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2015 (12) TMI 1461 - ITAT MUMBAI

2015 (12) TMI 1461 - ITAT MUMBAI - TMI - Penalty levied u/s 271(1)(c) - receipt of interest income - Held that:- So far as the offer of interest income under the head "business income" after netting the said income against the financial charged incurred for the purposes of business, nothing is brought on record that there is any furnishing of inaccurate particulars. It is a case of change of head of income and the CIT (A) attempted to tax it u/s 56 of the Act. In our opinion, the issue is debata .....

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avour of assessee

Pre-ponment of sales offered in next year - Held that:- The assessee offered the said income in the later assessment year basing on the principle "pay as you earn". This principle is upheld by the Hon‟ble Supreme Court in the case of Excel Industires (2013 (10) TMI 324 - SUPREME COURT ) wherein it is held that the income tax cannot be levied on hypothetical income. Income accrued when it becomes due at the same time, it must also be accompanied by corresponding .....

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some of the reasons, such additions are accepted by the assessee, the same will not attract penalty u/s 271(1)(c) of the Act as the said amount was already offered to tax by the assessee. In our opinion, there is neither concealment of income nor furnishing of any inaccurate particulars in such matters.- Decided in favour of assessee

Addition based on the estimated total cost of construction for the project - Held that:- We find that there is no dispute on the fact that the total esti .....

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f penalty should be attracted to such debatable issues. We find the addition of ₹ 28.62 Crs has the genesis in the estimations on one side and preponement on the other and also on the change of method of accounting. In our opinion, penalty cannot be levied on such additions as they constitute debatable issues. It is an undisputed fact that the said profits of the project are subject to tax in the AY 2009-2010 or in AY 2012-2013. It is a matter of dispute. The above citations were also peru .....

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or determining the profits of the project adopted by the CIT (A) is not free from the debate or dispute. It is also a settled issue that when debate is an integral part of any addition, the concealment penalties will not survive. The decisions relied upon by the Ld Counsel for the assessee were also perused and found supporting to his arguments. On such facts, whether the assessee appealed against the additions or not in quantum proceedings, we are of the opinion that the penalty levied by the A .....

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ssment year 2009-2010. This appeal relates to the penalty levied u/s 271(1)(c) of the Act by the CIT (A), who made the enhancement in the regular assessment during the appellate proceedings on quantum issues. 2. Briefly stated relevant facts of the case are that the assessee is engaged in the business of construction and undertook a project of constructing a single commercial complex consisting 20 floors on leased plot of land, belonging to MMRDA. The said plot is located at Plot No.C-38 & 3 .....

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ethod. During the year relevant to the AY under consideration, assessee filed the return of income declaring the total income of ₹ 99.04 Crs (rounded-of). After the scrutiny assessment made u/s 143(3) of the Act, assessed income was determined at ₹ 99,10,31,790/-. In the regular assessment made u/s 143(3) of the Act dated 27.12.2011, AO made certain additions on account of disallowance of expenses. Aggrieved with the additions made by the AO, assessee carried the matter in appeal bef .....

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nhancement is tabulated as under: S No Additions / Disallowances Amount 1 Pre-ponment of sale income ₹ 179.03 Crs, which was offered in subsequent years, due to which income got enhanced ₹ 20.52 Crs 2 Change in estimate of total cost of construction ₹ 28.62 Crs 3 Change in method of accounting ₹ 63.57 Crs 4 Interest income which was offered by appellant as business income to income from other sources ₹ 7,32,06,243/- 4. The above enhancement was accepted by the asses .....

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its of the additions and hence, the assessment has reached finality. 5. Meanwhile, the CIT (A) initiated the penalty proceedings u/s 271(1)(c) of the Act in connection with the above said enhanced assessment and levied the penalty of ₹ 40.80 Crs @ 100% of the tax sought to the evaded vide the order of the CIT (A) dated 27.9.2013. The order of the CIT (A) contains the submissions of the assessee and the facts relevant for such levy of penalty. CIT (A) discussed number of judicial pronouncem .....

