2010 (5) TMI 837 - AT - Income Tax

Summary

Issues Involved:
1. Classification of rental income.
2. Disallowance of loss on opening stock.
3. Imposition of penalty u/s 271(1)(c).

Summary:

1. Classification of Rental Income:
The assessee company declared rental income of Rs. 50,40,000/- as "Business Income." The AO assessed it 'protectively' under "Income from Other Sources," while the CIT(A) confirmed this classification. The Tribunal, however, held that the rental income should be assessed substantively in the hands of the assessee company, stating, "The assessment of rents received by SSRPL from BEST has to be made on substantive basis in the hands of the SSRPL."

2. Disallowance of Loss on Opening Stock:
The AO disallowed the entire loss of Rs. 45,27,400/- on the opening stock of ink, which the assessee claimed had become unusable. The CIT(A) partially agreed, estimating the value of unusable ink at 50% and thus restricting the disallowance to Rs. 22,63,200/-. The Tribunal upheld this partial disallowance, noting, "Normally over a lapse of time the quality of ink deteriorates and slowly becomes unusable."

3. Imposition of Penalty u/s 271(1)(c):
The AO imposed a penalty of Rs. 11,44,430/- u/s 271(1)(c) for filing inaccurate particulars of income. The CIT(A) deleted the penalty, reasoning that the rental income was disclosed and the write-off of ink stock was supported by an expert report. The Tribunal upheld the CIT(A)'s decision, emphasizing that "mere rejection of a legal claim of the assessee for taxability of income under a particular head of income is not by itself sufficient to warrant imposition of penalty." The Tribunal further cited the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., stating, "A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee."

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order to cancel the penalty imposed by the AO. The judgment emphasized the distinction between making an incorrect claim and furnishing inaccurate particulars, concluding that the penalty u/s 271(1)(c) was not justified in this case.