GODFREY LLOYD VAZ,MUMBAI vs. CIT(A), MUMBAI

Subsequently the AO initiated penalty proceedings under section 270A of the Act for misreporting of income by the assessee. The AO issued a show-cause notice to the assessee asking the assessee to file the explanations in this regard. The assessee in response to the notice submitted that all information has been provided during the course of assessment and that the acquisition of property was entirely made out of the funds belonging to the assessee. The assessee further submitted that his parents are added in the document only for name sake. The assessee also submitted that the AO has not doubted the genuineness of the interest claim made by the assessee but has denied the carry forward for the reason that interest certificate is having three names and not in assesse's name only. Accordingly, the assessee submitted that there is no misreporting on the part of assessee which warrant penalty under section 270A of the Act. The AO did not accept the submissions of the assessee and that the assessee did not bring any new material on record to substantiate the carry forward of loss under the head "Income from House Property". Accordingly, the AO levied a penalty of Rs. 6,07,848/- being 200% of tax on the income allegedly misrepresented by the assessee.

There is a delay of 75 days in filing the appeal before the Tribunal and the ld. AR filed application for condoning the delay. Having heard both the parties and perused the material on record, we are of the view that there is a reasonable and sufficient cause for the delay in filing the appeal before the Tribunal. Therefore following the Hon’ble Supreme Court decision in the case of Collector, Land Acquisition Vs. MST.Katiji & Ors., (167 ITR 471) (SC) we condone the delay of 75 days in filing the appeal and admit the appeal for adjudication.

The ld. AR submitted that the assessee has actually rented out the property from January 2020 to April 2020 for a rent of Rs. 40,000/- p.m. and that the assessee could not enter into any formal rental agreement since he was on sail. The ld. AR Godfrey Lloyd Vaz. further submitted that the assessee's parents are super senior citizens and therefore are not in a position to understand the compliance requirement with regard to entering into rental agreement. The ld. AR also submitted that mere fact that the rental agreement was not made available was only reason for denial of carry forward of loss under the head "Income from House Property" and that the same cannot be treated as misreporting of income by the assessee. The ld. AR also pointed out that another reason for denial of carry forward of loss is that the entire interest has been claimed by the assessee whereas certificate is in the name of three persons. The ld AR submitted that claim was made on the basis that the entire funding is done by the assessee and the parent's are added for name sake since the assessee works in ships. The ld AR argued that the claim based on factual position does not amount to misreporting of income. The ld. AR also submitted that the assessee has furnished all the details before the AO during the course of hearing and therefore, no wilful non-compliance on the part of the assessee warranting levy of penalty.

The ld. DR on the other hand vehemently argued that the assessee has offered the nominal rental income in order to claim the deduction of the substantial interest paid towards the loan. The ld. DR further submitted that the assessee has not substantiated the fact that the property was actually rented out deriving rental income and therefore the AO has correctly held that the assessee has misreported the income. The ld. DR further submitted that the property purchased in the name of the assessee along with his parents and therefore the assessee could not claim the entire interest as a deduction from the rental income which also amounts to misreporting of income. With regard to the argument of the ld. AR that there is no intentional violation on the part of the assessee, the ld. DR submitted that mens rea is not a requirement in penalty proceedings which is civil in nature. The ld. DR also made a detailed written submission which is taken on record.

We heard the parties and perused the material on record. The assessee is a non resident working in ship and has no taxable income in India. For the year under consideration, the assessee has claimed interest on housing loan to the tune of Rs. 16,80,532/- against a rental income of Rs.1,20,000/-. The AO while completing the assessment denied the benefit of carry forward of the loss for two reasons. One the assessee has not substantiated that the property was actually let out and the second reason is that the assessee owns the property with his parents and therefore cannot claim the entire interest. It is submitted that the impugned property is being self occupied by the parents of the assessee and only for 4 months i.e. from 01.04.2020 to 30.04.2020 i.e. during the Covid period the property was used by the chartered accountant of the assessee who was paying Rs.40,000 p.m. The ld AR during the hearing submitted that the property was purchased mainly for assessee's parents who are senior citizens to stay and that the assessee is not deriving any benefit from the claim of loss since he does not have any income in India. The assessee during the year under consideration filed the return declaring Nil income and the loss under the head Income from House Property was not set off against any income resulting in any benefit to the assessee. The carry forward loss under the head Income from House Property can be set off only against the income under the head Income from House property. Therefore, there is merit in the argument of the ld AR that the assessee has not derived any benefit by the alleged non-genuine rental income to claim huge loss. It is also relevant to mention here that the assessee has not preferred any further appeal against the denial of carry forward of loss. Mere fact that there exists a provision for levy of penalty it does not mean that the levy of penalty is mandatory. Whether penalty should be imposed is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances as has been held by the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [(1972) 83 ITR 26 (SC). The discretionary Godfrey Lloyd Vaz. power under the penalty provisions is not arbitrary and has to be guided by well- established principles depending upon the facts and circumstances of each case. Considering the overall facts and circumstances of the present case, we find that this is a fit case where the AO could have exercised the discretion not to impose penalty. Before parting we make it clear that the exercise of such discretion would depend upon the facts of each case and there cannot be any straightjacket formula in this regard. In view of these discussions we direct the AO to delete the penalty levied under section 270A of the Act.

In result, appeal of the assessee is allowed.