IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH "C" [BEFORE S/SHRI BHAVNESH S AINI,JM & A N P AHUJ A, AM] ITA No.4194/Ahd/2007 (Assessment Year:-1998-99) ADIT (International V/s Smt. Leena Jugalkishor Taxation), Ahmedabad Shah, 10, Green Park Society, Bhavanipura, Nizampura, Baroda [PAN:Not available] [Appellant] [Respondent] Revenue by :- Shri K M Mahesh, DR Assessee by:- Shri Milin Mehta, AR O R D E R
A N Pahuja: This is an appeal by the Revenue against an order dated 11-09-2007 of the ld. CIT(Appeals)-II, Baroda, cancelling a penalty of Rs. 8,80,000/- levied u/s 271(1)(c) of the Income-tax Act, 1961 [ hereinafter referred to as the "Act"] 2 Facts, in brief, as per relevant orders are that return declaring income of Rs.3,05,510/- filed on 17-08-1998 by the assessee NRI, was processed on 10.9.1998 u/s 143(1) of the Act. Inter alia, the assessee reflected capital gains of Rs.43,60,454/- on sale of plot of land and claimed deduction u/s 54B/54D/54G of the Act. However, the Assessing Officer[AO in short[ was of the opinion that the assessee was not entitled to any deduction u/s 54B/54D/54G of the Act. Accordingly, assessment was reopened u/s 147 of the Act. During the course of assessment proceedings, the AO concluded that the assessee was not entitled to any deduction u/s 54B/54D/54G of the Act. Thereafter, the assessee claimed that she had purchased a residential house in USA out of 7,66,000 US dollars on mortgage loan taken from BBNT(USA) besides her personal savings of 32,601 US dollars. The AO found that the sale proceeds of the plot sold in India were retained in India and utilized in giving loan to ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah Smt. Bharati K Vyas, Accordingly, the AO denied deduction u/s 54F of the Act, the sale proceeds of the plot sold having not been utilized in acquiring the residential house in USA and brought to tax long term capital gains of Rs.43,30.454/-.Inter alia, penalty proceedings u/s 271(1)(c) of the Act were initiated for furnishing inaccurate particulars of income. The appeal of the assessee was dismissed by the ld. CIT(A) and later by the ITAT vide their order dated 10.11.2005 in ITA no.2467/Ahd./2000 holding that the assessee having purchased the residential house outside India, benefit u/s. 54F of the Act was not allowable.
2.1 Thereafter, in response to a show cause notice dated 18.7.2006 as to why penalty u/s. 271(1)(c) of the Act be not levied, the assessee in her written submissions dated 25-07-2006 contended that the issue being highly debatable and the view taken by the assessee having been accepted by the Hon'ble Tribunal, Mumbai Bench in the case of Mrs. Prema P. Shah Vs. ITO 100 ITD 60, no penalty can be imposed nor explanation 1 to section 271 (1) (c) of the Act was applicable. Inter alia, a number of judgments of the Hon'ble Supreme Court and High Court were cited in support of her contentions. However, the AO rejected all these contentions of the assessee and imposed a penalty of Rs.8,80,000/- u/s 271(1)(c) of the Act, the assessee having furnished inaccurate particulars of income by deliberately making incorrect claim of deduction u/s 54B / 54D or 54G of the Act nor substantiated her explanation or interpretation of provisions of section 54F of the Act even when she did not make any investment in residential property in India. Inter alia, the AO relied upon decision of the Hon'ble Supreme Court in the case of Orissa State Warehousing Corporation Vs. CIT 237 ITR 589, Addl. CIT vs. Jeevanlal Shah (1994) 205 ITR 244 and CIT v/s Mungharam Omprakash (2005) 276 ITR 362 (Punjab & Haryana) 2 ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah
3. On appeal, the assessee in her detailed submissions contended, inter alia that
i) the benefit of sections 54 and 54F was intended to be available to both the categories of assessee i.e residents and non-residents without any discrimination;
ii) the issue was directly covered by the decision of the ITAT, Mumbai Bench in the case of Mrs. Prema P Shah v. ITO (2006) 100 ITD 60 (Mum) wherein it was held as under:
"During the relevant assessment year, the assessee sold a residential property and invested part of the sale consideration in a residential property in London. The assessee's claim for exemption u/s. 54 was rejected by the AO on the ground that she had purchased only the tenancy rights of a residential property; that to claim exemption the investment should made in India itself, and that receipts, which gave rise to capital gains, were not utilized for purchase of property but the assessee had used borrowed amount and foreign earnings to purchase property.
The argument of the revenue that the same amount should have been utilized for the acquisition of new asset, could not be accepted in view of the decision of the Tribunal, Mumbai bench, in the case of Bombay Housing Corporation v. Asstt. CIT 81 ITD 545. In that case, the Tribunal held that even if an assessee borrows required funds and satisfied conditions relating to investment in specified assets, he is entitled to exemption.
Further, merely because property acquired is in a foreign country, section 54 does not exclude right of an assessee to claim benefit in respect of such property if all other conditions laid down in that section are satisfied."
iii) since the issue under consideration was admitted by the Hon'ble Gujarat High Court as substantial question of law , the issue was wide open and debatable . W hen two views are possible on the issue, penalty cannot be levied u/s 271(1)(c) of the Act. In support, the assessee relied upon the decisions in the case of CIT vs. Amar Nath 230 ITR 619 (All), CIT vs. Prem Dass (No.2) 248 ITR 237 3 ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah (P&H),CIT vs. Swarup Cold Storage and General Mills 136 ITR 435 (All),Durga Kamal Rice Mills vs. CIT 265 ITR 25 (Cal),National Textile vs. CIT 249 ITR 125 (Guj) and CIT vs. P K Narayanan 238 ITR 905 (Ker), ACIT vs. Advance Film Club 45 TTJ 259 (Ahd),ITO vs. Ambica Agencies 50 ITD 31 (Hyd) (SMC) and Jumabhai Premchand (HUF) vs. CIT 243 ITR 812 (Guj).
