Sec. 271(1)(c) of Income Tax Act, 1961— Penalty — Assessee not liable to penalty under section 271(1)(c) as no incorrect claim has been made by the assessee by claiming of cost of acquisition

Facts: Assessee filed her return declaring an income of Rs. 3,63,600/- comprising of salary, LTCG and income from other sources. The case was selected to scrutiny under CASS on the ground of “large deduction claimed u/s 54B, 54C, 54D, 54G and 54GA”. The AO observed that the assessee had received 2000 shares as gift from her father which she has sold during the year and has earned capital gain therefrom but has claimed part of the capital gain as exempt u/s 54EC and the balance of capital gain has been deposited into the capital gain a/c. The assessee had claimed indexation cost of acquisition at Rs. 41,41,056/- for computing the long-term capital gain. However, during the assessment proceedings the assessee withdrew the “cost of acquisition” by adopting the cost of acquisition at Rs.zero and calculated the LTCG and paid the taxes thereon.Meanwhile the AO initiated the penalty proceedings u/s 271(1)(c) and levied the minimum penalty of 100% of taxes sought to be evaded. Accordingly, the penalty order was passed, against which the assessee preferred an appeal to the CIT (A), who confirmed the order and the assessee is in second appeal before the Tribunal.

Held, that as per Explanation 2 of sub-section 2 of section 55, the cost of acquisition wherein an asset has been acquired u/s 49(1) , then the cost of asset to the previous owner has to be considered as cost of acquisition and therefore, it was found that no incorrect claim has been made by the assessee by claiming of cost of acquisition. For whatever reasons during the assessment proceedings, the assessee has withdrawn the same and has also paid taxes, thus, the claim of the assessee i.e. the claim of acquisition was bonafide and therefore, the penalty u/s 271(1) (c) is not justified. - SHRI MOHA NARENDRA GANDHI V/s ITO - [2020] 26 ITCD Online 072 (ITAT-HYDERABAD)