SRK DEV BUILD PVT LTD., INDORE V. DCIT/ACIT 5(1), INDORE

ITA 471/Ind/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1544 (ITAT-INDORE)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-04-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 22-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S.N. GOYAL
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Difference of opinion; Change of opinion; Set aside; Bogus
• Section: 32; 37; 28; 271(1)(c); 143(3); 142(1); 40(a)(ia); 37(1); 274; 13; 22; 20

Judgement Text

आयकर अपीलीय अिधकरण, इंदौर Ɋायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER ITA No.471/Ind/2023 Assessment Year: 2016-17 SRK Dev Build Pvt. Ltd, 18/2, Lasudia Mori, A.B. Road, Indore बनाम/ Vs. DCIT/ACIT-5(1) Indore (Assessee/Appellant) (Revenue/Respondent) PAN: AAQCS3387P Assessee by Shri Pranay Goyal & S.N. Goyal, CAs Revenue by Shri Ashish Porwal, Sr. DR Date of Hearing 15.04.2024 Date of Pronouncement 20.06.2024 आदेश / O R D E R Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 02.11.2023 passed by learned Commissioner of Income-tax-NFAC, Delhi [“CIT(A)”] which in turn arises out of penalty-order dated 28.06.2019 passed by learned DCIT/ACIT-5(1), Indore [“AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2016-17, the assessee has filed this appeal on following effective grounds: ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 2 of 22 1. That, the penalty order passed by Ld. DCIT/ACIT 5(1), Indore and sustained by Ld. CIT-A is erroneous on the facts and in law. 2. That, the appellate order being penalty sustained by Ld. CIT-A, is contrary to the weight of evidence on record, perverse, unjustified and, therefore the additions are liable to be stuck down. 3. That, the Ld. CIT-A erred to confirm the levy of penalty of Rs. One Crore u/s 271(1)(c) on the facts, whereby in Quantum proceedings disallowance of Depreciation u/s 32 of the Income Tax Act, 1961 to the tune of Rs. 2,10,80,516/- and disallowance of Interest u/s 37 of the Income Tax Act, 1961 to the tune of Rs. 90,33,182/- is being made purely on the basis of difference in opinion between assessee and revenue, whereby assessee claim Depreciation and Interest offering the income under the head Business and Profession & revenue rejected such claim assessing the appellant income under the head House Property. 4. That, the levy of penalty of Rs One Crore is bad in law and on facts particularly in a scenario wherein immediately previous assessment year i.e. A.Y. 2015-16, the assessment was done u/s 143(3) wherein return was filed by the assessee making exactly the similar claim of Depreciation and Interest was duly accepted by the revenue and in the assessment year in question such claim was disallowed taking as inconsistent view.” 2. The brief facts are such that the assessee-company filed its return of income of AY 2016-17 declaring a loss of Rs. 1,83,40,596/-. The case was selected for scrutiny and the AO completed assessment u/s 143(3) vide assessment-order dated 26.12.2018 determining total income at Rs.1,31,83,580/- after making three disallowances, namely (i) disallowance of expenses u/s 40(a)(ia) of Rs. 14,10,480/-, (ii) disallowance of depreciation u/s 32(1) of Rs. 2,10,80,516/- and (iii) disallowance of interest u/s 37(1) of Rs. 90,33,182/-. The AO also initiated penalty proceedings u/s 271(1)(c) qua these disallowances and issued show-cause notice dated 26.12.2018 u/s 274 r.w.s. 271(1)(c) on the footing that the assessee has ‘furnished inaccurate particulars of income’. In response, the assessee furnished reply on 18.06.2019. After considering assessee’s reply, the AO imposed penalty qua two disallowances ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 3 of 22 out of three i.e. qua the disallowance of depreciation of Rs. 2,10,80,516/- and disallowance of interest of Rs. 90,33,182/-, aggregating to Rs. 3,01,13,698/-. The minimum and maximum penalty as per law came to Rs. 99,56,492/- and 2,98,69,476/-; the AO therefore imposed penalty of Rs. 1,00,00,000/-. vide order dated 28.06.2019. The AO’s order is re-produced below for an immediate reference: “3. During assessment proceeding the AO has disallowed the depreciation of Rs. 2,10,80,516/- u/s 32(1) of the Income-tax Act, 1961 and also disallowed interest of Rs. 90,33,182/- u/s 37(1) of the Income-tax Act, 1961, and both were added to the total income of the assessee and penalty u/s 271(1)(c) was initiated separately on both disallowances for filing inaccurate particulars of income. 3.1 The AO has found that the assessee has claimed depreciation of Rs. 2,10,80,516/- on building, furniture, fixture, electrical installation, etc. installed at the DLF building which is to be used by the Institution to run the school, the assessee has entered into some kind of agreement with the school and have taken Rent deposit of Rs. 30 lacs in the previous year which is not disclosed by the assessee but it is quite clear that assessee has not used for any business purpose nor the assessee has shown any rental income on the said property being given on rent to the institution. The assessee has also claimed interest expenses of Rs. 90,33,182/- in the profit and loss account whereas the assessee is not carrying any business except letting out the properties and most of fund is being used for development of school building and installation of other amenities. Therefore, a show cause notice was issued to the assessee on 16.12.2018. The assessee filed its reply which was perused carefully and after detailed discussion, the AO had disallowed the above expenses during assessment proceedings. 