4. After considering the submissions on behalf of the assessee, the learned CIT(A) cancelled the penalty, holding as under:
2.3 I have considered the submissions of the ld. counsel and facts of the case. Appellant claimed deduction u/s 54F on investment on property in foreign country. In the quantum appeal addition made by the AO was confirmed by CIT(A) as well Tribunal and thereafter the penalty was levied by the AO. As far as levy of penalty u/s 271(1)(c) is concerned, the same can be levied where assessee furnished inaccurate particulars of income or concealed the income. From the submission of the appellant, I found the following two aspects very relevant to decide the issue:
i. The issue whether benefit u/s.54F can be available if the residential house is purchased or constructed by the appellant in a place outside India, has been treated a substantial question of law by Hon Gujarat High Court order dated 04-10-2006. The copy of the said order, admitting the appellant's appeal has been placed at Page-63 of the paper book.
ii. ITAT, Mumbai, Bench-J in the case of Prema J. Shah Vs ITO Wd.2(4), reported in 100 ITD 60 held that benefit u/s.54 is to be allowed to the assessee even if the property is acquired in foreign country, if other conditions laid-down in that section are satisfied. The requirement u/s.54 and 54F and also the wordings of these sections as far as purchase or construction of residential house property are concerned, are same. Therefore, when one Bench of ITAT allows deduction on account of investment in foreign country and the other bench do not allow the same, then the issue is whether such disallowance can be considered for levy of penalty u/s. 271(l)(c) or the same should be treated as debatable issue.
The appellant's facts have been considered in the light of above. ITAT, Ahmedabad, Bench-A (3rd Member) in the case of Rupam Mercantile Ltd. Vs DCIT reported in 91 ITD 237 held that a plea or claim, which is held by High Court as substantial question of law cannot be treated to be frivolous or mala fide as to attract levy of penalty u/s.271(l)(c). Since the claim of the appellant has been as substantial question of law as held by Hon. Gujarat 4 ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah High Court, penalty u/s 271(1)(c) is not leviable in view of the decision of jurisdiction ITAT. Further, on the same issue, ITAT Mumbai, has allowed the claim of deduction u/s 54 on the investment in residential property in foreign country, such addition in my opinion, may not attract levy of penalty u/s 271(1)(c). Considering both the aspects, I delete the penalty levied by the AO."
5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The learned DR relied on the order of the AO while the learned AR on behalf of the assessee supported the findings of the ld. CIT(A).
6.. We have heard both the parties and gone through the facts of the case. The facts as narrated above are not disputed. We find that the issue as to whether or not the assessee is entitled to claim deduction u/s 54F of the Act, having purchased the residential house outside India, without utilising sale proceeds of her plot of land in India, is highly debatable. In this case, the ITAT vide their order dated 10.11.2005 upheld the findings of the ld. CIT(A) in rejecting the claim for deduction u/s 54F of the Act. Subsequently, the Hon'ble Gujarat High Court vide their order dated 4.10.2006 in Tax appeal nos. 483 of 2006, have admitted the following substantial question of law:
". Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that section 54F benefit will not be available if the residential house is purchased or constructed by the assessee outside India ?
6.1 In view of the fact that a substantial question of law has been admitted by the Hon'ble High Court ,the ld. CIT(A) while following the decision of Third Member in the case of Rupam Mercantile Ltd. vs. DCIT,91 ITD 237(Ahmedabad) cancelled the penalty. We are of the opinion that a mere rejection of a legal claim does not give rise to concealment of income. [Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. ITO  112 ITR 592(Cal)]. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars thereof by the assessee. When two 5 ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah views, are possible, no penalty can be imposed is a principle that has been enunciated in the decision in the case of CIT v. P.K. Narayanan  238 ITR 905 (Ker) and CIT Vs. HMA Udyog P. Ltd., 211 CTR 543 (Del). A plea or claim which is held by the Hon'ble High Court to give rise to a substantial question of law, cannot be treated to be frivolous or mala fide so as to attract levy of penalty under section 271(1)(c) of the Income-tax Act, as held by the Third Member in the aforesaid decision relied upon by the ld. CIT(A).
6.2 In view of aforesaid decisions and considering the facts and circumstances of the case, especially when a substantial question of law have been admitted by the Hon'ble jurisdictional High Court, the issue becomes debateable and it is difficult to hold that it was a case of concealment of income. In these circumstances, we have no hesitation in upholding the findings of the ld. CIT(A), cancelling the penalty levied u/s 271(1)(c) of the Act . Thus, ground nos.1 & 2 in the appeal are dismissed.
7. Ground nos. 3 & 4 in the appeal being general in nature, do not require any separate adjudication and are, therefore, dismissed..
8. In the result, appeal is dismissed.
Order pronounced in the court today on 11-06-2010 Sd/- Sd/-
(BHAVNESH S AINI) (A N P AHUJ A) JUDICI AL MEMBER ACCOUNTANT MEMBER Date : 11-06-2010 Copy of the order forwarded to :
1. Smt. Leena Jugalkishor Shah, 10, Green Park Society, Bhavanipura, Nizampura, Baroda
2. The ADIT (Intl. Taxn), 4 t h Floor, Vasant Nature Building, Ashram Road, Ahmedabad
3. CIT concerned
4. CIT(A)-II, Baroda
5. The DR, ITAT, Ahmedabad
6. Guard File BY ORDER 6 ITA No.4194/Ahd/2007 For AY 1998-99 Smt. Leena Jugalkishor Shah Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 7