SRK DEV BUILD PVT LTD.,INDORE vs. DCIT/ACIT 5(1), INDORE

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by appeal-order dated 02.11.2023 passed by learned Commissioner of Income-tax-NFAC, Delhi [“CIT(A)”] which in turn arises out of penalty-order dated 28.06.2019 passed by learned DCIT/ACIT-5(1), Indore [“AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for assessment-year [“AY”] 2016-17, the assessee has filed this appeal on following effective grounds:

ITA No. 471/Ind/2023 - AY 2016-17 SRK Dev Build Pvt. Ltd

income of AY 2016-17 declaring a loss of Rs. 1,83,40,596/-. The case was

selected for scrutiny and the AO completed assessment u/s 143(3) vide

assessment-order dated 26.12.2018 determining total income at

Rs.1,31,83,580/- after making three disallowances, namely (i) disallowance of

expenses u/s 40(a)(ia) of Rs. 14,10,480/-, (ii) disallowance of depreciation u/s

32(1) of Rs. 2,10,80,516/- and (iii) disallowance of interest u/s 37(1) of Rs.

90,33,182/-. The AO also initiated penalty proceedings u/s 271(1)(c) qua these

disallowances and issued show-cause notice dated 26.12.2018 u/s 274 r.w.s.

271(1)(c) on the footing that the assessee has ‘furnished inaccurate particulars

of income’. In response, the assessee furnished reply on 18.06.2019. After

considering assessee’s reply, the AO imposed penalty qua two disallowances

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out of three i.e. qua the disallowance of depreciation of Rs. 2,10,80,516/- and

disallowance of interest of Rs. 90,33,182/-, aggregating to Rs. 3,01,13,698/-.

The minimum and maximum penalty as per law came to Rs. 99,56,492/- and

2,98,69,476/-; the AO therefore imposed penalty of Rs. 1,00,00,000/-. vide

order dated 28.06.2019. The AO’s order is re-produced below for an immediate

reference:

“3. During assessment proceeding the AO has disallowed the depreciation of Rs. 2,10,80,516/- u/s 32(1) of the Income-tax Act, 1961 and also disallowed interest of Rs. 90,33,182/- u/s 37(1) of the Income-tax Act, 1961, and both were added to the total income of the assessee and penalty u/s 271(1)(c) was initiated separately on both disallowances for filing inaccurate particulars of income. 3.1 The AO has found that the assessee has claimed depreciation of Rs. 2,10,80,516/- on building, furniture, fixture, electrical installation, etc. installed at the DLF building which is to be used by the Institution to run the school, the assessee has entered into some kind of agreement with the school and have taken Rent deposit of Rs. 30 lacs in the previous year which is not disclosed by the assessee but it is quite clear that assessee has not used for any business purpose nor the assessee has shown any rental income on the said property being given on rent to the institution. The assessee has also claimed interest expenses of Rs. 90,33,182/- in the profit and loss account whereas the assessee is not carrying any business except letting out the properties and most of fund is being used for development of school building and installation of other amenities. Therefore, a show cause notice was issued to the assessee on 16.12.2018. The assessee filed its reply which was perused carefully and after detailed discussion, the AO had disallowed the above expenses during assessment proceedings. 3.2 The assessee filed its reply of penalty notice u/s 271(1)(c) stating that such disallowances have been made merely on the ground of difference in opinion in between the assessee and the revenue, wherein assessee being engaged in the main business activity of renting of immovable property offered the income under the head business and profession but the Ld. AO was of the view that such income should be offered under the head income from house property. However, it is our humble submission that the penalty is such a scenario should not be levied on the following proposition: That, the assessee filed its return of income making exactly the similar claim of depreciation and interest by offering the income

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under the head business & profession for the assessment year 2015-16 and for such an assessment year, such claim was validly accepted and assessment was done u/s 143(3) of the Act, thus, whether the income earned by the assessee should be offered as income from house property or income from business and profession is clearly the matter of debate and at the time of filing the return of income assessee bonafidely believed that since the core activity of the assessee company is renting of immovable property, thus, the same needs to be offered under the head business and profession. Therefore, in such a scenario it can be concluded that the assessee has not concealed the income nor furnished any inaccurate particulars of income.

