2014 (7) TMI 902 - AT - Income Tax

Penalty u/s 271(1)(c) - Failure to prove that income from property arisen due to systemic activity Held that - The assessee is in the business of taking the property on lease and further leasing out the same then treating the rental income as business income is a bonafide claim of the assessee though the same was not accepted by the AO - The issue of treatment of rental income as income from house property is highly debatable issue and rejection of such claim by the AO by taking a different view does not ipso facto lead to the conclusion that the assessee has furnished inaccurate particulars of income or concealed the particulars of income - rejection of claim would not tantamount to concealment of particulars of income or furnishing of inaccurate particulars of income warranting levy of penalty Relying upon COMMISSIONER OF INCOME TAX-I, MUMBAI Versus M/s BENNETT COLEMAN & CO LTD 2013 (3) TMI 373 - BOMBAY HIGH COURT - assessee has furnished and disclosed all relevant particulars regarding the income from letting out of the property - assessment of income under a different head by the AO resulting in disallowance of expenditure would not justify levy of penalty u/s 271(1)(c) particularly when the assessee is in the business of taking the property on lease and then letting out the same on sub-lease Decided against Revenue.

Summary

Issues:
- Appeal against penalty orders under section 271(1)(c) for the assessment years 2004-05, 2005-06, and 2006-07.

Analysis:
1. The revenue appealed against the CIT(A)'s deletion of penalties under section 271(1)(c) for the mentioned assessment years. The AO had assessed rental income under the head income from house property, disallowing various expenses claimed by the assessee. The AO initiated penalty proceedings, which the CIT(A) later deleted based on the explanation that the disallowed expenditure was due to a change in the head of income, not concealment. The Tribunal noted that the assessee's business involved leasing properties, treating the income as business income, although the AO disagreed. The Tribunal found the issue debatable, emphasizing that the rejection of the claim did not imply concealment or inaccurate reporting of income.

2. The Tribunal referred to a similar case involving a change in the head of income and the deletion of penalty due to the absence of bad faith or concealment. Citing the decision of the Hon'ble Jurisdictional High Court in another case, the Tribunal concluded that the assessee had disclosed all relevant income particulars, justifying the deletion of penalties despite the AO's differing assessment. The Tribunal highlighted that the mere rejection of the claim did not warrant a penalty under section 271(1)(c) when the assessee had acted in good faith and disclosed all relevant information.

3. Considering the facts, the Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decision to delete the penalties. The Tribunal emphasized that the assessment of income under a different head by the AO, resulting in expenditure disallowance, did not justify penalty imposition, especially when the assessee had disclosed all relevant income details. Relying on previous legal precedents and the specific circumstances of the case, the Tribunal found no error in the CIT(A)'s decision to delete the penalties, ultimately dismissing the revenue's appeals.