2020 (1) TMI 773 - AT - Income Tax

Levy of penalty u/s 271(1)(c) - estimation of rental income - HELD THAT - We find that for A.Y 2011-12 the rental income has been determined by the Assessing officer not basis any material or direct evidence found against the assessee but basis the hypothesis that the plot ought to have been let-out at least for the number of occasions on which the Mahurats are there as per the Panchang i.e. 28 during the respective year. Therefore for the remaining 11 Mahurats other than 17 mahurats for which assessee has already offered rental income basis the average rate of booking of 15, 000/- rental income was estimated at 1, 65, 000/-. Further rental for small parties exhibition and garba party were again estimated by the AO. Similar findings are recorded for other two assessment years. The said determination of income could form the basis of addition in the quantum proceedings however for the purposes of levy of penalty mere addition made in the assessment order could not form the basis of levy of penalty. It is a settled legal proposition that assessment and penalty proceedings are separate proceedings and therefore mere addition made in the assessment order is not sufficient for levy of penalty. Against said estimation of income done by the AO CIT(A) has reduced the quantum of estimation of rental income. Therefore where there is no positive evidence or material beyond doubt of assessee having concealed the particulars of income or furnishing inaccurate particulars of income mere addition in the quantum proceedings is not sufficient to hold assessee liable for levy of penalty. Levy of penalty on estimated rental income cannot be sustained and is hereby directed to be deleted. Mere disallowance of depreciation claim where all particulars are on record and inadvertent mistake of disclosing the interest income net of TDS instead of gross of TDS in the return of income where both interest income and TDS is apparent from the return of income cannot form the basis for levy of penalty on account of furnishing inaccurate particulars of income and is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Levy of penalty under section 271(1)(c) for estimation of rental income.
2. Levy of penalty on disallowance of depreciation on an air conditioner.
3. Levy of penalty for non-disclosure of interest income.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) for Estimation of Rental Income:
The assessee contested the penalty levied by the Assessing Officer (AO) on the estimation of rental income from Chitrakoot Place. The AO initially estimated the rental income at various amounts for different assessment years, which were subsequently reduced by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee argued that there was no conscious concealment or inaccurate particulars provided, as the rental income was estimated without direct evidence of concealment. The assessee relied on the decision of the Punjab & Haryana High Court in Harigopal Singh vs. CIT, asserting that penalties should not be levied in the absence of intentional concealment.

The Department argued that the AO's estimation was based on a detailed examination and specific reasons, including the prime location of the plot, the number of auspicious days for marriages, and other functions organized at the plot. The AO's findings were detailed in the assessment order, indicating a thorough examination rather than mere estimation.

The Tribunal found that the rental income was determined by the AO based on hypotheses rather than direct evidence. The CIT(A) had reduced the quantum of estimated rental income, and the Tribunal emphasized that penalty proceedings are separate from assessment proceedings. Mere addition in the assessment order does not justify the levy of penalty without positive evidence of concealment. The Tribunal referred to the decision of the Rajasthan High Court in Mahendra Singh Kedla, which held that penalties cannot be levied based on estimations without positive evidence of concealment. Consequently, the Tribunal directed the deletion of the penalty on estimated rental income.

2. Levy of Penalty on Disallowance of Depreciation on an Air Conditioner:
For the assessment years 2011-12 and 2012-13, the AO levied penalties on the disallowance of depreciation on an air conditioner, which was claimed for business purposes. The assessee argued that mere disallowance of depreciation cannot form the basis for penalty, citing the Supreme Court decision in Reliance Petro Products.

The Department contended that the air conditioner was used for personal purposes, and therefore, the claim for depreciation was not justified. The CIT(A) supported the AO's decision, stating that the assessee had not demonstrated the genuineness of the rental income or the admissibility of the depreciation claim.

The Tribunal concluded that the disallowance of depreciation, where all particulars were on record, did not constitute furnishing inaccurate particulars of income. The inadvertent mistake of claiming depreciation could not justify the levy of penalty. The Tribunal directed the deletion of the penalty on the disallowance of depreciation.

3. Levy of Penalty for Non-Disclosure of Interest Income:
For the assessment year 2014-15, the AO levied a penalty for non-disclosure of interest income amounting to ?4,579. The assessee explained that the amount represented TDS on interest income and that the net interest income was reported instead of the gross amount due to an inadvertent mistake.

The Tribunal found that the inadvertent mistake of disclosing net interest income instead of gross interest income, where both the interest income and TDS were apparent from the return of income, could not form the basis for the levy of penalty. The Tribunal directed the deletion of the penalty for non-disclosure of interest income.

Conclusion:
In conclusion, the Tribunal allowed all three appeals filed by the assessee, directing the deletion of penalties related to the estimation of rental income, disallowance of depreciation on an air conditioner, and non-disclosure of interest income. The Tribunal emphasized the need for positive evidence of concealment to justify the levy of penalties, distinguishing between assessment proceedings and penalty proceedings. The order was pronounced in the open Court on 13/01/2020.