TMI Blog2011 (2) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the decision of Hon'ble Delhi High Court in the case of Zoom Communication (P.) Ltd. (2010 -TMI - 75987 - DELHI HIGH COURT) -In view of above discussion in our considered opinion ld CIT(A) was justified to confirm penalty u/s 271(1) of the Act. - 1536 (DELHI) OF 2010 - - - Dated:- 4-2-2011 - R.P. TOLANI, K.D. RANJAN, JJ. Ajay Vohra for the Appellant. Ms. Banita Devi Naorem for the Respondent. ORDER K.D. Ranjan, Accountant Member. This appeal by the assessee for assessment year 2006-07 arises out of order of the ld. CIT (Appeals)-XVII, New Delhi. 2. The grounds of appeal raised by the assessee, read as under:- "1.1 That on the facts and circumstances of the case the CIT (Appeals) erred in confirming the action of the assessing officer in levying penalty of Rs.17,82,078 under section 271(1)(c) of the Income-tax Act, 1961 ('the Act') on account of income derived from the property which was let out to M/s. Bank of Punjab Ltd.; 1.2 That on the facts and circumstances of the case and in law, the CIT (Appeals) failed to appreciated that the order passed under section 271(1)(c) is beyond jurisdiction and bad in law, as no satisfaction as required in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This annual rental value of Rs.75,63,360/- was admitted by the assessee as fair rental value of the property under section 23 of Income-tax Act, 1961. Accordingly, the AO adopted the annual letting value of the premises at Rs.75,63,360/- as against Rs.1,00,000/- declared by the assessee in its return of income. The AO on the basis of annual value of Rs.75,63,360/-determined the income from house property at Rs.52,94,352/- after allowing eligible deductions. He also initiated penalty proceedings under section 271(1)(c) of the Act. 4. During the course of penalty proceedings it was submitted by the assessee that the addition was made on the basis of notional income i.e. fair rental value of the property and the same was admitted during the course of assessment proceedings. Therefore, penalty should not be imposed. This contention of the assessee was not accepted by the assessing officer on the ground that the assessee had not given any explanation supported by proper explanation regarding his conduct in not disclosing the correct rent of the property. The assessee has failed to furnish supportive evidence in respect of rent shown by it. Instead the assessee accepted the valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty from year to year. The ld. CIT (A) further noted that the assessee had taken interest-free deposits of Rs.67 crores against the said property. The amount was advanced to group companies as interest-free loan and advances on which no interest had been shown to have received by the assessee as no income was offered for taxation on account of utilization of Rs.67 crores. As per the normal practice in the property market the landlords take interest-free deposit of amount equal to two to three months. The advance taken at Rs.67 crores was rent equivalent to Rs.6,700 years of rent. The ld. CIT (A), therefore, resorted to decision of Hon'ble Supreme Court in the case of Mc Dowells Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 for the proposition that the tax avoidance by adopting dubious methods could not be encouraged. Section 23 of the I. T. Act makes it obligatory on the part of an assessee to offer the income from the house property on the basis of expected market rent, if the actual rent received was lower than market expectation. Since assessee's returns of income for earlier years were accepted under section 143(1) of the Act the AO had no occasion to examine the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 Taxman 575 for the proposition that where building constructed by the lessee from his own funds and lessee was using the said premises at a very low rent, the payment of low rent was on account of the reason that the investment made in construction by the lessee belonged to the lessor. It was also submitted that Punjab National Bank, the lessee has claimed in the return of income the rent paid to assessee at Rs.1,00,000/- per annum. Entire details were available on record and, therefore, there is no concealment of income and, therefore, penalty could not be imposed. He also submitted that the payment of security deposit at Rs. 67 crores was shown as liability and, therefore, there was complete disclosure of the facts in the accounts. He further submitted that whether the income from house property will be at Rs.1,00,000/- per annum or at Rs. 75,63,360/- is a debatable issue and, therefore, penalty cannot be imposed under section 271(1)(c) of the Act. 8. On the other hand, the ld. Sr. DR submitted that assessment in this case was made under section 143(1) of the Act. If the case was not selected for scrutiny the assessee would have avoided tax payable on income from house proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would vest in lessor, it would not justify the lower payment of rent. Hence, the decision of Hon'ble Supreme Court is distinguishable on facts. 10. Section 23 of Income Tax Act which defines the scope annual value of house property reads as under: "23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable." From the plain reading of clause (a) and (b) it is clear that annual letting value of the property will be the sum for which the property might reasonably be expected to let from year to year. Only in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich gives annual rent per sq. ft. at Rs 0.80. It is un-believable that the annual letting value of any property in city like Gurgaon will be at the rate of Rs 0.80 per sq. ft. The assessee was aware of its annual letting value because of which he had taken interest-free advance of Rs.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 Rs.5,36,00,000/- per annum. If the assessee had offered any income from security deposits or invested in its own business it could have been argued for the purposes of penalty u/s 271(1)(c) that the assessee was under bonafide 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 Rs 67 crores to group concerns free of interest. The assessee's valuer has valued annual letting value of the property at Rs.75,63,360/- which has been accepted by the assessee and the same has not been agitated before the appellate authorities. Therefore, the annual letting value of the property at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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