TMI Blog2010 (12) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... as we have held earlier is covered by the provisions of Explanation 1 to section 271(1)(c) and penalty is leviable. Even the Hon'ble Supreme Court in case of Reliance Petro Products Ltd. (2010 (3) TMI 80 - SUPREME COURT) have held that for levy of penalty it has to be seen that conditions of section 271(1)(c) are applicable. In the present case we have held that the provisions of Explanation 1 are applicable and penalty is leviable. - Decided against the assessee - ITA No. 1581/M/2008 ITA No. 2521/M/2010 - - - Dated:- 23-12-2010 - D.K. Agarwal, Rajendra Singh, JJ. Yogesh Thar for the Appellant S.K. Pahwa and Sumeet Kumar for the Respondent ORDER Rajendra Singh: These appeals by the assessee are directed against the order dated 27.7.2007 and 18.02.2009 of CIT(A) for the assessment year 2004-05 in relation to quantum appeal and penalty appeal respectively. As these appeals were heard together, these are being disposed off by a single consolidated order for the sake of convenience. 2. We first take up the quantum appeal of the assessee in ITA No.1581/M/2008. In this appeal the assessee has raised disputes on two different grounds. 2.1 The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31.03.2003 430.19 2. Interest of Rs.45,29,236/- which was disallowed in the assessment order for A.Y.2003-04 on the ground that this relates to funds used for BPO business 45.29 3 Legal and Professional fee relating to BPO business as mentioned in para 10 of assessment order for A.Y.2003-04. 38.61 Total 514.09 2.1.1 The assessee also submitted that profit and loss account arising from the business of developing the BPO project should be determined as under: Opening work in progress of BPO business (determined as closing work in progress as on 31.3.2003 as per your assessment order for AY 2003-04 para 10 (page 8 of the order) 10,61,06,448 Less: recovering made during the year (a) Credited to PandL account 3,98,32,100 (b) Expenses recovered and credited to amount recoverable (received from M/s. Indian Rayon 4,46,69,000 (c) Expenses recovered and credited to amount recoverable (received from M/s. Transworks) 2,04,30,000 10,49,31,100 Loss from BPO business to be allowed in addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) was however not convinced by the argument advanced. It was observed by him that it was not believable that the project was launched without any commercial consideration. In fact as per assessee's own admission IPRL had agreed to give a reasonable profit on the project. However the assessee voluntarily agreed not to receive the said profit which was highly abnormal. He therefore further observed that the transaction was a collusive transaction. CIT(A) also noted that there was nothing on record which could show that any attempt had been made by the assessee to sell the project in the market. Considering all these factors CIT(A) agreed with the finding of the AO and upheld the addition made aggrieved by which the assessee is in appeal before the tribunal. 2.1.4 Before us the Learned AR for the assessee submitted that the assessee was in the business of development of projects, mainly power projects. The assessee was developing the project only upto the stage of financial closure and selling it in the open market. The assessee had sold the BPO project to the group company at cost as there were no buyers. It was also submitted that there was no agreement for sale and the project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was developing the projects till the stage of financial closure and thereafter was selling it in the market. The assessee had acquired certain power projects from group companies for doing the business. The assessee had also taken up a BPO project in the assessment year 2003-04 and the financial closure was completed in the assessment year 2004-05. The total cost of the project was Rs.10,43,64,821/-. The project was transferred to a group company IPRL at cost price. The assessee had also billed Rs.430.18 lacs to IPRL as professional charges relating to the project on which tax was also deducted. But no income was shown by the assessee. The case of the assessee is that there were no buyers for the project in the market and had it been sold in the market there would have been loss. However when asked by the AO the assessee could not explain such a presumption that there would have been a loss. Considering the transaction was with the group company the AO rejected the same as not genuine and treated it as a colorable devise to evade tax as the assessee did not pay any tax whereas the transferee company was claiming deduction on account of professional charges as well as deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the parties had used a colorable devise to reduce the tax liability. The reliance by the authorities below on the judgment of Hon'ble Supreme Court in case of McDowell and Co (supra) on the facts of the case is justified. The transaction had been rightly considered as collusive and estimation of profit @ 10% of the cost of the project is justified and the same is upheld. 2.1.10 The Learned AR for the assessee argued that there was no provision for charging notional income on the transaction. He has placed reliance on certain judgments as mentioned in para 2.1.4 earlier. In our view the said judgments are not applicable to the facts of the present case as this is not a case of charging of notional income on a transaction like loan etc. This is a case of estimation of profit. The assessee was doing the business of development of project and sale thereof. The assessee had shown certain sale price from the BPO transaction showing no income. For the various reasons given earlier the transaction has been found to be collusive and the same has been disregarded and income has been estimated @ 10% of cost. It is a settled legal position that when the accounts are not found reliable th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision of the tribunal in assessment year 2003-04. The tribunal in the said year observed that there was no dispute that till financial closure the expenditure incurred was shown by the assessee in the balance sheet as advance recoverable. However in the profit and loss account the same was claimed as revenue expenditure. The tribunal therefore held that the expenses had been rightly treated by the authorities below as work in progress. The tribunal also observed that as and when the project came to financial closure and the revenue was realized from the project, the expenses could be allocated on pro-rata basis depending upon the volume of revenue and other financial parameters. The tribunal accordingly confirmed the order of CIT(A). The facts this year admittedly the same. We therefore respectfully following the decision of the tribunal in assessee's own case in assessment year 2003-04 (supra) confirm the order of CIT(A). 3. The appeal of the assessee in ITA No.2521/M/2010. In this appeal only dispute raised by the assessee is regarding levy of penalty under section 271(1)(c). As discussed while dealing with the quantum appeal of the assessee earlier, the AO had e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her argued that judgment of Hon'ble Supreme Court in case of Dharmendra Textile and Processors (supra) was not applicable when the issue was debatable or when disclosure had been made by the assessee. He also placed reliance on the judgment of Hon'ble Supreme Court in case of CIT vs Reliance Petro Products Pvt. Ltd. (322 ITR 158) The Learned AR also submitted that the assessee had given complete information in relation to the claim of expenditure as was clear from auditors note placed at page 11 of the paper book. Therefore it was urged that no penalty should be levied. 3.2 The Learned DR on the other hand submitted that the penalty had been correctly levied in this case by the AO and upheld by the CIT(A). It was argued that penalty could be levied even in respect of estimated additions. He placed reliance in this regard on the judgment of Hon'ble High Court of PandH in case of CIT vs Warasat Hussain (171 ITR 405) and on the judgment of Hon'ble High Court of Gujarat in case of Addl. CIT vs Chandravilas Patel (165 ITR 300). 3.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding levy of penalty in relation to the estimation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiate the said explanation. The assessee could also not file any details to show that the assessee had tried to sell the project in the market nor any correspondence with the group concern had been filed to show that the latter was purchasing the project as a distressed sale by the assessee. Under these circumstances the explanation of the assessee cannot be considered as bonafide. The case is therefore covered by the provisions of Explanation 1 to section 271(1)(c) and the penalty is leviable. The plea of the Learned AR that the addition involved a debatable issue is not acceptable as there is no legally debatable issue involved. It was only a question of computation of profit from the sale of the project which involved a finding of fact as to whether the accounts were reliable. The accounts in this case were held not reliable and profit had been estimated resulting into addition to total income which has been upheld by the tribunal. Such addition is covered by the Explanation 1 to section 271(1)(c) as we have seen earlier. Therefore in our view on the facts of the case penalty levied is leviable and the cases cited by the Learned AR are not applicable to the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X
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