No Penalty u/s 271(1)(c) on cancellation of automatic deduction on wrong classification of income

No Penalty u/s 271(1)(c) on cancellation of automatic deduction u/s 24(a) on wrong classification of income under house property than other sources 

ABCAUS Case Law Citation:
ABCAUS 3298 (2020) (04) ITAT

Important case law relied upon by the parties:
CIT vs. Reliance Petroproducts (P) Ltd. 322 ITR 158
CIT vs. Sambhav Media Ltd

In the instant case, the assessee was aggrieved by the order passed by the CIT(A) in confirming the penalty imposed by the AO u/s 271(1)(c)  of the Income Tax Act 1961 (the Act) for  furnishing  inaccurate particular  of income on account of deduction claimed u/s 24 of the Act.

The Tribunal noted that there were disallowances in the quantum proceedings and the disallowance was visited with the penalty under section 271(1)(c) of the Act by the authorities below.

The ITAT observed that the provisions of section 24(a) of the Act, mandates to allow the benefit of the standard deduction to the assessee on account of repair and maintenance expenses of the rented property from gross rental income taxable under the head house property. The standard deduction under section 24(a) of the Act, is being statutory in nature and has to be allowed irrespective of the actual expenses incurred by the assessee.

The Tribunal noted that since the assessee had shown the income under the head house property and accordingly the deduction under section 2(a) of the Act was claimed. But the claim of the assessee was denied on the ground that the impugned rental income was  taxable  under  the  head  income  from  other  sources  instead  of income from house property. Accordingly, the deduction claimed against such rental income was denied automatically.

Thus the question was whether the assessee had furnished  inaccurate  particular  of  income  by  treating  the impugned income under the head house property?

No Penalty u/s 271(1)(c) on cancellation of automatic deduction on wrong classification of income

The Tribunal noted that there was no dispute to the fact that the assessee had earned lease rental  and  declared  the  correct  rental  income  but  the  same  was  declared under  the  wrong  head  i.e.  under income from house property instead of income from other sources.  Thus, the assessee had declared his income under the wrong head which could be inaccurate claim but the same could not be treated as inaccurate particulars of income. It is because the deduction under section 24(a) of the Act is automatic against the income chargeable to tax under the head house property.

Thus, the ITAT opined that as held by the Hon’ble Supreme Court, wrong claim by the assessee cannot tantamount as inaccurate particulars of income.

Further the Tribunal observed that the issue of correct head of income was debatable in nature and there could be dispute to classify the impugned rental income under the head house property/income from  other sources.

The Tribunal, accordingly held that there  could not be  any  penalty  on account of disallowance of the deduction claimed by the assessee under section 24(a) of the Act.

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