Hemalatha, CHENNAI V. ITO, CHENNAI

ITA 1029/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7898 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 05-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B. SAHADEVAN
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , ! '#.. $ %!& , ( )* BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ! ./ ITA NO.1029/MDS/2016 + ,+ /ASSESSMENT YEAR: 2011-12 SMT. HEMALATHA, 41, GIRI ROAD, T. NAGAR, CHENNAI-600 017. VS. THE INCOME TAX OFFICER, NON-CORPORATE WARD-16(2), CHENNAI-600 034. [PAN: AAXPH 5291 F ] ( -. /APPELLANT) ( /0-. /RESPONDENT) -. 1 2 / APPELLANT BY : MR.D. ANAND, ADV. /0-. 1 2 /RESPONDENT BY : MR.B. SAHADEVAN, JCIT $ 1 3( /DATE OF HEARING : 05.01.2017 45, 1 3( /DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 11.01.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 4, CHENNAI, IN ITA NO.85/2014-15/AY 2011-12/CIT(A)-4 FOR THE AY 2011-1 2. ITA NO.1029/MDS/2016 :- 2 -: 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE I MPOSITION OF THE PENALTY U/S.271(I)(C) FOR AN AMOUNT OF RS.3,82,504/ - FOR CONCEALMENT OF INCOME. THE ASSESSEE IS A DIRECTOR OF M/S.INTERNAT IONAL MARITIME ACADEMY, CHENNAI, AND THE OWNER OF LET OUT PROPERTY I.E. NO.41, 2 ND FLOOR, GIRI ROAD, T-NAGAR, CHENNAI-17. FOR THE AY 2011-12 , THE ASSESSEE ADMITTED TOTAL INCOME OF RS.18,93,600/- ON 05.12.20 11 AND THE ASSESSMENT WAS COMPLETED ON TOTAL INCOME OF RS.25,0 3,520/- RESULTING AN ADDITION OF RS.12,38,005/- UNDER THE HEAD INCOME FR OM PROPERTY. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE A SSESSEE HAS ENTERED INTO A RENTAL AGREEMENT WITH M/S.INTERNATIONAL MARI TIME ACADEMY, IN WHICH THE ASSESSEE AND HER HUSBAND ARE THE DIRECTOR S AND LET OUT THE PROPERTY BELONGING TO THE ASSESSEE FOR MONTHLY RENT OF RS.2.00 LAKHS PER MONTH FOR THE MONTHS OF OCTOBER TO DECEMBER, 2010 A ND RS.4.00 LAKHS PER MONTH FROM JANUARY TO MARCH, 2011, THEREBY, THE RENTAL INCOME RECEIVED/ ACCRUED FOR THE YEAR ENDING 2011 WAS RS.1 8.00 LAKHS. AGAINST THE RENTAL INCOME OF RS.18.00 LAKHS, THE ASSESSEE H AD ADMITTED RS.6,61,800/- AND CLAIMED DEDUCTION U/S.24(A) A SUM OF RS.1,98,540/- AND INTEREST ON HOUSING LOAN AMOUNTING TO RS.5,01,6 90/-. THE NET INCOME ADMITTED BY THE ASSESSEE UNDER THE HEAD PROPERTY IN COME WAS RS.38,005/-. THE AO VERIFIED THE CLAIM OF INTEREST OF RS.5,07,655/- AND IT WAS FOUND THAT THE LOAN WAS TAKEN BY MR.SENTHIL KUM AR SPOUSE FROM CITY FINANCIAL A CONSUMER LOAN AND NOT USED FOR THE PUR POSE OF CONSTRUCTION OF THE HOUSE. THEREFORE, THE AO DISALLOWED THE CLAIM OF INTEREST U/S.24(A) AND ASSESSED THE SUM OF RS.18.00 LAKHS UNDER THE HE AD INCOME FROM ITA NO.1029/MDS/2016 :- 3 -: PROPERTY AND THE ASSESSEE HAD ACCEPTED THE ADDITION AND THE ASSESSMENT BECAME FINAL. DURING THE ASSESSMENT PROCEEDINGS, T HE AO INITIATED PENALTY U/S.271(1)(C) AND IMPOSED PENALTY U/S.271(1 )(C). THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT( A) CONFIRMED THE PENALTY HOLDING THAT THE ASSESSEE BEING A DIRECTOR OF THE COMPANY TO WHOM THE PROPERTY WAS LET OUT WAS AWARE OF THE REN TS RECEIVED OR RECEIVABLE AND THE ASSESSEE HAS NOT ADMITTED THE IN COME VOLUNTARILY AND THE RETURN WAS FILED ONLY SUBSEQUENT TO SELECTION A ND SCRUTINY AND DETECTION BY THE DEPARTMENT. 