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Assessee by Shri Tinish R Mody, AR Department by Shri Vinod Kumar, Sr. DR Date of hearing 17/07/2023 Date of pronouncement 31/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned National Faceless Appeal Centre, (NFAC), Delhi/Commissioner of Income Tax (Appeals) [in short the ld. CIT(A)] dated 17/08/2022 for the Assessment Year (AY) 2018-19. The assessee has raised following grounds of appeal:- “1. On the facts and in the circumstances of the case as well as law on the subject, the ld. CIT(A), NFAC Delhi erred in confirming the penalty levied by the ld. A.O. to the tune of Rs. 96,404/- without considering the facts of the case favorably.”
2. Brief facts of the case are that the assessee is an HUF, filed its return of income for A.Y. 2018-19 on 27/08/2018 declaring total income of Rs. 4,28,490/-. In the computation of total income, the assessee has shown ‘business income’ of Rs. 2,43,414, income from ‘house property’ of Rs. Rajesh C Dalal HUF Vs ACIT 2,19,612/-, income from ‘other sources’ of Rs. 43,457/-. The return of income was selected for scrutiny. During the assessment, the Assessing Officer noted that in the return of income, the assessee claimed income from house property of Rs. 6,60,875/- and claimed deduction of Rs. 1,98,263 under Section 24(a) of the Income Tax Act, 1961 (in short, the Act) and deduction of interest expenses on borrowed capital of Rs. 2,43,000/-. The Assessing Officer noted that there was no history of assessee showing income from house property or any interest expenses on borrowed capital/loan for preceding years. The assessee was issued show cause notice and asked to furnish the details of borrowed funds on which the assessee claimed interest expenses of Rs. 2,43,000/-. The assessee was also asked to furnish details of institution from which the loans were borrowed. The assessee filed reply dated 01/01/2021. In reply, the assessee stated that there is no income from house property during the preceding years and there were no interest expenses claimed in earlier years. The reply of assessee is extracted in para 3.1 of the assessment order. The Assessing Officer not accepted the reply of assessee and noted that alongwith reply, the assessee filed copy of rent deed, computation of income of Sonal Rajesh Dalal and Champaklal Dalal HUF, who were other two co-owners of the property. In their respective computation sheets, they have shown income of Rs. 2,43,414/- and Rs. 2,20,283 respectively in the name of Sonal Rajesh Rajesh C Dalal HUF Vs ACIT Dalal and Champaklal Dalal HUF respectively. The Assessing Officer further recorded certain discrepancies and find that the rental income has not been reflected under the head ‘income from house property’ but shown in the ‘income of other sources’. The Assessing Officer was of the view that the assesse has manipulated the facts. Further no statutory deduction @ 30% on account of repairs etc. as available under Section 24(a) is claimed in computation of income of other co-owners. Further in AS-26 and ITS details, the rental payment has been recorded under PAN: AALHR 4363 J in the name of Shri Rajesh C. Dalal (HUF). Nowhere there was mention of any other shareholder or division of such income. Further the rent agreement in between the assessee Rajesh C. Dalal (HUF) and tenants namely Ms. R.K. Gujarati and Shri Bhagwanbhai G. Gujarati. Such rent agreement substantiate that rental income relates to assessee and not for any other co-owner. On finding such discrepancies, the Assessing Officer issued fresh notice to substantiate the claim of division/share of rental income with evidence. In response to such show cause notice, the assessee filed his reply on 22/1/2021. Alongwith reply, the assessee furnished revised computation of income declaring total rental income of Rs. 6,60,875/- as income received, without division of rental income with two other co-owners. The assessing officer accepted the revised computation and assessee was allowed 30% deduction under Section 24(a) thereby net income from house property was taxed Rajesh C Dalal HUF Vs ACIT at Rs. 4,62,612/- thereby making addition of Rs. 2,43,000/- on account of interest disallowances against income from house property. The Assessing Officer at the time of passing the assessment order initiated penalty for misrepresentation of fact under Section 270A(1)r.w.s. 270(9)(a) of the Act.
3. The Assessing Officer before levying penalty, issued show cause notice under Section 274 r.w.s. 270A of the Act dated 27/01/2021 fixing the date of compliance on or before 09/02/2021. In response to show cause notice, the assessee filed reply on 09/02/2021. In the reply the assessee besides justifying his stand as taken before assessing officer, submitted that they have filed application for seeking immunity from imposing the penalty as per section 270AA after complying the requisite conditions, i.e. they have paid the due tax and interest and no appeal is filed against additions in the assessment order dated 27.01.2021 passed under section 143(3) of Act. The assessee also submitted that they have also filed Form-68 for granting immunity under section 270AA.