The assessee placed reliance on the decision of CIT vs. Sambhav Media Limited (2013) 32 taxmann.com 371 (Guj), Karan Raghav Exports (P) Ltd. Vs. CIT (2012) 21 taxmann.com 8 (Del), CIT vs. Indusind Bank Ltd. (2015) 55 taxmann.com 406 (Bom), CIT v. Indersons Leather P. Ltd. (2011) 196 Taxman 103 (P&H) (MAG) and ITO vs. Roborant Investments P. Ltd. (2006) 7 SOT 181 (Mum). The assessee has stated that penalty initiated in the present case is not maintainable, therefore, it is our humble request to kindly drop the same.

3.3 Reply of the assessee perused carefully but found not acceptable as the assessee did not receive any income from Devi Ansuiya Vidhya Sansthan in the year under consideration except reimbursement of interest. There is no evidence on records that the assessee has directly or indirectly operated and managed the school. This is not sufficient evidence that the assets are owned by the assessee and the assessee is entitled for depreciation u/s 32 of the Income-tax Act, 1961. The depreciation and other expenditure claimed by the assessee are not incidental to the business of the assessee as the assessee is not carrying any business activity. The assessee has given the complete property on lease for an amount of Rs. 1,20,000/- per annum which is practically not possible and beyond the truth. There is no agreement for letting out the building and allied facilities to the Devi Ansuiya Vidhya Sansthan and assessee is not getting any recurring income out of the investment of Rs. 26 crore. Therefore, considering the above facts and figure in totality and legal proposition of the law, the assets let out to Devi Ansuiya Vidhya Sansthan cannot be classified as business income u/s 28 of the Income-tax Act, 1961. The income if any generated towards letting out the property, can be treated as income from house property, therefore, the deduction/ depreciation/interest expenses claimed as business expenses being incidental to the business of the assessee cannot be considered. Since the assessee has not used the assets for business purpose, therefore, the depreciation claimed at Rs. 2,10,80,516/- on the school building and allied facilities cannot be allowed to the assessee. Since the assessee has used borrowed fund for construction and development of school facilities for and on behalf of Devi Ansuiya Sansthan, therefore, the interest claimed by the assessee to the

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extent of Rs. 90,33,182/- cannot be considered as incidental to the business of the assessee. Therefore, cannot be allowed as business expenses. In view of the above there is no change of opinion. 3.4 In the case of Sambhav Media Limited, the assessee has claimed double deduction of depreciation on business asset while in this case the assessee has not used the assets for business purpose. In the case of Karan Raghav Export (P) Ltd., the AO disallowed the assessee’s claim for depreciation on ground the building was used by firm and not by assessee. Penalty on above disallowance was confirmed by the Hon'ble ITAT. In this case the assessee has not used the assets for business prose. In the case of Indusind Bank Ltd., the AO rejected assessee’s claim for depreciation in respect of certain lease transaction on ground that said transactions were not genuine while in this case the assessee has not used the assets for business purpose. In the case of Indersons Leather (P)Ltd, the assessee made a claim declaring its income as business income while AO held same to be income from house property but in the present case matter is related to depreciation. In the case of Roborant Investments (P) Ltd., the matter is related to rental income which was shown by the assessee as service charges under the head ‘Income from business’. The AO has assessed the said rental income as income from house property. In the present case, the matter is related to depreciation. In view of the above the referred case laws do not relate to the present case. It is also to be pertinent to mention here that the assessee has not relied any case law related to disallowance of interest. 3.5 In view of the discussions held in aforementioned paras, it is established that the assessee has committed default within the meaning and scope of the provisions of section 271(1)(c) of the Act by furnishing inaccurate particulars of income of Rs. 3,01,13,698/- by suppressing its taxable income. I am, therefore, satisfied that the assessee has furnished inaccurate particulars of income and has failed to disclose all the facts relating to the computation of its total income.” [Emphasis supplied] 3. Aggrieved, the assessee carried matter in first-appeal and filed

submissions but could not succeed. Now, the assessee has come in next appeal

before us.

imposed by AO:

(i) The assessee is a private limited company engaged in the business of

leasing of property. The books of accounts of assessee are duly audited

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under the provisions of Companies Act, 2013 as well as under section

44AB of Income-tax Act, 1961. There is a a clear-cut disclosure in notes

to audited accounts as well as the Clause 10 of tax audit report in Form

No. 3CD that the assessee is engaged in the business of renting of

property and the business of C&F works. The assessee has earned

revenue from rent and credited to audited P&L A/c. That apart, in the

penalty order itself at multiple places, particularly in Para 3.1 of penalty-

order the AO has himself stated “whereas the assessee is not carrying

any business except letting out the properties”. Thus, there is no doubt

or dispute regarding engagement of assessee in the business of letting of

properties.

