2017 (11) TMI 1065 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - additions made on account of ALV of the property - Held that - It is not the case of the Assessing Officer here that the notional interest on interest free security deposit can be taken as determinative factor to arrive at the fair rent though there is slight whisper in the penalty order, which has not been taken into a logical conclusion, because ultimately the Assessing Officer has taken the figure of ALV as determined by the approved valuer, which has been accepted by the assessee in its revised computation filed before the Assessing Officer during the course of assessment proceedings. Such an estimate made by the Registered Valuer cannot be held to be correct fair rental value in accordance to the provisions of section 23, because the Assessing Officer has simply accepted the valuation given by the assessee in the revised computation. This does not entail that the assessee has either furnished inaccurate particulars of income or has concealed any income, because no enquiry has been done by the AO to ascertain that actual rent received is less than the fair market value. How the ALV disclosed in return of income filed in response to notice to notice u/s 148 is not correct. Thus, on this addition, no penalty can be levied; especially on the difference between the ALV shown by the assessee in the return of income as well as the value adopted by the Registered Valuer, which again is purely based on estimate. Disallowance claim of set off of loss both under the head income from house property and business income Held that - As in the assessment order, Assessing Officer has noted that assessee itself has filed a revised computation of its income on 29/9/2009 wherein such a claim was withdrawn or was not claimed which has been accepted by the Assessing Officer also. After accepting assessee s claim, the Assessing Officer has nowhere recorded his satisfaction or has stated, as to whether the assessee has furnished any inaccurate particulars of income, albeit at the end of the assessment order, he frames a charge both under concealment of income as well as furnishing of inaccurate particulars of income which, in our opinion is not correct, because the Assessing Officer has to specify the charge while initiating penalty proceedings under section 271(1)(c) qua each addition as to on which limb of section 271(1)(c) he is initiating penalty proceedings. We find that while levying penalty, he has again held that penalty is to be imposed under both the charges which is evident from para 12 of the impugned penalty order. Penalty under this section can be imposed only on the ground or charge upon which assessee has been called upon to answer or has been confronted and not on vague and unspecified ground in the notice. t the assessment order must clearly indicate as to under which part of section 271(1) (c) the Assessing Officer chooses to initiate the penalty proceedings against the assessee - Decided in favour of assessee. On the issue of disallowance under section 14A read with rule 8D, admittedly rule 8D is not applicable prior to assessment year 2008-09 and, therefore, such a disallowance will not attract levy of penalty and the same is directed to be deleted.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
2. Addition on account of Annual Letting Value (ALV) of the property.
3. Disallowance of set off of brought forward losses under the head "income from house property."
4. Disallowance of set off of business loss.
5. Application of Rule 8D for disallowance under section 14A.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c):
The primary issue revolves around the levy of penalty under section 271(1)(c) for concealment of income and furnishing inaccurate particulars of income. The assessee was penalized based on the difference in the ALV of the property, disallowance of set off of losses, and disallowance under section 14A. The tribunal emphasized that the Assessing Officer (AO) must specify the charge (concealment or inaccurate particulars) while initiating penalty proceedings. The tribunal found that the AO failed to clearly specify the charge, leading to ambiguity and violation of natural justice principles. Consequently, the penalty imposed was not sustainable.

2. Addition on Account of ALV of the Property:
The AO added the difference between the ALV shown by the assessee in the return of income and the ALV determined by the approved valuer. The tribunal noted that the AO did not conduct an independent inquiry to ascertain the fair market rent and simply accepted the valuation by the registered valuer. The tribunal held that the mere difference in estimates does not constitute concealment or furnishing of inaccurate particulars, especially when the assessee had disclosed the rental income and the valuation was based on an estimate. Hence, no penalty could be levied on this ground.

3. Disallowance of Set Off of Brought Forward Losses:
The AO disallowed the set off of brought forward losses under the head "income from house property" due to lack of evidence. The tribunal observed that the assessee had filed a revised computation of income, withdrawing the claim. The tribunal found that the AO did not record satisfaction regarding the concealment or furnishing of inaccurate particulars specifically for this disallowance. Thus, the penalty on this ground was not justified.

4. Disallowance of Set Off of Business Loss:
The AO disallowed the set off of business loss, stating that the assessee had positive business income in earlier years. The tribunal noted that the AO did not specify the charge while initiating penalty proceedings and imposed the penalty under both limbs (concealment and inaccurate particulars), which is not permissible. Therefore, the penalty on this ground was directed to be deleted.

5. Application of Rule 8D for Disallowance under Section 14A:
For the assessment years 2003-04 to 2005-06, the AO applied Rule 8D for disallowance under section 14A. The tribunal highlighted that Rule 8D was not applicable prior to the assessment year 2008-09. Consequently, the disallowance made under Rule 8D could not attract penalty, and the penalty levied on this basis was deleted.

Separate Judgments:
The tribunal's findings and decisions were consistent across the assessment years 2002-03 to 2005-06. The penalty levied on the difference in ALV, disallowance of losses, and disallowance under section 14A was deleted in all years due to the reasons mentioned above.

Conclusion:
The tribunal allowed the appeals of the assessee, directing the deletion of penalties imposed under section 271(1)(c) for all the assessment years in question. The order emphasized the importance of specifying the charge while initiating penalty proceedings and the need for clear findings to support such penalties.