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2016 (11) TMI 1149 - ITAT VISAKHAPATNAM

2016 (11) TMI 1149 - ITAT VISAKHAPATNAM - TMI - Penalty levied u/s 271(1)(c) - Held that:- A.O. was not correct in coming to the conclusion that the assessee has concealed particulars of his income or furnished inaccurate particulars of income, as the undisclosed income determined by the A.O. based on the directions of the ITAT is on estimation basis. The ITAT has estimated the work in progress for the assessment year 2005-06 and re-apportioned the gross profit on equitable gross profit distribu .....

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ions of section 271(1) of the Act, hence, we direct the A.O. to delete the penalty levied u/s 271(1)(c) of the Act for the assessment year 2003-04 to 2005-06. - I.T.A. Nos. 640,641 & 642/Vizag/2014 - Dated:- 22-9-2016 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member Appellant by : Shri I. Kamasastry, AR Respondent by : Shri Aravindakshan, DR ORDER Per G. Manjunatha, Accountant Member These appeals filed by the assessee are directed against the common order of the C .....

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; 2005-06 on 1.12.2003, 1.11.2004 & 31.3.2006 respectively declaring a total income of ₹ 28,38,780/-, ₹ 25,49,300/- and ₹ 8,52,510/- respectively. A search and seizure operation was conducted on 25.8.2005 in the assessee s own case during which certain incriminating documents were seized. Subsequently, the case has been centralized and accordingly, the A.O. issued notices u/s 153A of the Act in response to which the assessee has filed the return of income admitting same inc .....

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The ITAT, has upheld certain additions and has allowed relief in respect of certain additions and has also set aside the issue relating to undisclosed income in respect of MIMS project for all the 3 years to the A.O. to re-do the same as per certain workings given by the ITAT, after verification of the same with reference to details on record. The A.O. completed assessments as per the directions of the ITAT and has determined total income of MIMS project and made additions of ₹ 45,74,596/ .....

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s 271(1)(c) of the Act, in relation to undisclosed income from MIMS project as determined in the assessment order as per the directions of ITAT. The A.O. issued penalty notice u/s 271(1)(c) of the Act and asked to explain why penalty for concealment of particulars of income or furnishing inaccurate particulars of income shall not be levied in view of the fact that the ITAT, has finally determined undisclosed income from MIMS project which resulted in total undisclosed income of ₹ 1,21,03,7 .....

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and 2010-11 which had resulted in the entire exercise becoming revenue neutral and as such penalty is not leviable. The assessee further submitted that the ITAT, has re-worked the gross profit based on the assessee s own admission of income from MIMS project for the assessment year 2008-09 & 2010-11 and the gross profit determined by the ITAT is equal to the amount disclosed by the assessee in those two assessment years. Except this, there is no factual difference in total contract receipts .....

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ct of the project to the contractee, however, the contractee has not accepted the bills because of variations in quality and quantity of work executed. As such, the certainity of realization of revenue from the project is not known at the time of finalization of accounts for the assessment year 2005-06 and accordingly, the assessee has not recognized an amount of ₹ 1,21,03,760/- either in the form of work in progress or contract receipts. But, the fact is that the assessee on its own decla .....

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were not disclosed/admitted as required under the normal method of accounting followed by the assessee. It is another matter that the ITAT had resorted to estimation of gross profit, but the fact is that such estimation is made on an equitable footing and the reasonable amount of income attributable yearwise to the receipts from the MIMS project by the assessee on the basis on his own book results has been arrived at in view of the peculiar facts and circumstances of the case. The ITAT has anal .....

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05-06. In view of the matter, the assessee has clearly concealed income attributable to the receipts from the MIMS project, as such it is a fit case for levy of penalty under the provisions of section 271(1)(c) of the Act for concealment of particulars of income and also for furnishing inaccurate particulars of income. The A.O. further observed that as regards question of estimation of income and levy of penalty, it is stated that penalty is leviable even when an addition is made on estimation b .....