(ii) The case of assessee for immediate preceding AY 2015-16 was also

subjected to scrutiny assessment wherein questionnaire u/s 142(1) was

issued and in response the assessee filed copies of all documents to AO

in the shape of ITR, ITR Forms, Computation of total Income, Audit

Report, etc. (Paper-Book Page 24-84). Upon perusal of those documents,

the AO assessed income of assessee under the head “Income from

Business or Profession” and also allowed deduction of depreciation and

interest expenditure claimed by assessee vide assessment-order dated

04.12.2017. Copy of assessment-order filed at Paper-Book Page 85-89 is

scanned and re-produced below:

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Referring to above assessment-order, Ld. AR pointed out that the AO has

categorically mentioned “10 – Nature of Business – Leasing of Property” in

the Table on Page-1 and thereafter mentioned “2. The assessee is a Pvt.

Ltd. company which is engaged in the business of leasing of property” on

Page-2. Thus, the AO has carefully examined the nature of assessee’s

business and stated so in the assessment-order of preceding AY 2015-

consideration, the AO made an altogether different observation and

disallowed deduction of depreciation and interest by stating “The income

if any generated towards letting out the property, can be treated as income

from house property, therefore, the deduction/depreciation/interest

expenses claimed as business expenses being incidental to the business of

assessee cannot be considered”. Ld. AR submitted that there is

absolutely no change in the nature of business carried on by assessee or

the nature of income earned by assessee, therefore the assessee had a

good case to contest the disallowances made by AO in AY 2016-17 under

consideration and the assessee could very sell succeed in appeal. But the

assessee did not file any appeal with the sole moto of closing litigation.

the income earned by assessee from subject property as ‘income from house

property’ and not as ‘business income’ and for that reason made the impugned

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disallowances of deductions, the AO was very much wrong in stepping further

and making a worse conclusion that the assessee has furnished inaccurate

particulars qua those disallowances and thereby invoking section 271(1)(c). Ld.

AR submitted that the assessee has disclosed complete and accurate

particulars of the claims of depreciation and interest expenses and it is not a

case of AO that the assessee has supplied any incorrect or erroneous or false

detail in the return or during assessment-proceeding. Therefore, in such a

situation, where is the furnishing of inaccurate particulars or even

concealment of particulars of income and how section 271(1)(c) could be

invoked? Ld. AR submitted that the case of assessee is very much covered by

landmark decision of Hon’ble Supreme Court in CIT Vs. Reliance Petro

Products (P) Ltd. (2010) 189 Taxman 322 (SC) where it was held thus:

"2. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:-

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript".

We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.”

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[Emphasis supplied]

assessee’s case, a few decisions are as under:

(a) ITAT, Indore in Turning Point Estates Pvt. Ltd. Vs. ACIT, ITA No.

354/Ind/2022, order dated 10.04.2023:

“2. The assesse is a Private Limited Company and engaged in the business of construction of commercial complex. The assesse filed its return of income for the year under consideration on 25.09.2012 declaring total income at NIL with current year loss of Rs.1,03,28,211/-. During the scrutiny assessment Ld. AO noticed that the assesse has debited in the Profit and Loss account the expenditure under the head Employees benefit expenses, depreciation, administrative and other expenses total amounting to Rs.1,03,54,633/-. Since there was no sale during the year under consideration, therefore, the Ld. AO was of the view that all the expenses must have been capitalized instead of showing as revenue expenditure. Ld. AO consequently, disallowed these expenses total amount to Rs.1,03,54,633/- and assessed the total income at Rs.26,420/- as against the loss of Rs.1,03,28,211/-. The Ld. AO initiated penalty proceedings u/s 271(1)(c) and levied the penalty in respect of this addition made by disallowing the expenses while passing the order dated 26.03.2018. The assesse challenged the order of the Ld. AO u/s 271(1)(c) before the Ld. CIT(A) but the Ld. CIT(A) has dismissed appeal of by the assessee for want of any reply/details. 3. Before Tribunal the Ld. AR of the assesse has submitted that earlier there were physical hearing going on before the Ld. CIT(A) and the assessee appeared and filed the reply before the Ld. CIT(A). However, subsequently, due to change of hearing process from physical to Faceless the impugned order was passed by the ld. CIT(A) in the Faceless proceedings without considering the reply filed by the assesse during the physical hearing. Thus, the Ld. AR has submitted that the impugned order passed by the ld. CIT(A) without considering reply already filed by the assessee is against the principles of natural justice and liable to set aside. He have further submitted that the levy of penalty u/s 271(1)(c) of the Act is otherwise not sustainable as it is not a case of concealment of particulars of income or furnishing inaccurate particulars of income. The assessee has disclosed all the relevant facts in the return of income and the claim of expenditure is not found to be bogus or incorrect but Ld. AO has disallowed the claim of expenditure on the ground that there was no sale during the year under consideration and in the opinion of the Ld. AO entire expenditure should have been capitalized. The ld. AR has submitted that all the expenses are general in nature and have been incurred for the purpose of running and maintaining the business of assessee company. The expenses are recurring in nature and day to

