Penalty under section 271(1)(c) deleted as order was time-barred and AO became functus officio after first penalty order

The ITAT Hyderabad ruled in favor of the assessee in a penalty proceeding under section 271(1)(c). The assessee initially claimed lease rent income as business income with depreciation, then revised it to house property income claiming 30% standard deduction. The AO treated it as business income and imposed penalty. The Tribunal held the penalty order dated 01/04/2022 was time-barred under section 275, as it exceeded the prescribed limitation period. Additionally, the AO became functus officio after passing the first penalty order within the statutory timeframe. The Tribunal emphasized that law doesn't prohibit making plausible claims during assessment proceedings, and penalty cannot be imposed merely because a claim was unacceptable to Revenue without satisfying twin requirements under section 271(1)(c). The penalty was deleted.

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Issues Involved:
1. Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 based on inaccurate particulars.
2. Legality of passing two penalty orders by the Assessing Officer.

Summary:
Issue 1: The assessee claimed depreciation on business assets, leading to penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars. The Assessing Officer initially levied a penalty, later revisiting and increasing it. The CIT(A) confirmed the increased penalty, prompting the appeal. The assessee argued against the penalty, citing lack of concealment of income and legality concerns regarding passing two penalty orders.

Issue 2: The Tribunal analyzed the law of limitation under section 275 of the Act, highlighting the time frame for imposing penalties. It was noted that the Assessing Officer exceeded jurisdiction by passing a second penalty order after becoming functus officio following the initial penalty order. The Tribunal emphasized the principle that an assessee can make claims during assessment, even if later found erroneous, without attracting penalties unless specific requirements are met.

The Tribunal referenced the case law of CIT vs. Reliance Petroproducts Pvt Ltd, emphasizing that mere disagreement on a claim does not warrant penalties under section 271(1)(c) of the Act. Ultimately, the Tribunal ruled in favor of the assessee, holding the penalty unsustainable in law and directing the Assessing Officer to delete it.

The appeal of the assessee was allowed, and the order was pronounced in open court on February 26, 2024.

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