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2016 (8) TMI 902 - ITAT MUMBAI

2016 (8) TMI 902 - ITAT MUMBAI - TMI - Penalty u/s. 271(1)(c) - whether assessee’s project is complete or not? - Held that:- In view of the order of the Third Member in assessee’s own case, it is clear that the issue is highly debatable whether assessee’s project is complete or not and this being the situation, we are of the view that the penalty is not leviable u/s. 271(1)(c) of the Act. Furthermore, the assessee has not furnished any inaccurate particulars of income for the reason that the ass .....

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m/2009 - Dated:- 8-7-2016 - Shri Mahavir Singh, Judicial Member and Shri Ramit Kochar, Accountant Member For The Appellant : Shri Aarsi Prasad For The Respondent : None ORDER Per Mahavir Singh, Judicial Member This appeal by the revenue is arising out of the order of the CIT(A) - IX, Mumbai, in appeal No.CIT(A)-IX/9(1)(1)/I.T/24/2008-09 dated 27.04.2009. The only issue in this appeal of the revenue is against the order of the CIT(A) deleting the penalty of ₹ 1,50,00,000/- levied by the AO .....

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ed ₹ 16.75 lacs. The AO after giving effect to the order of CIT(A) determined income at ₹ 3,48,03,446/-. The AO initiated penalty proceedings u/s. 271(1)(c) of the Act and after giving full effect to the order of the CIT(A) started penalty proceedings by issuing notice u/s. 274 r.w.s. 271(1)(c) of the Act. The assessee explained that it had continued to adopt project completion method and it is duly confirmed by ITAT in assessee s own case in earlier years. According to the assessee .....

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lier years. However, in the current year, the additions made by the AO under percentage completion method has been confirmed by the Ld. CIT(A). It is also submitted that all particulars of income and expenditure have been truly and fully disclosed in the audited accounts itself. However, this is not true as the project had been completed and the profit could be determined. And he levied the penalty of ₹ 1,50,00,000/- for furnishing of inaccurate particulars of income to the tune of ₹ .....

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received amount against such project meaning thereby that there was reasonable certainty of estimation of income. Whereas as such project meaning thereby that there was reasonable certainty of estimation of income. Whereas according to the appellant since the aforesaid project was subject matter of litigation before the Hon ble Mumbai High Court, therefore, the appellant was under a bonafide belief that the project cannot be treated as complete considering the dispute between MHADA, the appellan .....

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ed that in respect of Oshiwara Project, the appellant has treated the same as complete during the year ended 31-03-2005 relevant to A.Y. 2005-06 and the profit of the said project amounting to ₹ 1,63,84,573/- has been offered as income in A.Y. 2005-06. It is also contended that the department had taxed 4% of the receipt of the income of the appellant from the year 1994-95 onwards based on the percentage of completion method, though, the appellant was following Project Completion Method. Th .....

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in assessment proceedings may not necessarily be the ground for levying the penalty. It would be apt to refer to the provisions of section 271(1)(c) which reads as under: .... ... 3.1 Clause (A) to explanation indicate that where the assessee fails to offer an explanation or offers an explanation which is found by the AO to be false, then in such case penalty would be levied. It is not in dispute that the appellant had filed all the requisite details/explanation which were necessary for the asse .....

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ld not be levied. In the instant case there is a reason for not recognizing revenue for the project since there was litigation where claims and counter claims were made and hence under the bonafide belief that revenue could not be recognized and if the assessee acts on such bonafide belief no penalty should be levied. Thus, it could not be said that either the appellant has concealed the income or that he has not furnished facts and material before the AO which could be construed as concealment .....

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on is confirmed cannot per se lead to the confirmation of the penalty because quantum and penalty proceedings are independent of each other. It is on record that all the facts have been disclosed by the appellant company in its return of income, balance sheet and profit and loss account and on the basis of such details filed by the appellant the income could be estimated. Therefore considering the overall facts of the case and following the jurisdictional ITAT order in the case of VIP Industries .....

