TMI Blog2011 (7) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA No.792 of 2011 - - - Dated:- 11-7-2011 - MR. JUSTICE A.K. SIKRI, MR. JUSTICE M.L. MEHTA, JJ. For Appellant: Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. For Respondent: Mr. Deepak Chopra, Advocate. A.K. SIKRI, J. 1. This appeal was admitted on the following substantial questions of law: (1) Whether the Income Tax Appellate Tribunal was justified in law in holding that the assessee was liable for penalty of ₹ 17,82,078/- under Section 27(1)(c) of the Income Tax Act, 1961? (2) Whether the Income Tax Appellate Tribunal was justified in law in confirming imposition of penalty under Section 27(1)(c) of the Income Tax Act, 1961 despite the fact that addition has been made on the basis annual value estimated by the registered valuer? 2. As is clear from the aforesaid questions, the assessee has been fastened with the penalty under Section 271(1)(c) of the Income Tax Act (hereinafter referred to as the Act‟) by the Assessing Officer, which has been upheld by the CIT(A) as well as the Income Tax Appellate Tribunal ( the Tribunal‟ for brevity). This penalty was imposed under the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee at ₹ 52,94,352. The AO adopted the annual value of the aforesaid premises at ₹ 75,63,360/- as determined by the registered valuer in the report dated 26.11.2008. After deducting ₹ 22,69,008/- under Section 24(a) of the Act, the AO made net addition of ₹ 52,94,352/-. The AO also initiated penalty proceedings under Section 271(1)(c) of the Act. Show cause notice was issued under Section 271(1)(c) read with Section 274 of the Act to the assessee to show cause as to why an order imposing penalty under Section 271(1)(c) of the Act be not passed. The assessee filed a reply before the AO. During the penalty proceedings under Section 271(1)(c) of the Act, the assessee submitted before the AO that since the assessment was made on the notional income i.e. the fair market value of the property determined by the registered valuer and the same was admitted during the course of the assessment proceedings, the penalty proceedings should be dropped. The AO imposed penalty of ₹ 17,82,078/- under Section 271(1)(c) of the Act by an order on account of tax allegedly sought to be evaded. 5. The CIT(A) confirmed the levy of penalty under Section 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iates the assessee‟s contention that there was no intention of the assessee to conceal any particulars of income. Furthermore, the assessee had duly shown the security deposit of ₹ 67 Crores received by the lessee i.e. Bank of Punjab Limited in the audited annual accounts under the head Current Liabilities and has also given necessary disclosures under the notes to accounts. The aforesaid facts, goes to prove the bona fide act of the assessee, as such on the facts of the instant case, non-penalty under Section 271(1)(c) of the Act was exigible. 9. Thus, the basic contention of Mr. C.S. Aggarwal, learned Senior Counsel appearing for the assessee was that it was not a case of concealment of income or furnishing wrong particulars. Annual rental value shown on the basis of Lease Agreement which recorded the rent at which premises were let out. It was clearly a bona fide move. On the other hand, annual rental value adopted by the AO was notionally arrived at. In support of his submission, the learned counsel referred to and relied upon the following judgments of the Supreme and this Court and submits that in a case like this, no penalty was sustained: (1) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as determined under this sub-section shall, - (a) In the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed before the 1st day of April, 1970, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of (i) In respect of any residential unit, whose annual value as so determined does not exceed six hundred rupees, the amount of such annual value; (ii) In respect of any residential unit whose annual value as so determined exceeds six hundred rupees, an amount of six hundred rupees; (b) In the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed after the 31st day of March, 1970, but before the 1st day of April, 1978, for a period of five years from the date of completion of the building, be reduced by a sum equal to aggregate of (i) In respect of any residential unit whose annual value as so determined does not exceed one thousand two hundred rupees, the amount of such annual value; (ii) In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt so received or receivable shall be taxed. Thus, it is the higher of the two which is chargeable to tax. Along with this specific provisions under Section 23, there is no defence of the assessee that disclosing the annual rent as the annual letting value for the purposes of tax was bona fide. In the instant case, the assessee had entered into an agreement to lease out the property to Punjab National Bank Ltd. on a sum of ₹ 1 lac per annum. The total area of constructed building leased out by the assessee is given in second schedule to the Lease Agreement, which is 1,23,490 sq. ft. The approved valuer has valued the annual letting value of total constructed area of 1,23,490 sq. ft. at ₹ 75,63,360/ 13. Interestingly, when the AO found that the sum of ₹ 67 Crores was taken as interest free security and in these circumstances, the property would reasonably expect adjustment of rent than mentioned in the Lease Agreement and the assessee was called upon to give the valuation. The assessee himself filed the annual letting value by the approved valuer of total constructed area of 1,23,490 sq. ft. at ₹ 75,63,360/-. This was done at the instance of the AO when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout any interest. The assessee had let out 1,23,490 sq. ft. of the area to Punjab National Bank for a sum of ₹ 1 lac, which gives annual rent per sq. ft. at ₹ 0.80/-. It is unbelievable that the annual letting value of any property in city like Gurgaon will be at the rate of ₹ 0.80 per sq. ft. The assessee was aware of its annual letting value because of which he had taken interest free advance of ₹ 67 Crores which has been diverted free of interest to sister concerns. Had this money been put in fixed deposit @ 8%, the assessee would have received interest of ₹ 5,36,00,000/- per annum. If the assessee had offered any income from security deposits or invested in its own business, it would have been argued for the purpose of penalty under Section 271(1)(c) of the Act that the assessee was under bona fide belief to admit income as per Lease Agreement, though the income of the house property was to assessed as per provisions of Clause (a) of Section 23(1) of the Act. The assessee preferred to divert the security deposits of ₹ 67 Crores to group concerns free of interest. The assessee‟s valuer has valued annual letting value of the property a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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