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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-2, Mumbai, dated 03.02.2020, which in turn arises from the order passed by the A.O u/s 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 29.06.2017 for A.Y 2014-15. The assessee has assailed the impugned order on the following grounds before us: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act for the alleged concealment of the particulars of income.
2. The Appellant prays that the penalty levied u/s 271(1)(c) of the Act be deleted. GENERAL
2 M/s Bombay Gas Company Ltd. Vs. ACIT-1(1)(1)
The Appellant craves leave to add, alter, amend, modify and / or withdraw any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary.”
Briefly stated, the assessee company which is engaged in the business of finance and investment activity, letting and subletting of premises and trading in shares and securities etc. had e-filed its return of income for A.Y. 2014-15 on 26.11.2014, declaring an income of Rs.1,20,83,370/-. Thereafter, the assessee had filed a revised return of income on 14.12.2015 declaring a total income of Rs.1,74,75,865/-.The return of income filed by the assessee was initially processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had initially in its original return of income, inter alia, offered its rental receipts under the head “Income from house property”. However, as observed by the A.O, the assessee subsequent to the selection of its case for scrutiny assessment u/s 143(2) of the Act had revised its return of income on 14.12.2015 and offered the rental receipts for tax under the head „business income‟. On being queried as regards the flip flop treatment of the rental receipts under the head „business income‟ in the revised return of income as against that earlier offered for tax in the original return of income under the head „house property‟, it was the claim of the assessee that the same was done with an intent to reduce litigation. Justifying the offering of the rental receipts in its original return of income under the head „house property‟, it was submitted by the assessee that the department had in its case for the preceding years, viz. A.Y 2003-04, A.Y 2004-05 and A.Y 2007-08 had as per the order of the Income-tax Appellate Tribunal assessed the same as its income from „house property‟. Elaborating on the reason leading to the subsequent offering of the rental receipts for tax under the head „business income‟, it was submitted by the assessee that they were suggested by their tax consultant not to deviate from the 3 M/s Bombay Gas Company Ltd. Vs. ACIT-1(1)(1)
view that was taken by the department qua assessing of the rental receipts in the immediate preceding years and on the same line offer the same for tax under the head „business income‟. However, the bonafides demonstrated by the assessee which had led to filing of the revised return of income did not find favour with the A.O. Observing, that filing of the revised return of income by the assessee was backed by a malafide intent the A.O declined to take cognizance of the same, for reasons, which are culled out as under:
Assessee has declared rental income as “Profits & Gains from Business or Profession" during AY 2013-14 which has been accepted by department. Return of AY 2013-14 was filed on 30-09-2013 by assessee. Assesses filed original return of income for AY 2014-15 on 26-11-2014 treating income from rental as "income from house property" To reduce its taxable income. Return of AY 2014-15 was selected for scrutiny vide notice u/s 143(2) of Income Tax Act, 1961 dated 28-08-2015. Once case was selected for scrutiny, assesse filed revised return on 14.12.2015. This resulted in enhancement of returned income by Rs.53,88,495/-. What was the need for assesee to declare rental income as "Profits & Gains from Business or Profession" during AY 2013-14 and as "Income from House Property" during AY 2014-15 except to evade tax. Assessee took a chance to evade tax during AY 2014-15. Once case was selected for scrutiny, assessee revised its return of income. Assessee filed revised return not to make correct of any omission or any wrong statement as allowed by section 139(5) of Income tax Act, 1961, but to correct malafide action of evading taxes.” In the backdrop of his aforesaid deliberations, the A.O vide is order u/s 143(3) dated 27.12.2016 assessed the income of the assessee company at Rs.1,74,71,865/-, as against its original returned income of Rs.1,20,83,370/-. At the time of culmination of the assessment proceedings, the A.O alleging concealment of income by the assessee qua offering of the rental receipts under a wrong head of income had initiated penalty proceedings u/s 271(1)(c) of the Act.
4 M/s Bombay Gas Company Ltd. Vs. ACIT-1(1)(1)
Subsequently, the A.O holding a conviction that the assessee had sought to evade taxes by offering the rental receipts in its original return of income under a wrong head of income i.e „house property‟, therein, called upon it to show cause as to why penalty u/s 271(1)(c) for concealment of income may not be imposed on it. In reply, the assessee tried to impress upon the A.O that no penalty u/s 271(1)(c) was called for in its case. However, the explanation of the assessee did not find favor with the A.O and was rejected by him for the following reasons:
“Through its submission dated 37.01.2017, assessee has relied on the reasoning that returned income of assesses has been accepted as there is no difference in the income returned and assessed income. Accordingly, no penalty is leviable as per assessee However, assessee's reasoning is misplaced. In order u/s 143(3), it is clearly mentioned that assesse filed revised return not to make correct of any omission or any wrong statement as allowed by section 139(5) of income tax Act, 1961 Accordingly, returned income as per revised return of income filed by assessee was not accepted by this office. This office took into consideration returned income as per original return of income and total income was computed as Rs.1,74,71,065/-Thus, there is difference between returned income and assessed income of assessee. Assessee has been offering rental income as "income from business/profession" since the time it started earning rental income. Only during the year under consideration, it changed its stance while filing original return of income. By doing so, assesse took a chance to evade tax. Once case was selected for scrutiny assessee revised its return of income. If no penalty is levied for malafide action, assessee can venture to furnish wrong information with a hope of positive outcome. Reliance is placed on SC judgement in case of Dharmendra Textiles Processors wherein it was held that penalty u/s 271(1) (c) is a civil liability and that 'Wilful concealment" and "mens rea" are not essential ingredients for attracting the civil liability. Reliance is placed on SC judgment in case of MAK Data P. Ltd vs. CIT wherein it was held that explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. If such actions are not penalized, then there will not be any deterrence and assessees will sort of have a blanket immunity against penal actions for not offering true income.”
5 M/s Bombay Gas Company Ltd. Vs. ACIT-1(1)(1)
Accordingly, the A.O vide his order passed u/s 271(1)(c), dated 29.06.2017 imposed a penalty of Rs.17,48,297/- on the assessee company.
Aggrieved, the assessee assailed the order passed by the A.O u/s 271(1)(c) of the Act, dated 29.06.2017 before the CIT(A). However, the CIT(A) not finding favor with the contentions advanced by the assessee upheld the penalty imposed by the A.O and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee took us through the relevant facts of the case. It was submitted by the ld. A.R that the assessee backed by a bonafide belief had in its original return of income offered the rental receipts under the head „house property‟. It was submitted by the ld. A.R that as advised by its counsel that a deviation from the consistent offering of the rental receipts for tax under the head „business income‟ in the immediately preceding years was not suggested, that the assessee had filed a revised return of income. It was submitted by the ld. A.R that as the assessee on a suo motto basis by filing a revised return of income had offered the rental receipts under the head „business income‟, therefore, no penalty u/s 271(1)(c) could have validly been imposed.
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the assessee had with a malafide intention sought to evade taxes by intentionally offering the rental receipts under the head „house property‟, therefore, the A.O had rightly imposed penalty u/s 271(1)(c) of the Act. As regards filing of a revised return of income by the assessee, it was submitted by the ld. A.R that it was only when the case of the assessee was selected for scrutiny assessment that the assessee on being cornered had came forth with a revised return of income and had offered the rental receipts under the head „business income‟. It was 6 M/s Bombay Gas Company Ltd. Vs. ACIT-1(1)(1)
submitted by the ld. D.R that as the appeal filed by the assessee was devoid and bereft of any merit, therefore, the same was liable to be dismissed.
We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record. As is discernible from the records, the assessee had in its original return of income duly disclosed the rental receipts in question under the head „house property‟. However, on being advised by their tax consultant that as the said rental receipts were in the immediate past offered by the assessee and assessed by the department under the head „business income‟, therefore, a deviation from the same was not suggested, that the assessee had revised its return and offered the aforesaid rental receipts under the head „business income‟. On a perusal of the records, we find that the bonafides of the assessee in initially offering the rental receipts for tax under the head „house property‟ in its original return of income is fortified by the fact that as per the order of the Tribunal in its case for A.Y 2003-04., A.Y 2004-05 & A.Y 2007-08 the rental receipts were assessed under the head „house property‟. Although, the assessee had filed the revised return of income within the prescribed time limit contemplated in sub- section (5) of Sec. 139 of the Act, however, the A.O had declined to take cognizance of the same, for the reason, that he held a conviction that the assessee had taken recourse to revising of its return not for correcting any omission or any wrong statement, but to correct its malafide action of evading taxes. Backed by his aforesaid observations, the A.O had declined to take cognizance of the revised return of income of the assessee, and alleging an attempt on its part to suppress its income and evade taxes by offering the rental receipts under a wrong head of income i.e „house property‟ had imposed penalty of Rs.17,48,297/- u/s 271(1)(c) of the Act. On appeal, the CT(A) had upheld the penalty imposed by the A.O u/s 271(1)(c) of the Act.
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We have deliberated at length on the issue in hand, and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. Admittedly, it is a matter of fact borne from the record that the rental receipts in question were dully disclosed by the assessee in its original return of income for the year under consideration. As the rental receipts in the immediately preceding year i.e A.Y. 2013-14 were offered by the assessee for tax under the head „business income‟, therefore, as stated by the assessee, having been advised by its tax consultant that deviation from the aforesaid course of action and offering of the rental receipts for tax during the year under the head „house property‟ was not suggested, it had filed a revised return of income wherein the rental receipts were offered for tax under the head „business income‟. In the backdrop of the aforesaid facts, we are unable to subscribe to the view taken by the A.O that as the assessee by filing the revised return had sought to wriggle out of its premeditated action of offering the rental receipts under a wrong head with an intent to suppress its income and evade taxes, therefore, the same could not be admitted. In the absence of any material irrefutably supporting the allegation of the A.O that the filing of the revised return by the assessee was not for the purpose of undoing an omission or correcting a wrong statement in its original return of income, but with an intent to correct its malafide action of evading taxes, we are unable to persuade ourselves to accept the same. Backed by the aforesaid facts, we are of a strong conviction that as the assessee had validly filed a revised return of income, therefore, there was no justification on the part of the A.O to have brushed aside the same and saddled the assessee with the rigors of penalty u/s 271(1)(c) of the Act. Be that as it may, in our considered view a mere dislodging of the assessee‟s claim and re-characterization of the head of income under which the rental receipts were to be brought to tax can by no means justify levy of penalty u/s 271(1)(c) of the Act. As observed by us hereinabove, it is a matter of fact to which we cannot be oblivion i.e the assessee had duly disclosed the rental receipts in question in its original return of income.
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In fact, it is not even the case of the revenue that there is any suppression of the rental receipts by the assessee in its original return of income. Apropos, the claim of the revenue that the asessee had sought to suppress its true income by offering the rental receipts under the head „house property‟ as against „business income‟, we are of a strong conviction that the said unsubstantiated allegation cannot justify levy of penalty u/s 271(1)(c) of the Act. At this stage, we may herein observe that merely for the reason that a claim raised by an assessee, which is thereafter found by the revenue to be not sustainable in law, by itself cannot justify levy of penalty u/s 271(1)(c) of the Act. Our aforesaid view is supported by the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC). Backed by our aforesaid observations, we are of the considered view that even if the revised return of income filed by the assessee is not to be considered, the simpliciter rejection of offering of the rental receipts to tax under the head „house property‟ by the assessee would by no means justify levy of penalty u/s 271(1)(c) of the Act. We, thus, in terms of our aforesaid deliberations not finding favor with the view taken by the lower authorities set-aside the order of the CIT(A) and vacate the penalty of Rs. 17,48,297/- imposed by the A.O u/s 271(1)(c) of the Act.
Resultantly, the appeal of the assesee is allowed in terms our aforesaid observations.
Order pronounced in the open court on 27.09.2021