During the assessment year, the assessee has sold its factory premises from which it has been showing rental income. In the computation of total income the assessee has claimed deduction u/s 54F of Rs. 1 ,34,95,220/- on the investment in three flats. The AO asked the assessee to explain as to how it can claim deduction u/s 54F on three different units on the same floor and in the name of three different persons, as it is contrary to the provisions of section 54F. In response the assessee filed revised return of income and restricted its claim u/s 54F only to one flat.
Consequently the assessee withdrew its claim in respect of other two flats which were jointly purchased in the name of wife and son. The AO initiated the penalty proceedings u/s 271(1 )(c) in respect of the claim withdrawn by the assessee u/s 54F in respect of two flats purchased in the joint name of wife and son respectively. In the penalty proceedings the assessee contended before the AO that though the assessee has withdrawn its claim u/s 54 in respect of investment made in two flats out of total three flats, however, in view of the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Ananda Basappa (2009) 223 CTR 186 (Kar), the assessee can claim exemption u/s 54F in respect of all the three flats on the same floor as one unit. The assessee has also relied upon the decisions of this Tribunal as well as the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts (P) Ltd.. (2010) 230 CTR (SC) 320 and contended that the penalty is not attracted merely becase the assessee has claimed the exemption which was not accepted by the department when the claim of the assessee is bonafide. The AO did not accept the explanation and contention of the assessee and levied penalty of Rs. 11,61 ,144/-, being 100% of tax sought to be evaded on account of wrong claim of deduction u/s 54F.
The assessee challenged the levy of penalty u/s 271(1 )(c) before CIT(A) but could not succeed.
Before us, the Ld. AR of the assessee has submitted that the capital gain arising from the sale of the premises was invested by the assessee in three flats on the same floor of the building which comprised one residential unit. He has further submitted that one flat was purchased in the name of assessee and the other two flats were purchased in the joint name of the assessee and his wife and son respectively. The entire investment for purchase of these flats have been made from the sale proceeds of the asset sold by the assessee. Thus the Ld. AR of the assessee has submitted that exemption u/s 54F is allowable when a new hosue is purchased in the joint name of the assessee and his wife as well as assessee and his son. In support of his contention he has relied upon the decisioin of Hon’ble Delhi High Court in the case of CIT Vs. Kamal Wahal (2013) 258 CTR 251 (Del). He has also relied upon the following decisions.
(i) DIT (Intl) Vs. Mrs. Jennifer Bhide (2012) 252 CTR 444 (Kar)
(ii) CIT Vs. Ravinder Kumar Arora (2012) 252 CTR 392 (Del)
(iii) CIT Vs. Gurnam Singh (2008) 218 CTR 674 (P&H)
Placing reliance on the above decisions, Ld. AR has submitted that it has been held in all these decisions that the exemption u/s 54F is allowable where new house is purchased in the joint name of the assessee and his spouse where no contribution was made by the spouse. The Ld. AR then submitted that though the assessee withdrew its claim of exemption u/s 54F in respect of two flats out of three purchased by investing the sale proceeds of the asset sold, however in view of the various decisions the claim of the assessee in respect of all three flats is allowable. Thus the claim of exemption u/s 54F in respect of investment in three flats at the same floor of the building is bonafide claim and withdrawal of part of claim during the assessment proceedings would not amount to furnishing of inaccurate particulars of income or concealment of income. In support of his contention he has relied upon the following decisions:-
(i) CIT Vs. Ananda Basappa (2009) 223 CTR 186 (Kar)
(ii) Cit Vs. Smt. K.G. Rukminiamma (2011) 239 CTR 435
(iii) ITO Vs. Ms. Sushila M. Jhaveri (2007) 109 TTJ 299 (Mum) (SB).