3.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED AN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL, THE LD.AR ARGUED THAT THE ASSES SEE IS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND OFFERED THE RECEI PTS/RENTS ON RECEIPT BASIS FOR THE YEAR ENDING 31.03.2011. THE ASSESSEE HAS RECEIVED THE RENTS OF RS.6,61,800/- ONLY WHICH WAS OFFERED TO TH E INCOME. IN THE SUBSEQUENT YEARS, THE ASSESSEE HAS ADMITTED THE ARR EARS OF RENTS WHICH WAS TAXED BY THE DEPARTMENT ON RECEIPT BASIS. THE ASSESSEE HAS NOT GONE ON APPEAL, ONLY WITH AN INTENTION TO AVOID LIT IGATION AND FILED RECTIFICATION PETITION IN THE SUBSEQUENT YEARS FOR REVISING THE RENTS OFFERED ON CASH BASIS OVER AND ABOVE THE INCOME ACCRUED. T HEREFORE, THE ASSESSEE WAS UNDER THE BONA FIDE BELIEF THAT ADMISS ION OF INCOME ON CASH BASIS IS CORRECT AND AS PER LAW AND THERE WAS NO IN TENTION TO CONCEAL THE ITA NO.1029/MDS/2016 :- 4 -: INCOME. ACCORDINGLY, THE LD.AR SUBMITTED THAT SINC E THE ASSESSEE WAS UNDER THE BONA FIDE BELIEF THAT THE RENTAL INCOME C AN BE OFFERED ON CASH BASIS, THERE IS NO CASE FOR PENALTY U/S.271(1)(C) A ND RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CIT VS. GEM GRA NITES REPORTED IN 86 CCH 0160, CHENNAI, HIGH COURT. ON THE OTHER HAND, THE LD.DR ARGUED THAT THE ASSESSEE HAS ADMITTED THE RENTAL INCOME ON LY AFTER SELECTING THE CASE BY SCRUTINY AND DETECTION BY THE DEPARTMENT AN D THERE IS NO VOLUNTARY ADMISSION BY THE ASSESSEE. THEREFORE, TH E LD.DR CONTENDED THAT IT IS A CLEAR CASE OF CONCEALMENT OF INCOME AN D HONBLE SUPREME COURT JUDGMENT IN THE CASE OF MAK DATA (P) LTD. VS. CIT-II IS SQUARELY APPLICABLE AND THE PENALTY NEEDS TO BE CONFIRMED. 4.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. FOR THE SOURCE OF RENTAL INCOME, THE ASSESSEE HAS FOLLOWED THE CASH SYSTEM OF ACCOUNTING AND OFFERED RENT ON RECEIPT BA SIS. THE ASSESSEE ALSO STATED BEFORE THE AO AS WELL AS THE LD.CIT(A) AND I N GROUNDS OF APPEAL THAT IT HAS OFFERED THE RENTS ON THE BASIS OF ACTUA L RECEIPTS IN THE SUBSEQUENT YEARS. THEREFORE, IT IS CLEAR THAT THE A SSESSEE HAS ADMITTED THE ENTIRE INCOME ON CASH BASIS EITHER IN THE AY UNDER CONSIDERATION OR IN THE SUBSEQUENT YEARS ON THE BASIS OF ACTUAL RECEIPTS WH ICH WAS NOT DISPUTED BY THE AO. FURTHER, NO SOONER THE AO HAS RAISED TH E ISSUE OF THE RENTS TO BE OFFERED ON ACCRUAL BASIS THE ASSESSEE HAS ADMITT ED THE RENTAL INCOME ITA NO.1029/MDS/2016 :- 5 -: AS PER THE AGREEMENT ON ACCRUAL BASIS WITHOUT GOING FOR ANY LITIGATION. THOUGH, THE RENTAL INCOME HAS TO BE ADMITTED ON ACC RUAL BASIS AS PER THE ANNUAL VALUE HAVING ADMITTED THE ENTIRE RENTAL INCO ME ON ACTUAL RECEIPT BASIS IN THE YEAR UNDER CONSIDERATION AND THE SUBSE QUENT YEARS APPEARS TO BE UNDER BONA FIDE BELIEF THAT THE RENTAL INCOME AL SO CAN BE ADMITTED ON THE BASIS OF ACTUAL RECEIPTS. HAVING ADMITTED THE ENTIRE RENTAL INCOME BY THE ASSESSEE ON RECEIPT BASIS, WE ARE OF THE VIEW T HAT THE CONTENTION OF THE ASSESSEE, THAT THERE WAS NO INTENTION TO CONCEA L THE INCOME HAS MERIT. WE ARE OF THE CONSIDERED OPINION THAT THE CASE OF T HE ASSESSEE IS SQUARELY COVERED BY THE HONBLE JURISDICTION HIGH COURT IN T HE CASE LAW