2021 (4) TMI 955 - AT - Income Tax

Tribunal overturns penalty for misclassification of rental income, emphasizing accurate income characterization.

Raghuram Garikapati, HYDERABAD Versus Deputy Commissioner of Income Tax-2, International Taxation, HYDERABAD

The tribunal overturned the penalty imposed under Section 271(1)(c) of the Income Tax Act for treating rental income as 'income from business' instead of ... Penalty u/s 271(1)(c) - quantum addition arising from treatment of rental income (as to whether it came under the head ‘income from house property’ or ‘income from business’) - HELD THAT:- DR fails to dispute that the impugned issue is essentially regarding treatment of assessee’s rental income than involving concealment of particulars or furnishing of inaccurate particulars of income u/s.271(1)(c) of the Act. Hon'ble apex court’s landmark decision in CIT Vs Reliance Petroproducts Limited [2010 (3) TMI 80 - SUPREME COURT] holds that quantum and penalty are parallel proceedings wherein each and every disallowance/addition made in former does not ipso facto attract latter penal provision. Respectfully following the same, we direct the Assessing Officer to delete the impugned penalty. - Decided in favour of assessee. Issues:1. Correctness of penalty imposed under Section 271(1)(c) for treatment of rental income as 'income from business' instead of 'income from house property'.Analysis:1. The appeal pertains to the correctness of the penalty imposed under Section 271(1)(c) of the Income Tax Act for the assessment year 2010-11. The assessee admitted rent from a tenant but categorized it as 'income from business' instead of 'income from house property.' The penalty was imposed based on the difference in claimed expenses under each head, leading to a penalty amount of Rs. 5,31,933. The CIT(A) upheld the penalty citing Section 271(1)(c) and previous decisions by ITAT, Hyderabad. The penalty amount ranged from Rs. 1,59,579 to Rs. 4,78,737, with a minimum penalty of Rs. 1,70,000 imposed.2. The tribunal heard the departmental representative and reviewed the case file. It was noted that a previous bench had disposed of the assessee's quantum appeals related to the same issue. The assessee had raised multiple grounds, including disputing the reassessment proceedings and the treatment of income from property amenities. The tribunal considered only two grounds for adjudication, ultimately upholding the revenue's position based on the previous bench's decision.3. The tribunal found that the rental income was incorrectly treated as 'income from business' instead of 'income from house property.' The assessing officer's decision to consider the entire income as 'income from house property' was upheld. The tribunal emphasized the need to determine the real intention of the parties involved, especially in cases where income is derived from letting out assets along with a building. The decision was based on a detailed analysis of relevant legal provisions and precedents.4. The tribunal clarified that the issue at hand primarily concerned the treatment of rental income and did not involve concealment of income particulars. Citing the Supreme Court's decision in CIT Vs Reliance Petroproducts Limited, it was emphasized that penalty proceedings are distinct from quantum assessments. Therefore, the tribunal directed the Assessing Officer to delete the penalty imposed under Section 271(1)(c) as it was not warranted in this case.5. Consequently, the tribunal allowed the assessee's appeal, ordering the deletion of the penalty. The decision was pronounced in open court on 22nd April 2021, bringing resolution to the dispute over the treatment of rental income for the assessment year 2010-11.