Bona Fide Wrong Tax Claim Not Concealment of Income: ITAT Panaji

Jorge Azevedo Pereira Vs DCIT (ITAT Panaji)

Material Facts

The appeal pertained to Assessment Year 2016-17 and challenged the order of the National Faceless Appeal Centre dated 09.11.2024 affirming penalty of Rs.17,29,440 levied under Section 271(1)(c) of the Income-tax Act, 1961 for alleged furnishing of inaccurate particulars of income relating to disallowance of Rs.1,08,59,912.

The assessee had filed the return of income on 29.07.2016 declaring total income of Rs.1,86,55,740, mainly comprising long-term capital gains of Rs.1,83,94,699. During assessment under Section 143(3), the Assessing Officer recomputed the long-term capital gains by disallowing:

• Indexed cost of improvement (maintenance expenditure) – Rs.77,54,662.
• Caretaker expenses – Rs.2,81,500.
• Barbed wire fencing expenses – Rs.37,500.
• Interior advances – Rs.27,00,000.
• Professional fees – Rs.86,250.

The assessee failed to obtain relief in the quantum proceedings before the CIT(A) and did not pursue any further appeal before the Tribunal. Thereafter, penalty proceedings under Sections 274 and 271(1)(c) were initiated and culminated in levy of penalty, which was confirmed by the CIT(A).

Procedural History

Following confirmation of the quantum additions by the CIT(A), the Assessing Officer initiated penalty proceedings under Section 271(1)(c). After issuance of notice under Section 274, the Assessing Officer levied penalty of Rs.17,29,440, which was upheld by the CIT(A). The assessee appealed before the ITAT.

Legal Issues

The Tribunal considered whether the penalty under Section 271(1)(c) was justified in respect of disallowance of:

• Maintenance expenditure treated as cost of improvement.
• Caretaker expenses.
• Barbed wire fencing expenses.
• Professional fees.
• Interior advances.

Relevant Statutary Provisions

• Section 143(3) of the Income-tax Act, 1961.
• Section 271(1)(c) of the Income-tax Act, 1961.
• Section 274 of the Income-tax Act, 1961.
• Rule 46A.

Assessee’s Submissions

The assessee submitted that:

• Maintenance and caretaker expenses were incurred for upkeep of sea-facing properties and were claimed as capital expenditure based on judicial decisions.
• The genuineness of the expenditure had never been disputed; only its nature had been treated by the Revenue as revenue expenditure.
• Barbed wire fencing expenditure had been partly allowed by the CIT(A), demonstrating that the expenditure had been incurred.
• Professional fees were incurred for computation of long-term capital gains and claims under Sections 54EC and 54F.
• Supporting documents relating to interior expenditure had been produced before the CIT(A), though they were not admitted as additional evidence under Rule 46A.
• The claims were made on professional advice and not with any intention to evade tax.

Reliance was placed on the decisions in CIT Vs. Reliance Petro Products Pvt. Ltd. and Ventura Textiles Limited.

Revenue’s Submissions

The Department supported the order of the CIT(A).

Tribunal’s Findings and Reasoning

The Tribunal observed that the genuineness of the expenditure on maintenance, caretaker, barbed wire fencing and interior advances had not been doubted by the Revenue authorities.

Maintenance expenditure (Rs.77,54,662):

The Tribunal noted that the assessee had incurred maintenance expenditure on sea-beach properties to preserve them and keep them in good condition. The CIT(A) had disallowed the claim only by treating the expenditure as revenue in nature. The Tribunal held that the claim was bona fide and represented an incorrect claim rather than furnishing of inaccurate particulars. Accordingly, the penalty relating to this disallowance was deleted.

Barbed wire fencing (Rs.37,500):

Since the CIT(A) had sustained only 50% of the disallowance on an estimated basis and had accepted that barbed wire fencing was required for the property, the Tribunal held that no penalty was leviable on an estimated disallowance and deleted the penalty.

Professional fees (Rs.86,250):

The Tribunal observed that legal expenses incurred in connection with transfer of immovable property are normally allowable against sale consideration. The expenditure was not disputed and the disallowance represented only a partially incorrect claim. It therefore deleted the penalty on this amount.

Caretaker expenses (Rs.2,81,500):

The Tribunal held that caretaker expenses could not be regarded either as improvement cost or expenditure incurred for transfer of the immovable property. Claiming such expenditure amounted to furnishing inaccurate particulars of income. The penalty relating to this disallowance was therefore sustained.

Interior advances (Rs.27,00,000):

The Tribunal observed that the assessee had claimed invoices had been produced but had not demonstrated whether any amount had specifically been received towards interiors or formed part of the registered sale deed. Treating this issue as similar to caretaker expenses, the Tribunal upheld the penalty relating to the interior advances.

Final Ruling

The Tribunal partly allowed the appeal.

It deleted penalty of Rs.12,54,636 levied under Section 271(1)(c) relating to:

• Maintenance expenditure.
• Barbed wire fencing.
• Professional fees.

