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2019 (5) TMI 421

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..... Textile Traders ( Now Alok Textiles Limited) to unravel truth. AO has not brought any cogent incriminating material to prove that the assessee has obtained any benefit as is contemplated u/s. 41(1). The assessee has rightly relied on the decision of ITAT, Mumbai benches in the case of Shiva Pigments Private Limited v. ITO [2012 (10) TMI 861 - ITAT MUMBAI] - thus no penalty u/s 271(1)(c) is exigible on the assessee Income from sub-letting of the premises - income from house property or income from other sources - bonafide belief - dispute regarding taxability of head of income in respect of sub-letting is going on - HELD THAT:- Obviously with a view to avoid litigation for the year under consideration, the assessee filed return of income on 26.09.2009 declaring rental income from sub-letting as income from house property despite the fact that the assessee being not owner of the said property. The explanation put forward by the assessee is bonafide which takes it out from the clutches of penalty provisions as are contained in Section 271(1)(c) and we hereby order deletion of the penalty levied by the AO u/s. 271(1)(c) of the Act. - Decided in favour of assessee. - I.T.A. No. .....

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..... n of ₹ 2,31,775/- under section 41(1) of the Act and upon merely change of head of income in respect of ₹ 10,98,000/-. He ought not to have done so. Your appellants crave leave to add, alter or modify any or all of the foregoing ground of appeal, if required. 3. The brief facts of the case are that the assessee s major source of income declared in return of income filed with Revenue is Income from House Property of ₹ 10,98,000/- and other income of the assessee were from other sources of ₹ 39,637/- from electricity and water charges receipts. 4. The assessee had shown sum of ₹ 2,31,775/- under the head Sundry Creditors payable to M/s. Alok Textile Traders in its Balance Sheet as at 31.03.2009. The assessee was asked by the AO to file confirmation from the aforesaid party. The assessee was not able to file confirmation from the said party which led the AO to hold that the assessee could not prove genuineness of the said creditor which led AO to make additions to the income of the assessee in quantum assessment to the tune of ₹ 2,31,775/- u/s 41(1) of the 1961 Act, vide assessment order dated 30.11.2011 passed by the AO u/s. 143(3) of the 1961 Act. .....

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..... under the head Income from other sources and deduction u/s 24(1) was also denied to the assessee, vide assessment order dated 30.11.2011 passed by the AO u/s 143(3) of the 1961 Act. This led to the invocation of penalty proceeding u/s. 271(1)(c) of the 1961 Act for furnishing of inaccurate particulars of income. In the mean time quantum addition were challenged by the assessee before the Ld. CIT(A) which appeal of the assessee stood dismissed by Ld. CIT(A) vide appellate order dated 30.10.2012 wherein learned CIT(A) held that the assessee is not eligible for deduction u/s 24(1) of the 1961 Act as the assessee is not the owner of the property. This also led to the levy of penalty u/s. 271(1)(c) for furnishing of inaccurate particulars of income and explanation furnished by the assessee stood rejected by the AO, vide penalty order dated 28.03.2014 passed by the AO u/s 271(1)(c) of the 1961 Act. 5. Aggrieved by the penalty order dated 28.03.2014 passed by the AO u/s 271(1)(c) of the 1961 Act, the assessee filed first appeal before learned CIT(A) which stood dismissed by learned CIT(A) on both the grounds vide appellate order dated 01.11.2016, by holding as under:- Only ground is levy .....

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..... me. Our attention was drawn to page 5/paper book filed by the assessee with tribunal, wherein notice dated 30.11.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act is placed. It was submitted that the relevant column /limb under which penalty proceedings were invoked is not struck off in the said penalty notice dated 30.11.2011 issued by the AO u/s 271(1)(c) of the 1961 Act. On merit, it was submitted that there were additions made to income of the assessee on account of cessation of liability u/s. 41(1) of the 1961 Act to the tune of ₹ 2,31,775/- on the ground that the assessee could not furnish confirmation from the creditors which led AO to conclude that the aforesaid sundry creditors is not genuine. It was claimed that the assessee s appeal before learned CIT(A) in quantum stood dismissed and the assesee did not challenge additions in quantum before ITAT. It was submitted that full particulars were disclosed in the return of income filed with the revenue. It was submitted that no cogent incriminating material was brought on record by the AO to prove that the assessee has deliberately furnished inaccurate particulars of income. Our attention was draw .....

