Penalty under section 271(1)(c) upheld for incorrect section 80IB(10) deduction claim on residential units

The ITAT Indore upheld penalty under section 271(1)(c) against the assessee for incorrectly claiming deduction under section 80IB(10). The AO disallowed the deduction on grounds that most residential units exceeded 1500 square feet and the assessee operated as a contractor rather than developer. The ITAT rejected the assessee's contentions, finding no evidence that actual built-up areas were within prescribed limits or that the assessee qualified as a developer. The tribunal distinguished cited precedents as those involved debatable issues with bonafide claims, whereas this case involved incorrect factual claims. The penalty was confirmed as the assessee's claim was based on misrepresentation of facts.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Legitimacy of penalty under section 271(1)(c) of the Income Tax Act.
3. Eligibility for deduction under section 80IB(10) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appeal was filed with a delay of 10 days. The assessee explained the delay, stating that the notices and the order from the Commissioner of Income Tax (Appeals) were sent to the email of the counsel, who inadvertently missed them. Upon discovering the oversight, the counsel promptly advised filing an appeal. The tribunal, considering the circumstances and in the interest of justice, condoned the delay, allowing the appeal to be heard.

2. Legitimacy of Penalty under Section 271(1)(c) of the Income Tax Act:

The assessee challenged the penalty of Rs. 55,00,000 levied under section 271(1)(c), arguing that the penalty was based on a defective show cause notice and was not justified. The tribunal examined the circumstances under which the penalty was imposed, noting that the penalty was related to the disallowance of a deduction claim under section 80IB(10). The assessee argued that the claim was bona fide and relied on precedents, including the Supreme Court's judgment in CIT Vs. Reliance Petro Products Ltd., which held that a bona fide claim does not attract penalty under section 271(1)(c). However, the tribunal found that the claim was based on incorrect facts and upheld the penalty, concluding that the assessee furnished inaccurate particulars of income.

3. Eligibility for Deduction under Section 80IB(10) of the Income Tax Act:

The primary contention was the disallowance of the deduction claim under section 80IB(10) due to three main reasons: (i) the assessee acted as a contractor rather than a developer, (ii) most residential units exceeded the maximum built-up area of 1500 square feet, and (iii) failure to obtain a completion certificate within the prescribed period. The tribunal noted that the assessee sold plots and constructed houses on behalf of the buyers, thus acting as a contractor. The District Valuation Officer's report confirmed that 112 out of 147 houses exceeded the built-up area limit. The tribunal also referenced the jurisdictional High Court's decision, which emphasized the mandatory nature of obtaining a completion certificate. Despite the assessee's argument that the issue was debatable and pending before the Supreme Court, the tribunal found that the factual findings of the Assessing Officer and CIT(A) were upheld in quantum appeals, leading to the conclusion that the assessee's claim was not bona fide. Consequently, the tribunal confirmed the disallowance of the deduction and upheld the penalty under section 271(1)(c).

Conclusion:

The tribunal dismissed the appeal, confirming the penalty under section 271(1)(c) and the disallowance of the deduction under section 80IB(10), based on the factual findings that the assessee acted as a contractor, exceeded the built-up area limits, and failed to obtain the completion certificate within the stipulated period.

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