C.P. KUKREJA ASSOCIATES PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

O R D E R. PER I. C. SUDHIR, J. M. :

The assessee has questioned first appellate order on the following grounds :-

“ 1. On the facts and in circumstances of the case ld. CIT (Appeals) has erred in law and on facts in confirming the 2 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. action of ld. Assessing Officer in imposing the penalty under section 271(1)(c) of the Act amounting to Rs.9,07,790/-;

2. Assessee company has neither conceal any particular of income nor furnish inaccurate particular of such income, no penalty under section 271(1)(c) of the Act should have been imposed;

3. The impugned penalty is imposed unlawfully and arbitrarily. The impugned penalty order is bad in law, unjustified and against facts and record of the case. ”

3 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09.

Kaushambhi, Ghaziabad and rental income from property at Gurgaon was not disclosed by the assessee company. Show cause notice was issued to the assessee to explain the reasons for not disclosing the rental income from its property at Gurgaon. In response the assessee company offered the rental income from the property at Gurgaon amounting to Rs.25,20,000/- for taxation. The assessee company further offered an amount of Rs.74,789/- as rental income from the property at Ghaziabad, which was not offered in the return of income. The Assessing Officer accordingly taxed these rental income in the assessment and besides, he also disallowed an amount of Rs.75,974/- under section 14A of the Act and added it to the total income of the assessee. The total addition of Rs.26,70,763/- was made on the assessed total income at Rs.5,29,55,562/- in the assessment framed under section 143(3) of the Act. Penalty proceedings were initiated under section 271(1)(c) of the Act and being not satisfied with the explanation of the assessee, the Assessing Officer has levied penalty of Rs.9,07,790/- on the addition of Rs.26,70,763/- on account of furnishing inaccurate particulars of the income. The ld. CIT (Appeals) has also upheld the same. The assessee has questioned actions of the authorities below in imposing and upholding the penalty in question.

4 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09.

3.1 In support of the grounds, the ld. AR, Dr. Rakesh Gupta, Advocate, submitted that the assessee is a company of architects dealing with the real estate and being into the profession, follows cash system of accounting since the last 15 years. Rental income was treated as business income and was also offered on cash basis. Therefore, the rental income in respect of Gurgaon property, which was leased during the year itself, viz. 13.11.2007 was offered on receipt basis in assessment year 2009-10, for which return of income was filed on 30.09.2009 i.e. much before the impugned issue was raised by the Assessing Officer. The present assessment was made on 3.12.2010. The ld. AR submitted that the said income was already returned, but in assessment year 2009- 10 and there was no concealment as such or any attempt to avoid tax as sought to be portrayed by the Assessing Officer in the impugned assessment order. He placed reliance on page Nos. 9 to 12 of the paper book, which is copy of original return for assessment year 2009-10 filed on 30.09.2009 showing the rental income from Gurgaon property being part of business income and page Nos. 13 to 15, which is copy of revised return for assessment year 2009-10 filed on 26.03.2011 excluding the rental income Gurgaon from the computation from assessment year 2009-10 after the issue was raised by the Assessing Officer in 5 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. assessment year 2008-09. The ld. AR further placed reliance on page Nos. 1 to 5 of the paper book, which is the assessment order for assessment year 2009-10. Page Nos. 17 to 41 of the paper book contains copy of return, audit report in balance sheet, which shows [at page 22 of the paper book] cash method of accounting and since rent was shown as business income, the income was offered on the basis of cash method of accounting only. The ld. AR placed reliance on page No. 43 of the paper book, which is copy of letter to the Assessing Officer which shows that the rent of Gurgaon property was received on 16.06.2008 [Page Nos. 65 & 66 of the paper book] i.e. in assessment year 2009-10 and therefore, as per cash method of accounting it was offered to tax next year and credit for TDS was also claimed in assessment year 2009-10. Page No. 17 of the paper book is the computation for assessment year 2008-09 and page No. 5 of the paper book shows that there was no impact of tax by showing rental income in assessment year 2009-10 instead of assessment year 2008-09 as the tax rate being same. Page No. 47 is explanation to the Assessing Officer. The ld. AR placed reliance on page Nos. 48 to 54 of the paper book, which are submissions during the penalty proceedings.