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assessed income as per the CIT (A) after the said enhancement is determined at ₹ 219.02 Crs. After the said amendment u/s 154 of the Act, the revised income has kept at ₹ 214.62 Crs. As per the Ld Counsel for the assessee, if the said reduction in the said assessment is considered, the penalty would be reduced to ₹ 39.29 Crs (rounded-of) from the original penalty of ₹ 40.80 Crs. We find merit in the assessee‟s point of reference and direct the AO to adopt the correc .....

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assessee. These fixed deposits were made by the assessee in order to avail bank facilities like secured loans and Over Drafts (OD), which are required to be utilised for the construction of the commercial complex, the core business activity of the assessee. Considering the business nexus, the said interest income was offered as business income‟ of the assessee after netting the business related finance expenses. The assessee relied on various coordinate Bench decision of the Tribunal to su .....

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ition was accepted by the assessee and thus, it has reached finality. Referring to the penalty proceedings, Ld Counsel for the assessee mentioned that the issue of taxing the interest income‟ offered under the head business or profession‟ or income from other sources‟ is a matter of dispute. Therefore, such addition does not attract penal provisions of section 271(1)(c) of the Act. Ld Counsel for the assessee relied on various binding judgments in this regard and one of such de .....

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nue Authorities, we find there is no dispute on facts. So far as the offer of interest income under the head business income‟ after netting the said income against the financial charged incurred for the purposes of business, nothing is brought on record that there is any furnishing of inaccurate particulars. It is a case of change of head of income and the CIT (A) attempted to tax it u/s 56 of the Act. In our opinion, the issue is debatable in nature, and there is no default of disclosure .....

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vy of penalty of ₹ 179.03 Crs regarding pre-ponment of sales offered in next year: Briefly stated relevant facts of the case are that the assessee sold 1,51,520 sq ft of commercial area for a sum of ₹ 736.55 Crs, but the said area was not completed by the time relevant to the AY under consideration. Basing on the method of accounting followed ie percentage completion method, the assessee offered sum of ₹ 239.27 Crs (ie around 43% of the total sales based on the project) for the .....

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ssment, the whole of the sales made to the Standard Chartered Bank was offered as recognising the income by filing the revised return of income preponing the completion of the project from 2012-2013 to 2009-2010, the AY under consideration. CIT (A) levied the penalty on this sum of sales of ₹ 179.03 Crs which is otherwise offered to tax in the AY 2010-2011. 8. During the proceedings before us, on the above facts, Ld Counsel for the assessee submitted that this is the case of preponement of .....

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the preponement of later years income to the AY under consideration. He has also submitted that there is neither concealment of income nor furnishing of any inaccurate particulars in this case. Assessee has followed a fixed method of accounting. He also demonstrated that the estimated concealment of ₹ 20.52 Crs on account of the above addition of ₹ 179.03 Crs is mere estimation and not based on any facts. Further, he submitted that the whole issue revolves around the preponement and .....

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e also submitted that the revised return of income was filed, in order to satisfy Revenue Authorities as there is no adverse tax implications, to the assessee, the penalty is unsustainable. Relying on the judgment of the Hon‟ble Apex Court in the case of Excel Industries (358 ITR 295), copy of which is placed in page 304 of the paper book, Ld Counsel for the assessee submitted that when there is no tax loss to the Department and the only issue is year of taxability but when the tax rates a .....

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n the case of Excel Industries (supra). 9. Per contra, Ld DR for the Revenue submitted that the assessee did not offer the said income in the year under consideration initially, but for the decision of the CIT (A) to tax the whole of the sale proceeds in the year under consideration. However, on sustainability of the said addition Ld DR has nothing to state except that the above addition was accepted by the assessee and the same has reached finality. 10. On hearing both the parties, we find ther .....

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on the principle pay as you earn‟. This principle is upheld by the Hon‟ble Supreme Court in the case of Excel Industires (supra) wherein it is held that the income tax cannot be levied on hypothetical income. Income accrued when it becomes due at the same time, it must also be accompanied by corresponding liability of other party to pay the amount. Only then, it can be said for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee. I .....

