2017 (12) TMI 415 - AT - Income Tax

Penalty u/s 271(1)(c) - non-declaration of the rental income from property at Gurgaon, offering an amount of ₹ 74,789/- as rental income from the property at Ghaziabad and non-disallowance made under section 14A - Held that - The assessee submitted that TDS certificate for Gurgaon property was issued consolidatedly for two years by the tenant and that also contributed to the offering of rental income on receipt basis. In support the assessee has filed copies of payment advices, consolidated TDS certificate showing amount after 31.03.2008, ledger of rent received for assessment years 2008-09 and 2009-10. We thus find that the assessee has been able to offer bona fide reasons for not disclosing the rental income from its property at Gurgaon and thus in absence of positive evidence beyond doubt regarding furnishing of inaccurate particulars of income or concealment of particulars of income towards the said rent, the Assessing Officer was not justified in invoking the penal provisions of section 271(1)(c). So far as rental income in respect of Kaushambhi (Ghaziabad) property is concerned, the explanation of the assessee remained that rental income for the month of March, 2008 was credited to the profit and loss account for the year ended on 31.03.2009 and was offered to tax in assessment year 2009-10. We thus find that the assessee was able to explain the non-disclosure of rental income in respect of the above property during the year and it cannot be said that it was a case of furnishing of inaccurate particulars of income in this regard especially when the assessee had paid tax on it when the Assessing Officer was not satisfied with the explanation of the assessee. Regarding the disallowance made under section 14A we are of the view that it remained a debatable issue and it cannot be said beyond doubt that non-disallowance of expenditure under section 14A by the assessee was furnishing of inaccurate particulars of income or concealment of particulars of income to attract the penal provisions of section 271(1)(c) of the Act. The Assessing Officer is thus directed to delete the penalty in this regard as well. - Decided in favour of assessee.

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(c) of the Income Tax Act.
2. Alleged concealment of rental income from properties in Gurgaon and Ghaziabad.
3. Disallowance under section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(c):
The core issue is whether the penalty of ?9,07,790/- imposed by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] under section 271(1)(c) of the Income Tax Act was justified. The penalty was levied on the grounds of furnishing inaccurate particulars of income, specifically related to non-disclosure of rental income from properties and disallowance under section 14A.

2. Alleged Concealment of Rental Income:
- Gurgaon Property:
The assessee, a company engaged in professional activities of architects and engineering, had leased out properties and declared its income. The AO noted that rental income from the Gurgaon property was not disclosed. The assessee explained that it follows a cash system of accounting and had offered the rental income of ?25,20,000/- for taxation in the subsequent year (assessment year 2009-10) when it was actually received. The assessee provided substantial evidence, including original and revised returns, audit reports, and TDS certificates, to support its claim that the income was not concealed but offered based on cash accounting principles.

- Ghaziabad Property:
Similarly, for the Ghaziabad property, the assessee offered an additional ?74,789/- as rental income. The assessee explained that rental income for March 2008 was credited to the profit and loss account for the year ending 31st March 2009 and offered for tax in the subsequent year. The explanation was supported by relevant documentation, indicating no intention to conceal income.

3. Disallowance under Section 14A:
The AO disallowed ?75,974/- under section 14A, which pertains to expenditure incurred in relation to income not includible in total income. The assessee argued that this was a debatable issue and could not be construed as furnishing inaccurate particulars or concealment of income. The reliance on the Supreme Court decision in Reliance Petro Products Ltd. supported the claim that mere disallowance does not warrant penalty.

Conclusion:
The Tribunal found that the assessee had provided a bona fide explanation for the non-disclosure of rental income from the Gurgaon property, based on the cash system of accounting. The Tribunal also accepted the explanation regarding the Ghaziabad property and the disallowance under section 14A, considering them as debatable issues rather than deliberate concealment or furnishing of inaccurate particulars. Consequently, the Tribunal directed the deletion of the penalty imposed under section 271(1)(c).

Judgment:
The appeal was allowed, and the order pronounced on 28th July 2017 directed the AO to delete the penalty of ?9,07,790/-.

Note:
The summary maintains confidentiality by not mentioning the names of any parties or individuals involved.