2016 (5) TMI 807 - AT - Income Tax

Penalty under section 271(1)(c) - claim of exemption under section 10(20) - Held that - The explanation of the assessee with regard to his claim of exemption under section 10(20) of the Act is that the same is based on a bonafide belief and on certain other cases of the assessees carrying on the same type of activities these judgments have been referred to by him before the learned CIT (Appeals) also. This is a case of a claim of exemption made by the assessee which was ultimately denied to it. Making of a claim which is not sustained does not amount to levy of penalty under section 271(1)(c) of the Act. Reliance placed by the assessee on Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ) is not out of place since this is not a case where the assessee has concealed some particulars of its income or furnished any inaccurate particulars. In fact all the facts and figures have been taken by the Assessing Officer from the return filed by the assessee only. The argument of the assessee that if it had taken registration under section 12A of the Act the whole income would be eligible for exemption under section 11 of the Act is of no consequence. However we find that the argument of the assessee that it is a Government organization and no malafide can be imposed on it is a relevant consideration while levying penalty under section 271(1)(c) of the Act. - Decided in favour of assessee Rental incomes shown by the assessee under the head income from business or profession - Held that - It has all along been claimed that it is a bonafide belief of the assessee that these rental incomes are part of its business income. Though we are aware of the fact that the issue stands against the assessee in quantum but we cannot brush aside the fact that the issue of considering certain incomes under a particular head is a debatable and controversial issue all along. There are judgments of various High Courts as well as of various Benches of the Tribunal whereby the dispute regarding the rental income to be taxed under the head income from house property or under the head business income are considered. In view of this we observe that it may be a case of making additions or disallowances but not a case of levying penalty under section 271(1)(c) of the Act. In view of the above the Assessing Officer is directed to delete the penalty levied by him under section 271(1)(c) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Penalty under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2006-07.
3. Claim of exemption under section 10(20) of the Act and treatment of rental incomes as business income.

Analysis:

Issue 1: Condonation of delay in filing the appeal
The appeal was delayed by 15 days, and the appellant submitted an application for condonation of delay. The delay was attributed to the approval process by higher authorities and the time taken by the counsel to prepare the appeal. The Tribunal found the delay unintentional and due to reasonable cause, thus condoning the delay.

Issue 2: Penalty under section 271(1)(c) of the Act
The appellant contended that no income was concealed, nor inaccurate particulars furnished, claiming to be a non-profit organization. The CIT (Appeals) upheld the penalty, but the appellant argued that the penalty cannot be imposed based on the Supreme Court's judgment in CIT Vs. Reliance Petroproducts Pvt. Ltd. The Tribunal noted that the appellant's claim of exemption under section 10(20) was denied, but making an unsustainable claim does not warrant a penalty. The Tribunal also considered the appellant's status as a government organization in this regard.

Issue 3: Claim of exemption under section 10(20) and treatment of rental incomes
The appellant claimed exemption under section 10(20) and treated rental incomes as business income. The Tribunal observed that while the quantum issue favored the revenue, the treatment of rental income remains a debatable issue. Referring to various judgments, the Tribunal concluded that the penalty under section 271(1)(c) is not justified in this case. Consequently, the Tribunal directed the Assessing Officer to delete the penalty levied.

In conclusion, the Tribunal allowed the appeal, emphasizing that the penalty was unwarranted in both instances. The judgment highlighted the importance of bona fide beliefs, the nature of the claims made, and the debatable nature of certain income classifications.