2023 (3) TMI 1224 - AT - Income Tax

Penalty u/s 271(1)(C) - rent paid by the developer on behalf of the assessee for alternative accommodation during the development period - AO noticed that rent was paid by the developer on behalf of assessee for alternative accommodation for the development period and the said income was not considered by the assessee at the time of filing of return of income as he thought that the said amount directly paid by the third party by the developer and the ld. AO added the amount in the hands of assessee HELD THAT - As considering the co-ordinate bench judgement in the case of Smt. Delilah Raj Mansukhani 2021 (3) TMI 252 - ITAT MUMBAI as held that compensation received by the assessee towards displacement in terms of development agreement is not a revenue receipt and constitute capital receipt in the hands of assessee as the property has gone into re-development - we set aside the findings of the ld. CIT(A) on this issue and direct the AO to delete the addition - Accordingly, the ground is allowed. Penalty u/s 271(1)(c) we find that in the case of assessee, AO cannot impose penalty on the sum being rent paid by the developer on behalf of the assessee for alternative accommodation during the development period as the amount paid by the developer to the assessee could not be taxed in the hands of land owner/assessee in terms of the above order. Therefore, the initiation of penalty proceeding itself is bad in law. In such a situation impugned order passed by the ld. CIT(A) cannot be sustained, accordingly, we set aside the same and delete the penalty imposed by the AO. Appeal of the assessee is allowed.

Summary

Issues Involved:
The judgment involves issues related to penalty imposition under section 271(1)(c) of the Income Tax Act, 1961, for non-disclosure of rental income, and the validity of the penalty imposed.

Issue 1 - Jurisdiction of Penalty Imposition:
The appeal was against the order of the Commissioner of Income-tax, Appeals, NFAC, Delhi, regarding the penalty of Rs.4,56,362 imposed under section 271(1)(c) of the Act. The grounds of appeal included challenges to the jurisdiction, legality, and validity of the penalty.

Details:
The assessee, an individual with income from capital gains and other sources, entered into a Joint Development Agreement (JDA) with a developer. The Assessing Officer (AO) initiated penalty proceedings as the assessee failed to disclose rent of Rs. 79,500 paid by the developer for alternative accommodation. The AO added this amount to the assessee's income, leading to the penalty imposition.

Issue 2 - Justification for Penalty Imposition:
The primary contention was that the rent paid by the developer was in the nature of a capital receipt and not taxable income. The assessee had already paid taxes on this amount during assessment proceedings, treating it as income. Therefore, the penalty imposition was argued to be unjustified.

Details:
The assessee argued that the rent received was compensation for family displacement and should be considered a capital receipt. Referring to a similar case, the assessee contended that such compensation is not taxable as it is a hardship allowance. The Tribunal, following a co-ordinate bench decision, held that the compensation received was not a revenue receipt but a capital receipt, thus not subject to tax.

Conclusion:
The Tribunal set aside the penalty imposed by the AO, stating that the rent paid by the developer could not be taxed in the hands of the assessee. The decision was based on the nature of the compensation received, considering it as a capital receipt. As a result, the appeal of the assessee was allowed, and the penalty was deleted.

This summary provides a detailed overview of the judgment, focusing on the issues raised, arguments presented, and the final decision of the Appellate Tribunal ITAT KOLKATA.