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day expenses which are in revenue nature and therefore the assesse has rightly debited the same in the profit and loss account. None of the expenses are related to the project but these expenses are only recurring in nature being payment to employees on account of salaries and wages as well as staff welfare expenses, depreciation on the business assets and other administrative expenses incurred on account of rent, professional fee, repairs and maintenance etc. Therefore, the claim of the assesse was bona fide claim and cannot be held as assesse has committed any default of concealment of income or furnishing inaccurate particulars of income. In support of his contention he has relied upon the judgment of Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 and submitted that the disallowance of claim which is not allowable as per the provisions of law by itself will not amounting to furnishing of inaccurate particulars of income when the assesse has disclosed and furnished all the relevant facts and details. He has also relied upon the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (2011) 18 ITJ 65 (MP). 4. On the other hand, Ld. DR has submitted that in the quantum appeal Ld. CIT(A) has decided this issue against the assesse and therefore, addition made by the AO has attained finality as assessee has not filed further appeal. The assessee has made impermissible claim of expenses when there is no business activity of the assessee particularly no sale during the year under consideration. Therefore, the claim of the assessee was rightly disallowed by the AO as incorrect claim and consequently levied penalty u/s 271(1)(c) of the Act. He has relied upon the orders of the authorities below. 5. We have considered the rival submission as well as relevant material on record. The Ld. AO has disallowed the claim of various expenses in para no.2 of the assessment order as under: 2. Disallowance of Administrative and other expenses:- During the course of assessment proceedings, on perusal of P&L account it is seen that the assessee has debited of total amount of Rs. 1,03,54,633/- under the head employee benefit exp., depreciation and administrative and other expenses. Further, the assessee has shown revenue from operation as Nil. It shows that there is no sale of stock in trade during the year under consideration. As per the accounting policy if there is no revenue operation from sale of stock in trade all expenses must be capitalized. But at the same time expenses related to employee benefit exp., depreciation and administrative and other expenses totaling of Rs. 1,03,54,633/- (727551+123176+9503906) shown as revenue expenditure was not capitalized. Vide order sheet dated 09.03.2015 The Ld. Counsel was asked to show cause why the expenses of employee benefit exp., depreciation and administrative and other expenses should not be capitalized as per

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accounting standard and policy. The facts brought to the knowledge of Ld. Counsel. Therefore, the Ld. Counsel of the assessee has not filed any written submission in respect of claim of expenses. Therefore, in absence of documentary evidences total expenditure of Rs.1,03,54,633/- which is not a revenue expenditure and must be treated as capital expenditure, and it is hereby being disallowed and added back to closing stock of the Assessee company. Penalty proceedings u/s 271(1)(c) of the IT Act, 1961 is hereby being initiated separately for assessee furnishing inaccurate particulars of his income. 6. Ld. AO has disallowed the claim of expenses under the head Employees benefit expenses, depreciation, administrative and other expenses. The Ld. AO disallowed these expenses by treating the same as capital in view of the fact that during the year under consideration there was no sale by the assessee. Ld. AO did not doubt the correctness of the expenditure incurred by the assesse under these heads. Therefore, the genuineness and correctness of the expenditure incurred by the assessee are not in dispute or doubted by the Ld. AO but the claim was disallowed only on the ground that during the year under consideration there was no sale and therefore, these expenses must be capitalized instead of showing as revenue expenditure. It is also not in dispute that the very by nature of these expenses reveals that these are not falling under the capital field but all are revenue expenditure as these are all incurred for keeping the assessee company alive and going concern. It is also not the case of the department that the assesse has closed its business but it was only an isolated instance for the year under consideration, where there were no sales. When inherent nature of these expenses are revenue then the claim of the assesse is a bona fide claim and the assessing officer has disallowed said claim not on the ground of correctness or genuineness of the expenditure incurred by the assessee but due to no sale during the year under consideration. It is a simple case of difference of opinion as the assessee has claimed these expenses as allowable whereas the Ld. AO has opined that the expenses are not allowable for want of any sale during the year and held that all the expenditure ought to have been capitalized. 7. Hon’ble Supreme Court in case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) while dealing with the issue of levy of penalty u/s 271(1)(c) of the Act against the disallowance of expenses held in para 8 to 10 as under: XXX (not reproduced for brevity) 8. Thus, when particulars provided by the assessee in the return of income are found to be correct except the allowability of the claim due to the provisions of law then, the same cannot lead to the conclusion that the assessee has furnished inaccurate particular of income or concealment of particulars of income inviting the penalty u/s 271(1)(c) of the Act. A mere making of the claim, which is not