3.2 The assessee filed its reply of penalty notice u/s 271(1)(c) stating that such disallowances have been made merely on the ground of difference in opinion in between the assessee and the revenue, wherein assessee being engaged in the main business activity of renting of immovable property offered the income under the head business and profession but the Ld. AO was of the view that such income should be offered under the head income from house property. However, it is our humble submission that the penalty is such a scenario should not be levied on the following proposition: That, the assessee filed its return of income making exactly the similar claim of depreciation and interest by offering the income ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 4 of 22 under the head business & profession for the assessment year 2015-16 and for such an assessment year, such claim was validly accepted and assessment was done u/s 143(3) of the Act, thus, whether the income earned by the assessee should be offered as income from house property or income from business and profession is clearly the matter of debate and at the time of filing the return of income assessee bonafidely believed that since the core activity of the assessee company is renting of immovable property, thus, the same needs to be offered under the head business and profession. Therefore, in such a scenario it can be concluded that the assessee has not concealed the income nor furnished any inaccurate particulars of income. The assessee placed reliance on the decision of CIT vs. Sambhav Media Limited (2013) 32 taxmann.com 371 (Guj), Karan Raghav Exports (P) Ltd. Vs. CIT (2012) 21 taxmann.com 8 (Del), CIT vs. Indusind Bank Ltd. (2015) 55 taxmann.com 406 (Bom), CIT v. Indersons Leather P. Ltd. (2011) 196 Taxman 103 (P&H) (MAG) and ITO vs. Roborant Investments P. Ltd. (2006) 7 SOT 181 (Mum). The assessee has stated that penalty initiated in the present case is not maintainable, therefore, it is our humble request to kindly drop the same. 3.3 Reply of the assessee perused carefully but found not acceptable as the assessee did not receive any income from Devi Ansuiya Vidhya Sansthan in the year under consideration except reimbursement of interest. There is no evidence on records that the assessee has directly or indirectly operated and managed the school. This is not sufficient evidence that the assets are owned by the assessee and the assessee is entitled for depreciation u/s 32 of the Income-tax Act, 1961. The depreciation and other expenditure claimed by the assessee are not incidental to the business of the assessee as the assessee is not carrying any business activity. The assessee has given the complete property on lease for an amount of Rs. 1,20,000/- per annum which is practically not possible and beyond the truth. There is no agreement for letting out the building and allied facilities to the Devi Ansuiya Vidhya Sansthan and assessee is not getting any recurring income out of the investment of Rs. 26 crore. Therefore, considering the above facts and figure in totality and legal proposition of the law, the assets let out to Devi Ansuiya Vidhya Sansthan cannot be classified as business income u/s 28 of the Income-tax Act, 1961. The income if any generated towards letting out the property, can be treated as income from house property, therefore, the deduction/ depreciation/interest expenses claimed as business expenses being incidental to the business of the assessee cannot be considered. Since the assessee has not used the assets for business purpose, therefore, the depreciation claimed at Rs. 2,10,80,516/- on the school building and allied facilities cannot be allowed to the assessee. Since the assessee has used borrowed fund for construction and development of school facilities for and on behalf of Devi Ansuiya Sansthan, therefore, the interest claimed by the assessee to the ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 5 of 22 extent of Rs. 90,33,182/- cannot be considered as incidental to the business of the assessee. Therefore, cannot be allowed as business expenses. In view of the above there is no change of opinion. 