SHAHZAAD S. DALAL,MUMBAI vs. ITO (IT) 1(1), MUMBAI

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ITA 4740/MUM/2014Status: DisposedITAT Mumbai17 March 2017AY 2010-113 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty is not leviable when the addition involves debatable issues and estimations. Furthermore, the notice for penalty proceedings was flawed due to the Assessing Officer not ticking the correct limb of Section 271(1)(c), indicating a non-application of mind.

What were the facts?

The assessee received deposits for rent, which were invested, and interest income was earned on accrual basis. The Assessing Officer made additions based on estimations for this interest income, leading to a penalty under Section 271(1)(c).

What were the issues?

The primary issue was the validity of the penalty imposed under Section 271(1)(c) when the underlying addition was based on estimations and debatable views. A secondary issue concerned the procedural validity of the penalty notice.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI

Before: SHRI D. KARUNAKARA RAO & SHRI SANDEEP GOSAIN

For Appellant: Shri Mukarram H. Sadikot
For Respondent: Shri Vishwas Mundhe, DR
Hearing: 28.02.2017Pronounced: 17.03.2017

सुनवाई की तायीख / Date of Hearing : 28.02.2017 घोषणा की तायीख /Date of Pronouncement : 17.03.2017 आदेश / O R D E R

PER D. KARUNAKARA RAO, AM:

1.

This appeal filed by the assessee on 11.7.2014 is against the order of the CIT (A)-10, Mumbai dated 31.10.2013 for the assessment year 2010-2011.

2.

In this appeal, assessee raised the only issue relating to the validity of the penalty u/s 271(1)(c) of the Act when the relatable addition involves estimations as well as multiple views. Bringing our attention to the facts of the case, Ld Counsel for the assessee submitted that the assessee received deposits in connection with the rent of premises and the said deposit was invested in HDFC Bank which paid interest income on accrual basis. Assessee is under obligation to offer the interest income at the end of the maturity of the bond. However, Assessing Officer proceeded to make addition on estimations and taxed the relatable interest income in year under consideration. This is the addition, which is the source for the present penalty u/s 271(1)(c) of the Act. 3. After hearing both the parties and on perusal of the orders of the Revenue Authorities as well as the relevant material placed before us, we find, this is the case of difference of opinion of the Assessing Officer and therefore, it is a debatable issue. As such, no penalty is levyable when the addition involves debate and estimations.

Therefore, in our view, this is not the fit case for levy of penalty. Further, we also find that the notice issued u/s 274 r.w.s 271(1)(c) of the Act dated 22.2.2013, the Assessing Officer did not tick the correct limb of clause (c) of section 271(1) of the Act. That suggests non-application of mind by the AO at the time of initiation of penalty proceedings. Considering the same, this appeal is required to be dismissed relying on the judgment of the Hon’ble jurisdictional High Court in the case of CIT vs. Shri Samson Perinchery in IT Appeal No.1154 of 2014 and others dated 5.1.2017 read with the judgment of the Hon’ble Karnataka High Court in the case of CIT vs. Manjunath Connon and Ginning Factory (359 ITR 565), which is relevant for the proposition that “penalty proceedings does not survive when the AO failed to delete from the standard profarma of the relevant clauses, such failure leads to an inference as to non-application of mind.”

12.

Considering the above binding judgment on the issue / arguments of the Ld Counsel for the assessee, we find, the order of the CIT (A) is required to be reversed. For the said reasons, penalty has to be deleted. Accordingly we order. Thus, grounds raised

by the assessee are allowed.

4. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 17th March, 2017.

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