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Facts
The assessee, engaged in renting immovable property, filed its return declaring a loss. During assessment, it revised its computation and claimed deductions. The AO initiated penalty proceedings under Section 271(1)(c) for allegedly furnishing inaccurate particulars. The CIT(A) confirmed the penalty.
Held
The Tribunal held that making an incorrect claim, which is subsequently corrected, does not automatically amount to furnishing inaccurate particulars to attract penalty under Section 271(1)(c). It relied on Supreme Court judgments emphasizing that penalty provisions should not be invoked without valid grounds showing factual concealment or inaccurate particulars.
Key Issues
Whether penalty under Section 271(1)(c) is leviable when an assessee makes a claim in its return, which is subsequently corrected, and not on grounds of concealment or furnishing of inaccurate particulars.
Sections Cited
271(1)(c), 143(1), 143(2), 142(1), 24
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Learned Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)”], passed under section Page | 1 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 27.07.2023 for the A.Y. 2015-16 wherein the penalty has been imposed u/s 271(1)(c) of the Act.
The brief facts of the case are that, the assessee has filed the return of income for the year under consideration on 30.09.2015 declaring loss of Rs. (-) 2,83,67,361/-. The return of income was processed u/s 143(1) of the Act and subsequently, the case was selected for limited scrutiny and notice u/s 143(2) of the Act dated 12.04.2016 was sent and served upon the assessee. Notice u/s 142(1) of the Act dated 07.07.2017 was also sent alongwith questionnaire for limited scrutiny. The assessee filed the revised reply to the said notice. It is noticed that the assessee company is engaged in the business of renting of immovable property. During the course of assessment proceedings the assessee filed revised computation of income declaring total loss at (-) Rs.2,51,74,380/-. It is noticed on perusal of the computation of income, the assessee company has shown annual rental income of Rs. 2,97,65,267/- and claimed deduction u/s. 24 of Rs.89,29,580/- resulting rental income at Rs.2,08,35,687/-. During the course of assessment proceedings, the assessee company filed revised computation of income wherein under head „income from house property‟ Page | 2 the assessee company has shown Rs. 1,91,22,000/- against Rs.2,97,65,267/- claimed in the original computation of income. Accordingly, the standard deduction is also reduced from Rs. 89,29,580/- to Rs.57,36,600/-. Therefore the difference of Rs.31,92,981/- was accordingly added to the total income of the assessee and penalty proceedings u/s.271(1)(c) of the Act was initiated separately for furnishing inaccurate particulars of income/concealed income.
Vide penalty order dated 26.02.2018 passed u/s 271(1)(c) of the Act, the AO imposed the penalty of Rs. 22,13,910/- being 100% of the tax sought to be evaded by the assessee.
Aggrieved by the said order of penalty, the assessee filed the appeal before Ld. CIT (A) who vide impugned order dated 27/07/2023, dismissed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), assessee preferred the appeal before us on the following grounds:-
1. On the facts and circumstances of the case and in law the National Faceless Appeals Centre (NFAC) has legally erred in levying penalty under section 271(1)(c) of the Income Tax Act, 1961 of Rs. 22,13,910/- on additions amounting to Rs. 65,13,428/- made during the assessment proceedings which were voluntarily offered by the appellant. The Appellant prays before your lordship to direct the National Faceless Appeals Centre to delete the penalty of Rs. 22,13,910 imposed under section 271(1)(c) of the Income Tax Act, 1961.
2. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal
herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
6. We have heard Ld. AR who argued that assessee filed the return of income for the year under consideration and claimed rental income and deduction u/s 24 of the Act under the head income from house property and accordingly submitted revised computation of income. Therefore, Ld. AR submitted that this does not make out ground for imposing penalty and the impugned order is liable to be set aside. Ld. AR relied on the judgment of Coordinate Bench of ITAT in the case of Kamal Enterprises and New Life Hospital vs. DCIT (2024) 160 taxmann.com 39 (Hyd – Trib). On the other hand, Ld. DR supported the orders of AO as well as Ld. CIT(A) and stating that penalty has been rightly imposed.