CITED SUPRA AND WE EXTRACT THE RELEVANT PARAGRAPHS OF THE JUDGM ENT HONBLE JURISDICTION HIGH COURT IN PARA NO.10 AS UNDER: 10. THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. RAJASTHAN SPINNING AND WEAVING MILLS REPORTED IN (2009) 13 SCC 448, CONSID ERED THE EARLIER DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA AND ORS VS. DHARMENDRA TEXTILES PROCESSORS & ORS.,, REPORTED IN (2008) 306 ITR 277 (SC) AND HELD THAT IT GOES WITHOUT SAYING THAT FOR APPLICABILITY OF SECTION 271(1)(C) OF THE ACT, COND ITION STATED THEREIN MUST EXIST. THE ABOVE SAID DECISION CAME UP FOR CONSIDERATION IN THE CASE OF COMMISSIONER OF INCOME TAX VS RELIANCE PETROPRODUCTS PVT., LTD., REPORTED IN (201 0) 322 ITR 158 (SC). ON READING OF SECTION 27(1) (C), THE HONBLE SUPREME COURT POINTE D OUT THAT IN ORDER TO BRING THE CASE UNDER SECTION 271(1) (C), THERE HAS TO BE CONCEALME NT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURN ISHED INACCURATE PARTICULARS OF HIS INCOME. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION COULD NOT BE I NVOKED. THUS, THE HONBLE SUPREME COURT POINTED OUT THAT A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WOULD NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. THE READING OF THE DECISION OF THE HONBLE SUPREME COURT REFERRED TO ABOVE, THUS POINTS OUT THAT FOR SUSTAINING PENALTY, THE BONA FIDE EXPLANAT ION OF THE ASSESSEE MUST BE LOOKED AT, SO THAT THE CONTUMACIOUS CONDUCT OF THE ASSESSEE FOR T HE PURPOSE OF SUSTAINING THE PENALTY WOULD BE TAKEN AS CONDITION THAT IS THE MAIN REQUIR EMENT UNDER SECTION 271(1)(C) OF THE ACT. REFERRING TO THE DECISION IN THE CASE OF DHARM ENDRA TEXTILE PROCESSORS, (SUPRA), THE HONBLE SUPREME COURT POINTED OUT THAT IN THE BACKG ROUND OF SECTION 271(1)(C) OF THE ACT, THERE IS NO NECESSITY OF MENS REA BEING SHOWN BY TH E REVENUE, HOWEVER REFERRING TO THE EXPLANATION TO SECTION 271(1)(C) PENALTY BEING A MU LTIPLE LIABILITY, THE BONA FIDE OF THE CONDUCT OF THE ASSESSEE NECESSARILY ASSUMES SIGNIFI CANT, EVEN THOUGH WILLFULNESS OF THE ASSESSEE MAY NOT BE A CRITERIA, THE CONDUCT IS TO B E CONSIDERED. THUS, A MERE FACT THAT THE ADDITION IN THIS CASE HAS BEEN SUSTAINED BY THIS CO URT BY ITSELF WOULD NOT LEAD TO THE AUTOMATIC APPLICATION TO SECTION 271(1), THE TRIBUN AL WENT INTO THE EXPLANATION OFFERED BY THE ASSESSEE AS REGARDS THE CHARGING OF A HIGHER AM OUNT IN THE CASE OF J.B.EXPORTS. ALTHOUGH, THE TRIBUNAL REJECTED THE EXPLANATION FOR THE PURPOSE OF ASSESSMENT OF GOODS, IT CONSIDERED IT AS A GOOD GROUND FOR CANCELLATION OF PENALTY, WHEN THE EXPLANATION ON THE DIFFERENTIAL AMOUNT WAS GIVEN BY THE ASSESSEE THAT THE ENTRIES WERE MADE IN THE ACCOUNT AND THE ACCOUNTANT HAD NOT MADE THE CORRECT ENTRY. ITA NO.1029/MDS/2016 :- 6 -: 5.0 IN VIEW OF THE ABOVE, WE HOLD THAT THERE IS NO CASE FOR IMPOSING PENALTY U/S.271(1)(C) AND SET-ASIDE THE ORDER OF LO WER AUTHORITIES AND CANCEL THE PENALTY IMPOSED U/S.271(1)(C). 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( '# . . $ %!& ) (D.S.SUNDER SINGH) ( /ACCOUNTANT MEMBER /CHENNAI, 6! /DATED: 31 ST JANUARY, 2017. TLN 1 /3%7 87,3 /COPY TO: 1. -. /APPELLANT 4. $ 93 /CIT 2. /0-. /RESPONDENT 5. 7 : /3 /DR 3. $ 93 ( ) /CIT(A) 6. #+ = /GF