ITO 8(2)(4), MUMBAI V. PROLIFIC CONSULTANCY SERVICES ( MUMBAI ) P.LTD, MUMBAI

ITA 2732/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79447 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIKANT NAMDEO
• Keywords: Business income; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.2731, 2732 AND 2733/MUM/2013 (ASSESSMENT YEAR: 2004-05, 2005-06 AND 2006-07) INCOME TAX OFFICER WARD 8(2)-4 ROOM NO.213/216A, 2 ND FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. PROLIFIC CONSULTANCY SERVICES (MUMBAI) PVT. LTD. WILSON HOUSE, NAGARDAS ROAD ANDHERI (E) MUMBAI-400 069. (APPELLANT) (RESPONDENT) P ERMANENT ACCOUNT N O. : AACCP 5402 E ASSESSEE BY : NONE REVENUE BY : SHRI SHRIKANT NAMDEO DATE OF HEARING : 10/07/2014 DATE OF PRONOUNCEMENT : 18/07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THESE THREE APPEALS BY REVENUE ARE DIRECTED AGAINST THE COMPOSITE ORDER OF THE CIT(A) DATED 15/01/2013 ARISING FROM R ESPECTIVE PENALTY ORDERS PASSED UNDER SECTION 271(1)(C) FOR THE ASSES SMENT YEARS 2004-05, 2005-06 AND 2006-07. THE REVENUE HAS RAISED COMMON GROUNDS IN THESE APPEALS. THE GROUND RAISED FOR THE ASSESSMENT YEAR 2004-05 ARE AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE PENALTY LE VIED U/S 271 (1 )(C) OF THE ACT WITHOUT APPRECIATING THAT THE ASSES SEE HAD FAILED TO REBUT THE PRESUMPTION IN EXPLANATION-1 OF SECTION 2 71 (1 )(C) OF THE ACT.' ITA NO.2731 -2733/M/13 AY:04-05 TO06-07 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE PENALTY U/ S 271 (1 )(C) OF THE ACT WITHOUT APPRECIATING THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE RENTAL INCOME FROM THE PROPERTY HAD ARISEN DUE TO SYSTEMATIC ACTIVITY WHICH IS FUNDAMENTAL INGREDIENT OF BUSINESS 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE PENALTY LE VIED U/S 271 (1 )(C) OF THE ACT WITHOUT APPRECIATING THAT THE ASSES SEE HAD CLAIMED THE RENTAL INCOME UNDER THE HEAD BUSINESS WITH THE INTENTION TO SET OFF VARIOUS EXPENSES WHICH WERE NOT ALLOWABLE U NDER THE HEAD INCOME FROM HOUSE PROPERTY 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2. WE HAVE HEARD THE LD. DR AND CAREFULLY PERUSED T HE RELEVANT MATERIAL ON RECORD. NOBODY HAS APPEARED ON BEHALF O F THE ASSESSEE RESPONDENT DESPITE SERVING OF NOTICE OF THE HEARING S OF THESE APPEALS. THEREFORE, WE PROPOSE TO HEAR AND ADJUDICATE THESE APPEALS EXPARTE. 3. THE ASSESSEE IS A PRIVATE LTD. COMPANY AND IN TH E BUSINESS OF ACQUIRING PROPERTY ON LEASE AND SUB-LEASING PROPERT Y TO VARIOUS PARTIES WITH A VIEW TO EARN PROFIT. THE ASSESSEE ENTERS INT O VARIOUS AGREEMENTS WITH LESSOR ON ONE HAND AND SUB-LEASES ON THE OTHER HAND. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS LET OUT HOUSE PROPERTY AND RECEIVED RENT OF RS.63,21,69 4/- WHICH WAS OFFERED TO TAX UNDER BUSINESS INCOME. AFTER CLAIMIN G VARIOUS EXPENSES AN INCOME OF RS.7,79,022/- WAS OFFERED TO TAX. THE AO DID NOT ACCEPT THE WORKING OF THE ASSESSEE AND ASSESSED THE RENTAL INC OME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND CONSEQUENTLY THE ADD ITIONS WERE MADE IN ALL THREE YEARS WHICH ARE IDENTICAL IN NATURE EX CEPT THE QUANTUM OF ADDITION. THE AO ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. ITA NO.2731 -2733/M/13 AY:04-05 TO06-07 3 4. THE ASSESSEE OBJECTED THE LEVY OF PENALTY AND FI LED REPLY TO THE SHOW CAUSE NOTICE. THE AO DID NOT ACCEPT THE EXPLAN ATION AND REPLY OF THE ASSESSEE AND LEVIED PENALTY OF RS.6,81,543/-, R S.9,81,275/- AND RS.12,43,968/- FOR THE ASSESSMENT YEARS 2004-05, 20 05-06 AND 2006-07 RESPECTIVELY. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A). CIT(A) NOTED THAT THE EXPENDITURE DISALLOWE D BY AO WAS BECAUSE OF CHANGE OF HEAD OF INCOME AND NOT BECAUSE OF INC ORRECT OR CONCEALMENT OF PARTICULARS REGARDING THE EXPENSES. ACCORDINGLY CIT(A) BY FOLLOWING THE DECISION OF THIS TRIBUNAL DATED 27/07/2011 IN THE CASE OF M/S. EUROLINK TRADING PVT. LTD. VS. ITO IN ITA NO.2925/MUM/10 AS WELL AS THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (322 ITR 158) HELD THAT DISALLOWANCE OF CLAIM OF EXPENDITURE WOU LD NOT ATTRACT PENALTY UNDER SECTION 271(1)(C) OF THE ACT. HENCE CIT(A) DELETED THE PENALTY LEVIED BY THE AO. THE LD. DR HAS VEHEMENTLY RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT IN VIEW OF THE E XPLANATION TO SECTION 271(1)(C), THE ASSESSEE HAS FAILED TO PROVE THE CLA IM OF BUSINESS INCOME AS BONAFIDE. ACCORDINGLY THE AO IS JUSTIFIED IN LEV YING THE PENALTY WHEN THE ASSESSEE HAD FULL KNOWLEDGE OF THE FACT THAT SU BJECT INCOME IS ASSESSED TO TAX AS INCOME FROM HOUSE PROPERTY AND M AKING A CLAIM OF BUSINESS INCOME WAS WITH THE CLEAR INTENTION TO AVO ID TAX LIABILITY. 5. HAVING CONSIDERED THE SUBMISSIONS OF THE LD. DR AS WELL AS ORDERS OF THE AUTHORITES BELOW, WE NOTE THAT THE ASSESSEE IS IN THE BUSINESS OF TAKING PROPERTY ON LEASE BASIS AND FURTHER LEASING OUT ON SUB-LEASE. THE INCOME ARISING FROM ITS ACTIVITY WAS TREATED BY ASS ESSEE AS BUSINESS INCOME. THE AO NOTED THAT THE ASSESSEE HAD NO BUSIN ESS INCOME DURING THESE YEARS BUT THE ONLY INCOME IS THE RENTAL INCOM E FROM LETTING OUT THE PROPERTIES. THERE IS NO DISPUTE THAT THE ASSESSEE HAS DISCLOSED THE SOURCE OF INCOME AND BUSINESS ACTIVITY OF THE ASSES SEE COMPANY HOWEVER, THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE REG ARDING RENTAL INCOME AS BUSINESS INCOME AND ASSESSED THE SAME AS INCOME FROM HOUSE ITA NO.2731 -2733/M/13 AY:04-05 TO06-07 4 PROPERTY. IT IS NOT A CASE OF BOGUS CLAIM OF EXPEND ITURE OR THE CLAIM OF RENTAL INCOME AS BUSINESS INCOME AS ABSOLUTELY IMPE RMISSIBLE UNDER THE LAW. WHEN THE ASSESSEE IS IN THE BUSINESS OF TAKING THE PROPERTY ON LEASE AND FURTHER LEASING OUT THE SAME THEN TREATING THE RENTAL INCOME AS BUSINESS INCOME IS A BONAFIDE CLAIM OF THE ASSESSEE THOUGH THE SAME WAS NOT ACCEPTED BY THE AO. THE ISSUE OF TREATMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IS HIGHLY DEBATABLE ISSU E AND REJECTION OF SUCH CLAIM BY THE AO BY TAKING A DIFFERENT VIEW DOE S NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS FURNISHED I NACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. T HERE IS NO CHANGE IN QUANTUM GROSS INCOME OF THE ASSESSEE AND EXPENDITUR