2016 (7) TMI 566 - AT - Income Tax

Penalty under section 271(1)(c) - disallowances under section 40(a)(ia) and Addition of Rent receipts - Held that - Both on facts and in law, the assessee, by its explanation and conduct, has not been able to discharge the burden that lay upon it under Explanation 1 to section 271(1)(c) of the Act. In this factual and legal view of the matter, we are of the considered opinion that the penalty levied under section 271(1)(c) of the Act in the impugned order by the learned CIT(A) is to be upheld - Decided against assessee.

Summary

Issues Involved:
1. Disallowance under section 40(a)(ia) of ?61,72,064/-
2. Addition on account of Rent receipts of ?4,34,123/-

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) of ?61,72,064/-:

The assessee, a company engaged in management and maintenance of real estate, filed its return of income for A.Y. 2007-08 declaring a loss of ?1,00,40,853/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961, determining the loss at ?33,51,300/- after making certain additions/disallowances, including a disallowance under section 40(a)(ia) amounting to ?61,72,064/-. Penalty proceedings under section 271(1)(c) were initiated for this disallowance.

The assessee explained that due to a lack of proper staff and consultants, it failed to calculate the appropriate disallowable amount under section 40(a)(ia), initially disallowing only ?11,05,793/- on account of TDS not deducted and paid. The assessee later calculated and paid the TDS amount of ?11,39,300/- and interest of ?4,23,203/- on 24.12.2009. However, the AO rejected this explanation, noting that these matters came to light only after enquiries during the assessment proceedings, and levied a penalty of ?22,23,643/- under section 271(1)(c) for furnishing inaccurate particulars leading to the concealment of income.

The CIT(A) upheld the penalty, stating that the assessee's explanation of lack of proper staff was not acceptable. The CIT(A) noted that the assessee, being a limited company guided by tax experts, should have been aware of the provisions of the Act. The CIT(A) emphasized that the disallowance was not due to a probable view being rejected but due to a clear disregard of the unambiguous provisions of the law.

2. Addition on account of Rent receipts of ?4,34,123/-:

The assessment also included an addition of ?4,34,123/- on account of rent receipts, which was later upheld to the extent of ?1,49,500/- by the CIT(A). The assessee contended that the rental income was offered to tax in the subsequent assessment year and provided a detailed breakdown of the rent receipts from various parties.

The AO rejected the explanation, stating that the rental income should have been included in the current year as it pertained to the current year. The penalty was imposed on the grounds that the assessee had furnished inaccurate particulars leading to the concealment of income.

The CIT(A) upheld the penalty for the addition of ?1,49,500/-, noting that the explanation provided by the assessee was not found to be bogus or malafide. However, the CIT(A) directed that the penalty be computed only on the confirmed addition of ?1,49,500/- and not the entire ?4,34,123/-.

Conclusion:

The Tribunal, after considering the material on record and the arguments presented by the Revenue, upheld the CIT(A)'s decision to levy the penalty under section 271(1)(c) of the Act. The Tribunal noted that the assessee failed to bring any material evidence to controvert the findings of the CIT(A) and failed to discharge the burden under Explanation 1 to section 271(1)(c). Consequently, the appeal by the assessee was dismissed.

Final Order:

The assessee's appeal for A.Y. 2007-08 was dismissed, and the penalty levied under section 271(1)(c) of the Act was upheld. The order was pronounced in the open court on 8th July, 2016.