TaxTMI 
TaxTMI 
2005 (12) TMI 458
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....(1)(c) of the Income-tax Act, 1961." 2. Briefly stated, the facts of the case are that the assessee had filed its return of income before the Assessing Officer ("AO" in short) declaring NIL income. It was taken up for scrutiny by the Assessing Officer as a result of which the assessment was completed under section 143(3) determining the total income at Rs. 8,54,750 which, inter alia, included rental income of Rs. 9,00,000. The Assessing Officer assessed the said rental income as income from house property whereas the assessee had shown the same as service charges under the head "Income from business". The assessee carried the matter in appeal against the aforesaid order of the Assessing Officer before the CIT(A) who decided the matter ag....
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....he learned Departmental Representative pointed out that the case of assessee was squarely covered by Explanation 1 to section 271(1)(c) of the Income-tax Act which the learned CIT(A) failed to consider while disposing off the appeal filed by the assessee. He submitted that the learned CIT(A) should have confirmed the levy of penalty in view of the following decisions : (i) Shirish R. Shah v. Asstt. CIT [2004] 114 Taxman 33 (Mag.) (ii) K. P. Madhusudhanan v. CIT [2001] 251 ITR 99 (SC). 6. In reply, the learned Authorised Representative for the assessee supported the order of the learned CIT(A). He submitted that the issue of taxability of income under the head "Income from business" or "Income from House Property" was a debatable is....
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.... and the Assessing Officer was the head of income under which the service charge/rental income was taxable. Simply because a legal view taken by the assessee was not accepted by the Assessing Officer would not necessarily mean that there was concealment of income on the part of the assessee within the meaning of section 271(1)(c). 8. At the time of hearing, the learned DR submitted that the Assessing Officer was right in imposing the impugned penalty in view of Explanation 1 to section 271(1)(c) as interpreted by the Hon'ble Supreme Court in K.P. Madhusudhanan's case (supra). We have carefully perused Explanation 1 as also the said judgment. Explanation 1 has two clauses, namely, clause (A) and clause (B). Clause (A) applies where a pers....
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....does not ipso facto give rise to concealment of income. Penalty under section 271(1)(c) is levied for concealment of income and not for the difference in taking legal views on a given set of facts provided the facts have been adequately disclosed. Fiction under Explanation 1 to section 271(1) is available in respect of the amount added or disallowed while computing the total income and not for taxing the same income under a head of income different from the one under which it was offered by the assessee. The case of the assessee, in our humble view, neither falls under clause (A) or clause (B) nor otherwise comes within the deeming provisions of Explanation 1 to section 271(1)(c). 9. The learned DR has strongly relied upon the decision o....
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....on to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right." [Emphasis supplied] The aforesaid judgment, in our view, supports the case of the assessee more than the case of the Department. There is nothing in the said judgment to suggest that the penalty under section 271(1)(c) should be levied by invoking Explanation 1 thereto in each case where there is addition or disallowance. 10. In view of the foregoing, we are of the opinion that mere rejection of a legal claim of the assessee for taxability of income under a particul....