AXIS IMPEX,MUMBAI vs. D.C.I.T. RG. 14(2), MUMBAI

This appeal, filed by the assessee, being 27th April, 2012 passed by learned Commissioner of Income Tax (Appeals)- 25, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2005-06, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 30th March, 2011 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

The Brief facts of the case are that the assessee is engaged in the business of manufacture and export of household plastic and stainless steel articles. The assessee owned immovable properties consisting of several galas. During the assessment proceedings, the A.O. observed that the assessee had let out gala No. 1 to 6 to four persons at a monthly amount of Rs. 6000/-. The assessee has accepted interest free deposit of Rs. 12 lacs from the four persons. These four persons let out these galas within a week to M/s Anmol International @ Rs. 30,000/- per month. The A.O. observed that the assessee had disclosed the rental income at Rs. 72,000/- per annum i.e. Rs. 6000/- per month and also claimed depreciation on the value of these let out galas. The A.O. after examining the facts of the case held that the assessee had suppressed the rental income and also did not disclose the same under the head income from house property. The A.O. took the value of the rent at the rate of Rs. 30,000/- per month i.e. the rent paid by M/s Anmol International to four tenants of the assessee and brought the same to tax ITA 4309/Mum/2012 3 under the head ‘income from house property’ . The AO also disallowed depreciation on these let-out galas as the income was assessed to tax under the head ‘Income from House Property’ in quantum assessment procedings, and these additions were confirmed by the Ld.CIT(A) in quantum proceedings. The A.O. thereafter levied the penalty of Rs. 1,50,981/- i.e. minimum penalty @ 100% of the tax sought to be u/s 271(1)(c) of the Act vide penalty order dated 30th March, 2011 on the grounds that the assessee has failed to prove the true nature of income on letting out of the property as business income before the AO as well in appellate proceedings before the learned CIT(A) in quantum proceedings. The findings of the AO treating the same as income from house property and proportionate disallowance of depreciation on building were confirmed by learned CIT(A) and hence it was held by the AO that the assessee has concealed the particulars of income and also furnished in-accurate particulars of income by changing the head of income .During the course of penalty proceedings u/s 271(1)(c) of the Act before the AO, the assessee did not give any reply to show cause notices issued by the AO. Before the learned CIT(A) , the assessee protested the levy of penalty by the A.O. and submitted that the assessee owned a self contained industrial building containing 19 galas. Gala No. 1 to 6 were used by M/s Anmol International which is carrying out labour jobs for the assessee on an exclusive basis. The gala nos. 1 to 6 were licensed by the assessee to four ladies who are the mother and aunt of the partners of Anmol International and received a compensation of Rs.6000/- per month and a deposit of Rs.12 lacs was also received . The assessee disclosed the compensation of Rs.72,000/- as business income. The A.O assessed an amount of Rs.2.52 lacs under the head income from house property by treating the market value of the property @ Rs 30000/- per month less 30% standard deduction u/s 24(a) of the Act , being the amount charged by assessee licensee’s from M/s Anmol International. The assessee further submitted that the labour charges of Rs.32,07,310/- was paid by the assessee to M/s Anmol International which ITA 4309/Mum/2012 4 have also been allowed as deduction by the AO . The said 6 galas have been made for the use of Anmol International out of commercial expediency, as the said Anmol International was rendering labour job work for the assessee on exclusive basis . It was submitted that in these circumstances these 6 galas were used for the purposes of business of the assessee and as such depreciation was allowable in respect of the same and since section 22 of the Act excludes premises occupied for the purpose of business by the assessee and hence it cannot be brought to tax under the head ‘income from house property’. It was further submitted that if an assessee owns an industry and the workers use the premises belonging to the said assessee as their living quarters with or without charging any rent, the premises can certainly be said to be used for the purposes of business. It was further contended that the said 6 galas were not licensed directly to M/s Anmol International should not make any difference to the matter. The ladies to whom the said 6 galas leased out were the mother and aunt of the partners of M/s Anmol International. It was submitted that the assessee considered it safe to give license to individuals rather than a partnership firm whose partners may be subject to change. The assessee submitted that the fact remains that the said galas were used by Anmol International who were carrying out labour job for the assessee on exclusive basis. Thus, it was submitted that the assessee rightly brought to tax Rs. 72,000/- rent received by the assessee from the four ladies under the head ‘profit and gains from business or profession’ and claimed depreciation on industrial gala’s as the assessee has used the said premises for its business through Anmol International who were carrying out labour job for the assessee on exclusive basis. Thus, it was also submitted that disallowance of depreciation is not justified since 6 galas were used for the purposes of assessee’s business. Thus the assessee argued that no penalty u/s 271(1)(c) of the Act can be levied on the additions made by the A.O. The ld. CIT(A) rejected the contention of the assessee by holding that it was a sham and colourable transaction. The assessee has let out the galas for Rs. ITA 4309/Mum/2012 5 6,000/- per month to four different ladies on 13th April, 2004 and within a week i.e. on 20th April, 2004 these galas were let out by these ladies to M/s Anmol International for a rent of Rs. 30,000/- per month, hence, it was a sham and colorable device adopted by the assessee to suppress the real rent and thus the assessee evaded the taxable income liable to be taxed. The learned CIT(A) held that the leave and licesne agreement is entered into with four different ladies at different amounts of rent and accepting different deposits and hence certainly the assessee has not used six galas in the industrial building for the purposes of its business. The nature and character of receipt in the hands of the assessee is that of income from house property and the decision of the AO in treating as income from house property was upheld and the action of the AO of determining the annual lettable value u/s 22 of the Act at the rate at which the four ladies let out premises to Anmol International was upheld by learned CIT(A). The depreciation disallowance was also upheld based on fact situation of the case . The ld. CIT(A) accordingly dismissed the appeal of the assessee and upheld the penalty levied by the AO u/s 271(1)(c) of the Act.

Aggrieved by the appellate order of the ld. CIT(A) confirming the penalty u/s 271(1)(c) of the Act, the assessee is in appeal before the Tribunal.

The ld. DR. relied upon the orders of authorities below.

We have heard the ld. D.R. and also perused the material available on record. We have observed that the ground raised by the assessee that the ld. CIT(A) has not followed the Rule 46A of the Income-tax Rules, 1962 with ITA 4309/Mum/2012 6 respect to the admission of the additional evidences while disposing of the appeal of the assessee. The assessee has submitted before the learned CIT(A) that the AO has passed an ex-parte order in an hurry and levied penalty u/s 271(1)(c) of the Act without affording the assessee sufficient opportunity of being heard. The assessee submitted that the assessee has furnished the following additional evidences before the learned CIT(A), which was claimed to be submitted before the ld. CIT(A) for the first time:-

In the result, the appeal filed by the assessee in for the assessment year 2007-08 is allowed for statistical purposes as indicated above.