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sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the case in hand, the assessee has claimed the expenses by debiting in the profit and loss account but the Ld. AO did not accept the claim on the ground that due to no sale during the year expenses ought to have been capitalized would not ipso facto attract penalty u/s 271(1)(c) of the Act. 9. The Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (supra) has considered an identical issue in para 6 & 7 as under: 6. Having heard learned counsel for the appellant, we find that in the absence of any in- dependent finding by the AO that the assessee either concealed his income or furnished inaccurate particulars, merely because the assessee treated it as a business loss, whereas the Revenue treated it as a capital loss, the provisions contained under s. 271(1)(e) of the Act would not attract. In the circumstances, we find no infirmity in the order passed by the Tribunal. 7. In our considered view, the finding recorded by the Tribunal that the assessee did not conceal his income nor furnish the inaccurate particulars, are wholly justified and needs no interference. Merely on the basis of finding recorded by the Tribunal in the original proceedings (quantum proceedings) in which it has been observed that the assessee has concealed certain facts, would not itself attract provisions of s. of the Act. In the absence of any mens rea a finding about concealment of particulars of income or furnishing inaccurate particulars, in our considered view, could not have been arrived at. Accordingly, no case for interference in the order passed by the Tribunal is made out. As a result, the appeal fails and is hereby dismissed. 10. Accordingly, in the facts and circumstances as discussed above as well as following judgment of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) as well as judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Praveen B. Gada (HUF) (supra), the penalty levied by AO u/s 271(1)(c) of the Act by treating the expenditure as capital is not justified and the same is deleted.” (b) ITAT, Indore in Krishi Upaj Mandi Samiti Vs. ITO, ITA No.

241/Ind/2009, order dated 11.11.2009:

“2. The facts, in brief, are that the assessee declared rental income under the head “Income from Business”, which was changed to “Income from House Property” by the CIT(A). The Tribunal also confirmed the said decision of the Ld. CIT(A). Thereafter, the Ld. CIT(A) levied a penalty u/s 271(1)(c) of the Income-tax Act, 1961, by holding the assessee was guilty for claiming the

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inadmissible expenses like depreciation, repairs and other expenses by offering income under wrong head. Aggrieved by this, the assessee is in appeal before us. 3. The Learned counsel for the assessee submitted that such income was duly disclosed in the books of account and a legal claim had been made by the assessee in regard to such rental income as such rental income had been derived from the properties, which were used as a part of its business activities to enable the cultivators to store their produces in the godown/storage provided by the assessee. Hence, it was neither a case of concealment of income nor a case of furnishing of inaccurate particulars of income. The Learned counsel, in this regard, placed reliance on various judicial decisions and in particularly referred to the decision of the Tribunal in the case of ITO vs. Roborant Investments (P) Limited, as reported in (2006) 7 SOT 181, wherein on identical facts, the penalty levied u/s 271(1)(c) of the Income-tax Act, 1961, had been cancelled. 4. The ld. Departmental Representative relied on the order of the Ld. CIT(A).

(P) Ltd. (2011) 196 Taxman 103 (P&H) (Mag):

“2. The assessee made a claim declaring his income as business income while the AO held the same to be income from house property, which view has been upheld by the Tribunal. The AO also levied penalty u/s 271(1)(c), which was upheld by the Ld. CIT(A). The Tribunal, however, held that the assessee was not guilty of any concealment or giving inaccurate particulars and had raised a debatable issue. In such a situation, penalty was deleted.

