2002 (11) TMI 250 - AT - Income Tax

Tribunal upholds CIT(A) decision to delete penalty under IT Act, finding reasonable explanation. Revenue appeal dismissed.

The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c) of the IT Act, stating that the assessee had a reasonable ... - Issues Involved:1. Cancellation of penalty under Section 271(1)(c) of the IT Act.2. Taxability of arrear rent received.Issue-wise Detailed Analysis:1. Cancellation of Penalty under Section 271(1)(c) of the IT Act:The Revenue's grievance is that the CIT(A) erred in cancelling the penalty under Section 271(1)(c) when the assessee had accepted the assessment order that led to the penalty order. The assessee had received a sum of Rs. 10,96,737 as arrear rent from the Government of India, with Rs. 2,96,628 being payable after payment of revised municipal taxes. The assessee did not include this sum in its returned income, leading to its addition by the AO under the head 'income from house property'. The assessee accepted this addition and withdrew the appeal against it.The AO initiated penalty proceedings under Section 271(1)(c), concluding that the assessee tried to evade tax by concealing particulars of its income, thus imposing a penalty of Rs. 1,60,179. However, the CIT(A) deleted the penalty, observing that the appellant had not concealed its income or furnished inaccurate particulars, and had followed the correct accounting principle. The CIT(A) held that the penalty order could not be sustained and cancelled it.2. Taxability of Arrear Rent Received:The jurisdictional High Court in the case of Hamilton & Co. (P) Ltd. vs. CIT, observed that arrears of rent retain their character as income from house property and cannot be taxed under the head 'Income from other sources'. The rent for a past year increased retrospectively remains the annual rent of such past year or years, not the year of receipt. This principle was reiterated in the case of Hope India Ltd. vs. CIT, where the court held that arrears of rent are part of the annual rent of the year to which they relate, not the year of receipt.The Tribunal, considering these precedents, noted that at the time of filing the return, the law did not support the taxability of the arrear rent in the hands of the assessee. The Tribunal emphasized that an assessee cannot be expected to predict future judicial developments. The Tribunal also highlighted that the AO's satisfaction is a sine qua non for the imposition of penalty under Section 271(1)(c). The AO had incorrectly assumed that concealment penalty is an automatic consequence of an addition being agreed upon by the assessee.The Tribunal further noted that the assessee had disclosed the factum of these rent arrears in the documents accompanying the income-tax return, and the prevailing legal position at that time did not consider the amount taxable. The Tribunal concluded that the explanation for not including the amount in income was bona fide, and thus, the imposition of penalty was not legally sound. Additionally, the dispute was merely regarding the year in which the amount was taxable, which does not warrant a penalty for concealment or furnishing inaccurate particulars.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the penalty, stating that the assessee had a reasonable explanation for not including the arrear rent in its taxable income, and the imposition of penalty was not justified. The appeal by the Revenue was dismissed.