2022 (9) TMI 928 - AT - Income Tax

Penalty u/s 271(1)(c) - Addition was made on basis of the contravening section 25B of the Act related to arrear rent received duly assessment year which was not declared in the return of income for A.Y. 2012-13 - HELD THAT - The arrear rent which was not declared in return of income in earlier years said amount would be taxed in year of receiving the amount. But the assessee declared the rent in earlier years and paid the tax accordingly. In this issue the DR was unable to bring any contrary fact before the ITAT. The penalty was levied u/s 271(1)(c) on basis of the income which was concealed or stated inaccurate particulars of income. But the assessee never concealed nor stated any inaccurate particulars of income related to rental income. The arrear rent was not taken during the assessment year 2012-13 because the rent was already declared in the year in which it was related. The application of section 25B in itself clarificatory in nature. The assessment order is debatable in nature. There is no deliberate attempt on the part of the assessee and it is not a fit case to impose penalty u/s 271(1)(c) on the assessee as the conduct of the assessee if seen in context of preceding years as set-out above does not warrant imposition of the penalty u/s 271(1)(c) - we find that no attempt has been made by the assessee in the preceding years to conceal the rental income. The penalty levied by the AO amount is liable to be quashed. Assessee appeal allowed.

Summary

Issues:
Imposition of penalty under section 271(1)(c) of the Income Tax Act for non-declaration of arrear rent received, application of section 25B of the Act, justification for penalty imposition based on inaccurate particulars of income.

Analysis:

1. Imposition of Penalty under Section 271(1)(c): The appeal pertained to the imposition of a penalty of Rs. 4,06,623 under section 271(1)(c) of the Income Tax Act for non-declaration of arrear rent received by the assessee during the assessment year 2012-13. The penalty was based on the AO's assertion that the assessee failed to declare the income received on account of arrears of rent in the year it was received, contravening section 25B of the Act.

2. Application of Section 25B of the Act: Section 25B, inserted by the Finance Act 2000, clarifies that arrears of rent received are deemed to be the income of the year in which they are received. The AO contended that the assessee distributed the rent to different years to avoid paying rightful taxes, leading to the imposition of the penalty under section 271(1)(c). However, the assessee argued that the rent was declared in earlier years and paid taxes accordingly, maintaining that no deliberate attempt to conceal income was made.

3. Justification for Penalty Imposition: The ITAT analyzed the facts and circumstances of the case, noting that the application of section 25B is clarificatory in nature and the assessment order is debatable. The ITAT found no deliberate attempt by the assessee to conceal income, especially considering the consistent declaration of rental income in preceding years. Consequently, the ITAT held that the penalty imposed by the AO was unwarranted and quashed the penalty amount of Rs. 4,06,623.

4. Conclusion: Ultimately, the ITAT allowed the appeal of the assessee, emphasizing that the conduct of the assessee, when viewed in the context of preceding years, did not justify the imposition of a penalty under section 271(1)(c) of the Income Tax Act. The judgment was delivered on 15.09.2022 by the ITAT Amritsar, thereby ruling in favor of the assessee in the matter of penalty imposition related to non-declaration of arrear rent received.