KAMAL ENTERPRISES AND NEW LIFE HOSPITAL,HYDERABAD vs. DCIT, CIRCLE-9(1), HYDERABAD

Brief facts of the case are that the assessee was running a hospital in the name and style of “New Life Hospitals”, till 31/10/2015, and subsequently for their own reasons, they leased it out to Thumbey Hospital India Pvt. Ltd. with effect from 03/11/2015. It filed return of income on 17/10/2016 for the assessment year 2016-17 declaring an income of Rs. 86,90,973/-. Subsequently, it revised the same on 08/11/2017, declaring the income of Rs. 33,64,220/-. In the original return of income the assessee considered the entire lease rent amounting to Rs. 1,87,50,000/- as business income claiming full depreciation on the assets, including building and equipment for the entire year; whereas in the revised return, the assessee claimed lease and receipt as income from house property to claim 30% standard deduction under section 24 of the Income Tax Act, 1961 (‘the Act’) and also the depreciation on fixed assets on building and equipment for the entire year.

Since the assessee claimed depreciation on business assets, learned Assessing Officer treated the income of the assessee as income from business and initiated penalty proceedings under section 271(1)(c) of the Act on the ground of furnishing inaccurate particulars. Initially, learned Assessing Officer passed an order dated 13/08/2021, levying a penalty of Rs. 98,280/-. Learned Assessing Officer, however, revisited the penalty proceedings and passed an order dated 01/04/2022, levying a penalty of Rs. 16,45,957/- and this order is the subject matter of this appeal.

Assessee preferred appeal before the learned CIT(A) and reiterated its stand that was taken during the assessment proceedings and according to the learned CIT(A), no fresh evidence was adduced. According to the learned CIT(A), it was by mistake, the learned Assessing Officer passed two penalty orders, but since the appeal was filed in respect of the penalty levied by order dated 01/04/2022 while cancelling the penalty that was levied by earlier order, learned CIT(A) confirmed the penalty that was levied by order dated 01/04/2022.

Assessee is, therefore, before us in this appeal mainly contending that the order was passed beyond the time prescribed under section 275 of the Act and, therefore, it is bad under law. It is also contended that there is no concealment of income and, therefore, mere disallowance of the claim will not result in levy of penalty. Lastly learned AR contended that law does not permit passing two penalty orders by the learned Assessing Officer, because with passing of the first penalty order the learned Assessing Officer becomes functus officio and, therefore, the second penalty order is nonest in the eye of law.

Learned DR submitted that insofar as the objection based on section 275 of the Act is concerned, section 275 of the Act says that the order under section 271(1)(c) of the Act has to be passed before the expiry of the financial year in which the proceedings for imposition of penalty were initiated or within six months from the end of the month in which the order of the Appellate Tribunal was received by the PCIT. He submitted that as rightly pointed out by the learned CIT(A), it is only a mistake in passing two penalty orders and since the learned CIT(A) cancelled the first penalty order, there is no legal impediment to consider the second penalty order, which is now under consideration. On the aspect of furnishing of inaccurate particulars, learned DR submitted that the claim which is not tenable in the eye of law and still claimed by the assessee is clearly a form of tax evasion attempt and falls under the term ‘furnishing of wrong particulars of income’ and, therefore, the authorities are justified in levying and sustaining the penalty. Reliance is placed on the decision of CIT vs. Zoom Communications Private Limited, 327 ITR 510.

We have gone through the record in the light of the submissions made on either side. Insofar as the first objection of the assessee based on law of limitation is concerned, section 275 of the Act is clear in its purport that no order imposing penalty under chapter XXI after the expiry of financial year in which the proceedings, in the course of which action for imposition of penalty have been initiated, are completed, or six months from the end of the month in which the order of the Appellate Tribunal was received by the PCIT or Chief Commissioner or Principal Chief Commissioner or Commissioner, whichever period expires later. In this case, the Tribunal passed the orders on 24/03/2021 and by 31/03/2021, the financial year ends or by the end of September, 2022, six months expires from the end of the month in which the order by the Appellate Tribunal was passed. There is evidence to justify the action of the learned Assessing Officer in passing the current impugned order dated 01/04/2022. On this score, Revenue has no case.

Coming to the second objection, we are in agreement with the learned AR that whether or not subsequently cancelled by the learned CIT(A), with the passing of the first penalty order by 13/08/2021 within six months from the end of the month in which the Appellate Tribunal passed the orders, the learned Assessing Officer became functus officio and he has no jurisdiction to pass the second penalty order beyond the period prescribed under section 275(1) of the Act.

Lastly, it is an established principle of law that law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.

We can find an authority on this aspect in the case of CIT vs Reliance Petroproducts Pvt Ltd [2010] 322 ITR 158 (SC), wherein the Hon’ble Apex Court held that when the assessee preferred a claim, it was up to the authorities to accept its claim in the return or not, but merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under Section 271(1)(c) of the Act. It was further held that if the contention of the Revenue is accepted, then in case of every return where the claim made is not accepted by the learned Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c) of the Act and that is clearly not the intendment of the Legislature.

Merely because the assessee preferred a claim which was not acceptable to the Revenue, the assessee cannot be visited with the proceedings under section 271(1)(c) of the Act, unless and until the twin requirements under section 271(1)(c) of the Act are satisfied. Viewing from any angle, we find that the impugned penalty order is unsustainable in law and while accepting the plea of the assessee, we hold that the penalty cannot be sustained. Accordingly, we direct the learned assessing officer to delete the same.

In the result, appeal of the assessee is allowed.