2024 (12) TMI 1060 - AT - Income Tax

Penalty upheld for undisclosed rental income but quashed for time-barred understatement under section 275(1)(a)

ITAT Chennai upheld penalty u/s 271(1)(c) for undisclosed rental income discovered during search proceedings, ruling that admitted quantum additions ... Penalty order u/s 271(1)(c) - addition on undisclosed rental income - HELD THAT:- As quantum addition on undisclosed rental income has not been contested by the appellant and rather admitted, the consequent penalty cannot be challenged. We do not find any force in the argument of the Ld. Counsel that the quantum order was not challenged because of smallness of tax involved. Quantum of tax is not material it is the conduct of the assessee which is at the top consideration. The impugned concealed or undisclosed rental income was detected on account of search proceedings and the same has been accepted by the assessee qua the assessment order. The penalty order which follows the quantum addition therefore is a natural corollary. Penalty u/s 271(1)(c) for under statement of income - period of limitation - Penalty order has been hit by limitation prescribed in section 275(1)(a) and cannot survive. Accordingly, the penalty order u/s 271(1)(c) dated 25.10.2021 for AY-2013-14 and AY 2014-15 qua addition in respect of under statement of income is quashed. The order of lower authorities on the issue set aside and the Ld. AO is directed to recompute the quantum of penalty payable by the assessee after removing the penalty component qua addition of in respect of under statement of income. Issues:1. Additional grounds of appeal filed by the appellant challenging penalty orders passed beyond permissible timelines.2. Admissibility of additional grounds of appeal.3. Imposition of penalty under section 271(1)(c) for undisclosed rental income.4. Time-barred penalty proceedings for understated income confirmed by appellate authorities.Analysis:Issue 1:The appellant requested to file additional grounds challenging penalty orders passed beyond permissible timelines. The tribunal admitted the additional grounds despite objections from the Revenue.Issue 2:The tribunal noted that all three appeals by the appellant raised identical issues on legal and merit grounds, hence adjudicated together. The penalty order under section 271(1)(c) for the assessment year 2012-13 was contested by the appellant based on undisclosed rental income.Issue 3:The tribunal considered arguments from both sides regarding the imposition of penalty on concealed rental income. The appellant's challenge was dismissed as the quantum addition was accepted, making the penalty a natural corollary. The penalty order dated 25.10.2021 was upheld.Issue 4:Regarding penalty proceedings for understated income, the tribunal found that the penalty order dated 25.10.2021 was time-barred under section 275(1)(a). The penalty order for the assessment years 2013-14 and 2014-15 was quashed as it was passed beyond the prescribed limitation period. The tribunal directed the Assessing Officer to recompute the penalty without the time-barred components.In conclusion, the appeal for the assessment year 2012-13 was dismissed, while the appeals for the assessment years 2013-14 and 2014-15 were partly allowed due to the time-barred penalty proceedings. The order was pronounced on 18th December 2024 in Chennai.