3.4 In the case of Sambhav Media Limited, the assessee has claimed double deduction of depreciation on business asset while in this case the assessee has not used the assets for business purpose. In the case of Karan Raghav Export (P) Ltd., the AO disallowed the assessee’s claim for depreciation on ground the building was used by firm and not by assessee. Penalty on above disallowance was confirmed by the Hon'ble ITAT. In this case the assessee has not used the assets for business prose. In the case of Indusind Bank Ltd., the AO rejected assessee’s claim for depreciation in respect of certain lease transaction on ground that said transactions were not genuine while in this case the assessee has not used the assets for business purpose. In the case of Indersons Leather (P)Ltd, the assessee made a claim declaring its income as business income while AO held same to be income from house property but in the present case matter is related to depreciation. In the case of Roborant Investments (P) Ltd., the matter is related to rental income which was shown by the assessee as service charges under the head ‘Income from business’. The AO has assessed the said rental income as income from house property. In the present case, the matter is related to depreciation. In view of the above the referred case laws do not relate to the present case. It is also to be pertinent to mention here that the assessee has not relied any case law related to disallowance of interest. 3.5 In view of the discussions held in aforementioned paras, it is established that the assessee has committed default within the meaning and scope of the provisions of section 271(1)(c) of the Act by furnishing inaccurate particulars of income of Rs. 3,01,13,698/- by suppressing its taxable income. I am, therefore, satisfied that the assessee has furnished inaccurate particulars of income and has failed to disclose all the facts relating to the computation of its total income.” [Emphasis supplied] 3. Aggrieved, the assessee carried matter in first-appeal and filed submissions but could not succeed. Now, the assessee has come in next appeal before us. 4. Ld. AR for assessee made following contentions to assail the penalty imposed by AO: (i) The assessee is a private limited company engaged in the business of leasing of property. The books of accounts of assessee are duly audited ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 6 of 22 under the provisions of Companies Act, 2013 as well as under section 44AB of Income-tax Act, 1961. There is a a clear-cut disclosure in notes to audited accounts as well as the Clause 10 of tax audit report in Form No. 3CD that the assessee is engaged in the business of renting of property and the business of C&F works. The assessee has earned revenue from rent and credited to audited P&L A/c. That apart, in the penalty order itself at multiple places, particularly in Para 3.1 of penalty- order the AO has himself stated “whereas the assessee is not carrying any business except letting out the properties”. Thus, there is no doubt or dispute regarding engagement of assessee in the business of letting of properties. (ii) The case of assessee for immediate preceding AY 2015-16 was also subjected to scrutiny assessment wherein questionnaire u/s 142(1) was issued and in response the assessee filed copies of all documents to AO in the shape of ITR, ITR Forms, Computation of total Income, Audit Report, etc. (Paper-Book Page 24-84). Upon perusal of those documents, the AO assessed income of assessee under the head “Income from Business or Profession” and also allowed deduction of depreciation and interest expenditure claimed by assessee vide assessment-order dated 04.12.2017. Copy of assessment-order filed at Paper-Book Page 85-89 is scanned and re-produced below: ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 7 of 22 ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 8 of 22 ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 9 of 22 Referring to above assessment-order, Ld. AR pointed out that the AO has categorically mentioned “10 – Nature of Business – Leasing of Property” in the Table on Page-1 and thereafter mentioned “2. The assessee is a Pvt. Ltd. company which is engaged in the business of leasing of property” on Page-2. Thus, the AO has carefully examined the nature of assessee’s business and stated so in the assessment-order of preceding AY 2015- 16. However, while framing assessment of AY 2016-17 under consideration, the AO made an altogether different observation and disallowed deduction of depreciation and interest by stating “The income if any generated towards letting out the property, can be treated as income from house property, therefore, the deduction/depreciation/interest expenses claimed as business expenses being incidental to the business of assessee cannot be considered”. Ld. AR submitted that there is absolutely no change in the nature of business carried on by assessee or the nature of income earned by assessee, therefore the assessee had a good case to contest the disallowances made by AO in AY 2016-17 under consideration and the assessee could very sell succeed in appeal. But the assessee did not file any appeal with the sole moto of closing litigation. 