale, meeting the conditions of Section 54. The Tribunal referred to the case of Mustansir I Thahasildar vs. ITO, which held that acquiring a flat in a building under construction is akin to construction and not purchase. The Tribunal noted that the possession of the new flats was obtained within three years from the sale of the old flat, fulfilling the exemption conditions under Section 54. The Tribunal allowed the appeal, stating that the assessee is eligible for the exemption.Issue 2: Imposition of Penalty under Section 271(1)(c)The assessee also appealed against the penalty imposed under Section 271(1)(c) following the disallowance of the exemption claim. The AO had levied a penalty of Rs. 14,72,240/- for the alleged wrong claim of exemption. The CIT(A) upheld the penalty.The assessee argued that the transaction was disclosed in the return of income, and the exemption claim was made in good faith. The Tribunal noted that with the allowance of the exemption claim in the quantum appeal, the basis for the penalty no longer existed. Additionally, the Tribunal referenced the Supreme Court's decision in CIT vs. Reliance Petroproducts (P) Ltd., which held that a mere disallowance of a claim does not warrant penalty under Section 271(1)(c). The Tribunal concluded that the penalty was unsustainable and allowed the appeal.Conclusion:Both appeals, ITA No.267/Mum/2023 and ITA No.268/Mum/2023, were allowed by the Tribunal, granting the exemption under Section 54 and deleting the penalty under Section 271(1)(c).