ITO 17(3)(5), MUMBAI vs. VASWANI CHAMBERS, MUMBAI

Briefly, the facts are the assessee, an Association of Persons (AOP), filed its return of income for the impugned assessment year on 22.10.2007, declaring income of ` 1,60,254/-. The return of income filed by the assessee was processed u/s. 143(3) of the Act. Subsequently, the Assessing Officer noticed that while computing the house property income, the assessee has claimed deduction of ` 1,83,95,335/- u/s. 24 of the Income Tax Act, 1961 towards excess recovery from outgoings by reducing it from rent received/receivable. The Assessing Officer being of the opinion that the assessee was not correct in claiming the said deduction u/s. 24 of the Act, re-opened the assessment u/s. 147 of the Act by issuing a notice, dated 12.03.2012, u/s 148 of the Act. In response to notice issued u/s. 148 of the Act, the assessee filed its return of income on 18.12.2012, declaring income of ` 1,12,751/- However, the assessee computed the house property income by withdrawing the deduction claimed u/s. 24 of the Act to the extent of ` 1,05,85,862/- on account of ‘excess of recovery from outgoings’ and showed it as ‘Income from other sources.’ As a result, the income of the assessee before allocation amongst Members/Co-owners was shown at ` 4,65,20,885/- as against ` 4,29,22,448/- shown in the original return of income. Of course, the Assessing Officer made a couple of other additions including the amount of ` 12,50,584/- towards BMC property taxes. On the basis of the difference of ` 35,98,437/- between the total income before distribution amongst Members as per the original return of income and return of income filed u/s. 148 of the Act, the Assessing Officer initiated proceedings for imposition of penalty u/s. 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income. In response to the notice issued u/s. 274 r.w.s. 271(1)(c), though, the assessee filed its explanation, stating that it has not furnished inaccurate particulars of income hence, the provisions of section 271(1)(c) are not attracted, however, the Assessing Officer rejecting the explanation of the assessee proceeded to pass an order imposing penalty of ` 11,11,917/- u/s. 271(1)(c) of the Act. The assessee challenged the aforesaid penalty order before the CIT(A).

The learned CIT(A) after considering the submissions of the assessee and in the context of facts and materials on record found that the assessee has computed the house property income in similar manner in the preceding assessment year, which has been accepted by the department. However, when the department didn’t agree with the computation of the assessee in the impugned assessment year, the assessee agreed to the stand of the department and filed a revised return in response to the notice issued u/s. 148 of the Act by offering the amount claimed as deduction u/s. 24 of the Act as ‘Income from other sources’. The learned CIT(A) observed that the assessee has furnished full particulars of the deduction claimed as well as the house property income received/receivable and it is only a case of claim of deduction by the assessee, which was disallowed by the Assessing Officer.

The learned DR strongly relied upon the observations of the Assessing Officer in the penalty order and submitted that the assessee has consciously claimed deduction u/s. 24 of the Act knowing well that such deduction is not permissible under the provisions of the Act. He submitted, unless the Assessing Officer would have noticed the wrong claim of the assessee and re-opened the assessment u/s. 147 of the Act, the income offered by the assessee in the revised return would have remained concealed. Therefore, the assessee has clearly tried to furnish inaccurate particulars of income, which attracts the provisions of section 271(1)(c) of the Act.

The learned AR strongly supporting the finding of the CIT(A) submitted that the assessee has correctly shown the rental income received/receivable by it. The learned AR submitted, apart from the rent, assessee also collects maintenance charges, which along with the rent is offered under the head ‘Income from house property’. He submitted that the assessee has followed the same method of computing ‘Income from house property’ in the earlier assessment years and the department has never raised any objection. He submitted, when the department objected to such methodology adopted by the assessee, the assessee filed revised return of income in pursuance of notice u/s. 148 of the Act by offering the maintenance charges as ‘Income from other sources’. He submitted, the other reasons for difference in income between the original return and revised return was due to the addition of BMC property taxes amounting to ` 12 lacs. The learned AR submitted, the assessee having disclosed full particulars of its income, merely because it accepted the view of the Assessing Officer on the issue of re-opening of assessment u/s. 147 of the Act, it cannot be concluded that the assessee has furnished inaccurate particulars of income.

We have considered the rival submissions and perused the material on record. As could be seen from the facts on record, in the original return of income for the impugned assessment year, the assessee while computing house property income has reduced an amount of ` 1,05,85,862/- from the rent received/receivable on account of ‘excess of recovery from outgoings’. However, in response to notice issued u/s. 148 of the Act, the assessee agreeing with the view of the Assessing Officer, withdrew the deduction claimed and offered the amount of ` 1,05,85,862/- as ‘Income from other sources’. Thus, from the aforesaid facts, it is clear that the assessee has furnished full particulars of its house property income including the maintenance charges received by it. This is further vindicated from the fact that from the computation of income of the assessee, the Assessing Officer having found that the deduction u/s. 24 of the Act has been wrongly claimed, re-opened assessment u/s. 147 of the Act. Thus, it is evident, the dispute between the assessee and the department is with regard to the proper head under which the amount received towards ‘excess of recovery from outgoing’ is to be assessed. It is also a fact on record that similar method for computing house property income was adopted by the assessee in the preceding assessment years and the department has also accepted it. Thus, on overall consideration of facts and material on record, we are of the opinion that the assessee has not furnished inaccurate particulars of income so as to invite the rigours of section 271(1)(c) of the Act. That being the case, we do not find any infirmity in the order of the CIT(A) in deleting the penalty imposed.

Before parting, we must observe, though, the learned DR has relied upon certain decisions however, having found them to be factually distinguishable, we do not find it necessary to deliberate any further on such case laws. Grounds raised by the department are dismissed

In the result, the Revenue’s appeal is dismissed.