5. Having explained thus, Ld. AR submitted that even if the AO has treated the income earned by assessee from subject property as ‘income from house property’ and not as ‘business income’ and for that reason made the impugned ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 10 of 22 disallowances of deductions, the AO was very much wrong in stepping further and making a worse conclusion that the assessee has furnished inaccurate particulars qua those disallowances and thereby invoking section 271(1)(c). Ld. AR submitted that the assessee has disclosed complete and accurate particulars of the claims of depreciation and interest expenses and it is not a case of AO that the assessee has supplied any incorrect or erroneous or false detail in the return or during assessment-proceeding. Therefore, in such a situation, where is the furnishing of inaccurate particulars or even concealment of particulars of income and how section 271(1)(c) could be invoked? Ld. AR submitted that the case of assessee is very much covered by landmark decision of Hon’ble Supreme Court in CIT Vs. Reliance Petro Products (P) Ltd. (2010) 189 Taxman 322 (SC) where it was held thus: "2. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 11 of 22 [Emphasis supplied] 6. Ld. AR went on submitting that there are numerous decisions to support assessee’s case, a few decisions are as under: (a) ITAT, Indore in Turning Point Estates Pvt. Ltd. Vs. ACIT, ITA No. 354/Ind/2022, order dated 10.04.2023: “2. The assesse is a Private Limited Company and engaged in the business of construction of commercial complex. The assesse filed its return of income for the year under consideration on 25.09.2012 declaring total income at NIL with current year loss of Rs.1,03,28,211/-. During the scrutiny assessment Ld. AO noticed that the assesse has debited in the Profit and Loss account the expenditure under the head Employees benefit expenses, depreciation, administrative and other expenses total amounting to Rs.1,03,54,633/-. Since there was no sale during the year under consideration, therefore, the Ld. AO was of the view that all the expenses must have been capitalized instead of showing as revenue expenditure. Ld. AO consequently, disallowed these expenses total amount to Rs.1,03,54,633/- and assessed the total income at Rs.26,420/- as against the loss of Rs.1,03,28,211/-. The Ld. AO initiated penalty proceedings u/s 271(1)(c) and levied the penalty in respect of this addition made by disallowing the expenses while passing the order dated 26.03.2018. The assesse challenged the order of the Ld. AO u/s 271(1)(c) before the Ld. CIT(A) but the Ld. CIT(A) has dismissed appeal of by the assessee for want of any reply/details. 3. Before Tribunal the Ld. AR of the assesse has submitted that earlier there were physical hearing going on before the Ld. CIT(A) and the assessee appeared and filed the reply before the Ld. CIT(A). However, subsequently, due to change of hearing process from physical to Faceless the impugned order was passed by the ld. CIT(A) in the Faceless proceedings without considering the reply filed by the assesse during the physical hearing. Thus, the Ld. AR has submitted that the impugned order passed by the ld. CIT(A) without considering reply already filed by the assessee is against the principles of natural justice and liable to set aside. He have further submitted that the levy of penalty u/s 271(1)(c) of the Act is otherwise not sustainable as it is not a case of concealment of particulars of income or furnishing inaccurate particulars of income. The assessee has disclosed all the relevant facts in the return of income and the claim of expenditure is not found to be bogus or incorrect but Ld. AO has disallowed the claim of expenditure on the ground that there was no sale during the year under consideration and in the opinion of the Ld. AO entire expenditure should have been capitalized. The ld. AR has submitted that all the expenses are general in nature and have been incurred for the purpose of running and maintaining the business of assessee company. The expenses are recurring in nature and day to ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 12 of 22 day expenses which are in revenue nature and therefore the assesse has rightly debited the same in the profit and loss account. None of the expenses are related to the project but these expenses are only recurring in nature being payment to employees on account of salaries and wages as well as staff welfare expenses, depreciation on the business assets and other administrative expenses incurred on account of rent, professional fee, repairs and maintenance etc. Therefore, the claim of the assesse was bona fide claim and cannot be held as assesse has committed any default of concealment of income or furnishing inaccurate particulars of income. In support of his contention he has relied upon the judgment of Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 and submitted that the disallowance of claim which is not allowable as per the provisions of law by itself will not amounting to furnishing of inaccurate particulars of income when the assesse has disclosed and furnished all the relevant facts and details. He has also relied upon the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (2011) 18 ITJ 65 (MP). 