6 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09.

3.2 The ld. AR also placed reliance on page Nos. 65 to 72 of the paper book, which are the submissions before the ld. CIT (Appeals) submitting, inter alia, that TDS certificate for Gurgaon property was issued consolidatedly for two years by the tenant and that also contributed to the offering of rental income on receipt basis. Page No. 69 of the paper book shows that the rent from Gurgaon property was received in assessment year 2009-10 and Page Nos. 70 & 71 are the copies of payment advises. Page No. 72 is the consolidated TDS certificate showing amount paid after 31.03.2008. The ld. AR also placed reliance on page Nos. 74 to 80 of the paper book, which are copies of ledgers of rent received for assessment years 2008-09 and 2009-10. Page Nos. 81 and 82 of the paper book shows explanation to the Assessing Officer.

3.3 Regarding non-disclosure of rent of Kaushambhi (Ghaziabad) property, the ld. AR also placed reliance on page No. 67 of the paper book, which shows that the Assessing Officer assessed income at Rs.3,66,919/- as against Rs.3,34,127/- offered for taxation by the assessee company. He further submitted that the rental income for the month of March, 2008 has been credited to Profit and Loss

7 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. account for the year ended 31st March, 2009 and offered to tax in assessment year 2009-10.

3.4 Other component for which penalty was levied was disallowance under section 14A. Reliance was placed on the decision of Hon’ble Supreme Court in the case of Reliance Petro Products Ltd. (2010) 322 ITR 158 (SC). The ld. AR for the assessee also relied on the other components of service tax, which was reduced by the assessee from rental income as there was always fluid situation as to who would bear it. He reiterated that this cannot be the basis of penalty. The ld. AR cited following decisions :-

(i) Chennai Properties & Investments Ltd. Vs. CIT (2015) 373 ITR 673 (SC);

(ii) CIT & Anr. Vs. M/s. SSA’S Emerald Meadows & Anr. in of 2015 dated 23.11.2015 [High Court of Karnataka at Bengaluru];

(iii) CIT Vs. M/s. SSA’S EMERALDS MEADOWS SLP to Appeal [CC No.11485/2016] dated 5.08.2016;

(iv) CIT Vs. M/s. Vishnu Industrial Gases P. Ltd. 8 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. ITR No. 229/1988 dated 6.05.2008 [Delhi High Court]; (v) CIT & Anr. Vs. Dinesh Kumar Goel (2011) 331 ITR 10 (Del.);

(vi) CIT Vs. Vee Gee Industrial Enterprises In Income Tax Appeal No. 187 of 2014 dated 28.07.2015 [Punjab & Haryana High Court];

(vii) Sri Nilaya AR Projects Vs. ITO in ITA. No. 1572/Hyd./2013 dated 4.01.2017.

3.5 The ld. Sr. DR, Shri Anil Kumar Sharma, on the other hand, placed reliance on the orders of the authorities below. He submitted that the assessee came forward with the payment of due tax, avoided by it on the concealed income. The assessee had filed inaccurate particulars of its income, hence the Assessing Officer was justified in invoking the provisions laid down under section 271(1)(c) of the Act for levy of penalty in question.

