Case Law Details
Kannappan Vijayalakshmi Vs ITO (ITAT Chennai)
The recent judgment by the ITAT Chennai in the case of Kannappan Vijayalakshmi vs ITO offers insightful perspectives on the levy of penalties under section 270A(9)(a) of the Act. The case revolved around the levy of a penalty under section 270A for an amount of Rs. 4.12 Lacs for the Assessment Year 2016-17. The penalty was confirmed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, leading the assessee to further appeal.
The Core Dispute: The core contention was related to the computation of Long Term Capital Gains (LTCG) by the assessee. After the demise of her husband in 2009, the property, initially purchased by him, was registered in the name of Kannappan Vijayalakshmi. When computing LTCG, she claimed a deduction of Rs. 5 Lacs each for her son and daughter, which was disputed by the Assessing Officer (AO). The AO contested that since the property was registered in the assessee’s name, the sale considerations couldn’t be split. Therefore, a deduction of Rs. 10 Lacs was denied.
Penalty Proceedings: During the penalty proceedings, the assessee emphasized her compliance with the Hindu Succession Act, asserting that the amount belonging to her son and daughter was due to their inheritance. The AO, however, held the assessee accountable for a default under section 270A(9)(a), which addresses the misreporting of income. This led to the imposition of a penalty of Rs. 4.12 Lacs.
ITAT Chennai’s Analysis: Upon detailed scrutiny, ITAT Chennai established several undisputed facts:
- The property was bought by the husband using his funds but was registered under the assessee’s name.
- The assessee, upon selling the property, paid Rs. 5 Lacs each to her son and daughter.
- She also declared the full sale consideration in her income computation.
ITAT Chennai pointed out that all computations were transparently disclosed in the return of income. Just because the AO didn’t accept the assessee’s claim, it doesn’t validate an automatic penalty. The tribunal reiterated that for a penalty to be levied under 270A(9)(a), there must be evident misrepresentation or suppression of facts, which wasn’t the case here. The tribunal made it clear that penalties aren’t automatic and necessitate a substantial misrepresentation or suppression of facts.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aggrieved by confirmation of penalty u/s 270A for Rs.4.12 Lacs for Assessment Year (AY) 2016-17, the assessee is in further appeal before us. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 12-05-2022 in the matter of impugned penalty levied by Ld. Assessing Officer [AO] u/s. 270A of the Act vide order dated 29-12-2021. The assessment has been framed u/s 147 vide order dated 10-09-2021. Having heard rival submissions and after perusal of case records, the appeal is disposed-off as under.
2. During the course of assessment proceeding, Ld. AO perused the computation of income and noted that the assessee computed Long Term Capital Gains (LTCG) after claiming deduction of Rs.5 Lacs each for share of daughter and son. It transpired that the property under consideration was purchased by late husband of the assessee who expired in the year 2009 intestate, The entire investment was made by the husband, however, the property was registered in the name of wife assessee. The Ld. AO disputed the deduction of Rs.5 Lacs claimed by the assessee for each of the son and daughter. The Ld. AO held that registration was executed in the hands of the assessee and therefore, sale consideration could not be split in three parts as contended by the assessee, Therefore, the deduction of Rs.10 Lacs was denied and LTCG were re-computed which have been accepted by the assessee. However, Ld. AO initiated penalty u/s 270A for mis-reporting of income.
3. During penalty proceedings, the assessee submitted that her husband died intestate leaving behind the assessee, son and a daughter. The assessee fully declared the long term capital gains and claimed applicable deduction and also claimed a part of the amount belonging to the son and daughter arising on account of their share as per Hindu Succession Act due to intestate death of her husband. This deduction was not allowed by Ld. AO but there was no difference in the gross consideration from sale of property. The amount of Rs.10 Lacs was paid to the son and daughter which was to be considered as diverted at source. However, there was no under reporting of income but only a disallowance of certain claim made by the assessee. However, Ld. AO held that the assessee committed default u/s 270A(9)(a) which provide that misreporting of income shall include misrepresentation or suppression of facts. Accordingly, Ld. AO imposed penalty of Rs.4.12 Lacs. The Ld. First appellate authority confirmed the same against which the assessee is in further appeal before us.
4. The undisputed facts that emerge are that the assessee’s husband purchased a property from his own funds. However, the property was purchased in the name of the assessee who do not have any independent sources of income. The husband died intestate leaving behind the assessee, a son and a daughter. The assessee has sold the said property and declared full sale consideration in the computation of income. Apparently, the assessee has paid a sum of Rs.5 Lacs each to son and a daughter to settle the respective claim in the said property. The sum so paid was claimed as deduction which was denied by Ld. AO. The assessee accepted the same and paid due taxes thereupon. However, Ld. AO imposed impugned penalty by holding that there was misrepresentation or suppression of facts. However, on the given facts, it could not be said that the assessee misrepresented or suppressed any material facts, All the computations were disclosed in the return of income and the same was furnished to Ld. AO also during the course of assessment proceedings. The assessee’s claim that the amount so paid was to be considered as sum paid towards perfecting the title could not be said to be without any basis. Merely because the claim so made by the assessee was not accepted would not lead to automatic levy of penalty. It is settled law that levy of penalty is not automatic. To fall under, 270A(9)(a), essentially there has to be misrepresentation of suppression of facts. The same, in our considered opinion, was not a case here and it was not a fit case for imposition of penalty. Therefore, we delete the impugned penalty.
5. The appeal stand allowed.
Order pronounced on 26th July, 2023