It confirmed penalty of Rs.4,74,804 relating to:

• Caretaker expenses.
• Interior advances.

Accordingly, the appeal was partly allowed.

Cases Discussed

• Ventura Textiles Limited (Jurisdictional High Court), (2010) 117 taxmann.com 182
• CIT Vs. Reliance Petro Products Pvt. Ltd. (Supreme Court), (2010) 322 ITR 158 (SC)

FULL TEXT OF THE ORDER OF ITAT PANAJI

The captioned appeal at the instance of assessee pertaining to A.Y. 2016-17 is directed against the order dated 09.11.2024 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 30.12.2018 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).

2. The sole grievance of the assessee is against the levy of penalty u/s.271(1)(c) of the Act at Rs.17,29,440/- for the alleged furnishing of inaccurate particulars of income to the tune of Rs.1,08,59,912/-.

3. Brief facts of the case are that the assessee is an individual and filed the return of income for A.Y. 2016-17 on 29.07.2016 declaring total income at Rs.1,86,55,740/- which mainly included the income from long term capital gain at Rs.1,83,94,699/-. Assessment proceedings u/s.143(3) of the Act were carried out and ld. Assessing Officer recomputed the long term capital gain by disallowing the claim of cost of improvement after indexation at Rs.77,54,662/-, cost of improvement for maintenance expenditure and caretaker at Rs.2,81,500/-, disallowance of cost of barbed wire at Rs.37,500/-, disallowance of in-built cost of interiors at Rs.27.00 lakh and disallowance of professional fees at Rs.86,250/-. Assessee failed to get any relief in the quantum addition before ld.CIT(A) and has further not carried the matter before this Tribunal and therefore the disallowance made by the Assessing Officer stands confirmed.

4. Subsequently in the assessment proceedings, ld. Assessing Officer has initiated the penalty proceedings for furnishing of inaccurate particulars of income followed by issuance of notice u/s.274 of the Act and thereafter proceedings u/s.271(1)(c) of the Act were carried out. It was stated by the assessee that the claim of maintenance and cost of care taker has been mainly made because the properties sold during the year are on the sea beach and requires regular maintenance for the upkeep of such properties and further the assessee made such claim based on certain decisions of Coordinate Benches and that the assessee considered them to be capital expenditure but the Revenue authorities have treated them as Revenue expenditure. It is also submitted that genuineness of the expenditure incurred by the assessee has not been doubted. It is also submitted that cost of barbed wire has been allowed partially by ld.CIT(A) which shows that expenditure have been incurred by the assessee. However, assessee failed to get any relief from ld.CIT(A) and the impugned penalty levied by the Assessing Officer u/s.271(1)(c) has been confirmed.

5. Now the assessee is in appeal before this Tribunal

6. The penalty of Rs.17,29,440/- has been levied on the disallowance of Rs.1,08,59,912/- confirmed by ld.CIT(A) and that the assessee has accepted the disallowance and has not filed any further appeal before this Tribunal on the quantum addition. The disallowance of Rs.1,08,59,912/- includes the following :

i. Indexed cost of improvement for maintenance cost Rs.77,54,662/-

ii. Caretaker cost – Rs.2,81,500/ –

iii. Barbed Wire Fencing – Rs.37,500/ –

iv. Professional Fees – Rs.86,250/ –

v. Interior advances – Rs.27,00,000/ –

7. So far as levy of penalty on the professional fees is concerned, ld. Counsel for the assessee submitted that regular income of the assessee is below the taxable limit and the assessee is not required to file any income tax return and it is only on account of transaction of sale of property that assessee was required to pay the tax on the long term capital gain and for the calculation of correct amount of long term capital gain as well as claim u/s.54EC and 54F of the Act the professional advice was taken. Further with regard to the interiors expenditure at Rs.27.00 lakh, supporting evidences were filed during the Appellate proceedings but ld.CIT(A) declined to accept the same for treating them as additional evidence under Rule 46A only for the reason that documents were not submitted before the Assessing Officer. He also submitted that assessee has been incurring the expenditure for preserving land from encroachment from surrounding occupants, soil erosion due to proximity to sea-beach, safeguarding it from illegal occupants was the cost involved in keeping assets in tact for past many years and the same has never been claimed as expenditure in any of the preceding years. He submitted that the assessee treated it as Capital expenditure whereas ld.CIT(A) has held it to be a Revenue expenditure, however, the genuineness of the expenditure has not been doubted. As regards the disallowance of Rs.37,500/-for the cost of Barbed wire fencing he submitted that ld.CIT(A) has already given relief of 50% on estimation basis therefore it does not attract penal provisions.

