ANITA KOHLI,MUMBAI vs. ASST CIT CIR 21(1), MUMBAI

This appeal, filed by the assessee , being 4th July, 2014 passed by learned Commissioner of Income Tax (Appeals)- 32, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 25-03-2013 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 designing and supervision , and had also earned income from house property and interest income. The A.O. during course of quantum assessment proceedings observed from the bank account of the assessee that she has received rental income amounting to Rs. 11,05,000/- from Mumbai International Air Port Private Limited. On perusal of the computation of income, it was observed by the AO that the assessee has only offered rental income of Rs. 8,28,750/- from the said party in the return of income filed with the Revenue. The assessee was asked to explain the same and in reply the assessee submitted that part of the rental income to the tune of Rs. 2,76,250/- was the income of Mr. Vivek Kohli i.e. son of the assessee and hence the balance amount of Rs. 8,28,750/- was offered as income for taxation by her in return of income filed with the Revenue. In support, the assessee submitted the copy of the leave and license agreement entered into between the assessee and M/s Nicolas Novacek on 14th September, 2007 and ITA 5799/Mum/2014 3 received rental income for six months i.e. of Rs. 11,05,000/-. The assessee was asked by the AO to file the return of income of his son Mr. Vivek Kohli to prove that the balance rent amount of Rs. 2,76,250/- has been offered for taxation by her son Mr Vivek Kohli in return of income filed with the Revenue. However, the assessee did not submit the return of income of his son, Mr Vivek Kohli but vide letter dated 13th December, 2010 the assessee explained that the rental income of Rs.2,41,250/- was share of rental income of her son Mr Vivek Kohli which was received by the assessee in her bank account and same had been shown as liability payable to Mr Vivek Kohli in her Balance Sheet and since he is out of India the amount is outstanding to be payable to him .

Aggrieved by the appellate orders dated 04-07-2014 passed by the ld. CIT(A) confirming penalty as indicated above, the assessee is in appeal before the Tribunal.

The ld. Counsel for the assessee submitted that the assessee’s son Mr. Vivek Kohli is the co-owner of the property as an amount of Rs. 25 lacs was invested by him on the same property. The ld. Counsel drew our attention to the paper book whereby the assessee’s balance sheet is placed whereby the assessee has shown an investment of Rs.66,96,000/- as at 31-03-2008 in the flat at Shyamkunj held jointly with her son Mr Vivek Kohli , as against the purchase price of Rs.90,00,000/- of the said flat( page 11,37-51/PB).. The ld. ITA 5799/Mum/2014 5 Counsel also drew our attention to the purchase agreement of the property whereby he submitted that Mr. Vivek Kohli is the co-owner of the property and Mr. Vivek Kohli’s share of rent of Rs. 2,76,250/- has been shown as liability payable to Mr. Vivek Kohli in assessee’s balance sheet(page 37- 51,11/pb). The ld. Counsel submitted that since Mr. Vivek Kohli has invested the sum of Rs. 25 lacs and hence he is entitled for rental income to the extent of proportion of his share in the property. It was also submitted that in the leave and license agreement dated 14-09-2007 with Nicolas Novacek entered into w.r.t. the said flat at Shyamkunj, both the assesssee and Mr Vivek Kohli are the licensors of the said flat(page 16-26/pb). It is also submitted that Mr Vivek Kohli is NRI and no return of income was filed by him as there is no other income of the said Mr. Vivek Kohli. It was also submitted that the AO intended to impose minimum penalty of Rs. 65,728/- vide penalty orders dated 25-03-2013 u/s 271(1)(c) of the Act but actually levied penalty of Rs.1,97,184/- erroneously which needed to be corrected. The learned CIT(A) has given directions to correct this error.

The ld. D.R. relied on the orders of the authorities below.

We have considered the rival contentions and also perused the material placed on record. We have observed that the assessee is co-owner of the property along with her son, Mr Vivek Kohli as borne out from the property ownership documents placed in paper book/page 36-51. We have observed that the said property was purchased for Rs.90,00,000/- as borne out from property ownership agreement dated 29-12-2007(pb/page 36-51) and the assessee has reflected Rs. 66,96,000/- in her Balance Sheet as investment in the said flat(pb/page 11) and stated that the assessee’s son Mr. Vivek Kohli had invested a sum of Rs. 25 lacs out of total acquisition cost of Rs. 90 lacs, and consequently he is entitled for the part of the rental income in accordance with proportion of his share in the said property. However, it is ITA 5799/Mum/2014 6 stated that Mr. Vivek Kohli is an NRI and has not filed his return of income as he is not having other income chargeable to tax in India. Thus, under the above circumstances, the quantum additions were upheld by the ld. CIT(A) and the Tribunal had dismissed the appeal as the same was withdrawn by the assessee. In our considered view, the assessee has given bonafide explanations for non-inclusion of rental income of Rs. 2,76,250/- in her return of income as the said rental income was stated to belong to the son of the assessee, Mr Vivek Kohli and we find the explanation offered by the assessee as bonafide and quite reasonable keeping in view factual matrix as culled out from records placed before us. Thus as per the assessee , the sum of Rs. 2,76,250/- is chargeable to tax as income in the hands of Mr. Vivek Kohli and not in the hands of the assessee keeping in view that he is also co- owner of the property. Thus, in the instant case , the penalty u/s 271(1)(c) of the Act levied by the AO and to the extent it is confirmed by the ld. CIT(A) is not sustainable in view of bonafide explanation given by the assessee in accordance with provisions of Section 271(1)(c) of the Act as the instant case is covered by explanation 1 to Section 271(1)(c) of the Act as the assessee has come out with a bonafide explanation to explain the reasons for non-inclusion of rental income of Rs. 2,76,250/- in her return of income filed with the Revenue on the grounds that the said rental income belonged to the co-owner of the said flat Mr. Vivek Kohli. Thus, in our considered view, the penalty levied on the assessee u/s 271(1)(c) of the Act in the instant case based on the facts and circumstances of the case is not sustainable and is therefore ordered to be deleted. We order accordingly.

In the result, appeal filed by the assessee in 2008-09 is allowed.