2021 (10) TMI 214 - AT - Income Tax

Penalty levied u/s 271(1))(c) - Characterization of receipts - correct head of income - assessee had sought to evade taxes by offering the rental receipts in its original return of income under a wrong head of income i.e house property as against business income - HELD THAT - As assessee had validly filed a revised return of income, therefore, there was no justification on the part of the A.O to have brushed aside the same and saddled the assessee with the rigors of penalty u/s 271(1)(c) of the Act. Be that as it may, in our considered view a mere dislodging of the assessee s claim and re-characterization of the head of income under which the rental receipts were to be brought to tax can by no means justify levy of penalty u/s 271(1)(c) - it is a matter of fact to which we cannot be oblivion i.e the assessee had duly disclosed the rental receipts in question in its original return of income. It is not even the case of the revenue that there is any suppression of the rental receipts by the assessee in its original return of income. Apropos, the claim of the revenue that the assessee had sought to suppress its true income by offering the rental receipts under the head house property as against business income , we are of a strong conviction that the said unsubstantiated allegation cannot justify levy of penalty u/s 271(1)(c) . Merely for the reason that a claim raised by an assessee, which is thereafter found by the revenue to be not sustainable in law, by itself cannot justify levy of penalty u/s 271(1)(c) of the Act. Our aforesaid view is supported by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT . - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for alleged concealment of income.
2. Validity of the revised return of income filed by the assessee.
3. Justification for imposing penalty based on the re-characterization of rental income.

Issue-wise Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c):
The primary issue revolves around whether the penalty imposed under Section 271(1)(c) for alleged concealment of income was justified. The Assessing Officer (A.O) alleged that the assessee attempted to evade taxes by initially declaring rental income under "Income from House Property" instead of "Business Income." However, the Tribunal noted that the rental receipts were duly disclosed in the original return of income, and there was no suppression of income. The Tribunal emphasized that mere re-characterization of income does not justify the imposition of penalty under Section 271(1)(c). The Tribunal referenced the Supreme Court judgment in CIT Vs. Reliance Petro Products (P) Ltd., which supports the view that a mere disallowance of a claim does not automatically lead to penalty for concealment.

2. Validity of the Revised Return of Income:
The assessee filed a revised return of income within the prescribed time limit under Section 139(5) of the Act, changing the head under which rental income was declared from "Income from House Property" to "Business Income." The A.O rejected the revised return, alleging it was filed with a malafide intent to evade taxes. However, the Tribunal found that the assessee's actions were backed by a bonafide belief and advice from their tax consultant, who suggested consistency with previous years' treatment of rental income as "Business Income." The Tribunal concluded that there was no material evidence to support the A.O's claim of malafide intent, thus validating the revised return.

3. Justification for Imposing Penalty Based on Re-characterization of Rental Income:
The A.O imposed a penalty of ?17,48,297/- on the grounds that the assessee's initial declaration of rental income under "Income from House Property" was an attempt to evade taxes. The Tribunal, however, noted that the assessee had a legitimate reason for the initial declaration, supported by past assessments where rental income was treated as "House Property." The Tribunal held that the re-characterization of income by the revenue authorities does not, in itself, justify the imposition of a penalty. The Tribunal further emphasized that the assessee had disclosed all relevant facts and there was no suppression of income, thus the penalty under Section 271(1)(c) was not warranted.

Conclusion:
The Tribunal set aside the order of the CIT(A) and vacated the penalty imposed by the A.O, concluding that the assessee's actions were backed by bonafide belief and there was no intent to evade taxes. The appeal of the assessee was allowed, and the penalty of ?17,48,297/- was vacated.

Order Pronouncement:
The order was pronounced in the open court on 27.09.2021.