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essee. In our opinion, there is neither concealment of income nor furnishing of any inaccurate particulars in such matters. The decisions relied upon by the Ld Counsel for the assessee includes the order of the Tribunal in the case of Siddhraj Developers Pvt Ltd (ITA No.185/Ahd/2008), dated 11.5.2010 (Ahd); Goutam Enterprise (ITA No.5847/Mum/2010) dated 10.12.2012 (Ahd); Jain Builders (Vasai) (41 CCH 031) (Mum) and Gurucharan Singh & Co (72 TTJ 774) (Chd). These are relevant for the proposit .....

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mated project cost based on the actual cost incurred up to 31.3.2013. As per the documents filed before the CIT (A), the projected / estimated total cost is ₹ 1939.07 Crs. Till the end of the AY 2009-2010 ie 31.3.2009, the actual cost is ₹ 832.19 Crs which means the balance of ₹ 1106.88 Crs is meant to be spent on the project in the AYs 2010-11; 2011-12 & 2012-13 and as the AY 2012-13 is the year of completion of project. During the proceedings relating to the enhancement o .....

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books of account for AY 2009-2010). There is no reconciliation as how ₹ 214.59 of profits is arrived at as the difference is works out to 202.83 Crs only. This is matter of statistics and it does not matter as the issue relates to penalty. It is the allegation of the assessee that the CIT (A) vainfully disturbed the method of accounting of the assessee and levied the penalty on the addition of ₹ 28.62 Crs on account of reworking of the estimated project cost. The same is the subject .....

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into account which was done by the assessee and not the projected estimated figures, which is the basis for the CIT (A) for bringing the said amount of ₹ 28.62 Crs of addition on this ground of difference in the total cost of construction. The details of working for arriving at ₹ 28.62 Crs are given in the order of the CIT (A). He further mentioned that the said differences are based on many factors such as interest cost, various permissions from the MMRDA and other indirect attribut .....

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the assessee followed pay as you earn basis whereas the CIT (A) thrust on the assessee his own method of accounting, which is prima facie invalid on the assessee. Such debatable issues on the additions, if any, relevant to such method of accounting is unsustainable in law. He also mentioned that the exercise undertaken by the CIT (A) is forcibly taxing all the profits of the project in the AY 2009-2010 is incorrect, unsubstantiated as the project was actually completed in the AY 2012-2013. There .....

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ypothetical figure generated by the CIT (A). Further, relying on the various decisions, Ld Counsel for the assessee mentioned that it is neither a case of furnishing of inaccurate particulars nor a case of concealment of income. He also submitted that no penalty is levyable merely on change of estimates based on change of method of accounting. Relying on the judgment of the Hon‟ble Madras High Court in the case of TPK Ramalingam vs. CIT [1995] 211 ITR 520 (Mad) and the decision of the coor .....

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hand, Ld DR for the Revenue relied on the order of the CIT (A) and submitted that it is a case of furnishing of inaccurate particulars. 13. We have heard both the parties and perused the orders of the Revenue Authorities on this issue of levy of penalty on the addition of ₹ 28.62 Crs on account of reworking of estimated project cost based on actual cost incurred up to 31.3.2013. We find that there is no dispute on the fact that the total estimated cost of the project is 1628.02 Crs. There .....

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issues. We find the addition of ₹ 28.62 Crs has the genesis in the estimations on one side and preponement on the other and also on the change of method of accounting. In our opinion, penalty cannot be levied on such additions as they constitute debatable issues. It is an undisputed fact that the said profits of the project are subject to tax in the AY 2009-2010 or in AY 2012-2013. It is a matter of dispute. The above citations were also perused and we find they are relevant for the propo .....