8. Ld. Counsel for the assessee made reference to the judgment of Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd (2010) 322 ITR 158 (SC) where Hon’ble Court has held that “Making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income u/s.271(1)(c) of the Act and mere making of a claim which is not sustainable in law, by itself, will not tantamount to furnishing of inaccurate particulars regarding income of the assessee. Another judgment of Hon’ble Jurisdictional High Court in the case of Ventura Textiles Limited (2010)117 taxmann. com 182 also referred wherein the Hon’ble Court has held that it is evident that assessee had declared the full facts, factual matrix or the facts were before the Assessing Officer while passing the assessment order. It is a separate matter that the claim based on such facts was found to be inadmissible. This is not the same thing as furnishing inaccurate particulars of income as contemplated u/s.271(1)(c) of the Act. Ld. Counsel for the assessee also submitted that assessee has already paid the taxes on the disallowances made by the Assessing Officer. However, assessee has not made the alleged claim of expenses in the income tax return with the intention of evading the taxes but such claim has been made on the basis of professional advice_and there are certain judicial pronouncements where such type of claims have been allowed.

9. On the other hand, ld. DR supported the order of ld.CIT(A).

10. We have heard the rival submissions and perused the record placed before us. The sole issue for our consideration is whether ld.CIT(A) was justified in confirming the penalty levied by the Assessing Officer at Rs.17,29,440/- for allegedly furnishing inaccurate particulars of income for the disallowance of expenses at Rs.1,08,59,912/-

11. On due consideration of the submissions made by both the sides and also examining the facts of the instant case, we note that the disallowances of expenses incurred by the assessee on maintenance, care taker, barbed wire, interior advances etc. genuineness of such expenses has not been doubted by the Revenue authorities at any stage.

12. As regards the disallowance of cost of improvement at Rs.77,54,662/- is concerned, assessee has claimed maintenance cost as capital expenditure because the immovable properties sold are situated on the sea beach and cost incurred for the repair and maintenance of such property and to keep them in good condition which could fetch fair price when it is sold. Ld. Assessing Officer has disallowed the same because he has treated such expenditure as Revenue in nature. On the other hand, assessee is not having any other major source of income and claimed that he was maintaining the property in good condition for fetching the good price in case it is sold. we further note that assessee is not having any other major source of income and he owned immovable property and for the purpose of its effective upkeep and also to safeguard the property located at sea-beach has incurred the expenses on its maintenance. Details have been maintained for past many years. Ld.CIT(A) has not doubted the genuineness of the expenses but has merely disallowed the claim observing it to be Revenue in nature. Cost of improvement of property not only includes repair but also its maintenance so that it can fetch better price if it is sold in the open market. Therefore, even though the assessee has not challenged the disallowance, in our considered view this bonafide claim is not allowable in opinion of ld.CIT(A) however we do not find any reason for levying penalty on this issue as it is not a case of furnishing of inaccurate particulars of income but is merely an incorrect claim made inadvertently. Therefore, penalty levied on such disallowance of maintenance cost at Rs.77,54,662/- is hereby deleted.

13. So far as levy of penalty on the disallowance of cost of Barbed wire fencing at Rs.37,500/- is concerned, we note that ld.CIT(A) has sustained the disallowance at 50% and has prima-facie has accepted that Barbed wire fencing is required for the property and assessee has incurred the expense since the addition has been made on estimate basis, in our considered view no penalty deserves to be levied on the said amount and the same is hereby deleted.

14. As regards the professional fees of Rs.82,500/- is concerned, normally any legal expenses incurred for transfer of immovable property are allowable against the sale consideration. Assessee is not having any other source of income and this year the transaction being of huge magnitude, legal opinion is very much required and assessee has claimed the expenses on professional advice which inter alia includes the income tax return filing fees also. Considering the facts of the case, we find that quantum of expenditure is not in dispute and only it is an incorrect claim that too partially and therefore in our considered view no penalty is leviable on this amount and the same is hereby deleted.

15. As regards the Caretaker expenses of Rs.2,81,500/- we note that said expenses cannot be claimed by any stretch because neither it is improvement cost not it is incurred for transfer of immovable property, therefore, claiming of such expenditure tantamount to furnishing of inaccurate particulars of income. Thus, penalty is sustained on this amount.

16. Last in the list is disallowance of expenses incurred for Interior advances of Rs.27.00 lakh. The assessee has been claiming that invoices have been filed in respect of the expenditure. This issue is similar to the Caretaker cost as they purely depends upon person to person and they cannot be qualified for the purpose of claiming the expenditure against sale consideration. Assessee has also not demonstrated that whether any amount has been specifically received towards the Interiors and the same forms part of the registered sale deed. Under these given facts and circumstances, we find no infirmity in the finding of ld.CIT(A) and that the penalty is leviable on the Interior advance cost and the same is therefore affirmed.

17. To conclude, the penalty levied u/s.271(1)(c) at Rs.12,54,636/- is deleted and the remaining amount of penalty at Rs.4,74,804/- is hereby confirmed. Grounds of appeal raised by the assessee are partly allowed.

18. In the result, the appeal of the assessee is partly allowed as per terms indicated hereinabove.

Order pronounced on this 03^rd day of July, 2026.