4. The assessing officer after considering the submissions of the assessee recorded that he sent letter to the jurisdictional assessing officer on 12.05.2021 & 20.01.2022 for seeking the status of outcome of immunity application including rejection or acceptance of such application. The assessing officer recorded that no response was received from jurisdictional assessing officer on the immunity application of assessee Rajesh C Dalal HUF Vs ACIT under section 270AA. The assessing officer further recorded that a final show cause notice dated 24.02.2022 was issued to the assessee to know the status of immunity application pending. The assessing officer recorded that no response was received from the assessee. The assessing officer was of the view that benefit of section 270AA cannot be availed, where penalty is initiated under section 270A(9) on the amount added by misrepresentation of facts and figures. The assessing officer by taking view that assessee misreported its income and levied the penalty equal to 200% of tax payable of misreporting income. The misreporting income in the assessment order was Rs. 48,202/-. Thus, the assessing officer levied penalty of Rs. 96,404/- under section 270A in order dated 02.03.2022. Aggrieved by the order of penalty under section 270A, the assessee filed appeal before CIT(A). The appeal of the assessee was adjudicate by NFAC vide order dated 17.08.2022 and was dismissed by taking view that application for immunity was filed after 1- 1/2 years of delay and there is no provision under section 270AA for condoning such delay. Further aggrieved the assessee has filed present appeal before Tribunal.
We have heard the submissions of the learned authorised representative (ld AR) for the assessee and the learned senior departmental representative (Sr DR) for the revenue and have seen the order of the lower authorities. The ld AR for the assessee submits that instead of Rajesh C Dalal HUF Vs ACIT contesting the additions made in the assessment order, the assessee filed an application for seeking immunity from penalty and filed application under section 270AA before assessing officer. The assessing officer neither rejected the application of assessee under section 270AA nor intimated about the outcome of such application. The penalty was levied by other assessing officer, without taking the fact in the consideration that the application of assessee was not rejected thus, the action of levying penalty is not justified. The assessee fulfilled all the conditions of section 270AA of the Act. Therefore, the penalty is not justified unless the plea of seeking for immunity is not rejected.
In the alternative plea, the ld AR for the assessee submits that there was no misreporting of the income. The assessee during assessment filed revised computation of income and the same was accepted by assessing officer. The assessing officer allowed 30% deduction under section 24(a) taxed the net income from house property. In his without prejudice submissions, the ld AR for the assessee submits that at the rare it could be case of under reporting. The ld AR for the assessee prayed for accepting appeal of the assessee.
On the other hand, the ld SR DR for the revenue supported the order of the assessing officer and ld CIT(A). The ld Sr DR for the revenue submits lower authority before levying and confirming the penalty has given full opportunity to the assessee. The assessee is not eligible for immunity Rajesh C Dalal HUF Vs ACIT under section 270AA, as the penalty was initiated for misreporting of income as prescribed under section 270A (9). The ld Sr DR for the revenue prayed for dismissal of the appeal.
We have considered the rival submissions of the parties. This is admitted fact that the jurisdictional assessing officer while passing the assessment order disallowed the interest expenses and thereby made addition of Rs. 2,43,000/-, in the assessment order 27.01.2021. No further appeal is filed by the assessee for contesting the additions. The assessing officer issued show cause notice for levying penalty under section 270A. In response to show cause notice, the assessee responded and submitted that they have applied for seeking immunity and filed form-68 before jurisdictional assessing officer. The assessing officer sought report form jurisdictional assessing officer, who neither confirmed the fact, if the application of assessee under section 270AA is rejected or immunity is granted. However, facts remained the same that the application of assessee was not rejected as it was neither communicated to the assessee or to the assessing officer who was seized with the penalty proceedings under section 270A. Though, the assessing officer levied penalty under section 270A by taking view that immunity cannot be availed as the penalty was initiated under section 270A(9). The ld CIT(A) confirmed the action of assessing officer by taking view that application for seeking immunity was filed belatedly and Rajesh C Dalal HUF Vs ACIT no provision under which the assessing officer could condoned the delay.
We find that the finding of assessing officer and ld CIT(A) are on different footing. Though, we are in agreement with the submissions of ld Sr DR for the revenue that if the penalty was initiated for misreporting of income, the assessee was not eligible for immunity under section 270AA. Yet, we find that the assessee during the assessment filed revised computation of income, and included entire income from house property in its income and such revised computation was accepted by assessing officer, in such circumstances, at the best it could be a case of under reporting of the income. We further find that the assessing officer made disallowance of interest expenses on the basis of the details furnished by the assessee only. However, considering the peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of deductions claimed under different heads of income.
We find that Hon’ble Delhi High Court in Prem Brothers Infrastructure LLP Vs National Faceless Appeal Centre, reported viz; (2022) 142 taxmann.com 38 (Delhi) held that where penalty was levied on assessee under section 270A alleging misreporting of income, however, fact that assessee had furnished all details of transactions relating to disallowance made and Assessing Officer as well as assessee had used same details Rajesh C Dalal HUF Vs ACIT to arrive at different quantum of disallowances, this by no stretch of imagination could be held to be 'misreporting' and further, in absence of details as to which limb of section 270A was attracted, impugned penalty order was to be quashed and revenue was to be directed to grant immunity under section 270AA.
Thus, considering the facts of the present case and the view taken by Hon’ble Delhi Court (supra), we do not find any justification of penalty on account of misreporting, the disallowance of interest expense was for the reason that it was claimed under wrong head and the assessee ultimately offered entire rental income in the hand of assessee. In the result, the grounds of appeal
raised by the assessee are allowed.
12. In the result, this appeal of assessee is allowed.