2024 (2) TMI 1282 - AT - Income Tax

Penalty u/s 271(1) (c) - period of limitation - treatment of lease rent income - initially assessee claimed the same as business income and claimed depreciation on assets - in the revised return, assessee claimed the same as income from house property to claim 30% standard deduction - AO treated the income of the assessee as income from business and initiated penalty proceedings - HELD THAT - As section 275 of the Act is clear in its purport that no order imposing penalty under chapter XXI after the expiry of financial year in which the proceedings, in the course of which action for imposition of penalty have been initiated, are completed, or six months from the end of the month in which the order of the Appellate Tribunal was received by the PCIT or Chief Commissioner or Principal Chief Commissioner or Commissioner, whichever period expires later. In this case, the Tribunal passed the orders on 24/03/2021 and by 31/03/2021, the financial year ends or by the end of September, 2022, six months expires from the end of the month in which the order by the Appellate Tribunal was passed. There is evidence to justify the action of the AO in passing the current impugned order dated 01/04/2022. On this score, Revenue has no case. Coming to the second objection, we are in agreement with the learned AR that whether or not subsequently cancelled by the learned CIT(A), with the passing of the first penalty order by 13/08/2021 within six months from the end of the month in which the Appellate Tribunal passed the orders, AO became functus officio and he has no jurisdiction to pass the second penalty order beyond the period prescribed u/s 275(1) of the Act. Lastly, it is an established principle of law that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the AO. Merely because the assessee preferred a claim which was not acceptable to the Revenue, the assessee cannot be visited with the proceedings u/s 271(1)(c) unless and until the twin requirements u/s 271(1)(c) of the Act are satisfied . Viewing from any angle, we find that the impugned penalty order is unsustainable in law and while accepting the plea of the assessee, we hold that the penalty cannot be sustained. Accordingly, we direct the learned assessing officer to delete the same. Decided in favour of assessee.

Summary

Issues Involved:
1. Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 based on inaccurate particulars.
2. Legality of passing two penalty orders by the Assessing Officer.

Summary:
Issue 1: The assessee claimed depreciation on business assets, leading to penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars. The Assessing Officer initially levied a penalty, later revisiting and increasing it. The CIT(A) confirmed the increased penalty, prompting the appeal. The assessee argued against the penalty, citing lack of concealment of income and legality concerns regarding passing two penalty orders.

Issue 2: The Tribunal analyzed the law of limitation under section 275 of the Act, highlighting the time frame for imposing penalties. It was noted that the Assessing Officer exceeded jurisdiction by passing a second penalty order after becoming functus officio following the initial penalty order. The Tribunal emphasized the principle that an assessee can make claims during assessment, even if later found erroneous, without attracting penalties unless specific requirements are met.

The Tribunal referenced the case law of CIT vs. Reliance Petroproducts Pvt Ltd, emphasizing that mere disagreement on a claim does not warrant penalties under section 271(1)(c) of the Act. Ultimately, the Tribunal ruled in favor of the assessee, holding the penalty unsustainable in law and directing the Assessing Officer to delete it.

The appeal of the assessee was allowed, and the order was pronounced in open court on February 26, 2024.