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debatable issue, we are unable to hold that any substantial question of law arises. 5. The appeal is dismissed.” (d) ITAT, Indore Bench in Shri Abhishek Jhaveri Vs. ACIT, ITA No.

526/Ind/2010, order dated 28.09.2011:

“4. We have gone through the orders of the authorities below and considered rival contentions of the ld. Authorized Representative and ld. Sr. DR from the record we found that the AO has accepted the income declared by the assessee. However, nature of income so offered as short term capital gain was not accepted by the AO and he changed the head of income to business income. Under the provisions of section 271(1)(c), the pre-requisite condition for initiation of penalty is that there should concealment of income or furnishing inaccurate particulars of income. However, both the conditions are absent in this case, since whatever income was declared was accepted and assessee declared full details of short term capital gains in shares with each script, period of holding etc. The transactions were through electronics system and assessee is also having a Demat account with margin penal. The contention of the assessee was that shares were purchased as an investment and also accounted for in the books of investment, but the same were treated as stock in trade by the AO and, therefore, the gains over same was taxed under the head of business income, it is merely matter of opinion which cannot constitute basis for holding that the assessee has concealed any income. The issue with regard to levy of penalty on account of disallowance of claim is squarely covered by the decision of Hon'ble Supreme Court in the case of Reliance Petro Products, 322 ITR 158 (S.C).” 7. Per contra, Ld. DR for revenue made following submissions: (i) In Para 3.3 and 3.4 of penalty-order, the AO has clearly mentioned that

the assessee did not receive any income from Devi Ansuiya Vidhya

Sansthan (tenant) in the year under assessment except reimbursement

of interest. Therefore, there is no rental income earned by assessee to be

assessed as ‘income from business’.

(ii) The assessee has not challenged the assessment-order passed by AO and

clearly accepted the disallowances made by AO. When it is so, the

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assessee cannot impugn penalty imposed by AO qua those very

disallowances?

(iii) The case of preceding AY 2015-16 was under “limited scrutiny” whereas

the case of present AY 2016-17 was under “complete scrutiny”.

Therefore, there is no parity in two assessments and the assessee cannot

derive any benefit out of assessment of preceding year.

(iv) Lastly, Ld. DR relied strongly upon the orders of lower-authorities.

(i) The AO has noted following observations on Page 23-24 of assessment-

order, copy at Page 190-191 of Paper-Book:

“The brief observations on financials of the company are as under: 5. Interest expenses reimbursed by Devi Ansuiya Vidhya Sansthan to the assessee approx. Rs. 1.67 crore, which is not sufficient consideration to leased out the property. 6. Income received from Devi Ansuiya Vidhya Sansthan during the year under assessment in the form of rent or any other nature Nil. As per lease-deed the assessee was entitled to get Rs. 1,20,000/- lease amount in the year under assessment out of the Investment of Rs. 26 crore by the assessee which is not sufficient consideration to leased out the property.” Thus, the assessee was entitled to receive lease-rent of Rs. 1,20,000/-

only under lease-agreement yet the assessee recovered reimbursement of

interest expense from tenant which is as high as Rs. 1.67 crore. This

recovery/reimbursement has been credited to “Interest Expenditure” A/c

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of assessee and thereafter only net interest expenditure is debited to P&L

A/c. This recovery/reimbursement from tenant is more than rent. Ld. AR

went on explaining further that it was a commercially expedient decision

of assessee to agree to receive rent of Rs. 1,20,000/- from tenant because

the tenant is a ‘not-for-profit’ company u/s 25 of Companies Act and it

was in the initial stage of school and assured to pay better rental in

future once the school yields sufficient revenues. But despite agreement,

the assessee recovered higher sum from tenant in the form of

reimbursement of interest, hence no adverse view can be taken in this

regard.

(ii) Even if the assessee has not challenged the assessment-order to close

the litigation, the assessee cannot be precluded from contesting penalty

because assessment-proceedings and penalty-proceedings are two

separate and independent proceedings.

