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TMI Blog2019 (5) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, penalty proceedings initiated in assessment order by the learned I.T.O, 8(3)-2, Mumbai (hereinafter referred to as "the learned AO") by issue of invalid notice under Section 274 read with section 271(1)(c) of the Income tax Act, 1961 (hereinafter referred to as "the Act") in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is bad in law. 2. On the facts and in the circumstances of the case the penalty proceedings initiated by the learned AO without serving a valid notice were illegal and invalid. The following alternative grounds of appeal are without prejudice to preliminary grounds of appeal: 3. On the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) - 18, Mumbai (hereinafter referred to as "the learned CIT(A)"), erred in passing the order under appeal dated 1st November, 2016 which was dispatched for serving upon appellant on 23rd December, 2016 with the intent to defeat Appellant's declaration filed on 7Ih November, 2016 under section 204 of the Finance Act, 2016 under Direct Tax Dispute Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in penalty proceedings u/s 271(1)(c) also stood rejected by the AO leading to levy of penalty u/s 271(1)(c) of the 1961 Act vide penalty order dated 28.03.2014 with respect to additions as were made by the AO u/s 41(1) of the 1961 Act. 4.2 On the second issue, the AO observed during assessment proceedings u/s 143(3) of the 1961 Act from rent agreement filed by the assessee that the assessee has given the premises of 750 square feet at 2nd floor and open space of 4800 square feet on ground adjoining to the building situated at 36, Marol Co-operative Industrial Estate, Mr Vasanji Road, Andheri East, Mumbai-400059, while the said asset is not appearing on the Balance Sheet of the assessee company. The assessee submitted that the said property is taken on leave and license basis from Shri Viresh B. Ghatlia, who is Director of the assessee. Thus, the AO observed that the income derived from transaction is only income from subletting of the aforesaid premises, which was brought to tax by the AO as income under the head 'Income from other sources'. The AO observed that the assessee has declared aforesaid compensation/rent received of Rs. 10,98,000/- under the head 'Income from House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has made the wrong claim of deduction to u/s. 24 misrepresenting Leave & License fee as rent. Even before me similar contentions were reiterated. In view of the above, I find that the levy of penalty on both the counts is justifiable on facts because the case laws cited by the appellant are distinguishable on facts. I also find that this is not case of bonafide belief or rejection of debatable claim. This is a clear case of Non-Existing Liability and wrongly claim of deduction. Accordingly, I uphold the penalty of Rs. 1,75,000/- and dismiss the appeal of the appellant." 6. Now the matter is before the tribunal at the behest of the assessee. The Ld. Counsel for the assessee stated that these are appeals against penalty levied by the AO u/s. 271(1)(c) of the Act which penalty was later confirmed by learned CIT(A). It was submitted that penalty proceedings were invoked by the AO u/s 271(1)(c) on ground that the assessee has furnished inaccurate particulars of income on both the issues which is found mentioned in the assessment order dated 30.11.2011 passed by the AO u/s. 143(3) of the 1961 Act at para 5. It was submitted that penalty proceeding were initiated for furnishing ina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record by authorities below to prove that the said creditor is not genuine. Our attention was drawn to page no. 98 of the paper book wherein decision of ITAT, Mumbai in the case of Shiva Pigments Private Limited v. ITO in ITA no. 3091/Mum/2011 for AY 2007-08, order dated 18.07.2012, para no. 8 wherein penalty u/s 271(1)(c) on the similar grounds of additions made u/s 41(1) were deleted by ITAT, Mumbai. 6.2 On the second issue on which penalty was levied u/s 271(1)(c) of the 1961 Act, It was submitted by learned counsel for the assessee that the assessee declared income from rent of Rs. 10,98,000/- under the head 'Income from house property' and statutory deduction u/s. 24(1) were also claimed. The said deduction u/s 24(1) were denied to the assessee as the income from rent was assessed to tax by the AO under the head 'Income from other Sources'. It was submitted that there was merely a change of head of income from 'Income from House Property' under which income was offered to tax by the assessee, to other head of income 'Income from Other Sources' under which the AO assessed the said income to tax, which as per learned counsel for the assessee will not entail levy of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective. The Ld. DR relied upon the decision of the tribunal in the case of Earthmoving Equipment Service Corporation v. DCIT in ITA no. 6617/Mum/2014 for AY 2010-11 vide order dated 02.05.2017. The learned DR also relied upon decision in the case of Dhaval K. Jain v. ITO in ITA no. 996/Mum/2014 for AY 2003-04. The learned DR also relied upon decision of Hon'ble Bombay High Court in the case of CIT v. Smt. Kaushalya (1995) 216 ITR 660 (Bom). On merits it was submitted that no balance confirmation was submitted by the assessee from M/s Alok Textile Traders and hence additions were made u/s. 41(1) of the 1961 on the ground that this creditor is not genuine. On second issue. It was submitted by learned DR that assessee has wrongly declared rent received from property taken on leave & licence basis under the head 'income and house property' while the said income is required to be brought to tax under the head 'Income from other sources'. It was submitted that the deduction u/s. 24(1) was wrongly claimed by the assessee. It was also submitted that for earlier year in assessee's own case the tribunal has deleted the penalty for AY 2003-04 in ITA no. 1213/Mum/2011 vide order dated 09.