2011 (2) TMI 902 - AT - Income Tax

Penalty under section 271(1)(c) - the assessee has not been able to substantiate as to why the rent for which the property was reasonably expected to be let from year to year was not admitted in the return of income - If the assessee had offered any income from security deposits it could have been argued for the purposes of penalty u/s 271(1)(c) that the assessee was under bonafide belief to admit income as per lease agreement though the income of the house property was to assessed as per the provisions of clause (a) of section 23(1) of the Act - The rent received was substantially undervalued because of huge interest free advance of Rs 67 crores received by the assessee which was diverted to sister concerns free of interest. The explanation that annual value of Rs 100000/- was evidenced by lease agreement cannot be considered as bonafide - Since the explanation offered by the assessee is neither substantiated nor shown to be bonafide, Explanation (1) to section 271(1)(c) would come into play and the assessee will be liable to penalty - Our view is supported by the decision of Hon ble Delhi High Court in the case of Zoom Communication (P.) Ltd. (2010 -TMI - 75987 - DELHI HIGH COURT) -In view of above discussion in our considered opinion ld CIT(A) was justified to confirm penalty u/s 271(1) of the Act.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
2. Jurisdiction and validity of the penalty order.
3. Allegation of furnishing inaccurate particulars versus concealment of income.
4. Non-filing of appeal against the assessment order.
5. Nature of penalty under section 271(1)(c) as a civil liability.
6. Bona fide difference of opinion and full disclosure of facts by the assessee.

Analysis of Judgment:

1. Levy of Penalty under Section 271(1)(c):
The primary issue concerns the levy of penalty amounting to Rs.17,82,078 under section 271(1)(c) of the Income-tax Act, 1961. The assessee had declared rental income of Rs.1,00,000 per annum for a property leased to Punjab National Bank, while the assessing officer determined the fair rental value to be Rs.75,63,360 based on a registered valuer's report. The AO adopted this value and initiated penalty proceedings, concluding that the assessee had concealed income by not disclosing the correct rental value.

2. Jurisdiction and Validity of the Penalty Order:
The assessee argued that the penalty order was beyond jurisdiction and bad in law, asserting that the assessing officer did not record the necessary satisfaction in the assessment order under section 143(3) of the Act. However, this argument was not upheld, as the AO had followed the due process in determining the annual rental value and initiating penalty proceedings.

3. Allegation of Furnishing Inaccurate Particulars versus Concealment of Income:
The assessee contended that the penalty was initiated for furnishing inaccurate particulars but was levied for concealing income. The CIT (Appeals) and the Tribunal noted that the assessee had not provided a satisfactory explanation for the low rental value declared, and the substantial interest-free deposit indicated an attempt to understate rental income. The Tribunal upheld the penalty, referencing the Hon'ble Supreme Court's decision in K.P. Madhusudhanan v. CIT, which emphasized the duty of the assessee to prove the absence of fraud or neglect.

4. Non-filing of Appeal Against the Assessment Order:
The CIT (Appeals) observed that the assessee had not filed an appeal against the assessment order, which had thus attained finality. This non-action further supported the conclusion that the assessee accepted the valuation and the resultant tax implications, reinforcing the justification for the penalty.

5. Nature of Penalty under Section 271(1)(c) as a Civil Liability:
The CIT (Appeals) and the Tribunal reiterated that the penalty under section 271(1)(c) is a civil liability, not requiring willful concealment, as clarified in Union of India v. Dharmendra Textile Processors and CIT v. Atul Mohan Bindal. The penalty is based on the objective of ensuring compliance and deterring tax evasion.

6. Bona Fide Difference of Opinion and Full Disclosure:
The assessee claimed that the low rental value was due to a bona fide difference of opinion and that all material facts were disclosed. However, the Tribunal found this explanation unconvincing, given the substantial interest-free deposit and the significantly low declared rent. The Tribunal emphasized that the annual letting value should reflect a reasonable expectation of rent, which was not met in this case. The decision in Zoom Communication (P.) Ltd. was cited, where the Delhi High Court held that unsubstantiated and non-bona fide explanations trigger penalty under section 271(1)(c).

Conclusion:
The Tribunal dismissed the appeal, upholding the penalty under section 271(1)(c) of the Income-tax Act, 1961. The assessee's arguments regarding jurisdiction, the nature of the penalty, and the bona fide nature of the declared rental income were rejected, affirming that the penalty was justified due to the substantial understatement of rental income and the absence of a convincing explanation.