2013 (10) TMI 426 - AT - Income Tax

Penalty under section 271(1)(c) of the Income tax act Mistake in classification of head of income Held that - The income of the assessee for the year under consideration as finally assessed is less than the income returned by the assessee and this being the undisputed position, no penalty u/s 271(1)(c) of the Act can be imposed as it cannot be said that the assessee has sought to evade any tax by declaring its rental income as business income Decided in favor of Assessee.

Summary

Issues:
Penalty imposition under section 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income.

Detailed Analysis:

Issue 1: Penalty Imposition under Section 271(1)(c)
The appeal was filed against the penalty of Rs. 16,50,000 imposed by the Assessing Officer (A.O.) under section 271(1)(c) of the Income Tax Act, 1961. The penalty was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The penalty was imposed due to the treatment of rental income from a warehouse as "income from house property" instead of business income by the assessee. The A.O. considered this as furnishing inaccurate particulars of income. The CIT(A) upheld the penalty citing various reasons, including the failure of the assessee to provide a satisfactory explanation for not treating the income with a direct nexus to the house property as income from house property. The CIT(A) also referred to legal precedents to support the imposition of the penalty based on the quantification of the concealed income. The penalty was confirmed at 100% of the tax on the amount of Rs. 45,50,932.

Issue 2: Tribunal's Decision
The Tribunal heard arguments from both sides and examined the relevant material on record. The counsel for the assessee argued that the change in the head of income for warehouse rental income did not result in any addition to the total income. The Tribunal noted that the change actually led to a reduction in the total income of the assessee. The total income assessed by the A.O. was lower than the income declared by the assessee. Therefore, the Tribunal concluded that no penalty under section 271(1)(c) could be imposed as there was no attempt by the assessee to evade tax. The Tribunal canceled the penalty imposed by the A.O. and confirmed by the CIT(A), thereby allowing the appeal of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, canceling the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The decision was based on the finding that the change in the treatment of rental income did not result in any tax evasion by the assessee. The judgment highlighted the importance of accurately determining the nature of income and the consequences of such determinations on tax liabilities.