2010 (4) TMI 692 - AT - Income Tax

Penalty - HRA - The AO noticed that the assessee had claimed exemption u/s 10(13A) of the I.T. Act, amounting to Rs. 4,60,200, for two residential accommodations - AO disallowed the exemption claimed in respect of one property amounting to Rs. 2,30,100 - Held that - As per CIT v. Justice S.C. Mittal (1979 -TMI - 37169 - PUNJAB AND HARYANA High Court), it is the payment which is the main consideration. Law does not prohibit the extent of accommodation. This decision was cited by the assessee before the AO in the penalty proceedings. Evidently, therefore, Reliance Petro Products Pvt. Ltd. (2010 -TMI - 75701 - SUPREME COURT ) is squarely applicable to the facts of the present case. The claim made by the assessee was viewed differently by the assessee and the department. It was, as such, only a case of a difference of opinion and not only that, the opinion held by the assessee was prompted by the decision in CIT v. Justice S.C. Mittal (1979 -TMI - 37169 - PUNJAB AND HARYANA High Court). No concealment penalty is, in such a situation, attracted. - No penalty

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the I.T. Act for claiming exemption u/s 10(13A) for two residential accommodations.

Analysis:
1. The appellant filed a return of income claiming exemption u/s 10(13A) for two residential properties. The AO disallowed exemption for one property, leading to a penalty of Rs. 75,933 under section 271(1)(c).

2. The CIT(A) confirmed the penalty, prompting the appellant's further appeal. The appellant argued that the claim was based on taking two accommodations on rent, not on concealment. Citing relevant case laws, the appellant contended that no penalty should be levied for a genuine claim based on legal interpretation.

3. The main issue revolved around the interpretation of section 10(13A) of the I.T. Act, which allows exemption for special allowances for rent payment. The AO and CIT(A) believed the appellant's claim for two properties was inadmissible, leading to the penalty.

4. The Tribunal analyzed the legal provisions and case laws cited by both parties. Referring to "CIT v. Justice S.C. Mittal," the Tribunal emphasized that the main consideration is payment, not the number of accommodations. The appellant's belief in entitlement to exemption based on legal interpretation was considered.

5. Quoting "Reliance Petro Products Pvt. Ltd.," the Tribunal highlighted that a mere incorrect claim, not found to be mala fide, does not warrant a penalty. The Tribunal noted that the appellant provided all details in the return, and the dispute was about the interpretation of the law.

6. The Tribunal rejected the argument of lack of satisfaction for penalty initiation, affirming that the AO's satisfaction was adequately recorded. Ultimately, the Tribunal ruled in favor of the appellant, canceling the penalty as it was not sustainable in law due to a genuine difference in interpretation.

This detailed analysis of the judgment highlights the legal intricacies involved in the case, focusing on the interpretation of tax laws, application of relevant case laws, and the rationale behind canceling the penalty imposed under section 271(1)(c) of the I.T. Act.