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ion basis and the ITAT has determined work in progress for the assessment year 2005-06, based on assessee s own disclosure of contract receipts for the assessment year 2008-09 & 2010-11. The assessee further submitted that the ITAT has re-worked gross profit by following the method of equitable gross profit distribution by taking into account the gross profit from the project as a whole and distributed equally for the assessment years 2003-04 to 2005-06, based on the assessee s own book resu .....

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, in the case of CIT Vs. Realest Builders and Services Ltd. (2008) 307 ITR 202 and ITAT, decision in the case of ACIT Vs. Milap Textiles Ltd. (1994) 46 ITD 449. 7. The CIT(A) confirmed the levy of penalty u/s 271(1)(c) of the Act, by holding that the assessee has failed to offer any explanations with regard to the additional undisclosed income quantified by the A.O., consequent to the directions of ITAT. The CIT(A) further held that there is no merit in the contention of the assessee that the ad .....

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the disclosure made by the assessee towards receipts from MIMS project for the assessment year 2008-09 and 2010-11, the assessee failed to offer proper explanations for not offering the said receipts for the relevant assessment years 2003-04 to 2005-06, therefore, the contention of the assessee that the entire exercise becomes revenue neutral because of deduction allowed towards income admitted by the assessee for the assessment year 2008-09 and 2010-11 cannot be accepted. In the instant case, t .....

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e, the A.O. was right in holding that the assessee has concealed particulars of income and furnished inaccurate particulars of his income. With these observations, confirmed the levy of penalty u/s 271(1)(c) of the Act. Aggrieved by the CIT(A) order the assessee is in appeal before us. 8. The assessee has raised common grounds for 3 assessment years. From these grounds of appeal, the assessee has challenged the validity of penalty proceedings, by stating that the initiation of penalty proceeding .....

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A.O. towards difference in gross profit from MIMS project is on estimation basis which cannot be considered as willful concealment of particulars of income so as to levy penalty u/s 271(1)(c) of the Act. The A.R. further submitted that the ITAT, has re-worked work in progress in the assessment year 2005-06, based on the assessee s own admission of contract receipts from MIMS project for the assessment year 2008-09 to 2010-11. The assessee has admitted contract receipts on actual receipt basis, .....

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or the assessment year 2008- 09 and 2010-11. This results in preponement of recognition of income for the earlier period, however, there is no additional revenue declared, as such the A.O. was not correct in holding that the assessee has willfully concealed particulars of income or furnished inaccurate particulars of income. To support his arguments, relied upon the decision of Supreme Court, in the case of CIT Vs. Realest Builders Services Ltd. (2008) 301 ITR 202 and submitted that the whole ex .....

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furnished inaccurate particulars of income which is evident from the fact that the ITAT has finally determined undisclosed income of ₹ 1,21,03,760/- over and above the income disclosed by the assessee, therefore, the A.O. was rightly levied penalty u/s 271(1)(c) of the Act and his order should be upheld. 10. We have heard both the parties and perused the materials available on record. The A.O. levied penalty u/s 271(1)(c) of the Act, for the reason that the assessee has concealed particula .....

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project. Though the ITAT has determined gross profit on estimation basis, the methodology followed by the ITAT to distribute the gross profit evenly for the assessment years 2003-04 to 2005-06 is based on a method suggested by the accounting standard 7 issued by the ICAI. As per the accounting standard 7, the assessee has to recognize the revenue on percentage completion method, whether or not the bills are raised for the particular period. In the present case on hand, the assessee deliberately .....

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sed by the assessee, because of some disputes which were resolved in the subsequent years and accordingly the assessee has recognized the revenue in the assessment year 2008-09 and 2010-11 on actual receipt basis. The ITAT has reworked work in progress based on the assessee s own admission of revenue from the MIMS project for the assessment year 2008-09 and 2010-11, which resulted in preponement of recognition of revenue for the earlier period. Except this, there is no factual difference between .....

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.O. levied penalty on the sole ground that the assessee has failed to recognize correct work in progress for the assessment year 2005-06, which resulted in undisclosed income of ₹ 1,21,03,760/-. The A.O. was of the opinion that the assessee has deliberately postponed recognition of revenue. We do not find any merits in the findings of the A.O., for the reason that the income finally assessed by the A.O., based on the findings of the ITAT is on estimation basis. Though the ITAT has re-worke .....

