TMI Blog2017 (11) TMI 1603X X X X Extracts X X X X X X X X Extracts X X X X ..... . Considering all explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. Accordingly we set aside the order of CIT(A) and delete the penalty levied. SEE Chaitra Reality Ltd. v. DCIT [2011 (3) TMI 1746 - ITAT MUMBAI] - Decided in favour of assessee. - I.T.A. No. 5724/Mum/2013 - - - Dated:- 28-11-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. K. Gopal/Ms. Neha Paranjpe For The Revenue : Shri H.N Singh,CIT-DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 5724/Mum/2013 for assessment year 2005-06, is directed against the appellate order dated 20-08-2013 passed by learned Commissioner of Income Tax (Appeals)-4, Mumbai (hereinafter called the CIT(A) ), for assessment year 2005-06, appellate proceedings had arisen before learned CIT(A) from the penalty order dated 08.03.2010 passed by learned Assessing Officer (hereinafter called the AO ) u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter called the Act ). 2. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork-in- Progress account, while instead the same was added to the P L Account which led to the disallowance of the said loss wherein addition of 14,44,31,840/- in the assessment order was made by the AO, to be allowed to be carried to Real Estate Development Work-in-Progress Account in an assessment framed u/s 143(3). Further, the AO observed that there was a claim of depreciation of ₹ 1,20,090/- in respect of the vehicles transferred from M/s. Hindoostan Spinning Weaving Mills Ltd. as per the agreement which should have formed part of the Real Estate Development Work in Progress which was also added to the income by the A.O. in an assessment framed u/s 143(3). Further it was observed by the A.O that assessee has incurred expenses of ₹ 16,44,673/-, the detail of which are hereunder:- Printing Stationery ₹ 33,062/- Bank Charges/Commission ₹ 85,627/- Electricity Charges ₹ 23,700/- Rates Taxes ₹ 5,78,346/- Post Courier Charges ₹ 76,455/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... future business profits, wherein it was not entitled to claim said expenses as the assessee was following project completion method and no project was completed during the year under consideration, thus leading to furnishing of inaccurate particulars of income . The said disallowance of expenses was accepted by the assessee as the assessee was following project completion method and no grounds of appeal were raised by the assessee on the above issues before learned CIT(A). The A.O also relied upon the decision in group cases of the assessee company i.e. Chaitra Realty Ltd. - A.Y 2005-06, formed under the same scheme of BIFR, wherein the 200% of the tax sought to be evaded was levied as penalty by the AO, which was reduced to 100% by the learned CIT(A) during appellate proceedings in the case of Chaitra Realty Private Limited. The A.O levied the penalty u/s 271(1)(c) of ₹ 5,24,37,851/- being 100% of the tax sought to be evaded by the assessee, vide penalty order dated 08-03-2010 passed by the AO u/s 271(1)(c). 4.Aggrieved by the penalty order dated 08-03-2010 passed by the AO u/s 271(1)(c), the assessee carried the matter in appeal before the learned CIT(A), who rejected th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to year basis or in the year of completion of project has been a debatable issue. There have been contrary decisions of the various benches of the tribunal. The special bench of the tribunal in case of Wall Street Construction Pvt. Ltd. Vs JCIT (supra) had rendered decision only vide order dated 22.9.2005 in which it was held that the interest has to be allowed in the year of completion of the project. The said decision it has been pointed out was published in the ITD only in the year 2006. Moreover the decision of the special bench has been disputed before the High Court where the appeal is pending. Under such circumstances in our view it is possible to form a bonafide belief on the date of filing return of income i.e. on 31.10.2005 that the expenses could be allowed from year to year basis. The Learned AR has also submitted that the assessee had no other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only a civil liability as held by the Hon ble Supreme Court in case of Dharmendra Textiles and Processors (supra) and willful concealment is not required to be proved by the revenue. However each and every addition in the assessment cannot automatically lead to penalty under section 271(1)(c). A case for penalty has to be evaluated in terms of the Explanation 1 to section 271(1)(c) as per which in case of any addition made in assessment even if the assessee is not able to substantiate the explanation but is able to prove that the explanation is bonafide and all necessary details have been submitted penalty under section 271(1)(c) cannot be levied. In this case there is no dispute that details of expenses had been given. The case of the assessee is that the claim had been made under the bonafide belief that such expenses were allowable from year to year basis. We also note that allowability of expenses such as interest etc on year to year basis or in the year of completion of project has been a debatable issue. There have been contrary decisions of the various benches of the tribunal. The special bench of the tribunal in case of Wall Street Construction Pvt. Ltd. Vs JCIT (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the impugned year under consideration, the same should have been debited to Real Estate Work-in-Progress and since the project is not yet completed till the end of the