USK Healthcare Pvt. Ltd. vs. ITO, Ward-27(2), Delhi: Penalty Proceedings for AY 2015-16

Case Overview: USK Healthcare Pvt. Ltd. vs. ITO, Ward-27(2), Delhi – Assessment Year 2015-16

The case of USK Healthcare Pvt. Ltd. vs. ITO, Ward-27(2), Delhi pertains to the assessment year 2015-16 and was heard before the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘SMC-1’. The bench, comprising Accountant Member Shri R. K. Panda and Judicial Member Ms. Suchitra Kamble, conducted the hearing on January 14, 2021, through video conferencing, with the order pronounced on January 21, 2021.

Background of the Case

USK Healthcare Pvt. Ltd., a company based in New Delhi, is engaged in the business of trading in medicines and food supplements, as well as earning rental income. The company filed its income tax return for the assessment year 2015-16, declaring an income of Rs. 3,50,801/-. During the assessment, the Assessing Officer (AO) made additions, including Rs. 5,417/- for interest paid on TDS and sales tax, and Rs. 13,16,325/- by treating the rental income as income from other sources instead of income from house property.

The AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, and subsequently imposed a penalty of Rs. 4,27,082/-. The penalty was based on the AO’s belief that USK Healthcare Pvt. Ltd. had concealed its income by misreporting the rental income under the wrong head.

Appeal Before the CIT(A)

Aggrieved by the penalty order, USK Healthcare Pvt. Ltd. filed an appeal before the Commissioner of Income Tax (Appeals)-9, New Delhi (CIT(A)). The CIT(A) partly allowed the appeal, but upheld the penalty imposed by the AO, leading USK Healthcare Pvt. Ltd. to further appeal before the ITAT.

Arguments by the Assessee

The learned Authorized Representative (AR) for the appellant, Sh. Ankit Gupta, argued that the assessee company had declared the rental income under the head of income from house property, claiming the standard deduction under Section 24(1) of the Income Tax Act, 1961. The AR highlighted that the rental income was derived from a hospital property, and the rent agreement with the tenant had been duly furnished during the assessment proceedings. Additionally, the TDS on the rental income was deducted under Section 194I of the Act.

The AR emphasized that the assessee had fully disclosed all relevant facts and material in its return of income, and that the addition made by the AO was merely due to a difference of opinion regarding the appropriate head under which the income should be assessed. The AR cited the decision of the Hon’ble Delhi High Court in the case of CIT vs. Amit Jain (351 ITR 74), arguing that the mere change of opinion or head of income does not justify the imposition of a penalty under Section 271(1)(c).

Arguments by the Revenue

The learned Senior Departmental Representative (DR), Sh. Ajay Kumar, argued in favor of the penalty order passed by the AO and upheld by the CIT(A). The DR maintained that the penalty was rightly imposed as the assessee had furnished inaccurate particulars of income by claiming the rental income under the wrong head.

Tribunal’s Decision

After hearing both parties and considering the material on record, the ITAT found that the assessee had indeed furnished all necessary documents during the assessment proceedings, including the rent agreement and the details of TDS deducted under Section 194I. The tribunal noted that the assessee had disclosed the rental income in its return, along with the fact that the land belonged to a third party and that the hospital was constructed on this land.

The ITAT observed that the AO’s addition was based on a mere difference of opinion regarding the classification of the rental income, rather than any deliberate concealment or misreporting of income by the assessee. Citing the Delhi High Court’s decision in the case of CIT vs. Amit Jain, the ITAT concluded that the penalty imposed under Section 271(1)(c) was not justified in this case.

Conclusion

The ITAT Delhi Bench ‘SMC-1’ allowed the appeal of USK Healthcare Pvt. Ltd., ruling that the penalty imposed under Section 271(1)(c) was unjustified and should be quashed. The tribunal held that the assessee had fully disclosed all relevant facts and that the addition made by the AO was due to a mere change of head of income, which does not warrant a penalty for furnishing inaccurate particulars of income.

This decision underscores the importance of proper classification of income and the distinction between genuine differences of opinion and deliberate concealment or misreporting of income. It also highlights the tribunal’s commitment to ensuring that penalties are imposed only in cases where there is clear evidence of intent to evade tax.

In conclusion, the case of USK Healthcare Pvt. Ltd. vs. ITO, Ward-27(2), Delhi serves as a significant precedent in the realm of income tax law, particularly concerning the imposition of penalties under Section 271(1)(c). The ITAT’s ruling reinforces the principle that penalties should not be imposed lightly and must be based on solid grounds, with due consideration given to the facts and circumstances of each case.

USK Healthcare Pvt. Ltd. vs. ITO, Ward-27(2), Delhi: Penalty Proceedings for AY 2015-16