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ndards 7 issued by the ICAI, as per which the assessee has to recognize the revenue on percentage completion method, whether or not, the revenue is received from the project. Though there is a difference in income admitted by the assessee from the MIMS project for the assessment years 2003-04 to 2005-06, the net effect of additions made by the A.O. towards difference in gross profit is revenue neutralized, because the assessee has admitted same amount of income of ₹ 1,21,03,760/- for the a .....

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out revenue on percentage completion method which resulted in preponement of revenue for these assessment years. Since there is no difference in the contractual work receipts recognized by the assessee and the contractual work receipts worked out by the A.O. as well as the ITAT, the A.O. was not correct in coming to the conclusion that the assessee has concealed particulars of his income which warrants levy of penalty u/s 271(1)(c) of the Act. 13. The question whether there was a reasonable caus .....

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show that there exist a reasonable cause which was the reason for the failure referred to in the concerned provisions of the Act, therefore, the A.O. dealing with the matter is to consider whether the explanations offered by the assessee or the person as the case may be is reasonable and as regards the reason was on account of reasonable cause. In the present case on hand, on perusal of the facts available on record, we find that the assessee has not recognized the work in progress for the asse .....

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ary evidences that he had admitted revenue from the MIMS project on receipt basis for the assessment year 2008-09 and 2010-11. We further noticed that the ITAT has re-worked work in progress for the assessment year 2005-06 based on assessee s own admission of contract receipts for assessment years 2008-09 and 2010-11. There is no factual difference in work in progress determined by the ITAT and income admitted by the assessee. The whole exercise of re-working of work in progress resulted in pre- .....

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ed upon by the assessee. The assessee relied upon the decision of Hon ble Supreme Court, in the case of Realest Builders and Services Ltd. (2008) 307 ITR 202. The Hon ble Supreme Court, under similar circumstances held that when the whole exercise is revenue neutral, the addition itself cannot be sustained, hence levy of penalty on additions made on estimation basis cannot sustain in the eyes of law. The relevant portion of the order is extracted below: Under s. 145, it is always open to the Dep .....

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was not valid, since the Department has not gone into the above vital aspect regarding method of accounting under s. 145, there is no reason to interfere with the impugned judgment. The High Court has proceeded on the basis of 'rule of consistency'. The view taken by the High Court on that count is not acceptable. In cases where the Department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followe .....

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he entire exercise is revenue neutral. In this case, that exercise has never been undertaken. The AO was required to demonstrate both the methods, one adopted by the assessee and the other by the Department. In the circumstances, there is no reason to interfere with the conclusion given by the High Court and the Tribunal. -Judgment of the Delhi High Court in IT Appeal No. 708 of 2006, dt. 17th Jan., 2007 affirmed sans reasoning. 15. The assessee relied upon the decision of ITAT Jaipur Bench in t .....

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iven no explanation for the additions which had been made to its income or it has not been able to substantiate it. explanation. The comparative chart given in the Paper Book does show that the difference between the G. P. rate of last year and this year is only .07% and that too after the loss suffered by the assessee in the floods. Thus while the Tribunal has held in the quantum appeal that the assessee has not been able to fully prove the extent of loss in the floods, it cannot be said that t .....

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epted by the Tribunal, the very fact that the CIT(A) had accepted I and even the Tribunal has restored only partial additions would mean that the explanation giver by the assessee was a plausible and bona fide explanation and, hence, the CIT(A) was justified in taking the view that where an addition has been restored even by the Tribunal on an estimated basis and the assessee has given a plausible and bona fide explanation for its having filed a return of income on the basis of its books of acco .....

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ished inaccurate particulars of income, as the undisclosed income determined by the A.O. based on the directions of the ITAT is on estimation basis. The ITAT has estimated the work in progress for the assessment year 2005-06 and re-apportioned the gross profit on equitable gross profit distribution method based on the assessee s own book results. There is no factual difference in contract receipt admitted by the assessee and contract receipt determined by the A.O. from the MIMS project. Except p .....

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