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income and balances of Work-in-progress in the balance sheet, statement of income and notice forming part of accounts. The assessee has also filed all particulars of receipt and income / expenditure were disclosed in the computation of income. The assessee has continuously adopted the project completion method and the same has duly been confirmed by the ITAT in earlier years. The assessee was under bona fide belief that the method being adopted for recognizing the income for construction busines .....

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and the assessee was under bona fide belief that the project cannot be treated as complete considering the dispute between the assessee and MHADA. The dispute was also with Chandivali Residence Association, who were litigating for defective work of the assessee and counter claims were made by MHADA. This fact is coming out of the order of this Tribunal, wherein there was difference between the Accountant Member and the Judicial Member and the Third Member has finally resolved the dispute in ITA .....

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were disputes between the assessee and MHADA regarding the work executed by the assessee in respect of the project and it was referred to the arbitrator who by two awards had directed MHADA to pay a sum of ₹ 18.53 crores together with interest to the assessee. The award was challenged by MHADA before the Hon'ble Bombay High Court in Arbitration Petition No.63 of 2003. However, subsequently an amicable settlement of the disputes was reached between the parties and consent terms dated 0 .....

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ners on going/balance work of the said project (more particularly mentioned in paragraph No.1 above) either through its directors, agents, servants, employees, officers, contractors or anyone claiming through the Respondents In clause 6 of the consent terms, the parties agreed that all the materials lying on the site of the project would belong to MHADA and the assessee will have no claim against the same. In clause 7, it was provided that with the payment of the above stated amount by the petit .....

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spute that the aforesaid amount was paid to the assessee in the accounting year relevant to the assessment year 2004-05. The Housing Society through its Secretary questioned the consent terms in Civil Writ Petition No: 2611 of 2003, which was registered as a PIL in the Hon'ble Bombay High Court and the assessee was made the second respondent therein. A perusal of the prayer in the Writ Petition shows that, inter alia, the Housing Society had prayed for quashing of the record and proceedings .....

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ntion of the assessee that the project was not completed in the relevant accounting year. The consent terms which are in effect even today, put an end to the relationship between MHADA and the assessee. It was even agreed that the assessee will not obstruct the work which will be carried on in the project site and that all the materials lying in the site would be the property of MHADA and the assessee will have no claim. For all practical purposes the relationship between MHADA and assessee came .....

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possibility that it may be directed to complete the work in the project. Having regard to the consent terms, I agree with the view taken by the learned Accountant Member in respect of the first point of difference. I may also add that even if the assessee is directed to complete the work at a future date by the orders of the Hon'ble High Court, that cannot be considered to be part of the contract between the assessee and MHADA which has worked itself out by the consent terms as on date. Fur .....

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recipient to appropriate the money as its income, income cannot be said to have accrued. In my humble opinion, it does not matter that the dispute is raised by a third party and what is to be seen is whether the dispute is real and substantial and has the potential to 'affect the right of the recipient of the money to appropriate the same as his income. In any case, in CIT vs. Sharda Sugar Industries Ltd. (supra), the assessee had collected the excess sugar price from Food Corporation of In .....

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sessee and Food Corporation of India but the right of the assessee to appropriate the excess sugar price as its income was effected by the passing of the law by the Government of India which was not party to the dealings between the assessee and Food Corporation of India. There can be no valid distinction between statutory enactment which affects the rights of an assessee to appropriate a receipt as his income and the ruling of a Court or competent jurisdiction, rendered at the instance of a thi .....

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cover the amount from the assessee with interest at 18% per annum. The Writ Petition filed by the Housing Society was admitted and Rule was issued to MHADA and the State Government and they were directed to produce all original files relating 0 to the settlement with the assessee. This order was passed on 11.03.2004, within the relevant accounting year. In case the Hon'ble High Court accepts the prayer of the Housing Society, the assessee will have to return the amount to MHADA. This possibi .....

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