7. We have considered the rival submissions and perused the material placed on record. We have also gone through the judgment relied on by the assessee in the case of Kamal Enterprises and New Life Hospital (supra) Page | 4 wherein assessee has also filed the return of income declaring an income of Rs. 86,90,973/- and subsequently revised the same declaring the income of Rs. 33,64,220/- and in the original return of income the assessee considered the entire lease rent amounting to Rs. 1,87,50,000/- as business income claiming full depreciation on the assets, including building and equipment for the entire year; whereas in the revised return, the assessee claimed lease and receipt as income from house property to claim 30% standard deduction under section 24 of the Act and also the depreciation on fixed assets on building and equipment for the entire year. Since the assessee claimed depreciation on business assets, the Ld. AO treated the income of the assessee as income from business and initiated penalty proceedings under section 271(1)(c) of the Act on the ground of furnishing inaccurate particulars. On appeal, the Ld. CIT(A) confirmed the penalty imposed by AO. The operative portion of the order of Coordinate Bench is extracted below:-
9. Lastly, it is an established principle of law that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt Page | 5 an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.
10. We can find an authority on this aspect in the case of CIT vs Reliance Petroproducts Pvt Ltd [2010] 322 ITR 158 (SC), wherein the Hon’ble Apex Court held that when the assessee preferred a claim, it was up to the authorities to accept its claim in the return or not, but merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under Section 271(1)(c) of the Act. It was further held that if the contention of the Revenue is accepted, then in case of every return where the claim made is not accepted by the learned Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c) of the Act and that is clearly not the intendment of the Legislature.
11. Merely because the assessee preferred a claim which was not acceptable to the Revenue, the assessee cannot be visited with the proceedings under section 271(1)(c) of the Act, unless and until the twin requirements under section 271(1)(c) of the Act are satisfied. Viewing from any angle, we find that the impugned penalty order is unsustainable in law and while accepting the plea of the assessee, we hold that the penalty cannot be sustained. Accordingly, we direct the learned assessing officer to delete the same.
In the result, appeal of the assessee is allowed.
While imposing the penalty, the AO was of the view that the penalty under that provision is a civil liability. Willful concealment is not an Page | 6 essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C of the Act. Ld. AO held that assessee has deliberately filed inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The Ld. CIT(A) has justified the penalty levied by the AO on the ground that assessee filed inaccurate particulars of income and sought to evade tax at Rs. 65,13,428/- and confirmed the penalty order of AO.
What is concealment of income or inaccurate particulars of such income as contemplated by Section 271(1)(c), has been explained by the Hon'ble Supreme Court in the case of the CIT Vs. Reliance Petro Products (P.) Ltd. as reported in 322 ITR 158 wherein it has been held as under: -
"A glance at the provision of s. 271(l)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the s. 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under s. 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income."
It is evident from the above judgment that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In the case in hand, the assessee has made an incorrect claim while filing the return of income which was subsequently corrected and modified. Thus, the present case is squarely covered by the decision of Hon‟ble Supreme Court referred above. Further, all the facts of the decision of Coordinate Bench of ITAT in the case of Mahesh Vrajlal Babaria (ITA No. 1867/Mum/2024) dated 11.07.2024 are also similar wherein the Hon‟ble Bench has deleted the penalty imposed by AO. Therefore, it cannot be said that assessee has concealed income or furnished inaccurate particulars of income. Hence, the penalty u/s 271(1)(c) is not sustainable.
For the above reasons, we are of the considered opinion that the revenue has failed to show that the assessee has concealed the particulars of Page | 8 income or has furnished the incorrect particulars of such income and the case of the assessee is not covered u/s. 271(1)(c) of "the Act". For these reasons, we delete the penalty imposed in this case and confirmed by the impugned order. The grounds of appeal are decided in favour of the assessee.
12. In the result, the appeal is accordingly allowed in the above terms.
Order pronounced in the open court on 09.01.2025.