4. On the other hand, Ld. DR has submitted that in the quantum appeal Ld. CIT(A) has decided this issue against the assesse and therefore, addition made by the AO has attained finality as assessee has not filed further appeal. The assessee has made impermissible claim of expenses when there is no business activity of the assessee particularly no sale during the year under consideration. Therefore, the claim of the assessee was rightly disallowed by the AO as incorrect claim and consequently levied penalty u/s 271(1)(c) of the Act. He has relied upon the orders of the authorities below. 5. We have considered the rival submission as well as relevant material on record. The Ld. AO has disallowed the claim of various expenses in para no.2 of the assessment order as under: 2. Disallowance of Administrative and other expenses:- During the course of assessment proceedings, on perusal of P&L account it is seen that the assessee has debited of total amount of Rs. 1,03,54,633/- under the head employee benefit exp., depreciation and administrative and other expenses. Further, the assessee has shown revenue from operation as Nil. It shows that there is no sale of stock in trade during the year under consideration. As per the accounting policy if there is no revenue operation from sale of stock in trade all expenses must be capitalized. But at the same time expenses related to employee benefit exp., depreciation and administrative and other expenses totaling of Rs. 1,03,54,633/- (727551+123176+9503906) shown as revenue expenditure was not capitalized. Vide order sheet dated 09.03.2015 The Ld. Counsel was asked to show cause why the expenses of employee benefit exp., depreciation and administrative and other expenses should not be capitalized as per ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 13 of 22 accounting standard and policy. The facts brought to the knowledge of Ld. Counsel. Therefore, the Ld. Counsel of the assessee has not filed any written submission in respect of claim of expenses. Therefore, in absence of documentary evidences total expenditure of Rs.1,03,54,633/- which is not a revenue expenditure and must be treated as capital expenditure, and it is hereby being disallowed and added back to closing stock of the Assessee company. Penalty proceedings u/s 271(1)(c) of the IT Act, 1961 is hereby being initiated separately for assessee furnishing inaccurate particulars of his income. 6. Ld. AO has disallowed the claim of expenses under the head Employees benefit expenses, depreciation, administrative and other expenses. The Ld. AO disallowed these expenses by treating the same as capital in view of the fact that during the year under consideration there was no sale by the assessee. Ld. AO did not doubt the correctness of the expenditure incurred by the assesse under these heads. Therefore, the genuineness and correctness of the expenditure incurred by the assessee are not in dispute or doubted by the Ld. AO but the claim was disallowed only on the ground that during the year under consideration there was no sale and therefore, these expenses must be capitalized instead of showing as revenue expenditure. It is also not in dispute that the very by nature of these expenses reveals that these are not falling under the capital field but all are revenue expenditure as these are all incurred for keeping the assessee company alive and going concern. It is also not the case of the department that the assesse has closed its business but it was only an isolated instance for the year under consideration, where there were no sales. When inherent nature of these expenses are revenue then the claim of the assesse is a bona fide claim and the assessing officer has disallowed said claim not on the ground of correctness or genuineness of the expenditure incurred by the assessee but due to no sale during the year under consideration. It is a simple case of difference of opinion as the assessee has claimed these expenses as allowable whereas the Ld. AO has opined that the expenses are not allowable for want of any sale during the year and held that all the expenditure ought to have been capitalized. 7. Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) while dealing with the issue of levy of penalty u/s 271(1)(c) of the Act against the disallowance of expenses held in para 8 to 10 as under: XXX (not reproduced for brevity) 8. Thus, when particulars provided by the assessee in the return of income are found to be correct except the allowability of the claim due to the provisions of law then, the same cannot lead to the conclusion that the assessee has furnished inaccurate particular of income or concealment of particulars of income inviting the penalty u/s 271(1)(c) of the Act. A mere making of the claim, which is not ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 14 of 22 sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the case in hand, the assessee has claimed the expenses by debiting in the profit and loss account but the Ld. AO did not accept the claim on the ground that due to no sale during the year expenses ought to have been capitalized would not ipso facto attract penalty u/s 271(1)(c) of the Act. 9. The Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (supra) has considered an identical issue in para 6 & 7 as under: 6. Having heard learned counsel for the appellant, we find that in the absence of any in- dependent finding by the AO that the assessee either concealed his income or furnished inaccurate particulars, merely because the assessee treated it as a business loss, whereas the Revenue treated it as a capital loss, the provisions contained under s. 271(1)(e) of the Act would not attract. In the circumstances, we find no infirmity in the order passed by the Tribunal. 