Hence the Ld. AR has submitted that when the claim of assessee is not bogus but it was a bonafide claim which has been duly explained by the assessee before the AO in the penalty proceedings then the penalty in the case of assssee is not warranted. In support of his contention he has relied upon following decisions:-
(i) CIT Vs Reliance Petroproducts (P) Ltd.. (2010) 230 CTR (SC) 320
(ii) DIT(IT)-1 Vs. Administrator of the Estate of Late Mr. F.E. Dinshaw
(iii) Sri Venkatesh Murthy Vs. CIT [ITA No. 720/2007/C/W ITA No. 719/2007]
(iv) Price Waterhosue Coopers Pvt. Ltd. Vs. CIT (2012) 253 CTR 1 (SC)
On the other hand the Ld. DR has submitted that it is not a voluntary admission of income by withdrawal of exemption u/s 54F but the assessee has revised its income only when the AO detected the wrong claim made by the assessee u/s 54F. The Ld. DR has further contended that once the assessee has withdrawn the claim u/s 54F by considering the same as wrong claim then the penal provisions of section 271(1)(c) are attracted. He has relied upon the orders of authorities below.
We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has made a claim u/s 54F to the extent of the investment made in three flats at same floor of the building. Out of these three flats one flat was purchased in the name of assessee himself and two other flats were purchased in the joint name of assessee and his wife as well as the assessee and his son respectively. We find that the investment made in flats are from the sale proceeds of the asset sold by the assessee and there is no dispute on this fact. There are various precedents on this point that if the investment is made by the assessee in the new asset though in the joint name of the assessee and his wife, the exemption u/s 54/54F is allowable. The assessee has placed reliance on various decisions on this point and we find that in the series of decisions as relied upon by the assessee it has been held that exemption u/s 54/54F is allowable where a new house is purchased in the joint name of assessee and his wife but the investment is made out of the sale proceeds of the assessee’s asset. It is pertinent to note that in the case of ITO Vs. Ms. Sushila M. Jhaveri (supra), the Special Bench of this Tribunal has held that the exemption u/s 54F is available in respect of the investment in two adjacent houses which constitute one residential unit. Further the Hon’ble Karnataka High Court in the case of CIT Vs. Ananda Basappa (supra) has held that the expression ‘a residential house’ used in section 54 makes it clear that it was not the intention of the legislation to convey the meaning that it refers to a single residential house. After analyzing the provisions of section 54, the Hon’ble High Court has held that the said expression ‘a residential house’ should be read in consonance with other words ‘buildings and lands’ and, therefore, the singular also permits the use of plural. This view was reiterated in the case of Cit Vs. Smt. K.G. Rukminiamma (supra), wherein it was held that four residential flats constitute a residential house for the purpose of section 54. Thus in view of the various decisions as relied upon by the assessee, it is clear that the claim u/s 54/54F may be allowable in case of purchase of more than one new flats when more than one flat constitutes one residential house. In the case of the asssessee all three flats in which the assessee invested the consideration received on sale of the old assets are located at the same floor of the building and, therefore, in view of the various precedents the claim of the assessee would not fall under the category of bogus of absolute untenable claim under the law. It is not the case of the wholly untenable claim under law and without any foundation or basis of the claim made by the assessee. The assessee has brought on record the entire facts relating to the claim and further there are various decisions supporting the claim of assessee, therefore, even the assessee withdrew the claim u/s 54F in respect of two flats out of three, the mere withdrawal of the claim would not turn the bonafide claim of the assessee into the category of wholly untenable and unsustainable claim having no basis. Therefore, the claim of exemption u/s 54F in the facts and circumstances of the case is a highly debatable one and, therefore, it cannot be said that it is an absolutely untenable claim under the law when the assessee has explained all relevant facts and also brought on record various precedents in support of his claim then it leaves no dout that the claim made by the assessee was a bonafide claim and the explanation is duly supported by the various decision. Accordingly in the facts and circumstances of the case we are of the considered view that the penalty levied u/s 271 (1 )(c) is not justified and the same is deleted.