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Facts
The assessee's appeal against a penalty order for AY 2015-16 was dismissed by the CIT(A). The penalty was levied based on additions made during the assessment under Section 143(3), relating to property tax and service tax disallowances. The assessee contended that these additions were later deleted by the ITAT in the quantum appeal.
Held
The Tribunal held that since the additions forming the basis of the penalty were deleted by the ITAT in the quantum appeal, the penalty under Section 271(1)(c) could not be sustained and was therefore deleted. The appeal was allowed.
Key Issues
Whether the penalty levied under Section 271(1)(c) is sustainable when the additions forming the basis of the penalty have been deleted by the ITAT in the quantum appeal.
Sections Cited
250, 271(1)(c), 143(3), 23
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Income Tax Appellate Tribunal, D BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER SHRI GIRISH AGARWAL, ACCOUNTANT MEMBER Milan Theatres Private Limited Milan Theatres Subway Road, Santacruz West, Mumbai – 400054. [PAN: AAFCM6714R] …………. Appellant Vs DCIT Circle 4(3)(1) …………. Aayakar Bhawan, Mumbai – 400020. Respondent Appearance For the Appellant/Assessee : Letter File For the Respondent/Department : Shri. Rajesh Meshram, Sr. AR Date Conclusion of hearing : 04.02.2025 Pronouncement of order : 27.02.2025 O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal has been preferred by the Assessee against the order, dated 29/07/2024, passed by the Commissioner of Income Tax, Appeal, Delhi [hereinafter referred to as the ‘CIT(A)’], under Section 250 of the Income Tax Act, 1961[hereinafter referred to as ‘the Act’], whereby the Ld. CIT(A) had dismissed the appeal of the Assessee against the Penalty Order, dated 27/12/2019, passed under Section 271(1)(c) of the Act, for the Assessment Year 2015-2016.
Ground No. 3 and 4 raised by the assessee in the present appeal reads as under: “3. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), failed to consider the fact that the Hon'ble Income Tax Appellate Tribunal, Mumbai in Year 2015-16 76/Mum/2019 vide its order dated 31.03.2022 had in toto deleted the alleged additions on account of property tax and service tax made vide assessment order passed u/s 143(3) of the Income Tax Act, 1961 dated 31.08.2018, whereas the alleged penalty was levied by the Ld. Assessing Officer during pendency of quantum appeal before Hon'ble Tribunal 4. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in not quashing the impugned penalty order passed u/s 271(1)(c) of the Income Tax Act, 1961 totally ignoring the fact that the quantum appeal has been allowed in favor of the appellant company by Hon'ble Income Tax Appellate Tribunal, Mumbai in ITA No. 79/Mum/2019 vide order dated 31.03.2022, that was brought to knowledge of the Ld. Commissioner of Income Tax (Appeals), NFAC, and has been reproduced in his appellate Order as well but he chose to confine his decision to the order of Assessing Officer in utter disregard to binding decision of Hon'ble Tribunal deleting quantum addition and the legal position settled by the Hon'ble Supreme Court.” 3. We have heard the Learned Departmental Representative and have perused the material on record. We also taken judicial notice of the order, dated 31/03/2022, passed by the Tribunal in the case of the Assessee in quantum appeal preferred by the Assessee for the Assessment Year 2015–16 [ITA No. 76/Mum/2019].
Facts as emanating from record are that assessment was framed on the Assessee under Section 143(3) of the Act for the Assessment Year 2015-2016 vide Assessment Order, dated 26/12/2017. While completing the aforesaid assessment, Assessing Officer made disallowances aggregating to INR.5,23,58,160/- on account of service tax and property tax. Penalty proceedings were also initiated against the Assessee which culminated into passing of the Penalty Order, dated 27/12/2019, under Section 271(1)(c) of the Act whereby penalty of INR.1,69,87,605/- was levied for furnishing inaccurate 2 Assessment Year 2015-16 particulars of income. The appeal preferred by the Assessee against the aforesaid Penalty Order was dismissed by the CIT(A) vide order, dated 29/07/2024. Being aggrieved the Assessee has preferred the present appeal before the Tribunal.