7. In our considered view, the finding recorded by the Tribunal that the assessee did not conceal his income nor furnish the inaccurate particulars, are wholly justified and needs no interference. Merely on the basis of finding recorded by the Tribunal in the original proceedings (quantum proceedings) in which it has been observed that the assessee has concealed certain facts, would not itself attract provisions of s. of the Act. In the absence of any mens rea a finding about concealment of particulars of income or furnishing inaccurate particulars, in our considered view, could not have been arrived at. Accordingly, no case for interference in the order passed by the Tribunal is made out. As a result, the appeal fails and is hereby dismissed. 10. Accordingly, in the facts and circumstances as discussed above as well as following judgment of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) as well as judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (supra), the penalty levied by AO u/s 271(1)(c) of the Act by treating the expenditure as capital is not justified and the same is deleted.” (b) ITAT, Indore in Krishi Upaj Mandi Samiti Vs. ITO, ITA No. 241/Ind/2009, order dated 11.11.2009: “2. The facts, in brief, are that the assessee declared rental income under the head “Income from Business”, which was changed to “Income from House Property” by the CIT(A). The Tribunal also confirmed the said decision of the Ld. CIT(A). Thereafter, the Ld. CIT(A) levied a penalty u/s 271(1)(c) of the Income-tax Act, 1961, by holding the assessee was guilty for claiming the ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 15 of 22 inadmissible expenses like depreciation, repairs and other expenses by offering income under wrong head. Aggrieved by this, the assessee is in appeal before us. 3. The Learned counsel for the assessee submitted that such income was duly disclosed in the books of account and a legal claim had been made by the assessee in regard to such rental income as such rental income had been derived from the properties, which were used as a part of its business activities to enable the cultivators to store their produces in the godown/storage provided by the assessee. Hence, it was neither a case of concealment of income nor a case of furnishing of inaccurate particulars of income. The Learned counsel, in this regard, placed reliance on various judicial decisions and in particularly referred to the decision of the Tribunal in the case of ITO vs. Roborant Investments (P) Limited, as reported in (2006) 7 SOT 181, wherein on identical facts, the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961, had been cancelled. 4. The ld. Departmental Representative relied on the order of the Ld. CIT(A). 5. We have considered the submissions made by both the sides, material on record and the orders of the authorities below. 6. In our view, this is a case of genuine difference of opinion in respect of taxability of an income in a particular head of income. We further find that it is not a case that such a rental income was not shown by the assessee at all, rather it is a case where the assessee has made full disclosure of all facts relating to the computation of its total income. Accordingly, in our view, this case is not fit for levy of penalty u/s 271(1)(c) of the Act for the reason stated hereinabove. Thus, we cancel the penalty levied by the CIT(A).” (c) Hon’ble Punjab & Harayana High Court in CIT Vs. Indersons Leather (P) Ltd. (2011) 196 Taxman 103 (P&H) (Mag): “2. The assessee made a claim declaring his income as business income while the AO held the same to be income from house property, which view has been upheld by the Tribunal. The AO also levied penalty u/s 271(1)(c), which was upheld by the Ld. CIT(A). The Tribunal, however, held that the assessee was not guilty of any concealment or giving inaccurate particulars and had raised a debatable issue. In such a situation, penalty was deleted. 3. We have heard learned counsel for the Revenue. 4. In view of the finding of the Tribunal that the assessee had not concealed income nor furnished inaccurate particulars and had merely raised a ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 16 of 22 debatable issue, we are unable to hold that any substantial question of law arises. 