Income Tax Appellate Tribunal - Mumbai
Prolific Consultancy Services ( Mumbai ... vs Department Of Income Tax on 18 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri Vijay Pal Rao, Judicial Member and
Shri D. Karunakara Rao, Accountant Member
ITA No.2731, 2732 and 2733/Mum/2013
(Assessment year: 2004-05, 2005-06 and 2006-07)
Income tax Officer M/s. Prolific Consultancy
Ward 8(2)-4 Services (Mumbai) Pvt. Ltd.
Room No.213/216A, 2nd Floor Vs. Wilson House, Nagardas Road
Aayakar Bhavan, M.K. Road Andheri (E)
Mumbai-400 020. Mumbai-400 069.
(Appellant) (Respondent)
Permanent Account No. : AACCP 5402 E
Assessee by : None
Revenue by : Shri Shrikant Namdeo
Date of hearing : 10/07/2014
Date of Pronouncement : 18/07/2014
ORDER
Per Vijay Pal Rao, Judicial Member:
These three appeals by revenue are directed against the composite order of the CIT(A) dated 15/01/2013 arising from respective penalty orders passed under section 271(1)(c) for the assessment years 2004-05, 2005-06 and 2006-07. The revenue has raised common grounds in these appeals. The ground raised for the assessment year 2004-05 are as under :-
"1. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the penalty levied u/s 271 (1 )(c) of the Act without appreciating that the assessee had failed to rebut the presumption in Explanation-1 of section 271 (1 )(c) of the Act."2 ITA No.2731 -2733/M/13
AY:04-05 to06-07
2. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the penalty u/s 271 (1 )(c) of the Act without appreciating that the assessee had failed to prove that the rental income from the property had arisen due to systematic activity which is fundamental ingredient of business
3. On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in deleting the penalty levied u/s 271 (1 )(c) of the Act without appreciating that the assessee had claimed the rental income under the head business with the intention to set off various expenses which were not allowable under the head Income from House Property
4. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored."
2. We have heard the ld. DR and carefully perused the relevant material on record. Nobody has appeared on behalf of the assessee respondent despite serving of notice of the hearings of these appeals. Therefore, we propose to hear and adjudicate these appeals exparte.
3. The assessee is a Private Ltd. Company and in the business of acquiring property on lease and sub-leasing property to various parties with a view to earn profit. The assessee enters into various agreements with lessor on one hand and sub-leases on the other hand. During the course of assessment proceedings the AO noted that the assessee has let out house property and received rent of Rs.63,21,694/- which was offered to tax under business income. After claiming various expenses an income of Rs.7,79,022/- was offered to tax. The AO did not accept the working of the assessee and assessed the rental income under the head income from house property and consequently the additions were made in all three years which are identical in nature except the quantum of addition. The AO also initiated penalty proceedings under section 271(1)(c) of the Income tax Act.
3 ITA No.2731 -2733/M/13AY:04-05 to06-07
4. The assessee objected the levy of penalty and filed reply to the show cause notice. The AO did not accept the explanation and reply of the assessee and levied penalty of Rs.6,81,543/-, Rs.9,81,275/- and Rs.12,43,968/- for the assessment years 2004-05, 2005-06 and 2006-07 respectively. The assessee challenged the action of the AO before the CIT(A). CIT(A) noted that the expenditure disallowed by AO was because of change of head of income and not because of incorrect or concealment of particulars regarding the expenses. Accordingly CIT(A) by following the decision of this Tribunal dated 27/07/2011 in the case of M/s. Eurolink Trading Pvt. Ltd. vs. ITO in ITA No.2925/Mum/10 as well as the decision of Hon'ble Supreme Court in the case of Reliance Petro Products (322 ITR
158) held that disallowance of claim of expenditure would not attract penalty under section 271(1)(c) of the Act. Hence¸ CIT(A) deleted the penalty levied by the AO. The ld. DR has vehemently relied upon the order of the AO and submitted that in view of the Explanation to Section 271(1)(c), the assessee has failed to prove the claim of business income as bonafide. Accordingly the AO is justified in levying the penalty when the assessee had full knowledge of the fact that subject income is assessed to tax as income from house property and making a claim of business income was with the clear intention to avoid tax liability.
