2015 (7) TMI 400 - AT - Income Tax

Penalty u/s 271(1)(c) - rental income from flat omitted to be included at the time of filing of original return of income - Held that - Nothing has been mentioned or asked from the assessee regarding rental income of the assessee, nor any details of flats owned by the assessee. Later on, when the assessee had filed a revised return on 06.11.2010 including the rental income of ₹ 1,61,880, there was no specific query or enquiry by the AO prior to this date. Neither from the assessment order nor from the records as are available before us, it is borne out that the assessee had offered the rental income from the second flat, only when she was cornered or enquired by the AO. Even if the revised return is held to be invalid, then also the revised computation filed with the revised return declaring such an income is liable to be held as voluntarily, and therefore, such an offer of income during the course of the assessment proceedings cannot lead to a conclusion that the assessee is liable for penalty u/s 271(1)(c). The finding of the CIT(A) that the assessee had filed initial return with a view to conceal the income and the revised return was out of compulsion cannot be held to be correct because no such compulsion is borne out from the records, that the assessee came forward for offering the income only when the AO had carried out any inquiry or has cornered the assessee on the issue of non- offer of rental income in the original return of income. Thus, the penalty levied u/s 271(1)(c) is deleted - Decided in favour of assessee.

Summary

Issues:
- Appeal against penalty proceedings u/s 271(1)(c) for assessment year 2008-2009 regarding omitted rental income from original return.
- Validity of revised return filed after statutory time limit.
- Justification for penalty imposition by Assessing Officer (AO).
- Assessee's arguments for cancellation of penalty.
- CIT(A)'s decision confirming penalty.
- Assessee's appeal against penalty before ITAT Mumbai.
- ITAT Mumbai's analysis and decision on penalty imposition.

Analysis:
1. The appeal was filed against the penalty proceedings u/s 271(1)(c) for the assessment year 2008-2009 due to the omission of rental income from the original return. The Assessing Officer (AO) imposed a penalty of &8377; 34,917, being 100% of the tax sought to be evaded.

2. The assessee failed to disclose rental income from a flat in the original return but later filed a revised return after the statutory time limit. The AO initiated penalty proceedings citing that the revised return was invalid as it was filed after the prescribed period. The AO believed that if the case had not been selected for scrutiny, the rental income would have gone untaxed, justifying the penalty imposition.

3. Before the CIT(A), the assessee explained that the rental income was inadvertently omitted from the return and was later included in the revised return. The assessee argued that the rental income was reflected in bank statements, proving no intention to conceal income. However, the CIT(A) upheld the penalty, stating that the revised return was filed beyond the time limit and not voluntarily, as it was done after scrutiny proceedings began.

4. The ITAT Mumbai heard the appeal and considered the facts. It noted that the assessee rectified the error by including the rental income during assessment proceedings without specific inquiry from the AO. The ITAT found no evidence of concealment or compulsion in filing the revised return. Therefore, it ruled in favor of the assessee, canceling the penalty of &8377; 34,917 imposed under section 271(1)(c).

5. The ITAT's decision highlighted that the assessee's offer to include the rental income voluntarily during assessment did not warrant a penalty under section 271(1)(c). The absence of specific queries from the AO regarding the rental income before the revised return filing supported the conclusion that the assessee's actions were not driven by compulsion. As a result, the penalty was revoked, and the assessee's appeal was allowed.