9911796707
TMI Blog2010 (12) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment Co. Ltd. The object of the new company was to develop power and other projects. The assessee had taken up a BPO project in assessment year 2003-04 which was completed in assessment year 2004-05 which is under consideration. The expenditure incurred in relation to project till 31.3.2003 had been shown by the assessee as work in progress (WIP). The project was completed during the year and handed over to a group company M/s.Indo P.T.Rayon Ltd. (IPRL) The total expenditure incurred by the assessee on the project was Rs.10,43,64,,821/- which was recovered from the group company as professional charges. In addition the assessee had also issued a bill of Rs.430.18 lacs including the service tax of Rs.31.86 lacs to the group company. The AO asked the assessee as to why the professional charges should not be treated as income and also asked the assessee to explain as to why the project was transferred at cost price when the assessee was doing business of development project to earn profit. The AO observed that the project development activity as well as the professional services rendered were part of its business activities. The assessee explained that the professional fees bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO also observed that the assessee had followed a colorable devise to help the group companies avoid taxes as the group company to which the project was transferred had claimed the professional fees as well as reimbursed expenses along with depreciation as deduction and the assessee was not showing any income by transferring the project at cost price and not showing any income from the professional fees. AO therefore considered the transaction as colourable and reliable and estimated the income from BPO project at 10% of the cost. The AO followed the judgment of Hon'ble Supreme Court in case of McDowel and Co. (154 ITR 148) The cost of the project was computed as under: Total expenses incurred by the assessee as per its statement 10,43,64,821 Add: Amount loaded to BPO project (as per asstt.order for AY 03-04 1. Interest on loans 45,29,236 2. Legal and Professional Fees 38,60,542 83,89,778 Total 11,27,54,599 Thus the estimated fees from the project @ 10% was computed at Rs.11275460/- and after deducting the expenses estimated at 10% of the said fees the total income was computed at Rs.10137910/-. 2.1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing notional income on transactions with a related party though there were provisions of disallowance of expenditure under section 40A(2)(b) in respect of expenditure incurred in relation to related party. It was pointed out that whenever the legislature wanted that income should be charged notionally, there were specific provisions in the statute. Reference was made to the provisions relating to computation of house property income which was based on notional theory. Reference was also made to section 50C in which sale value for the purpose of stamp duty could be taken as the value of actual sale. But there were no provisions for taking notional profit from the transaction with the related party in relation to domestic transaction though there was provision in section 92 in relation to international transactions. The Learned AR however admitted that some of the projects sold in the subsequent year to Reliance and JP group had resulted into profit. It was also admitted that this was only transaction with a group concern and it had resulted into loss. 2.1.6 The Learned DR on the other hand strongly supported the orders of authorities below. It was submitted that income if no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est. CIT(A) has given a finding that there was nothing produced in record to show that any attempt had been made by the assessee to sell the project in the market. He therefore agreed with the AO that the transaction was collusive to evade tax. Accordingly he confirmed the order of AO. 2.1.9 On careful consideration of all the aspects of the matter we see no infirmity in the order of CIT(A). The assessee itself admitted that there was understanding with the group company to reimburse the cost and pay some reasonable profit but no profit was charged by the assessee. No explanation has been given for not claiming the profit. The claim of the assessee that there were no buyers in the market and by selling it in the market the assessee would have incurred loss is not supported by any evidence. The assessee produced no evidence to show that it had made any effort to sell the project in the market. No correspondence entered into with the group company produced by the assessee to show that it was finding it difficult to sell the project in the market and requested the latter to purchase it at cost price. Even the service charges of Rs.430.19 lacs charged by the assessee from the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of BPO business. The assessee as discussed earlier had been set up to develop projects upto the stage of financial closure and thereafter transferring the same to others. The assessee had taken over bio technology, CPP and MRPL power projects from group companies. The expenses incurred in respect of said project till take over by the assessee and further expenses incurred during the year under consideration were charged by the assessee to the profit and loss account. The total expenses debited were as under: Salary Wages Rs.16985776 Other expenses Rs.6867201 Interest expenses Rs.25942761 Depreciation Rs.291038 Preliminary expenses w/off Rs.10280 Total Rs.5,00,97,038 2.2.1 The assessee had claimed total loss of Rs.5,89,60,444/- from the said project. The AO observed that the assessee was developing the projects till the stage of financial closure and therefore the assessee could receive fees only on financial closure of the project. Therefore till the financial closure of the project the expenses incurred would constitute work in progress. The income from the project could be computed only on completion and the assessee should have therefore carried for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble as the same was only a civil liability as held by Hon'ble Supreme Court in case of Dharmendra Textile Processors and Others (306 ITR 277) and willful concealment was therefore not required to proved by the revenue. He therefore levied the penalty @ 100% of tax sought to be evaded which was computed at Rs.36,40,563/-. In appeal the assessee submitted that the judgment of Hon'ble Supreme Court in case of Dharmendra Textile and Processors (supra) was in conflict with the earlier judgments of Supreme Court and therefore it could not be followed. CIT(A) however did not accept the contentions raised. It was observed by him that the Hon'ble Supreme Court in case of Dharmendra Textile and Processors (supra) had clearly held that section 271(1)(c) had been incorporated to provide for remedy for loss of revenue and penalty was only a civil liability and that willful concealment was not required to be proved by the department. He accordingly confirmed the penalty imposed aggrieved by which the assessee is in appeal before the tribunal. 3.1 Before us the Learned AR for the assessee argued that it was a settled legal position by several judgments that notional income could not be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y AO did not file any explanation as to why penalty should not be levied. AO therefore levied penalty @ 100% of tax sought to be evaded. The AO followed the judgment of Hon'ble Supreme Court in case of Dharmendra Textiles and Processors (supra) in which it was held that penalty under section 271(1)(c) was only a civil liability. CIT(A) has confirmed the order of the Assessing Officer. Before us the Learned AR for the assessee has argued that no penalty could be imposed in case of estimated addition or in cases where the issue is debatable. 3.4 We have carefully considered the various aspects of the matter. The penalty under section 271(1)(c) is a civil liability and willful concealment is not required to be proved by the department as held by the Hon'ble Supreme Court in case of Dharmendra Textiles and Processors (supra). However penalty cannot be imposed in each and every case of addition. A case for penalty has to be evaluated in terms of provisions of Explanation 1 to section 271(1)(c). As per the said Explanation if in relation to any addition to total income the assessee offers no explanation or offers and explanation which is found to be false, it will be a case of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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