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TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 75
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....nstructing a building for the purpose of its business. The rental income during the relevant years was derived from letting out part of the partly constructed building and the open spaces around it for marriages and other ceremonies. The return of income for all the relevant assessment years were filed on March 18, 2009 declaring losses of Rs. 11,71,461/- for A.Y. 2006-07, Rs. 16,75,277/- for A.Y.2005-06 and Rs. 15,50,009/- for A.Y. 2004-05. For all the three previous years relevant to A.Ys. 2004-05, 2005-06 & 2006- 07 the assessee had claimed depreciation in the books on all the assets. Assessee claimed depreciation in respect of the fixed assets for Income Tax purpose also. The assessee used the partly constructed building for letting out and being a company other fixed assets like furniture and fixture, computers, etc. were used for the purpose of general administration and for managing dayto- day affairs of the assessee company. The assessee claimed depreciation on them under section 32 of the Act. 4. During scrutiny assessment proceedings, the AO asked the assessee to explain as to why the depreciation claim should not be disallowed since (i) the assessee had not carried out ....
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.... of the I.T. Act, 1961. 7. Before CIT(A) the assessee submitted that as per the decision of the Hon'ble Bombay High court in the case of Ralliwolf Ltd. reported in 121 ITR 262 and Explanation 5 to section 32(1) the assessee had a bonafide reason to believe that depreciation is allowable. It was under this bonafide belief that the assessee claimed depreciation as deduction in the computation of income. It was argued that although the assessee has not filed the return of income u/s.139(1), however, the return was duly filed u/s.139(4) of the I.T. Act. Relying on various decisions it was submitted before the Ld.CIT(A) that there was a bonafide belief on the part of the assessee to claim such depreciation. Referring to the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158 it was submitted that mere rejection of a legal claim does not amount to furnishing of inaccurate particulars of income or concealment of income. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Nalin Shah HUF vide ITA No.49/2013 order dated 15-07-2013 it was submitted that the Hon'ble High Court in the said ....
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....ring the course of assessment proceedings. He submitted that by showing rental income from letting out of property of the hotel it is proved that the hotel has started and the building was existing. Merely because the assessee under mistaken belief has declared such income as rental income, the same cannot be the basis for levying penalty u/s.271(1)(c) of the I.T. Act. He submitted that during marriage functions the rooms of the hotels were given, the kitchen was also given to the marriage party and the income from such marriage functions could have been declared under the head "business income" or "income from other sources". He submitted that had there been no hotel, there would not have been any rental income. 11. Referring to the computation of income for A.Yrs. 2004- 05 to 2006-07 placed at pages 5 to 8 of the paper book he submitted that house tax amounting to Rs. 1,37,765/- each for A.Yrs. 2004-05 and 2005-06 and Rs. 1,37,758/- for A.Y. 2006-07 was also claimed in the computation of income from house property. All these things prove that the hotel building was in existence. It was used for the business of the assessee by letting out for marriage functions etc. Therefore, me....
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....naccurate particulars of income. Therefore, there is no justification for levy of penalty u/s.271(1)(c) of the I.T. Act. 14.1 Referring to the decision of Hon'ble Supreme Court in the case of Mak Data Pvt Ltd., Vs. CIT reported in 263 CTR (SC) 1 he submitted that the above decision is not applicable to the facts of the case of the assessee. In that case incriminating documents were found during the course of survey and to buy peace the assessee had surrendered the income for which the penalty was confirmed. When the matter travelled upto Hon'ble Supreme Court it was held that the AO shall not be carried away by the plea of the assessee such as voluntary disclosure, buy peace, avoid litigation, amicable settlement etc. to explain on its conduct. It was held that the surrender of income in that case was not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. Under those circumstances, it cannot be said that the surrender of income was voluntary. However, facts in the instant case are completely different. All material facts necessary for completion of the assessment wer....
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....ld that penalty could not be imposed for concealment of income u/s.271(1)(c) of the I.T. Act. He submitted that in the instant case the income so derived was from the partly completed hotel building and under mistaken belief the assessee admitted before the Assessing Officer to treat such income as income from house property. Therefore, in view of the decision of Hon'ble Bombay High Court cited (Supra) no penalty is leviable u/s.271(1)(c). 17. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has earned rental income from letting out a partly constructed building and open spaces around it for marriage and other ceremonies. The assessee has claimed such income as income from house property and simultaneously claimed depreciation in the books of all assets. The Assessing Officer disallowed the claim of depreciation on the ground that the assessee had not carried out any business during the concerned period, that the rent received by the assessee was offer....
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....vestigation carried out by him and unearthed something which was not disclosed by the assessee. Under these circumstances the question that arise is as to whether penalty can be levied u/s.271(1)(c) of the I.T. Act when the assessee before the Assessing Officer had admitted to treat such income as income from house property and forgo depreciation which was claimed in the profit and loss account. 20. We find the Hon'ble Bombay High Court in the case of Bhimji and Bhanjee and Co., (Supra) the Hon'ble High Court upheld the order of the Tribunal which has cancelled the penalty levied u/s.271(1)(c) of the I.T. Act on account of addition of cash credit in accounts as income from undisclosed sources due to admission by the assessee. The relevant observation of the Hon'ble High Court at pages 146 and 147 read as under : "The submission of Mr. Sajnani, the learned counsel for the Revenue, is that the assessee had in fact admitted the concealment of income and hence it was not necessary for the Revenue to prove the same. It was submitted by him that in view of this the burden was on the assessee to show that there was no concealment and the conclusion arrived at by the Tribunal....
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....e particulars. The relevant observation of the Hon'ble Supreme Court at pages 163 to 166 reads as under: "A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnish....
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....urate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The C....