On perusal of the Ground No. 3 and 4 raised by the Assessee we find that it has been contended on behalf of the Assessee the additions made while framing assessment under Section 143(3) of the Act, which formed the basis of levy of penalty under Section 271(1)(c) of the Act, have been deleted by the Tribunal in the quantum appeal preferred by the Assessee for the Assessment Year 2015-2016. Therefore, penalty levied under Section 271(1)(c) of the Act cannot be sustained. We have perused the aforesaid order, dated 31/03/2022, passed by theCo-Ordinate Bench of the Tribunal allowing the appeal preferred by the Assessee in quantum proceedings [ITA No. 76/Mum/2019] wherein following grounds were raised by the Assessee:
1. On the facts and circumstances of the case and in law, the learned CIT(A) ought to have directed the learned AO to reduce theunrealized rent of Rs. 2,27,15,776/ - being service tax borne by the appellant, from the amount of rent received during the year for computing the annual value in terms of section 23 of the Act and the income from house property ought to have been determined accordingly.
2. On the facts and circumstances of the case and in law, the learned CIT(A) ought to have directed the learned AO that the property tax of Rs. 2,96,42,384/- which has been paid during the year be deducted in terms of first proviso to section 23(1) of the Act from the rentals, in determining the annual value in terms of section 23 of the Act and the income from house property ought to have been 3 Assessment Year 2015-16 determined accordingly.”
Vide order, dated 31/03/2022, the Co-ordinate Bench of the Tribunal allowed the quantum appeal holding as under:
“14. There is no doubt that any tax paid to Government is to be allowed as deduction from the annual value as computed. In the case of the assessee, it is observed that all conditions have been satisfied for claiming and allowing property tax paid. It has been borne by owner of property and paid by owner of the property as well as paid during this year. Irrespective of how it is being claimed, whether it is claimed in regular rent or unrealised rent, it does not make any difference. Hence there is no ground for rejecting the claim of property tax paid. For the said reasons we direct the claim of property tax be allowed.
As regards Service tax, there is no doubt it is levied on the service provider though to be borne by the customer using the service. This is a mandatory levy and to be deposited to Government treasury. It has been brought to our notice by assessee that though the Licence Agreement dated 23.12.2016 in respect of Milan Property entered into with Pantaloon Retail (India) Pvt Ltd had expired on 31.12.2011 but the premises were vacated by licensee in August 2012. As per Settlement Agreement the licensee agreed to payment of service tax for the period December 2011 to August 2012. However, service tax for the period July 2008 to November 2011 amounting to Rs. 2,27,15,776/- got devolved on assessee and being mandatory levy, was accounted for in the impugned year and payment made to the Government. The fact of payment made to Service Tax authorities by the assessee is not in doubt by the lower authorities. It is also not in doubt that the rentals for the disputed period had been offered to tax in the respective 4 Assessment Year 2015-16 years. Further we observe that the assessee has not defaulted the payment of service tax even though it has failed to recover from the licensee. It is apparently loss to the assessee. The fair way to deal with the issue is, the assessee should be allowed the adjust the service tax paid against the unrealised rent first and the balance alone should be the rent realised. That being so we find merit in the contention of the assessee that the amount of service tax now paid by assessee represent the rentals which assessee could not realize, being disputed and not accepted by Licensee. Hence, we are unable to uphold the finding of the lower authority that the Settlement being a “package deal”, it is not possible to apportion portions of sum received under various heads such as “rent”, “service tax” etc. When the assessee has discharged a mandate which is a statutory levy, and when rentals corresponding to disputed period has been offered as income under the head House Property and brought to tax accordingly, the claim of the assessee that the obligation has the effect of reducing the unrealized rent to said extent, is not without merit. Therefore, we have no hesitation in holding that the assessee is eligible for reduction of said service tax from income offered on account of receipt of unrealized rent as the same merely represents the reimbursement of service tax and thus, the amount to the extent of service tax can be considered as unrealised rent from tenant. The AO is accordingly directed to allow said claim of assessee.
In the result the appeal is allowed.”
Since the disallowance made by the Assessing Officer in respect of the property tax and service tax were deleted by the Tribunal in the quantum appeal, the very basis on which the penalty was levied under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income does not survive. Accordingly, 5 Assessment Year 2015-16 we hold that penalty of INR – levied under Section 271(1)(c) of the Act vide a Penalty Order, dated 27/12/209, for the Assessment Year 2015-16 cannot be sustained and is, therefore, deleted.
Ground No. 3 and 4 raised by the assessee is allowed while all other grounds raised by the assessee are dismissed as having been rendered infructuous.
in result the present appeal preferred by the assessee is allowed.