3.6 After having gone through the orders of the authorities below, we find that the penalty under section 271(1)(c) at Rs.9,07,790/- on the 9 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. addition of Rs.26,70,763/- on account of furnishing inaccurate particulars of the income regarding non-declaration of the rental income from property at Gurgaon, offering an amount of Rs.74,789/- as rental income from the property at Ghaziabad and non-disallowance made under section 14A of the Act. During the course of assessment proceedings, when the above fact was pointed out by the Assessing Officer to the assessee and show cause notice was issued, calling for explanation of the assessee in this regard, the assessee responded with explanation and offered rental income of Rs.25,20,000/- from the property at Gurgaon and Rs.74,789/- as rental income from the property at Ghaziabad for taxation. The Assessing Officer also made disallowance of Rs.75,974/- under section 14A of the Act. The Assessing Officer was not satisfied with the explanation of the assessee and while making total addition of Rs.26,70,763/- on the above accounts, levied penalty under section 271(1)(c) of the Act at Rs.9,07,790/- on the above addition. The ld. CIT (Appeals) has upheld the same. The authorities below have justified the levy of penalty mainly on the basis that had it not been pointed out to the assessee that the above rental income had remained to be offered for taxation and the assessee had not made any disallowance under section 14A, the assessee would not have offered those income for 10 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. taxation. It was alleged that by the above action of the assessee, the assessee had furnished inaccurate particulars of income leading to levy of penalty in question.

3.7 On consideration of the explanation offered by the assessee, we find that regarding the non-disclosure of rental income of Gurgaon property, the submission of the assessee remained that it is in the profession of architect dealing with the real estate and being into this profession, it follows cash system of accounting since last 15 years. Rental income was treated as business income and was also offered for tax basis. Therefore, the rental income in respect of Gurgaon property, which was leased during the year itself on 13.11.2007 was offered on receipt basis in assessment year 2009-10 for which return of income was filed on 30.09.2009 i.e. much before the impugned issue was raised by the Assessing Officer. It was submitted that present assessment was made on 3.12.2010. It was also submitted that said income was already returned, but in assessment year 2009-10 and thus, there was no concealment or no attempt to avoid tax as sought to be portrayed by the Assessing Officer. In support the assessee filed original return for the assessment year 2009-10 filed on 30.9.2009 showing the rental income

11 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. from Gurgaon property being part of business income. It also furnished revised return for assessment year 2009-10 filed on 26.03.2011 excluding the rental income Gurgaon from the computation from assessment year 2009-10 after the issue was raised by the Assessing Officer in the assessment year 2008-09. Copy of the assessment order for assessment year 2009-10 was also filed with the copy of return, audit report and balance sheet showing that cash method of accounting was followed and since rent was shown as business income, the income was offered on the basis of cash method of accounting only. It was submitted that the rent of Gurgaon property was received on 16.06.2008 i.e. in the assessment year 2009-10 and, therefore, as per cash method of accounting it was offered to tax next year and credit for TDS was also claimed in the assessment year 2009-10. It was contended by the assessee that no impact of tax by showing rental income in assessment year 2009-10 instead of assessment year 2008-09 was there as the tax rate being same. The assessee submitted that TDS certificate for Gurgaon property was issued consolidatedly for two years by the tenant and that also contributed to the offering of rental income on receipt basis. In support the assessee has filed copies of payment advices, consolidated TDS certificate showing amount after 31.03.2008, ledger of 12 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. rent received for assessment years 2008-09 and 2009-10. We thus find that the assessee has been able to offer bona fide reasons for not disclosing the rental income from its property at Gurgaon and thus in absence of positive evidence beyond doubt regarding furnishing of inaccurate particulars of income or concealment of particulars of income towards the said rent, the Assessing Officer was not justified in invoking the penal provisions of section 271(1)(c) of the Act for levy of the impugned penalty. The action of the ld. CIT (Appeals) in upholding the same was not correct. We accordingly direct the Assessing Officer to delete the penalty in this regard.

13 I. T. Appeal No. 2224/Del/2012 Assessment Year : 2008-09. the Assessing Officer was not satisfied with the explanation of the assessee. Regarding the disallowance made under section 14A of the Act, we are of the view that it remained a debatable issue and it cannot be said beyond doubt that non-disallowance of expenditure under section 14A by the assessee was furnishing of inaccurate particulars of income or concealment of particulars of income to attract the penal provisions of section 271(1)(c) of the Act. The Assessing Officer is thus directed to delete the penalty in this regard as well. The ground Nos. 1 to 3 are accordingly allowed.