5. Having considered the submissions of the ld. DR as well as orders of the authorites below, we note that the assessee is in the business of taking property on lease basis and further leasing out on sub-lease. The income arising from its activity was treated by assessee as business income. The AO noted that the assessee had no business income during these years but the only income is the rental income from letting out the properties. There is no dispute that the assessee has disclosed the source of income and business activity of the assessee company however, the AO did not accept the claim of the assessee regarding rental income as business income and assessed the same as income from house 4 ITA No.2731 -2733/M/13 AY:04-05 to06-07 property. It is not a case of bogus claim of expenditure or the claim of rental income as business income as absolutely impermissible under the law. When the assessee is in the business of taking the property on lease and further leasing out the same then treating the rental income as business income is a bonafide claim of the assessee though the same was not accepted by the AO. The issue of treatment of rental income as income from house property is highly debatable issue and rejection of such claim by the AO by taking a different view does not ipso facto lead to the conclusion that the assessee has furnished inaccurate particulars of income or concealed the particulars of income. There is no change in quantum gross income of the assessee and expenditure claimed by the assessee were disallowed by AO only because of the reason of assessment of rental income as income from house property. Therefore, rejection of such a claim would not tantamount to concealment of particulars of income or furnishing of inaccurate particulars of income warranting levy of penalty. In the recent decision in the case of CIT vs. Benett Coleman (215 taxmann 93) the Hon'ble Jurisdictional High Court has observed in para-3 as under :-
"3. So far as question (ii) is concerned, the respondent- assessee had claimed premium on redemption of debentures as income from capital gains. Whereas the assessing officer held that the redemption of debentures is revenue receipt assessable to tax under the head income from other sources. The CIT(A) confirmed the order of assessing officer. The respondent- assessee did not file any further appeal on the quantum proceedings. Thereafter, assessing officer levied penalty under section 271(1)(c) of the Act on the respondent- assessee. The CIT(A) also confirmed the levy of penalty upon the respondent- assessee . On further appeal, the Tribunal held that there is no dispute with regard to the fact that the respondent- assessee had disclosed that the amount received as premium on redemption of debentures in its computation of income. Further, the Tribunal records that it is not the case of the department that the respondent-assessee had concealed any particular of income or furnished inaccurate particulars of income by stating incorrect facts. The assessing officer considered the said premium received on redemption of debentures to be taxable under the head income from other sources while the respondent 5 ITA No.2731 -2733/M/13 AY:04-05 to06-07 assessee considered the same to be taxable under the head capital gains. In view of the fact that there is only a change of head of income and in the absence of any facts that the claim of the assessee was not bonafide, the Tribunal deleted the penalty imposed u/s. 271(1)(c) of the Act. The Revenue has not been able to point out that the finding of the Tribunal is perverse. In these circumstances, we see no reason to entertain the proposed question (ii).
6. In the case in hand the assessee has furnished and disclosed all relevant particulars regarding the income from letting out of the property. Therefore, the assessment of income under a different head by the AO resulting in disallowance of expenditure would not justify levy of penalty under section 271(1)(c) particularly when the assessee is in the business of taking the property on lease and then letting out the same on sub-lease. In view of the above facts and circumstances as well as the decision of Hon'ble Jurisdictional High Court in the case of Benett Coleman (215 taxmann 93) (supra), we do not find any error or illegality in the impugned order of the CIT(A) in deleting the penalty.
7. In the result, appeals of the revenue are dismissed.
Order pronounced in the open court on 18th July, 2014.
Sd/- Sd/-
(D. KARUNAKARA RAO) (VIJAY PAL RAO )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 18/07/2014.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
ByOrder
Dy/Asstt. Registrar, ITAT, Mumbai.