2016 (9) TMI 1001 - AT - Income Tax

Levy of penalty u/s. 271(1)(c) - eligible for deduction u/s. 80IB(10) - Held that - It is a well settled law that where the issue is debatable penalty cannot be levied. In the case of assessee the Tribunal has held the additional income declared by assessee on account of extra sale consideration to be assessed under the head Income from other sources . Whereas there are decisions of the Tribunal where on-money declared during search was held to be business income and the assessee was allowed to claim benefit of deduction u/s. 80IB(10) on such income disclosed. In such circumstances no penalty can be levied where two different views have been taken and the issue becomes debatable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of multiple penalty orders for the same assessment year.
2. Eligibility of additional income for deduction under Section 80IB(10) of the Income Tax Act.
3. Classification of additional income as 'Income from other sources' or 'Business income'.
4. Debatability of the issue as a ground for penalty cancellation.

Detailed Analysis:

1. Legality of Multiple Penalty Orders:
The assessee contended that there cannot be two penalty orders for the same offense for the same assessment year. The initial penalty order levied Rs. 1,95,248 under Section 271(1)(c) based on the Commissioner of Income Tax (Appeals)'s order reducing the addition to Rs. 6,50,828. However, after the Tribunal restored the original addition of Rs. 19,77,000, a second penalty order levied Rs. 6,10,893. The Tribunal concluded that the first penalty order should be annulled since the order of Commissioner of Income Tax (Appeals) merged with the Tribunal's order. Thus, the appeal of the assessee was allowed, and the first penalty order was set aside.

2. Eligibility of Additional Income for Deduction under Section 80IB(10):
The assessee argued that the additional income of Rs. 19,77,000, admitted during the survey as extra sales consideration, should be eligible for deduction under Section 80IB(10) as it pertains to the housing project. The Tribunal noted that similar cases, such as Malpani Estates and Madhav Corporation, allowed the deduction under Section 80IB(10) for on-money received on housing projects. The Tribunal recognized that the additional income declared during the survey was related to the housing project and thus was eligible for deduction under Section 80IB(10).

3. Classification of Additional Income:
The assessee contended that the additional income should be classified as 'Business income' rather than 'Income from other sources'. The Tribunal referred to previous judgments where on-money from housing projects was treated as 'Business income' eligible for Section 80IB(10) deductions. The Tribunal found that the issue of whether the additional income should be classified as 'Income from other sources' or 'Business income' was debatable.

4. Debatability of the Issue as a Ground for Penalty Cancellation:
The Tribunal emphasized that when an issue is debatable, penalty under Section 271(1)(c) cannot be levied. Given the conflicting views on whether the additional income should be treated as 'Business income' or 'Income from other sources', the Tribunal held that the issue was debatable. Citing precedents, the Tribunal concluded that penalty could not be imposed on a debatable issue and thus set aside the penalty order.

Conclusion:
The Tribunal allowed both appeals of the assessee, setting aside the penalty orders. The Tribunal recognized the debatable nature of the classification of additional income and the eligibility for deduction under Section 80IB(10), thus ruling against the imposition of penalties.