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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of CIT(A) -20, Mumbai in appeal No. CIT(A)-20/ITO-9(3)(2)/IT-156/2013-14 dated 23-07-2014. The Assessment was framed by ITO-9(3)(2), Mumbai for the A.Y. 2007-08 vide order dated 19-03-2013 u/s 143(3) r. w. s. 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’). The penalty under dispute was levied by ITO-9(3)(2), Mumbai u/s 271 (1) (C) of the Act vide his order dated 27-09-2013.
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in levying penalty u/s 271(1) (c) of the Act on the issue of taxability of rental income under the head income from house property instead of declared by assessee under the head of business income. For this assessee has raised following four grounds: -
“1. That Ld. CIT (A) erred in ignoring that no penalty should be imposed merely in case of change of classification of head of income i.e. from business head to house property head. 2. That Ld. CIT (A) erred is confirming the penalty u/s 271(1)(c) [subject to adjustment on account of deduction u/s 24(a)], completely ignoring the fact that all material facts were totally disclosed by the appellant in the return of income and duly accepted by the department in original assessment proceedings u/s 143(3) and disputing the same in reassessment proceedings results into change of opinion and is a pure question of law for which no penalty should be imposed.
3. That in the original assessment proceedings u/s 143(3), the department had assessed rental income under business head by allowing relevant expenditure and in reopening proceedings u/s 148, assessing the same income in house property head and disallowing the expenditure, shows that it is purely a change of opinion and a legal issue for which penalty should not be imposed.
4. That decision of Jurisdictional ITAT in case of Swan Energy Ltd vs. DCIT [ITA/230/Mum/2011] & Rama Enterprises vs. ITO [ITA/1184/MunV2012], which says that penalty u/s 271(1)(c) should not be imposed when rental income is assessed under house property head instead of business head, is totally ignored by Ld. CIT (A)”
Briefly stated facts are that during the year under consideration the assessee has let out its three properties for a total rent of Rs.15,00,430/-. The assessee declared this rental income under the head of business. But the AO brought this rental income under the head of income from house property and disallowed expenses like depreciation and society maintenance charges. The AO started penalty proceedings u/s 271(1)(c) of the Act and levied the penalty for furnishing of inaccurate particulars of income. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of the AO. Aggrieved, now assessee is in second appeal before the Tribunal.
We have heard the rival contentions and gone through the facts and circumstance of the case First of all, it is to be mentioned that the relevant A.Y. is 2007-08 and Revenue in A.Y. 2007-08 & 2006-07 while framing assessments u/s 143(3) of the Act vide order dated 19-03-2013 accepted the rental income declared by the assessee under the head business. But, subsequently for A.Y. 2007-08 (the year under consideration) while framing the re- assessment order u/s 1433(3) r. w. s. 147 of the Act the AO assessed the rental income as income from house property. Before us the learned Counsel for the assessee made submission that on the basis of above assessment orders and consistently assessee is claiming this rental income as income from business and this is under bonafide impression of the assessee that the same is to be assessed as business income. The learned Counsel for the assessee argued that there is no malafide in declaring this rental income as income from business but this is an honest and bonafide opinion of the assessee because Revenue has all along being accepting the same. The learned Counsel for the assessee also stated that Page 2 of 4 assessee company’s business activities are that of trading in fabrics and also renting out properties. To explain this, he stated that the same can be established from the memorandum and article of association of the company. He referred to the following article: -
“To carry on the business of the property developers, builders and to purchase and/or acquire land, to erect and own, to contract and build, to let out or to take on rental basis any real estate, property, buildings, apartments, flats, galas and to acquire rights in any properties. Further, the objects incidental or ancillary to the attainment of the main objects also incorporates the same, which reads as under “To acquire by purchase, lease, exchange or otherwise to construct, re-construct, alter, connect and subdivide and to sell, dispose of, turn to account, exchange, lease or sub let or rent, royalty, share of profit, ownership basis or otherwise to mortgage, grant license, easement, options and other rights to invest in or in any other manner deal with land and buildings of any tenure description and any real estate or immovable which the company may from time to time think proper and to acquire any right any right over or connected with the same in or aborad.” The assessee filed a copy of memorandum and article of association. In view of the above, the learned Counsel stated that the company’s memorandum and article of association permits company to acquire business premises which are mainly used for all business purposes and as and when the business premise is vacant / not used in business, this can be let out for rent. Consequently, the rental income is offered as business income.
We find that the explanation of the assessee is quite bonafide. From the above it is clear that as per companies memorandum and the article of association, the assessee has acquired business premises which are mainly used for own business purposes but as and when these are not used for business, these are let out for earning income. The Revenue is consistently accepting this stand of the assessee and assessing the income as business income. Even in this assessment year while framing assessment u/s 143(3) of the Act the AO accepted the income declared as income from business but subsequently in the re- assessment change the head of income from business to income from house property. It means that there are two view possible in the present case and assessee is taking one of the two possible views for which penalty for concealment u/s 271(1)(C) of the Act cannot be imposed. Even otherwise, there is no false claim which is not sustainable in law by itself and will not amount to furnishing of inaccurate particulars of income regarding the income of the assessee. This issue is also covered by the decision of the Hon’ble Supreme Court in Page 3 of 4 the case of CIT Vs. Reliance Petro Product P. Ltd. 322 ITR 158 (SC). Respectfully, following the same and in the given facts of the case, we allow the same.
In the result, the appeal of the Assessee is allowed. Order pronounced in the open court on 15-12-2016.