J.RAVICHANDRAN,CHENNAI vs. ITO, CHENNAI

This appeal is filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-12, Chennai dated 14.12.2015 and pertains to assessment year 2001-12. All the grounds of appeal are related to the penalty levied under section 271(1)(c) of the Income Tax Act, 1961 (in short “the Act”).

During the assessment proceedings, the Assessing Officer found that the assessee has made the claim of interest on borrowings for renovation of house property at No.2034, Annanagar, Chennai-40. In the scrutiny assessment for the assessment year 2002-03, the Assessing Officer issued letter to the tenant of the assessee causing enquiries regarding the repairs undertaken and received reply from the tenent stating that the assessee has not made any addition or alteration to the building No. 2034, Annanagar, Chennai as claimed by the assessee. Hence, the Assessing Officer disallowed the interest of Rs. 80,000/- claimed by the assessee under section 24 of the Act.

Similarly, the assessee claimed business loss of Rs.90,350/- in the return of income for the A.Y. 2001-02. The Assessing Officer called for the evidences for carrying on the business to allow the claim of the business loss. The assessee produced the books of accounts maintained by him and also furnished the names and addresses of the persons from whom the commission was received in connection with the real estate business. Letters were issued by the A.O to the parties for confirmation but none of the letters could be served, hence, the Assessing Officer disbelieved the assessee’s contention that he had carried on the real estate business and incurred business loss. Accordingly, the A.O disallowed the business loss claimed by the assessee and made addition to the returned income. In the result the Assessing Officer made addition of Rs.80,000/- relating to interest on house property and Rs.90,350/- on account of business loss aggregating to Rs.1,70,350/- and initiated penalty under section 271(1)(c) of the Act.

During the penalty proceedings, the assessee explained that he made the renovation work to the residential property and also carried on the business and there is no case for penalty under section 271(1)(c) of the Act and requested to drop the penalty proceedings. The Assessing Officer not accepted the submissions made by the assessee and levied the penalty of Rs. 1,23,575/- under section 271(1)(c) of Income Tax Act being 100 percent of the tax sought to be evaded.

Aggrieved by the order of the Assessing Officer, the assessee went on appeal before the CIT(Appeal) and the Ld. CIT(A) dismissed the appeal holding that the assessee has furnished the inaccurate particulars of income within the meaning of explanation to section 271 (1)(c) of the Act and confirmed the penalty. Aggrieved by the order of the CIT(Appeals), the assessee filed appeal before this Tribunal.

The learned AR appearing for the assessee submitted that the assessee had carried on the repairs to his house at Building No.2034, Annanagar, Chennai, with the borrowed funds and paid interest of Rs.80,000/- which was an allowable deduction under section 24 of the Act. The Assessing Officer during the assessing year 2002-03 had issued a letter to the tenant of the assessee and obtained information behind back of the assessee and the contents of the letter were not placed before the assessee and the assessee has not given an opportunity to cross examine the tenant. Therefore, the AR argued that there was no evidence brought on record by the Assessing Officer to disprove the claim of renovation done by the assessee. Hence, the penalty levied by the Assessing Officer is not sustainable in respect of interest on house property. In respect of business loss the AR argued that the assessee was carrying on real estate business and incurred business loss.

The next issue on which the penalty imposed by the Assessing Officer was on account of business loss. The assessee has produced the books of accounts and furnished the names and addresses evidencing the business was carried on by the assessee. The Assessing Officer issued a letters to the parties from whom the commission has been received and the letters could not be served, Hence, the Assessing Officer disbelieved that the assessee has carried on the business and made addition and also imposed penalty under section 271(1)(c) of the Act. The assessee has produced the books of accounts before the Assessing Officer which was not disputed by the Assessing Officer. The letters issued to the parties were returned and served, and merely because of the letters were returned and un- served, the Assessing Officer has formed an opinion that that the assessee had not carried on the business which is not correct interpretation. Apart from the names and addresses of the parties there are so many other factors which were involved in business such as payment of profession tax, business expenditure, payment of commission, salary and wages, office rent, letter to verify the genuineness of business carried on by the assessee. The Assessing Officer has not made any independent enquiry with regard to the fact that whether the assessee has carried on the business or not. The Assessing Officer should have deputed the Inspectors and collected the information regarding the bona fides of the business carried on by the assessee. By producing the books of accounts the assessee has discharged his burden and it is the Revenue which has to disprove the contention made by the assessee. The burden of proof in proceedings under section 271(1)(c) of the Act is always on the Revenue and the Revenue has not made out case for concealment of income. Therefore, we do not find any case for imposing penalty and the same is cancelled.

In the result, the appeal of the assessee is allowed.