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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 931/JP/2018
PER VIJAY PAL RAO, JM :
This appeal by the assessee is directed against the order dated 25th May, 2018 of ld. CIT (A)-I, Jaipur arising from penalty order passed under section 271(1)(c) of the IT Act for the assessment year 2011-12. The assessee has raised the following grounds :-
1. That the learned CIT (Appeals) has erred in holding that in view of the provisions of Companies Act the interest income, miscellaneous receipts and rent receipts have to be shown under the head “other income in the P & L account. The said finding is illegal and unjustified.
2. That the learned CIT (Appeals) has erred in holding that interest income, miscellaneous receipts and rent receipts are not business income and has to be assessed under the head “income from other sources”. The said finding is illegal and unjustified.
3. That the learned CIT (Appeals) has erred in holding that the appellant has credited the said income in P & L account but has set off the same against various business expenses which are not for the purpose of earning the said income and hence, the assessee had furnished inaccurate particulars of income in its return of income. The said finding is illegal and unjustified.
4. That the learned CIT (Appeals) has erred in confirming the imposition of penalty of Rs. 2,24,500/- under the provision of section 271(1)(c) of the Act for furnishing inaccurate particulars of income. The levy of penalty confirmed is illegal and unjustified.”
The assessee has also raised an additional ground as under :-
“ On the facts and circumstances of the case and law the learned Assessing Officer has erred in imposing penalty under the provisions of section 271(1)(c) without specifically pointing out in the show cause notice the charge against the assessee and also whether the penalty was proposed on concealment of particulars of income or for furnishing of inaccurate particulars of income.”
The assessee company is engaged in the business of civil construction on contract basis. It filed return of income on 30th September, 2011 declaring total income of Rs. 25,61,790/- on which assessment was completed under section 143(3) of the Act vide order dated 09.12.2013. The AO while completing the assessment under section 143(3) rejected the books of account by invoking the provisions of section 145(3) of the Act and then estimated the income of the assessee by applying net profit rate of 10% on gross contract receipts of Rs. 15,60,61,949/- subject to claim of depreciation, interest payment and processing fee on loans. The AO also made an addition under section 40(a)(ia) of the Act at the time of scrutiny assessment. Consequently, a total addition of Rs. 11,40,775/- was made by the AO. Thereafter, the AO reopened the assessment by issuing a notice under section 148 on 20th January, 2015 whereby the AO proposed to assess interest income of Rs. 4,91,118/-, rental income of Rs. 49,500/-, profit on sale of car of Rs. 1,02,079/- and other income of Rs. 1,85,821/- total amounting to Rs. 8,28,518/- to be assessed as income from other sources as against the business income. While passing the reassessment order under section 143(3) read with section 147 of the Act on 31st July, 2015, the AO made assessment of interest income, miscellaneous receipts and rental receipts total amounting to Rs. 7,26,439/- as income from other sources and consequently the same was treated as an addition. The assessee did not prefer any appeal against the reassessment order passed by the AO whereby the income of Rs. 7,26,439/- was treated as income from other sources instead of business income shown by the assessee. The AO subsequently initiated penalty proceedings under section 271(1)(c) and levied the penalty of Rs. 2,24,500/- while passing the order dated 28th January, 2016. The assessee challenged the penalty order passed under section 271(1)(c) of the Act before the ld. CIT (A) but could not succeed.
Before us, the ld. A/R of the assessee has submitted that there was no justification for levy of penalty under section 271(1)(c) as the assessee disclosed each and every detail in respect of the interest income, miscellaneous receipts, rental receipts and, therefore treating these three items of income as income from other sources would not amount to furnishing of inaccurate particulars of income or concealment of particulars of income. Even the AO in the original scrutiny assessment under section 143(3) accepted these three items as business income of the assessee and estimated the income of the assessee by applying net profit @ 10% of the gross contract receipts. The source of the income from Interest, miscellaneous receipts and rental receipts were duly disclosed in the Profit & Loss account as other income and the AO while passing the original scrutiny assessment under section 143(3) did not treat these incomes separately. These incomes are part of business receipts as it was explained at the time of original assessment order passed under section 143(3) and there was no justification for excluding the same from business income and treating them as income from Other Sources. Therefore, once the assessee has explained all the details and facts regarding these three items of income, then the case of the assessee would not fall in the category of furnishing of inaccurate particulars of income or concealment of particulars of income. He has relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Reliance Petro Products Ltd. 322 ITR 158 (SC) as well as the decision of Hon’ble Delhi High Court in case of CIT vs. Amit Jain, 351 ITR 74 (Delhi). The ld. A/R has also relied on a series of decisions on this point that once the assessee has disclosed all the relevant facts and details at the time of filing the return income as well as during the course of assessment proceedings, then the claim of the assessee was not accepted by the AO would not ipso facto amount to furnishing of inaccurate particulars of income or concealment of particulars of income attracting penalty proceedings under section 271(1)(c) of the Act. The ld. A/R has also vehemently argued on the additional ground challenging the validity of initiation of proceedings under section 271(1)(c) of the Act. He has pointed out that in the show cause notice the AO has not specified the limb whether the penalty was initiated for furnishing inaccurate particulars of income or for concealment of particulars of income. In support of his contention, he has relied upon the decision of the Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar.) as well as the decision in case of CIT vs. SSA’s Emerald Meadows reported in 73 Taxman.com 241 (Kar.). The SLP filed against the said decision by the Revenue was dismissed by the Hon’ble Supreme Court reported in 73 Taxman.com 248.
