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TMI Blog2012 (7) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year (A.Y.) 2004-05. 2.1 It would be relevant to recount the background facts of the case leading to the confirmation of the penalty by the first appellate authority. The assessee is a company engaged in the business of jewellery, with a show-room at M.I. Road, Jaipur. It returned its income for the year at Rs. 7,88,693/- on 1-11-2004, i.e., at a business loss of Rs. 11.21 lacs and a positive income from house property at Rs. 19.10 lacs, duly supported by financial statements, viz. the profit and loss, balance sheet, etc. The only deduction claimed from the rental income of Rs. 27.28 lacs was for standard deduction u/s. 24(a) at Rs. 8.18 lacs. The return was processed as such u/s. 143(1)(a) on 30-12-2004. Subsequently, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been closed down, and it was a case of only a temporary lull therein, having been finally started in the year relevant to the assessment year 2006- 07. The rental income from the business premises was thus only a business income, even as held, amongst others, in the case of CIT vs. Kohinoor Tobacco Products (P.) Ltd. (2006) 283 ITR 162 (M.P.), wherein it stood held that the rental income from some gowdowns of the business premises, let out temporarily, is only a business income by way of their commercial exploitation and to mitigate the costs of the business experiencing a lull. The assessee's income was thus finally assessed at Rs. 16.07 lacs, i.e., by disallowing its claim for standard deduction u/s. 24(a) at Rs. 8.18 lacs, as busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order u/s. 263 of the Act. The assessee had itself claimed interest as business expenditure, being admittedly only against construction/repair/renovation of the house property, a business asset, which was though for the time being unable to be used as such and, accordingly, let out, i.e., to the extent lettable. Therefore, merits apart, the question as to whether the rental income is business income or from house property was incidental and germane to the issue at hand; it itself justifying the claim for other business expenses also, on the ground that the same represented a temporary lull in business, which was not fully stopped; in fact, by placing reliance on the very decision on which the first appellate authority based his decision (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AR taking us through the P&L a/c for the relevant year (PB pg. 23), which bears only nominal expenses, i.e., apart from the interest expense at Rs. 9.34 lacs. The claim for repairs u/s. 30, it may be noted, is only qua current repairs, while no such qualification attends the claim for standard deduction u/s. 24(a). Again, it would have a different matter if the assessee is entitled to either, i.e., deduction on account of interest or standard deduction, so that it sought to press the interest claim as a business expense to be able to claim standard deduction against property income and, thus, make a claim which was legally untenable, and for which it had thus no explanation other than a lower tax incidence. Rather, we would think that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the instant case was, a mixed question of fact and law, and the non-acceptance of the assessee's claim in quantum proceedings would not make it any less a honest claim. Would, for example, one may ask, the decision by the hon'ble court in the case of CIT vs. Kohinoor Tobacco Products (P.) Ltd. (supra), holding the rental income to be assessable as business income, render the claim of the assessee in that case as false, liable for penalty? It is for these reasons that the higher courts of law have disapproved of the levy of penalty where the issue, though decided against the assessee in quantum proceedings, is debatable or contentious. That the assessee's claim bears a lower incidence of tax is a matter incidental, and by itself of no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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