(iii) Although the assessment of preceding AY 2015-16 was selected for

“limited scrutiny” but all details of income, heads of income, etc. which

are basic details in assessment of any assessee, were very much

available before AO and the AO has accepted assessee’s returned income

after perusal and consideration.

orders of lower-authorities as well as the material held on record and the

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judicial decisions to which our attention has been drawn. The controversy in

present case relates to the validity of penalty imposed by AO u/s 271(1)(c). The

admitted facts are such that the assessee is a company and it is engaged in the

business of letting/renting of properties. This fact is accepted by AO repeatedly

in assessment-order of preceding AY 2015-16, assessment-order of current AY

2016-17 and the impugned penalty-order itself. The AO has also mentioned in

Para 3.1 of penalty-order thus “The AO has found that the assessee has claimed

depreciation of Rs. 2,10,80,516/- on building, furniture, fixture, electrical

installation, etc. installed at the DLF building which is to be used by the

Institution to run the school, the assessee has entered into some kind of

agreement with the school”. This noting by AO further admits that the assessee

has provided not only building but also furniture, fixture, electrical installation,

etc. to the tenant to run as school. Therefore, these two vital facts, namely (i)

the assessee is engaged in the business of letting/renting of properties and (ii)

there is a composite structure of building with furniture, fixture, electrical

installation, etc., transpire that the claim made by assessee in the return of

income for taxability under the head “Income from business” was also having a

sufficient force. In fact, Ld. AR has claimed that the AO in preceding AY 2015-

16 has accepted the very same activity/income of assessee as “Income from

business”. However, in current AY 2016-17 only, the AO has treated the same

activity/income as “Income from House Property” in assessment-order and

disallowed the deductions of depreciation and interest. But since the assessee

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has not filed any appeal against assessment-order, we do not have that issue

before us and we do not wish to make any further comment on either side.

However, we find that the AO has also imposed penalty u/s 271(1)(c) qua the

disallowances of depreciation and interest expenses by treating it as a case of

“furnishing inaccurate particulars”. This approach of AO is, in our considered

view, not a justified approach according to the settled decisions of various

judicial forums as narrated earlier. The Hon’ble Supreme Court has

categorically held in Reliance Petro Products (P) Ltd. (supra) that unless the

assessee has supplied any incorrect or erroneous or false information to

department, this would not be a case of inviting the penalty u/s 271(1)(c). It is

further held that a mere making of the claim, which is not sustainable in law,

by itself, will not amount to furnishing inaccurate particulars. Same view has

been taken by ITAT, Indore in Turning Point Estate Pvt. Ltd. (supra).

Similarly, ITAT Indore in Krishi Upaj Mandi Samiti (supra) and Hon’ble

Punjab & Harayana High Court in Indersons Leather Pvt. Ltd. (supra), have

categorically held that in a case where the assessee declared rental income as

“business income” but the AO assessed as “Income from House Property”, there

is neither concealment of income nor furnishing of inaccurate particulars of

income and penalty u/s 271(1)(c) is not attracted. Thus, in the light of these

decisions, it is very clear that in the present case of assessee where the AO has

merely rejected a claim of deductions of depreciation and interest made by

assessee on the premise of change in taxability head but without finding any

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incorrect or erroneous or false information having been supplied by assessee,

no penalty can be imposed. Hence, the present case is not fit for imposition of

penalty.

address two concerns raised by revenue. The first concern is such that the

assessee has not received any rent from tenant. In this regard, we notice that

the assessee has made a recovery of Rs. 1.67 crore during current year from

tenant. Although the assessee has not received any money in the nomenclature

of rent yet the recovery of Rs. 1.67 crore from tenant is a much higher

compensation than the rent of Rs. 1,20,000/- agreed in lease-agreement. The

second concern of revenue is such that the assessee has not filed any appeal to

contest the disallowances made in assessment-order and therefore the

assessee cannot raise objection against imposition of penalty qua those

disallowances. This concern, in our view, is meritless because assessment-

proceeding and penalty-proceedings are two distinct and separate proceeding.

Any addition/disallowance made in assessment-proceedings and even if not

contested by assessee for any reason, does not attract penalty automatically.

The assessee is within his right to claim and prove on facts and with the

support of decided judicial rulings, that there is no concealment of income or

furnishing of inaccurate particulars of income and therefore the penalty u/s

271(1)(c) is not attracted. As discussed in earlier para, we have also found that

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the present case of assessee is not a fit case for imposition of penalty. Thus,

both of the concerns of revenue are devoid of merit and rejected.

at a conclusion that in the present case, the penalty imposed by AO is not

sustainable. Therefore, we delete the penalty. The assessee succeeds in this

appeal.

Order pronounced in open court on 20.06.2024.

Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 20.06.2024 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore

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