E CLAIMED BY THE ASSESSEE WERE DISALLOWED BY AO ONLY BECAUSE OF THE REASON OF ASSESSMENT OF RENTAL INCOME AS INCOME FROM HOUSE PR OPERTY. THEREFORE, REJECTION OF SUCH A CLAIM WOULD NOT TANTAMOUNT TO C ONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME WARRANTING LEVY OF PENALTY. IN THE RECENT DECISION IN THE CASE OF CIT VS. BENETT COLEMAN (215 TAXMANN 93) THE HON'BLE JURISDICTIONAL HIGH COURT HAS OBSERVED IN PARA-3 AS UNDER :- 3. SO FAR AS QUESTION (II) IS CONCERNED, THE RESPO NDENT- ASSESSEE HAD CLAIMED PREMIUM ON REDEMPTION OF DEBEN TURES AS INCOME FROM CAPITAL GAINS. WHEREAS THE ASSESSING OF FICER HELD THAT THE REDEMPTION OF DEBENTURES IS REVENUE RECEIPT ASS ESSABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT(A ) CONFIRMED THE ORDER OF ASSESSING OFFICER. THE RESPONDENT- ASS ESSEE DID NOT FILE ANY FURTHER APPEAL ON THE QUANTUM PROCEEDINGS. THER EAFTER, ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271( 1)(C) OF THE ACT ON THE RESPONDENT- ASSESSEE. THE CIT(A) ALSO CONFIR MED THE LEVY OF PENALTY UPON THE RESPONDENT- ASSESSEE . ON FURTHER APPEAL, THE TRIBUNAL HELD THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE RESPONDENT- ASSESSEE HAD DISCLOSED THAT THE AMO UNT RECEIVED AS PREMIUM ON REDEMPTION OF DEBENTURES IN ITS COMPU TATION OF INCOME. FURTHER, THE TRIBUNAL RECORDS THAT IT IS NO T THE CASE OF THE DEPARTMENT THAT THE RESPONDENT-ASSESSEE HAD CONCEAL ED ANY PARTICULAR OF INCOME OR FURNISHED INACCURATE PARTIC ULARS OF INCOME BY STATING INCORRECT FACTS. THE ASSESSING OFFICER C ONSIDERED THE SAID PREMIUM RECEIVED ON REDEMPTION OF DEBENTURES TO BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES WHILE THE RESPONDENT ITA NO.2731 -2733/M/13 AY:04-05 TO06-07 5 ASSESSEE CONSIDERED THE SAME TO BE TAXABLE UNDER TH E HEAD CAPITAL GAINS. IN VIEW OF THE FACT THAT THERE IS ONLY A CHA NGE OF HEAD OF INCOME AND IN THE ABSENCE OF ANY FACTS THAT THE CLA IM OF THE ASSESSEE WAS NOT BONAFIDE, THE TRIBUNAL DELETED THE PENALTY IMPOSED U/S. 271(1)(C) OF THE ACT. THE REVENUE HAS NOT BEEN ABLE TO POINT OUT THAT THE FINDING OF THE TRIBUNAL IS PE RVERSE. IN THESE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PR OPOSED QUESTION (II). 6. IN THE CASE IN HAND THE ASSESSEE HAS FURNISHED A ND DISCLOSED ALL RELEVANT PARTICULARS REGARDING THE INCOME FROM LETT ING OUT OF THE PROPERTY. THEREFORE, THE ASSESSMENT OF INCOME UNDER A DIFFERENT HEAD BY THE AO RESULTING IN DISALLOWANCE OF EXPENDITURE WOU LD NOT JUSTIFY LEVY OF PENALTY UNDER SECTION 271(1)(C) PARTICULARLY WHEN T HE ASSESSEE IS IN THE BUSINESS OF TAKING THE PROPERTY ON LEASE AND THEN L ETTING OUT THE SAME ON SUB-LEASE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTA NCES AS WELL AS THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF BENETT COLEMAN (215 TAXMANN 93) (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF THE CIT(A) IN DELETING THE PENALTY. 7. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 18/07/2014. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BYORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.