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nhancement proceedings, CIT (A) rejected the assessee‟s method of accounting ie cost of sales method‟ and adopted the cost allocation method‟ on the basis of unit sold which is based on percentage completion method. Assessee followed percentage completion method, which is based on the principle of pay as you earn . Assessee relied on the Accounting Standard (AS)-7 as per the ICAI guidelines in adopting projecting completion method ie revenue is recognized on the basis of work c .....

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adopted by the CIT (A) is unsustainable and it should be rejected. The addition made by the CIT (A) amounting to ₹ 69.57 Crs (which is subsequently brought down to ₹ 59.12 Crs by virtue of modification orders passed u/s 154 of the Act) is unsustainable in law. In this regard, Ld Counsel for the assessee also submitted that no penalty on additions relatable to the change in the method of accounting as they do amount to neither concealment of income nor furnishing of any inaccurate pa .....

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s. CIT (41 CCH 031) (Mumbai Tribunal); Gautam Enterprise (ITA No.5847/M/2010) dated 10.12.2012 (Ahd); Gurucharan Sing & Co (72 TTJ 774) (Chd). 14. On the other hand, Ld DR for the Revenue relied on the order of the CIT (A) and submitted that the CIT (A) has adopted one of the available methods of accounting and did not deny the fact of existence of debate on which is a better method of accounting applicable to the facts of the present case. 15. We have heard both the parties and find the pen .....

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ions on merits. That should not come on the way of deciding the penalty proceedings. It is a settled legal issue that the penalty proceedins are different from that of the assessment proceedings or enhancement proceedings. If contested, assessee would have got a relief on this account. Therefore, we have to decide whether the present penalty relatable to the said invalid addition of ₹ 59.12 Crs is justified? Considering one of the methods of accounting for determining the profits of the pr .....

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order the AO to delete the penalty accordingly. 16. Further, Ld Counsel for the assessee raised other general arguments common to all the above additions and penalties. In this regard, he brought our attention to a table placed in para 7 of the said summarized facts sheet and analyzed the profit credited in the returns filed by the assessee for all the AYs 2009-2010 to 2013-14 and the same is worked out to ₹ 624.51 Crs. He also mentioned that the profits for all the above AYs as per the C .....

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statutory interests, there is hardly any difference between the assessee‟s method as well as that of the CIT (A). For the purpose completion of this order, the table placed at para 7 of the summarized facts sheet is extracted as under: AY Profit credited as per RoI Profit credits as per cost allocation (to be booked) Tax as per ROI Tax as per cost allocation etc as pr CIT (A) Differential Liability Tax 234B 234C Total 9-10 99.02 219.02 33.65 74.44 40.78 2.06 19.57 62.43 10-11 120.63 27.978 .....

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the judgment of the jurisdictional High Court in the case of CIT vs. M/s. Dalmia Dyechem Industries Ltd in Income Tax Appeal No.1396 of 2013, dated 6.7.2015. The Tribunal‟s order in the case of Bostan Consulting Group (India) P Ltd (7 ITR 417) (Mum)[page 356 of the paper book]; Pune Bench decision in the case of Kanbay Software India (P) Ltd (122 TTJ 721) (Pune) (2009) [page 332 of the paper book] are relevant in this regard. 18. Further also, Ld Counsel for the assessee brought our atten .....

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hich penalty should be levied. Further, bringing our attention to the quantum order u/s 250 of the Act, Ld Counsel for the assessee submitted that the CIT (A) initiated the penalty for assessee‟s failure in furnishing inaccurate particulars in respect of estimated cost of future expenditure resulted in suppression of income. He also brought our attention to the penalty order of the CIT (A) and mentioned the penalty was levied for concealment of particulars of income‟ in respect of th .....

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ty for one reason and levy for other reasons. In this regard, Ld Counsel for the assessee relied on the judgment of the Hon‟ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (92 DTR 111) (Kar. HC) and the coordinate Bench decision in the case of Shri Samson Perinchery (ITA Nos. 4625 to 4630/M/2013), dated 11.10.2013, copy of which is placed at page 366 of the paper book, wherein one of us (AM) is a party to the said order of the Tribunal (supra). He also relie .....

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