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that said M/s. Alok Textile Traders got merged with M/s. Alok Textiles Ltd. which is the main reason that the assessee could not bring the confirmation which led to the addition to the income of the assessee by the AO in quantum assessment u/s. 41(1) of the 1961 Act. The appeal filed by the assessee with Ld. CIT(A) against quantum assessment also stood dismissed and the additions attained finality as no further appeal was filed against quantum assessment by the assessee with tribunal. This led to the levy of penalty u/s 271(1)(c) by the AO against the assessee for furnishing of inaccurate particulars of income which was later confirmed by Ld. CIT(A) vide its appellate order. In our considered view keeping in view factual matrix of the case, penalty is not leviable on this ground because assessee had made acknowledgment of the debt in its audited financial statement for the year under consideration and consistently claim is made that the said liability has not ceased to exist and the assessee is liable to pay said sum to M/s ALok Textile Traders( Now Alok Textiles Limited). The assessee also made complete disclosure in the return of income filed with the Revenue as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) is exigible on the assessee and we hereby order deletion of the penalty as was levied by the AO on this issue which stood later confirmed by learned CIT(A) u/s 271(1)(c). We order accordingly. 9.2. Secondly penalty was levied by Revenue on the ground that rental income from sub-letting of premises taken on leave and license basis of 750 square feet at 2nd floor and open space of 4800 square feet on ground adjoining to the building situated at 36, Marol Co-operative Industrial Estate, Mr Vasanji Road, Andheri East, Mumbai-400059 was declared under the head 'Income from House Property' of which the assessee was not owner while the same ought to have been declared under the head 'Income from Other Sources' and the assessee has also wrongly claimed the statutory deduction u/s 24(1) of the 1961 Act. We have observed that the assessee has taken premises on leave & licence basis from its Director which was further sublet by the assessee. The income from sub-letting of the said premises was offered for taxation by the assessee under the head 'Income from House Property' and as a consequence thereto statutory deduction of 30% on account of Repair and Maintenance was also claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case has been made because of change of head of income and not because of furnishing of inaccurate particulars of income or concealment of income. It is not a case where the assessee had deliberately shown the income under a wrong head but under a bonafide belief that the income of the assessee was assessable as business income. In view of this, we do not think it to be a case for levy of penalty under section 271(1)(c) of the Act. The penalty levied by lower authorities is therefore ordered to be deleted. 5. In the result, the appeal of the assessee is hereby allowed." Thus, tribunal in assessee's own case for AY 2003-04 was pleased to delete penalty u/s 271(1)(c) by holding that there was no furnishing of inaccurate particulars of income nor there was concealment of income when the head of income to assess income was changed from business income to Income from House Property. We have also observed that the AO while framing assessment for AY 2002-03, 2004-05 to 2006-07 vide separate assessment orders for all these years all dated 29.10.2009 passed u/s. 143(3) r.w.s. 147 of the 1961 Act, has assessed the said income under the head 'income from house property' and statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were underway on 26.09.2009 (date when assessee filed return of income for impugned assessment year) wherein the Revenue was intending to bring to tax said income under the head 'Income from House Property', thus there was a bonafide reasons before the assessee to declare said income under the head 'Income from House Property' as the Revenue for earlier years were attempting to bring said income to be assessed as income from house property and the assessee was agreeing for earlier years for the said income to be assessed as income from house property during reassessment proceedings to avoid any further litigation with Revenue. Thus, obviously with a view to avoid litigation for the year under consideration, the assessee filed return of income on 26.09.2009 declaring rental income from sub-letting as income from house property despite the fact that the assessee being not owner of the said property. The explanation put forward by the assessee is bonafide which takes it out from the clutches of penalty provisions as are contained in Section 271(1)(c) of the 1961 Act, and we hereby order deletion of the penalty levied by the AO u/s. 271(1)(c) of the Act. Thus, on both the counts on m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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