2019 (1) TMI 1053 - AT - Income Tax

Penalty levied u/s 271(1)(c) - income declared under different head of income - rental receipts as business income or house property - Held that - The assessee had shown rental receipts as business income , whereas the AO considered it to be taxable under the head income from house property . In the process the AO disallowed all expenditures including depreciation to the tune of ₹ 20,13,226/-. In the case of CIT v. Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT it has been held that merely because assessee had claimed expenditure, which claim was not accepted or was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c). CIT v. Ajaib Singh & Co. 2001 (8) TMI 79 - PUNJAB AND HARYANA HIGH COURT that merely because certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that the particulars furnished by the assessee are wrong. Disallowance of an expense per se cannot mean that the assessee has furnished incorrect particulars of its income. Concealment involves penal action. It has to be proved as a conscious Act. It is true that direct evidence may not be available in every case. Yet, it must be proved as a necessary corollary from the facts and circumstances established on the record. - Decided in favour of assessee.

Summary

Issues:
Delay in filing the appeal before the Tribunal, Penalty levied under section 271(1)(c) of the Income Tax Act 1961, Disallowance of expenses and depreciation leading to penalty imposition, Classification of rental income as business income or income from house property, Applicability of penalty under section 271(1)(c) for disallowed expenses, Comparison with relevant legal precedents.

The Appellate Tribunal ITAT MUMBAI addressed the issue of a 46-day delay in filing the appeal before the Tribunal due to the demise of the Managing Director and the financial distress faced by the assessee-company. The Tribunal, considering the circumstances, condoned the delay. Moving on to the penalty imposed under section 271(1)(c) of the Income Tax Act 1961, the Tribunal examined the case related to the assessment year 2001-02. The Assessing Officer disallowed certain expenses and depreciation, leading to the imposition of a penalty. The Commissioner of Income Tax (Appeals) upheld the penalty, citing the failure of the assessee to provide a bona fide explanation during assessment proceedings. However, the Tribunal, after reviewing the facts, referred to legal precedents such as the case of Reliance Petroproducts (P) Ltd. and Ajaib Singh & Co., where it was established that disallowance of expenses does not automatically imply concealment of income. Relying on these precedents, the Tribunal decided to delete the penalty levied by the Assessing Officer.

The crux of the matter revolved around the classification of rental income as either business income or income from house property. The assessee treated the rental income as business income, whereas the Assessing Officer categorized it as income from house property, disallowing various expenditures, including depreciation. The Tribunal noted that the disallowance of expenses alone does not justify the imposition of a penalty under section 271(1)(c) of the Act. Citing legal judgments like CIT v. Reliance Petroproducts (P) Ltd. and CIT v. Ajaib Singh & Co., the Tribunal emphasized that mere disallowance of expenses does not amount to furnishing incorrect particulars of income or concealment. The Tribunal, applying the principles from these cases, ruled in favor of the assessee and deleted the penalty imposed by the Assessing Officer for the assessment year 2001-02, extending the decision to subsequent assessment years 2002-03, 2003-04, and 2004-05 due to identical facts. The appeals were allowed, and the penalty was set aside based on the established legal precedents and the specific circumstances of the case.