On the other hand, the ld. D/R has submitted that the assessee has disclosed these three items of income as Business Income of the assessee whereby the assessee has understated the income. Therefore, it is a clear case of concealment of income attracting the provisions of section 271(1)(c) of the IT Act. As regards the additional ground, the ld. D/R has objected to the additional ground raised by the assessee at this stage when it was not raised before the authorities below. He has further submitted that when the AO has finally given a definite finding in the penalty order that the assessee has concealed the particulars of income, then not specifying the limb in the show cause notice would not render the penalty order as illegal.
We have considered the rival submissions as well as the relevant material on record. The assessee filed its return of income on 30th September, 2011 declaring total income of Rs. 25,61,790/-. This total income includes the Income from Interest, miscellaneous receipts and rental receipts as under :-
i) Interest income Rs. 4,91,118/- ii) Miscellaneous receipts Rs. 1,85,821/- iii) Recent receipts Rs. 49,500/- ------------------- Rs. 7,26,439/- The AO while completing the scrutiny assessment under section 143(3) of the Act rejected the books of account of the assessee and estimated the income by applying net profit @ 10% on gross contract receipts. Accordingly, the AO worked out the net profit of Rs. 36,76,251/- as against the net profit declared by the assessee at Rs. 35,34,920/-. Subsequently the AO reopened the assessment to assess these three items of income as well as Income from sale of asset as income from Other Sources instead of Business Income. In the reassessment order passed under section 143(3) read with section 147, the AO treated only these three items being Interest income, miscellaneous receipts and rental receipts as Income from Other Sources.
Therefore, the said treatment of Rs. 7,26,439/- has enhanced the income of the assessee due to the reason that in the assessment framed under section 143(3) the AO estimated the income of the assessee. It is pertinent to note that even if these receipts of Rs. 7,26,439/- on account of interest income, miscellaneous receipts and rental receipts are treated as Income from Other Sources, it would not result any revenue loss as per the returned income of the assessee. The tax liability arises due to treatment of this income as Income from Other Sources only because of the reason that the AO estimated the income of the assessee by taking the net profit on gross contract receipts. Therefore, as per the return of income, these incomes are part of the business profits and by excluding these three items from the business income of the assessee, still the business income of the assessee would be more than Rs. 18 lacs as disclosed in the return of income. Once the business income as
per the return of income is positive, then treatment of interest income, miscellaneous receipts and rental receipts as Income from Other Sources shall have no consequential effect on the revenue so far as the income declared in the return of income. Even otherwise, these three items were very much disclosed in the original return of income. The nature of source of these receipts were also explained during the original assessment proceedings under section 143(3) and once the AO has accepted these incomes as part of the business income of the assessee, then merely because in the reassessment proceedings these three items were treated as Income from other sources would not lead to the conclusion that the assessee is guilty of furnishing inaccurate particulars of income or concealed the particulars of income. Further, it is clear that all these particulars were available in the original return of income filed by the assessee under section 139(1) of the Act and hence this cannot be a case of concealment of income. At the most, if the AO has not accepted the claim of Business Income, then it can be considered as furnishing of inaccurate particulars of income. The AO while passing the penalty order under section 271(1)(c) has held as under :-
“ It is clear from the above facts and circumstances of the case that the assessee has concealed the particulars of income to the extent of Rs. 7,26.439/- and has sought to evade tax of Rs. 2,24,500/-. Therefore, keeping in view the above f acts of the case, I find it to be a fit case for imposition of penalty u/s 271(1)(c) of the I.T. Act, 1961 and quantum is worked out as under :-
Concealed Income Rs. 7,26,439/- (4,91,118/- + 1,85,821/- + 49,500/-) (b) Tax sought to evaded on concealed income Rs. 2,24,469/- (c) Minimum penalty imposable Rs. 2,24,469/- (100% of tax sought to be evaded) (d) Maximum penalty imposable Rs. 6,73,408/-
(300% of tax sought to be evaded) (e) Penalty imposed Rs. 2,24,500/- Ordered accordingly u/s 271(1)(c) r.w.s. 274 of the I.T. Act 1961. Issued demand notice.”
The AO has finally concluded that the assessee is guilty of concealment of particulars of income to the extent of Rs. 7,26,439/-. This conclusion of the AO is contrary to the facts as these three items of income were very much disclosed by the assessee in the return of income and merely treating the same as Income from other sources would not amount to concealment of particulars of income. Therefore, this cannot be a case of concealment of particulars of income though the case could have been taken for furnishing inaccurate particulars of income on the part of the AO.
Therefore, the conclusion of the AO is apparently incorrect and wrong. Even otherwise, when all the particulars were already disclosed in the return of income then re-classifying the income by the AO would not amount to furnishing of inaccurate particulars of income or concealment of particulars of income so as to hold the assessee guilty for levying the penalty under section 271(1)(c) of the Act.
A mere disallowance of claim and treating the income under different head is not justified in levy of penalty under section 271(1)(c) of the Act. In the case in hand, even if three items of income are separately treated as Income from Other sources, there will be no revenue effect on the returned income of the assessee. Accordingly, we hold that the penalty levied by the AO under section 271(1)(c) is not sustainable in law as well as on facts and accordingly the same is deleted.
5.1. The additional ground raised by the assessee is purely legal in nature and do not require any investigation of new facts. Thus, in view of the decision of the Hon’ble Supreme Court in case of NTPC vs. CIT, 229 ITR 383 (SC), the additional ground raised by the assessee is admitted. Since we have deleted the penalty on the merits of the case, we do not propose to go into the additional ground raised by the assessee.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 24/05/2019.