Penalty u/s 271(1)(c) can be imposed when the annual rent in the Lease Agreement found to be suppressed – Delhi HC

PSB Industries India Pvt. Ltd. Vs CIT (Delhi High Court)- Section 22 of the Act makes “income from house property” as chargeable to income tax. After excluding such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income tax.

It is the annual value of the property which becomes chargeable to income tax under this head. Section 23, already extracted above, stipulates the manner in which such an annual value is to be determined. It is clear from Clause (a) of sub-Section (1) of Section 23 of the Act that in case the annual rent received is less than the sum for which the property might reasonably be expected to let from year to year, it is the said sum and not the annual rent which would be the annual value chargeable to tax. Only in case where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable shall be taxed. Thus, it is the higher of the two which is chargeable to tax. Along with this specific provisions under Section 23, there is no defence of the assessee that disclosing the annual rent as the annual letting value for the purposes of tax was bona fide. In the instant case, the assessee had entered into an agreement to lease out the property to Punjab National Bank Ltd. on a sum of Rs. 1 lac per annum. The total area of constructed building leased out by the assessee is given in second schedule to the Lease Agreement, which is 1,23,490 sq. ft. The approved valuer has valued the annual letting value of total constructed area of 1,2 3,490 sq. ft. at Rs. 75,63,360/-