2015 (10) TMI 1481 - AT - Income Tax

Penalty under section 271(1)(c) - claim for deduction of various expenses, etc., in the computation of income under the head Income from house property - Held that - Here is a case in which the assessee earned rental income to the tune of ₹ 84 lakhs on which it claimed deduction under section 24(i) for a sum of ₹ 18.75 lakhs. Despite that, it further claimed deduction for various expenses and allowance in respect of let out property from which rental income was earned. Such claim for deduction of various expenses, etc., in the computation of income under the head Income from house property is patently and ex facie untenable. It is not an issue on which two opinions can possibly be formed and the assessee chose to follow the view favourable to it. The provisions of Chapter IV-C are simple and plain in not admitting any deduction for expenses, etc., of the nature which have been claimed by the assessee, within its ambit. As the assessee knowingly made a wrong claim which is patently inadmissible, we cannot, but, uphold penalty under section 271(1)(c) of the Act. Our view is fortified by a recent judgment from the hon ble jurisdictional High Court in CIT v. NG Technologies Ltd. 2014 (12) TMI 481 - DELHI HIGH COURT), in which the assessee claimed deduction for loss on sale of fixed assets in its profit and loss account. The hon ble Delhi High Court upheld the penalty in respect of such patently inadmissible claim. The facts of the instant case are on all fours with that of NG Technologies Ltd. inasmuch as here also the assessee claimed deduction for expenses and depreciation, etc., against income from house property, which is clearly not allowable. We, therefore, approve the view taken by the learned Commissioner of Income-tax (Appeals) in affirming the instant penalty. - Decided against assessee.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2001-02.
- Proper satisfaction in the assessment order before initiating penalty proceedings.
- Claiming deductions for various expenses against rental income under the head "Income from house property."

Analysis:

1. Issue of Penalty Imposed under Section 271(1)(c):
The appeal was directed against the penalty of Rs. 17,49,622 imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) had upheld this penalty in the original order dated February 7, 2008. The Tribunal initially deleted the penalty as it found that the Assessing Officer did not record proper satisfaction in the assessment order before initiating penalty proceedings. However, the Delhi High Court later vacated this view and remanded the matter for deciding the penalty on its merits.

2. Proper Satisfaction in Assessment Order:
The Tribunal had initially deleted the penalty based on the lack of proper satisfaction recorded by the Assessing Officer in the assessment order. However, the Delhi High Court overturned this decision and held that the penalty needed to be decided on its merits. This aspect highlights the importance of proper satisfaction being recorded by the Assessing Officer before initiating penalty proceedings under section 271(1)(c) of the Act.

3. Claiming Deductions for Various Expenses:
The case involved the assessee, a builder and promoter, earning rental income and claiming deductions under section 24 for various expenses against this income under the head "Income from house property." The Assessing Officer disallowed these deductions, stating that they were covered under the composite deduction allowable under the same head. The Tribunal's order in the quantum proceedings rejected the assessee's contentions for claiming these deductions, including depreciation, building maintenance expenses, and commission paid for letting out the building. The Tribunal found the assessee's claims for deductions to be not maintainable, leading to the imposition of the penalty under section 271(1)(c) of the Act.

4. Decision and Rationale for Upholding Penalty:
The Tribunal upheld the penalty under section 271(1)(c) as the assessee knowingly made a wrong claim for deductions that were patently inadmissible under the provisions of Chapter IV-C. The Tribunal emphasized that the claim for various expenses against rental income under the head "Income from house property" was clearly untenable and not open to different interpretations. Citing a judgment from the Delhi High Court in a similar case, the Tribunal supported the decision to impose the penalty, aligning with the view taken by the Commissioner of Income-tax (Appeals). Ultimately, the appeal was dismissed, affirming the penalty imposed by the Assessing Officer.

In conclusion, the judgment addressed the issues of penalty imposition under section 271(1)(c), the requirement for proper satisfaction in the assessment order, and the inadmissibility of claiming deductions for various expenses against rental income under the head "Income from house property." The decision highlighted the importance of adhering to the provisions of the Income-tax Act and upholding penalties for knowingly incorrect claims.