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2016 (6) TMI 179 - AT - Income TaxLevy of penalty u/s 271(1)(c) - assessee bring rental income as income from business as against income from house property - Held that - As the assessee company has not furnished inaccurate particulars of income making it liable for penalty u/s 271(1)(c) of the Act as the assessee company duly declared all the income earned on rental income albeit under the head Income from business or profession although the claim of the assessee company did not found favour with the Revenue , will not make the assessee company exigible to penalty u/s 271(1)(c) of the Act as the explanation offered by the assessee company is bonafide and a plausible explanation albeit not accepted by the Revenue , keeping in view the decision of Hon ble Supreme Court in the case of Reliance Petroproducts Private Limited (2010 (3) TMI 80 - SUPREME COURT ) and more so with the recent decision of Hon ble Supreme Court in the case of Chennai Properties & Investments Ltd. v. CIT, 2015 (5) TMI 46 - SUPREME COURT it could not be said that this claim of the assessee company to bring rental income as income from business as against income from house property was ex-facie wrong and unsustainable . Thus in view of our above stated discussions and reasoning as set-out above, we order deletion of penalty levied by the AO and confirmed by the learned CIT(A) on this ground. - Decided against revenue Disallowance of depreciation - Held that - It is incumbent upon the assessee company to have produced the evidences to the satisfaction of the Revenue as the claim of deduction of the expenses in the return of income has been made by the assessee company and primary onus to prove its claim in return of income lay on the assessee company , which the assessee company failed to do so. In earlier years also, similar addition has been made and the assessee company has accepted these additions on confirmation of the additions by the learned CIT(A) after the first appeal stood dismissed by the learned CIT(A) against the quantum additions. In view of our above discussions and reasoning, addition towards disallowance of depreciation on purchase of new fixed assets , to the income of the assessee company needs to be confirmed/ sustained. We find no infirmity in the orders of the learned CIT(A which we confirm/sustain.- Decided against assessee Addition of general expenses being 10% of the general expenses - failure of the assessee company to produce the documentary evidences, bills etc - Held that - Since, the assessee company is not able to produce any detail with respect to the amount of general expenses of ₹ 91,48,771/- claimed by the assessee company in the return of income filed with the Revenue, the disallowance of 10% of the general expenses was made by the AO which was confirmed by the learned CIT(A) in the first appeal. It is incumbent upon the assessee company to have produced the evidence to the satisfaction of the AO , as the claim of deduction of the general expenses from the income of the assessee company in the return of income has been made by the assessee company and the primary onus to prove its claim in return of income lay on the assessee company , which the assessee company failed to do so in the instant case. In our considered view based on facts and circumstances of the case, the disallowance of 10% of general expenses is quite reasonable keeping in view peculiar facts and circumstances of the case and we confirm the afore-stated disallowance. We find no infirmity in the orders of the learned CIT(A) which we confirm/sustain. - Decided against assessee Reopening of assessment - Held that - The reopening has been done based upon the rental income offered to tax as business income was brought to tax by the Revenue under the head Income from House Property in the preceding year i.e. assessment year 2007-08 leading to income assessed at ₹ 13,30,275/- as against the disclosure of substantially lower income at NIL . There is a tangible information/material which has come to the possession of A.O. having close nexus and live link with the formation of belief by the AO that income has escaped assessment based on which he has formed reason to believe that income has escaped assessment. Earlier, the Revenue has processed the return u/s 143(1) of the Act. No scrutiny assessment has been made u/s 143(3) of the Act. There is no opinion which was formed by the A.O. earlier and thus there is no question of any change of opinion. The reasons recorded were duly furnished to the assessee company by the Revenue. In our considered view, we do not find any irregularity or infirmity in the re-opening of the assessment by the Revenue in the instant case u/s 147/148 of the Act based on our discussions and reasoning above, hence, we uphold the decision of ld. CIT(A) in which we have found no infirmity. - Decided against assessee
Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act. 2. Disallowance of depreciation on fixed assets. 3. Classification of rental income as "Income from House Property" instead of "Income from Business or Profession." 4. Validity of reopening of assessment under Section 147 of the Income Tax Act. 5. Ad-hoc disallowance of general expenses. Issue-wise Detailed Analysis: 1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act: The assessee company contested the levy of penalty imposed by the Assessing Officer (AO) under Section 271(1)(c) for concealing income and furnishing inaccurate particulars. The AO had initiated penalty proceedings due to the disallowance of depreciation claims and reclassification of rental income. The Tribunal observed that the assessee had provided a bona fide explanation for its claims, including the inability to produce certain documents due to business losses and administrative difficulties. The Tribunal referred to the CBDT Circular No. 25/2015, which clarified that penalty under Section 271(1)(c) is not attracted where tax is payable under Section 115JB (Minimum Alternate Tax) and not under normal provisions. The Tribunal set aside the penalty matter to the AO for de-novo determination, directing the AO to consider the assessee's explanations and the circular. 2. Disallowance of Depreciation on Fixed Assets: The AO disallowed a portion of the depreciation claimed by the assessee due to the non-production of documentary evidence for additions to fixed assets. The Tribunal noted that the assessee had produced 97% of the required documents and only a small portion was missing due to administrative challenges. The Tribunal upheld the disallowance where documentary evidence was not provided but granted relief for the portion where evidence was subsequently produced and accepted by the AO in rectification proceedings under Section 154. 3. Classification of Rental Income: The AO reclassified the rental income from "Income from Business or Profession" to "Income from House Property," disallowing the depreciation claimed on these properties. The Tribunal considered the assessee's argument that the rental activity was part of its business as per its Memorandum of Association. The Tribunal referred to the Supreme Court decision in Chennai Properties & Investments Ltd. v. CIT, which supported the assessee's claim. The Tribunal directed the AO to re-examine whether the assessee was indeed in the business of letting out properties, and if so, to classify the rental income accordingly. 4. Validity of Reopening of Assessment under Section 147: The assessee challenged the reopening of assessments, arguing there was no escapement of income. The Tribunal upheld the reopening, noting that the AO had tangible material indicating income had escaped assessment due to the incorrect classification of rental income in previous years. The Tribunal found the reopening was within four years and followed due process, thus validating the AO's action. 5. Ad-hoc Disallowance of General Expenses: The AO made an ad-hoc disallowance of 10% of the general expenses claimed by the assessee due to non-production of supporting documents. The Tribunal upheld this disallowance, stating that the primary onus to substantiate the claim lay with the assessee. Given the inability to produce evidence, the Tribunal found the 10% disallowance reasonable and confirmed the AO's decision. Conclusion: The Tribunal partly allowed the appeals, granting relief in specific instances where the assessee provided valid explanations or subsequent evidence. It directed re-examination of the classification of rental income and the penalty imposition, while upholding the disallowances where the assessee failed to meet the evidentiary burden. The reopening of assessments was validated based on tangible material indicating escapement of income.
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