5. The appeal is dismissed.” (d) ITAT, Indore Bench in Shri Abhishek Jhaveri Vs. ACIT, ITA No. 526/Ind/2010, order dated 28.09.2011: “4. We have gone through the orders of the authorities below and considered rival contentions of the ld. Authorized Representative and ld. Sr. DR from the record we found that the AO has accepted the income declared by the assessee. However, nature of income so offered as short term capital gain was not accepted by the AO and he changed the head of income to business income. Under the provisions of section 271(1)(c), the pre-requisite condition for initiation of penalty is that there should concealment of income or furnishing inaccurate particulars of income. However, both the conditions are absent in this case, since whatever income was declared was accepted and assessee declared full details of short term capital gains in shares with each script, period of holding etc. The transactions were through electronics system and assessee is also having a Demat account with margin penal. The contention of the assessee was that shares were purchased as an investment and also accounted for in the books of investment, but the same were treated as stock in trade by the AO and, therefore, the gains over same was taxed under the head of business income, it is merely matter of opinion which cannot constitute basis for holding that the assessee has concealed any income. The issue with regard to levy of penalty on account of disallowance of claim is squarely covered by the decision of Hon'ble Supreme Court in the case of Reliance Petro Products, 322 ITR 158 (S.C).” 7. Per contra, Ld. DR for revenue made following submissions: (i) In Para 3.3 and 3.4 of penalty-order, the AO has clearly mentioned that the assessee did not receive any income from Devi Ansuiya Vidhya Sansthan (tenant) in the year under assessment except reimbursement of interest. Therefore, there is no rental income earned by assessee to be assessed as ‘income from business’. (ii) The assessee has not challenged the assessment-order passed by AO and clearly accepted the disallowances made by AO. When it is so, the ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 17 of 22 assessee cannot impugn penalty imposed by AO qua those very disallowances? (iii) The case of preceding AY 2015-16 was under “limited scrutiny” whereas the case of present AY 2016-17 was under “complete scrutiny”. Therefore, there is no parity in two assessments and the assessee cannot derive any benefit out of assessment of preceding year. (iv) Lastly, Ld. DR relied strongly upon the orders of lower-authorities. 8. In rejoinder, Ld. AR made following submissions: (i) The AO has noted following observations on Page 23-24 of assessment- order, copy at Page 190-191 of Paper-Book: “The brief observations on financials of the company are as under: 5. Interest expenses reimbursed by Devi Ansuiya Vidhya Sansthan to the assessee approx. Rs. 1.67 crore, which is not sufficient consideration to leased out the property. 6. Income received from Devi Ansuiya Vidhya Sansthan during the year under assessment in the form of rent or any other nature Nil. As per lease-deed the assessee was entitled to get Rs. 1,20,000/- lease amount in the year under assessment out of the Investment of Rs. 26 crore by the assessee which is not sufficient consideration to leased out the property.” Thus, the assessee was entitled to receive lease-rent of Rs. 1,20,000/- only under lease-agreement yet the assessee recovered reimbursement of interest expense from tenant which is as high as Rs. 1.67 crore. This recovery/reimbursement has been credited to “Interest Expenditure” A/c ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 18 of 22 of assessee and thereafter only net interest expenditure is debited to P&L A/c. This recovery/reimbursement from tenant is more than rent. Ld. AR went on explaining further that it was a commercially expedient decision of assessee to agree to receive rent of Rs. 1,20,000/- from tenant because the tenant is a ‘not-for-profit’ company u/s 25 of Companies Act and it was in the initial stage of school and assured to pay better rental in future once the school yields sufficient revenues. But despite agreement, the assessee recovered higher sum from tenant in the form of reimbursement of interest, hence no adverse view can be taken in this regard. (ii) Even if the assessee has not challenged the assessment-order to close the litigation, the assessee cannot be precluded from contesting penalty because assessment-proceedings and penalty-proceedings are two separate and independent proceedings. (iii) Although the assessment of preceding AY 2015-16 was selected for “limited scrutiny” but all details of income, heads of income, etc. which are basic details in assessment of any assessee, were very much available before AO and the AO has accepted assessee’s returned income after perusal and consideration. 