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..... 011 for AY 2003-04, vide appellate order dated 09.02.2015 wherein the rental income was held to be chargeable to tax under the head Income from House Property as against offered to tax by the assessee under the head Profits and Gains of Business or Profession by the authorities below and it was held by tribunal that no penalty can be levied u/s 271(1)(c) for merely change of head under which income was assessed vis-a-vis the head of income under which the income was offered to tax by the assessee. It is claimed by the assessee, thus, no penalty can be levied u/s 271(1)(c) in the case where there is merely a change of head of income in which income was brought to tax by the authorities vis-a-vis head of income in which income was offered to tax by the assessee.The said order of the tribunal is placed in paper book/page 83-85. Our attention was also drawn to assessment order(s) for AY 2002-03, 2004-05 to 2006-07 passed by the AO u/s 143(3) read with Section 147 of the 1961 (placed in paper book/page 75-82) in assessee s own case, wherein consistently the authorities are bringing to tax rental income under the head Income from House Property and deduction u/s 24(1) was allowed. The as .....

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..... of the 1961 Act but it was submitted by learned DR that the tribunal had not dealt with issue of wrong claim of deduction u/s. 24(1) of the 1961 Act in the said order. 8. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the additions to the income of the assessee were made by the AO in quantum assessment on two counts, firstly u/s 41(1) of the 1961 Act towards an amount of ₹ 2,31,775/- shown to be payable by the assessee in its audited financial statements to M/s Alok Textile Traders as on 31.03.2009, on the ground that the said liability is not genuine and had ceased to exist as the assessee was not able to produce confirmation from the said party before the AO. The assessee claimed that the said Alok Textile Traders stood merged with M/s Alok Textiles Limited and it was cited as one of the reasons by the assessee for not getting confirmation from the said party. The said sum of ₹ 2,31,775/- was, however, duly reflected in its audited financial statements of the assessee company for the year ended 31.03.2009 as payable to M/s. Alok Textile Traders and also in the immediately preceding year ending 3 .....

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..... accounts. The auditors have also not made any adverse comments as to the subsistence of this liability. Merely because the contentions of the assessee stood dismissed by the Revenue in quantum assessment wherein additions to income were made u/s 41(1) of the 1961 Act on the grounds that said liability has ceased to exist, levy of penalty u/s 271(1)(c) is not automatic. The assessee is claiming the said amount is still payable and the aforesaid amount is duly reflected in its audited financial statement for year ended 31.03.2009 as payable by the assessee to said concern which is acknowledgment of debt by the assessee. Since the assessee was not able to bring conformation from the said party could be a valid reason and justification for making additions to the income of the assessee in quantum assessment by the AO but that is not sufficient to levy penalty u/s 271(1)(c) as the burden on Revenue under penalty provisions are on higher pedestal. The assessee has offered an explanation which is a bonafide explanation as to existence of its liability to said concern as on 31.03.2009 which is also reflected to be payable in its books of accounts. The assessee did discharge its burden as i .....

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..... mises which is a statutory condition u/s. 22 of the Act to bring the rental income to tax under the head Income from House Property . This led the AO to bring the said income from sub-letting of the aforesaid property taken by the assessee on leave and license basis to tax under the head Income from other sources and consequentially deduction u/s. 24(1) of the 1961 Act was also denied to the assessee by the AO in quantum assessment. The Ld. CIT(A) later confirmed the decision of the AO by dismissing the appeal of the assessee on this ground and matter reached finality as no appeal was filed by the assessee against quantum additions before ITAT. It is also observed that in assessee s own case for AY 2003-04, the said income was offered to tax by the assessee under the head Profits and Gains from Business of Profession in the return of income filed with the Revenue but the authorities below treated the said income as Income from house property and penalty u/s 271(1)(c) of the 1961 Act was levied on the change of head of income under which the income was held to be taxable, while framing assessment. The ITAT was pleased to delete the penalty levied by the AO u/s 271(1)(c) which was la .....

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..... sessee in return of income filed for all these years ( refer page 75-82/pb). The assessee for impugned assessment year also declared the said rental income from sub-letting as income from house property and claimed deduction u/s 24(1) of the 1961 Act, so there was a bonafide belief on the part of the assessee in bringing to tax said income to tax under the head Income from house property while filing return of income which led assessee to offer the said income under the head Income from house property despite the fact that the assessee was not owner of the said property and consequential deduction u/s. 24(1) were also claimed by the assessee because reassessment proceedings for all these years AY 2002-03, 2004-05 to 2006-07 were underway when the assessee filed return of income for impugned assessment year viz. AY 2009-10. No doubt since the assessee was not owner of the premises, the AO had a valid reason for changing head of income while making quantum assessment by bringing the said income chargeable to tax under the head Income from other sources instead of being treated as Income from House Property and consequential denial of deduction u/s 24(1) of the 1961 Act but merely bec .....

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