By TIOL News Service

MUMBAI, JAN 08, 2018: THE issue before the Bench is - Whether claim of deduction by the assessee based on inaccurate particulars, which is prohibited under the Act, cannot be said to be a bona fide mistake and thus, deserve penalty u/s 271(1)(c) of the Act. And the HC verdict is YES.

Facts of the case

The Assessee-company, engaged is in the business of letting out of immovable property, filed its return for the AY under consideration. In its return the Assessee had claimed benefit of Section 54 of the Act on the ground that the gain made on the sale of immovable property, namely a residential premises was not chargeable to long term capital gains as the same had been invested in acquiring new residential properties. However, during the assessment proceedings, the AO found that the Assessee being a company was not entitled to claim deductions u/s 54 of the Act as the deduction was available only to individuals and Hindu Undivided Family (HUF). Therefore,the AO disallowed the claim for deduction u/s 54 of the Act, and initiated penalty proceedings under 271 (1) (c) of the Act. On Assessee's appeal, the CIT(A) upheld the decision of the AO and also upheld the penalty. On further appeal, the Tribunal also upheld the decision of the CIT(A).

After hearing the parties , the High Court held that,

++ the assessee had admittedly made a claim in its return of income which was prohibited under the Act. The claim for deduction u/s 54 of the Act could only be made by individuals or HUF, while the assessee was admittedly a company incorporated under the Companies Act, 1956. Thus this was not a case, where a claim made was debatable or claim being made in the absence of any prohibition to make such a claim under the Act. In such cases, one could possibly infer that the claim was made under the bona fide interpretation of the law. In the present facts, this was admittedly not so. In the present facts, the assessee had furnished inaccurate particulars of income by claiming a deduction which was prohibited in case of assessee.

(See 2018-TIOL-45-HC-MUM-IT)