Smt. Subbalakshmi Kurada Vs DCIT (ITAT Bangalore)
In , the ITAT Bangalore deleted penalty under Section 271(1)(c), holding that mere disallowance or change in head of income does not amount to concealment or furnishing inaccurate particulars.
The assessee had:
- Shown rental income partly as rent and partly as hire charges (under business income)
- Claimed Section 54 deduction on reinvestment made jointly with her son
The AO:
- Reclassified hire charges as house property income
- Restricted Section 54 deduction
- Levied penalty alleging inaccurate particulars
However, the Tribunal observed:
- All facts were fully disclosed in return and during assessment
- Dispute was only about classification of income and eligibility of deduction
- Subsequently, Section 54 deduction was allowed by ITAT in quantum proceedings
Relying on SC ruling in Reliance Petroproducts and Karnataka HC in Manjunatha Cotton, the Tribunal held that:
- Wrong claim ≠ concealment
- Head of income dispute ≠ inaccurate particulars
Accordingly, penalty was held unsustainable.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/07/2025 in respect of the A.Y. 2016-17 and raised the following grounds:
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The order levying penalty u/s.271[1][c] of the Act, is bad in law in as much as, the learned AO has neither reached any satisfaction nor has such satisfaction been recorded in the assessment order and consequently, the very initiation of proceedings u/s.271[1][c] of the Act, is not in accordance with the requirements of Section 271[1] of the Act and consequently, the order of penalty founded on the invalid initiation of penalty proceedings is liable to be cancelled.
3. Without prejudice to the above, the order of penalty passed u/s 271[1][c] of the Act is bad in law as the notice issued under section 274 rws 271 of the Act is defective as the same has been issued for both concealment of income and furnishing of inaccurate particulars of income and thus, the entire proceedings are bad in law and hence, the order passed deserves to be cancelled.
4. Without prejudice to the above, the learned CIT[A] failed to appreciate that the appellant has neither concealed any income nor furnished inaccurate particulars of income to warrant levy of penalty and therefore, the penalty levied u/s.271[1][c] of the Act requires to be cancelled.
5. The learned CIT[A] is not justified in upholding the levy of penalty of Rs. 6,26,410/- u/s 271[1][c] of the Act imposed by the learned A.O., who had not applied his mind to the submissions made by the appellant vide letter dated 19/01/2019 and therefore, the penalty order passed was bad in law under the facts and in the circumstances of the appellant’s case.
6. The learned CIT[A] ought to have appreciated that no penalty u/s 271[1][c] of the Act could be levied in respect of the addition of Rs 20,27,218/- that was made on account of change in the head of income assessed as the same cannot be considered as furnishing of inaccurate particulars of income under the facts and in the circumstances of the appellant’s case.
7. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
2. The brief facts of the case are that the assessee is an individual and earned income from the house property as well as the interest income. The assessee filed his return of income which was selected for limited scrutiny to examine the four issues. Notices u/s. 143(2) as well as u/s. 142 were issued to the assessee. The assessee also filed her submissions. The AO after verifying the submissions made by the assessee alleged that the assessee had declared a lesser rental income when compared with the statement in form 26AS. The AO observed that the assessee had bifurcated the rental income into two, one showing the rental income and the another showing the hire charges collected for the amenities provided. The AO not accepted the said bifurcation of the rent into two parts and clubbed the rental income as well as monthly hire charges for the amenities as rental income. Similarly, the assessee had shown the long term capital gains while selling her property which was subsequently reinvested and deduction u/s. 54 was claimed. The AO had not granted the said deduction since the assessee had reinvested the capital gains along with her son. The AO observed that the assessee was the sole owner of the property sold and therefore the reinvestment jointly with her son would not entitle her for deduction u/s. 54 of the Act and on that score 50% share of her son was made addition and assessment has been completed. As against the said order, the assessee filed an appeal before the Ld.CIT(A)-3, Bengaluru. The Ld.CIT(A) had confirmed the addition of the monthly hire charges but allowed the deduction for the interest on borrowings from the income from house property. The Ld.CIT(A) also enhanced the deduction allowable u/s. 54 of the Act but confirmed the disentitlement of deduction at 50% of the cost of the reinvestment since the reinvestment was made along with the assessee’s son.
