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Facts
The assessee constructed City Square Mall intending to sell it, but subsequently let it out, offering the rental income as 'income from business and profession' and claiming depreciation. The Assessing Officer reclassified this income as 'income from house property' and disallowed depreciation, leading to a penalty under section 271(1)(c). Quantum proceedings, including the Tribunal, upheld the reclassification of income under 'house property'.
Held
The Tribunal held that merely offering income under one head (business income) that is later reclassified to another (house property income) does not constitute furnishing inaccurate particulars. This was particularly true as the issue was highly debatable in the relevant assessment year, and in earlier years, the same income had been accepted as business income. Therefore, the penalty levied by the Assessing Officer and confirmed by the CIT(A) was deleted.
Key Issues
Whether penalty under section 271(1)(c) is leviable when rental income from a commercial property, initially offered as business income, is subsequently reclassified as income from house property due to a debatable legal position.
Sections Cited
Section 271(1)(c) of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI M. BALAGANESH
ORDER PER AMIT SHUKLA, JM,
The aforesaid appeal filed by the assessee is against the order dated 31.05.2023 passed by the learned Commissioner of Income Tax (Appeals)-23, New Delhi, in relation to penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter ‘the Act’) for Assessment Year 2008-09.
The assessee is aggrieved by levy of penalty of Rs.42,35,247/- in respect of addition made by the learned Assessing Officer amounting to Rs.1,23,40,462/- on account of disallowance of depreciation on let out of property, which assessee had offered the rental income under the head ‘income from business and profession’ instead of ‘income from house property’.
Brief facts of the case are that the assessee had constructed a commercial building named as City Square Mall with intention to sale. However, later on, same was let out by the assessee on rental income, which was offered to tax under the head ‘income from business and profession’. The assessee has treated the rental income as business income to utilize the unsold assets for efficient management till the assessee get prospective buyer of the property.
However, the Assessing Officer noted that the assessee has not sold the property and was instead let out which continue to be let out year after year. Thus, income from the said property is chargeable to tax under the head ‘income from house property’. Therefore, the assessee was not eligible to claim depreciation on said property.
In the quantum proceeding, the matter reached to the stage of Tribunal, wherein, the Tribunal has also upheld that rental income received by the assessee is assessable under the head ‘income from house property’. Now, the penalty has been levied on such disallowance of depreciation on the ground that the assessee rental income is not assessable as business income but as ‘income from house property’. The Tribunal, in quantum proceedings had followed the judgment of Hon’ble Delhi High Court in the case of CIT vs Ansal Housing Finance and Leasing Company Limited. Against this order of the Hon’ble Delhi High Court, SLP has been admitted by the Hon’ble Supreme Court. Based on this quantum order, penalty has levied by the AO and has been confirmed by the Ld. CIT (A).
After hearing both the parties and on perusal of impugned order and material on record, we find that only reason for levy of penalty is that the assessee had shown the rental income as business income, whereas, in the quantum proceeding it has been held to be chargeable to tax under the head ‘income from house property’. Before us, it has been stated that in the earlier years, the rental income was accepted as business income, however, later on the same was treated as income from house property. The penalty has been levied for furnishing of inaccurate particular of income by claiming depreciation on stock in trade and shown as fixed assets of the company. Here, the assessee had duly explained the reason as to why it was showing the rental income from commercial complex i.e. City Square Mall, which was constructed with intention to sell the shops/ units. Since, the assessee has let out these shops and has treated them to be ‘business income’ but does not lead to inference of any furnishing of inaccurate particulars. It is only that later on view was taken based on a decision that such income should be chargeable to tax under the head ‘income from house 3 property’ and not from ‘business income’. Under these facts, it cannot be said that the assessee has furnished any inaccurate particulars of income. Merely because income has been offered under one head and later it has been held to be assessable in another head, that does not mean that the assessee is liable for penalty for furnishing of inaccurate particulars of income, especially when this was a highly debatable issue in the Assessment Year 2008-09 when, in the earlier years, the same income was even treated as business income. Accordingly, the penalty levied by the Assessing Officer and confirmed by the learned CIT (A) is deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04th March, 2024