9. We have considered rival contentions of both sides and perused the orders of lower-authorities as well as the material held on record and the ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 19 of 22 judicial decisions to which our attention has been drawn. The controversy in present case relates to the validity of penalty imposed by AO u/s 271(1)(c). The admitted facts are such that the assessee is a company and it is engaged in the business of letting/renting of properties. This fact is accepted by AO repeatedly in assessment-order of preceding AY 2015-16, assessment-order of current AY 2016-17 and the impugned penalty-order itself. The AO has also mentioned in Para 3.1 of penalty-order thus “The AO has found that the assessee has claimed depreciation of Rs. 2,10,80,516/- on building, furniture, fixture, electrical installation, etc. installed at the DLF building which is to be used by the Institution to run the school, the assessee has entered into some kind of agreement with the school”. This noting by AO further admits that the assessee has provided not only building but also furniture, fixture, electrical installation, etc. to the tenant to run as school. Therefore, these two vital facts, namely (i) the assessee is engaged in the business of letting/renting of properties and (ii) there is a composite structure of building with furniture, fixture, electrical installation, etc., transpire that the claim made by assessee in the return of income for taxability under the head “Income from business” was also having a sufficient force. In fact, Ld. AR has claimed that the AO in preceding AY 2015- 16 has accepted the very same activity/income of assessee as “Income from business”. However, in current AY 2016-17 only, the AO has treated the same activity/income as “Income from House Property” in assessment-order and disallowed the deductions of depreciation and interest. But since the assessee ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 20 of 22 has not filed any appeal against assessment-order, we do not have that issue before us and we do not wish to make any further comment on either side. However, we find that the AO has also imposed penalty u/s 271(1)(c) qua the disallowances of depreciation and interest expenses by treating it as a case of “furnishing inaccurate particulars”. This approach of AO is, in our considered view, not a justified approach according to the settled decisions of various judicial forums as narrated earlier. The Hon’ble Supreme Court has categorically held in Reliance Petro Products (P) Ltd. (supra) that unless the assessee has supplied any incorrect or erroneous or false information to department, this would not be a case of inviting the penalty u/s 271(1)(c). It is further held that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars. Same view has been taken by ITAT, Indore in Turning Point Estate Pvt. Ltd. (supra). Similarly, ITAT Indore in Krishi Upaj Mandi Samiti (supra) and Hon’ble Punjab & Harayana High Court in Indersons Leather Pvt. Ltd. (supra), have categorically held that in a case where the assessee declared rental income as “business income” but the AO assessed as “Income from House Property”, there is neither concealment of income nor furnishing of inaccurate particulars of income and penalty u/s 271(1)(c) is not attracted. Thus, in the light of these decisions, it is very clear that in the present case of assessee where the AO has merely rejected a claim of deductions of depreciation and interest made by assessee on the premise of change in taxability head but without finding any ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 21 of 22 incorrect or erroneous or false information having been supplied by assessee, no penalty can be imposed. Hence, the present case is not fit for imposition of penalty. 10. However, before expressing our final conclusion, we would also like to address two concerns raised by revenue. The first concern is such that the assessee has not received any rent from tenant. In this regard, we notice that the assessee has made a recovery of Rs. 1.67 crore during current year from tenant. Although the assessee has not received any money in the nomenclature of rent yet the recovery of Rs. 1.67 crore from tenant is a much higher compensation than the rent of Rs. 1,20,000/- agreed in lease-agreement. The second concern of revenue is such that the assessee has not filed any appeal to contest the disallowances made in assessment-order and therefore the assessee cannot raise objection against imposition of penalty qua those disallowances. This concern, in our view, is meritless because assessment- proceeding and penalty-proceedings are two distinct and separate proceeding. Any addition/disallowance made in assessment-proceedings and even if not contested by assessee for any reason, does not attract penalty automatically. The assessee is within his right to claim and prove on facts and with the support of decided judicial rulings, that there is no concealment of income or furnishing of inaccurate particulars of income and therefore the penalty u/s 271(1)(c) is not attracted. As discussed in earlier para, we have also found that ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd Page 22 of 22 the present case of assessee is not a fit case for imposition of penalty. Thus, both of the concerns of revenue are devoid of merit and rejected. 11. In view of above discussions and for the reasons stated therein, we arrive at a conclusion that in the present case, the penalty imposed by AO is not sustainable. Therefore, we delete the penalty. The assessee succeeds in this appeal. 12. Resultantly, this appeal is allowed. Order pronounced in open court on 20.06.2024. Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 20.06.2024 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore