ACIT 3(2)(1), MUMBAI vs. M J EXPORTS P.LTD, MUMBAI

Aforesaid appeal by the Revenue is against the order dated 14th October 2016, passed by the learned Commissioner (Appeals)–8, Mumbai, deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act”) amounting to ` 1,25,52,047, for the assessment year 2007–08.

2 M.J. Exports Pvt. Ltd. total income of ` 7,33,274. During the assessment proceedings, the Assessing Officer on verifying the material on record found that in course of assessment proceedings for assessment year 2006–07, as per AIR information it was found that assessee has not disclosed rent received from M/s. Chordia Fashions Pvt. Ltd. in the return of income filed by it. Therefore, the Assessing Officer proposed to add the said amount at the hands of the assessee. Though, the assessee objected to the proposed addition, however, the Assessing Officer rejecting the objections of the assessee added the rental income allegedly received by the assessee from M/s. Chordia Fashions Pvt. Ltd. while completing the assessment for assessment year 2006–07. Following the same reasoning, the Assessing Officer added an amount of ` 30,29,390 at the hands of the assessee in the impugned assessment year as well. Further, he noticed that the assessee has debited an amount of ` 3,88,05,315, to the Profit & Loss account towards interest payment. On verifying the details furnished by the assessee he found that the said amount relates to custom duty and penalty levied by the Collector of Customs, Mumbai, vide order dated 28th January 1994, towards goods imported by the assessee in financial year 1998–99. He observed that the assessee has disputed the levy of custom duty and the dispute went up to the Hon'ble Supreme Court and the Hon'ble Supreme Court vide order dated 14th August 2001, confirmed the levy of custom duty. Since, the assessee did not pay the custom duty

3 M.J. Exports Pvt. Ltd. within the stipulated period of three months from the date of demand, the Custom Authorities passed an order levying interest of ` 4,67,02,251, which was disputed by the assessee before the Hon'ble High Court and the Hon'ble High Court, while disposing off assessee’s petition confirmed the payment of interest for an amount of ` 3,88,05,315. On the basis of aforesaid facts, the Assessing Officer called upon the assessee to explain why the interest payment should not be disallowed, as such expenditure crystallized in financial year 2004–05. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer rejecting the submissions of the assessee disallowed the interest payment of ` 3,88,04,103. On the basis of aforesaid additions, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act and ultimately passed an order on 28th March 2013, imposing penalty of ` 1,25,50,047 under section 271(1)(c) of the Act alleging concealment of income. Against the penalty order so passed, the assessee preferred appeal before the first appellate authority.

4 M.J. Exports Pvt. Ltd. no penalty under section 271(1)(c) of the Act can be imposed. Insofar as addition made on account of disallowance of interest paid to Customs Department, the learned Commissioner (Appeals) held that the assessee cannot be accused of furnishing inaccurate particulars of income in respect of such addition. Therefore, penalty under section 271(1)(c) of the Act cannot be imposed. Thus, he deleted the penalty imposed by the Assessing Officer.

5 M.J. Exports Pvt. Ltd. he drew our attention to the order passed by the Co–ordinate Bench in and 4937/Mum./2012, dated 17th May 2016. Thus, he submitted that due to such relief granted by the Tribunal, penalty imposed on the disallowance of interest paid to the Customs Department, in any case, will not survive. As regards addition of rental income, the learned Authorised Representative submitted that the assessee has furnished full particulars of such income and has also stated the reason for which the assessee has not offered such income. Explaining further, he submitted that when identical issue arose in course of assessment proceedings for assessment year 2006–07, the assessee had furnished full particulars of the rental income of the property situated at Shiv Sagar Estate and has also stated the reason why it cannot be taxed at the hands of the assessee. The learned Authorised Representative submitted, though the Tribunal while deciding assessee’s quantum appeal for the impugned assessment year has upheld the addition made by the Assessing Officer, however, substantial question of law raised by the assessee in the appeal filed under section 260A of the Act before the Hon'ble Jurisdictional High Court has been admitted in assessment year 2006–07. Thus, he submitted that the issue relating to addition of rental income being a debatable issue, penalty under section 271(1)(c) of the Act should not be imposed.

6 M.J. Exports Pvt. Ltd.

7 M.J. Exports Pvt. Ltd. no.4874/Mum./2012, dated 17th May 2016, though, the Tribunal taking note of the fact that in preceding assessment year the issue was decided against the assessee has decided the issue against the assessee, however, the Tribunal allowed the declaration filed by the assessee under section 158A(1) of the Act and directed that the decision of the Hon'ble Jurisdictional High Court on the substantial question of law raised by the assessee in assessment year 2006–07 will be binding upon the respective parties. Thus, as could be seen from the facts on record, assessee’s claim that it is not the owner of the property, hence, rental income cannot be assessed at its hands has not attained finality pending decision on the substantial question of law raised by the assessee in assessment year 2006–07. It is further relevant to observe that the addition of rental income in the impugned assessment year is clearly on the basis of similar addition made in assessment year 2006–07. It is also evident; the assessee has not offered the rental income on the reasoning that it is not the owner of the property. However, all facts relating to the earning of such income has been furnished before the Assessing Officer. That being the case, the assessee cannot be accused of furnishing inaccurate particulars of income or concealment of income. Therefore, imposition of penalty on the basis of such addition is unjustified.

8 M.J. Exports Pvt. Ltd. 7. Having held so, we propose to deal with the issue of imposition of penalty from another aspect. On a perusal of the impugned assessment order, it is evident that the Assessing Officer while concluding the assessment proceedings has initiated proceedings for imposition of penalty under section 271(1)(c) of the Act with the following observing:–

“Penalty proceedings under section 271(1)(c) are hereby initiated”