No Penalty for Partial Section 54F Disallowance Due to Missing Bills | ITAT

Case Details: Abdul Jabbar Jaheer Husain vs. Income-tax Officer - [2025] 180 taxmann.com 672 (Chennai-Trib.)

Judiciary and Counsel Details

• George K, Vice President & S.R. Raghunatha, Accountant Member
• V. Padmanaban, CA for the Appellant.
• Ms Gouthami Manivasagam, JCIT for the Respondent.

Facts of the Case

Assessee, an individual, filed its return of income for the relevant assessment year. The case was selected for limited scrutiny to examine the claim of deduction/exemption under section 54F.

During the assessment, the Assessing Officer (AO) noted that the assessee could not furnish the necessary evidence for the expenditure forming part of the section 54F claim. AO completed the assessment under section 143(3), disallowing the entire claim under section 54F and initiated penalty proceedings under section 271(1)(c).

On appeal, CIT(A) confirmed the penalty by invoking Explanation 1 to section 271(1)(c). Aggrieved by the order, the assessee filed an appeal to the Chennai Tribunal against the penalty proceedings.

ITAT Held

The Tribunal held that the assessee claimed a deduction under section 54F while computing the Long-Term Capital Gains. In the assessment order completed, the claim of deduction under section 54F was denied since the assessee had not produced the necessary evidence to substantiate the expenditure incurred. During the appellate proceedings, the CIT(A) allowed the deduction under section 54F to the extent of about Rs. 2.45 crores.

Thus, the deduction under section 54F was reduced by Rs. 22.36 lakhs. Penalty under section 271(1)(c) was imposed on account of the excess claim made under section 54F. The CIT(A) reduced the claim of deduction under section 54F by observing that the assessee was not allowed to claim a portion of the deduction under section 54F, as no bills were furnished for certain invoices for which there was no supporting evidence.

Mere disallowance of a claim in the assessment proceedings could not be a sole basis for levying a penalty under section 271(1)(c). In the instant case, the assessee made a claim that could not be fully substantiated by bills/invoices. That, by itself, did not amount to furnishing inaccurate particulars of income. Therefore, the penalty imposed under section 271(1)(c) was to be deleted.

List of Cases Referred to

• ITO v. Ashif Mehbbobelahi Rushnaiwala [IT Appeal No. 329/Ahd/2020, dated 22-06-2022] (para 6)
• CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) (para 6)
• CIT v. Zoom Communication (P.) Ltd. [2010] 191 Taxman 179/327 ITR 510 (Delhi) (para 7).