previous, the assessee should have carried the same as Real Estate Work-in-Progress under the head current assets instead of debiting to P L Account. It was explained that not only in the income-tax return but also in the audited accounts for FY 2004-05(AY 2005-06), the said expenses were debited to Profit and Loss Account instead of carrying the same to Real Estate Work-in-Progress . The said audited accounts are placed in paper book/page 1-29. Our attention is also drawn to the audited financial statements for the F.Y 2004-05 as well as for the FY.2005-06 and it was submitted that assessee has rectified the said mistake in the audited account for F.Y 2005-06 by revising the accounts for FY 2004-05 wherein said expenses were carried to Work-in-Progress Real Estate Development under the head current assets wherein the revised audited Balance Sheet was signed on 21-08-2006 by Directors/Auditors and adopted by Shareholders on 29-09-2006 in Annual General Meeting, as the said expenses were incurred with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 37(SC) wherein SLP was dismissed by Hon ble Supreme Court. Thus, the prayer was made by learned CIT-DR to uphold penalty levied by the AO u/s 271(1)(c) which was later confirmed by learned CIT(A) . 6. We have considered rival contentions and have perused the material on record including orders of authorities below and cited case laws. The assessee is engaged in the business of property developments. The assessee company is one of the three Special Purpose Vehicles(SPV) which are engaged in the business of real estate development entrusted with the task of re-construction of the company M/s. Hindoostan Spinning Weaving Mills Ltd. as per the rehabilitation scheme dated 01.04.2004 sanctioned by Board of Industrial and Financial Reconstruction(BIFR). As per the scheme of the said arrangement approved by BIFR, Mahalaxmi Property of M/s. Hindoostan Spinning Weaving Mills Ltd. has been assigned to the assessee for development and liabilities equivalent to the transferred value of the assets were also transferred to the assessee. The assessee is following Project Completion method but it has not completed the said project during the year under consideration, which proje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod. The AO however allowed the said expenses to be carried forward to Real Estate Development Work-in-Progress Account which shall be allowed in the year in which project stood completed by the assessee. The assessee did not challenge these additions before the learned CIT(A) against quantum assessment. The A.O observed that the assessee wrongly claimed expenses leading to higher losses to be carried forward and set off against future business profits, wherein it was not entitled to claim said expenses as the assessee was following project completion method and no project was completed during the year under consideration, thus leading to furnishing of inaccurate particulars of income by the assessee as per AO. The said disallowance of expenses was accepted by the assessee as the assessee was following project completion method and no challenge was made by the assessee on the above issues before learned CIT(A) against quantum assessment. The A.O levied the penalty u/s 271(1)(c) of ₹ 5,24,37,851/- being 100% of the tax sought to be evaded by the assessee, vide penalty order dated 08-03-2010 passed by the AO u/s 271(1)(c) which was later confirmed by learned CIT(A). The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of the assessee by the decision of Hon ble Supreme Court in the case of Reliance Petroproducts Private Ltd (supra) and no penalty is exigible u/s. 271(1)(c) and no penalty is exigible on the assessee under the given facts and circumstances of the case. Further we have observed that the tribunal has deleted penalty levied u/s 271(1)(c) in the case of Chaitra Reality Ltd. v. DCIT in ITA no. 2520/Mum/2010 for assessment year 2005-06 under identical/similar circumstances, wherein the tribunal deleted the penalty vide order dated 18.03.2011 by holding as under: 6. We have perused the records and considered the rival contentions carefully. The assessee is a developer who was executing a property development project and method of accounting followed was project completion method. The assessee had however claimed expenses amounting to ₹ 33,11,617/- consisting interest of ₹ 25,22,797/- and other day to day expenses in the profit and loss account. This has been disallowed by the AO on the ground that the expenditure could be claimed only in the year of completion. The disallowance had been accepted by the assessee. However the AO had also imposed penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case all the expenses could have been allowed. Considering the entirety of facts and circumstances, in our view, explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. Accordingly we set aside the order of CIT(A) and delete the penalty levied. It is also observed that the tribunal has on the identical/similar grounds deleted penalty levied u/s 271(1)(c) in the case of M/s. Bhishma Reality Ltd. v. ACIT in ITA no. 5725/Mum/2013 for AY 2005-06 vide orders dated 30.09.2016, wherein the tribunal deleted the penalty by holding as under: 6. In the aforesaid background, we have perused the decision of our coordinate Bench in the case of M/s. Chaitra Realty Ltd. (supra), which is a sister concern of the assessee and is also one of the three SPVs (apart from the assessee) which has been tasked with the implementation of the rehabilitation scheme dated 1.4.2004 sanctioned by the BIFR in the case of The Hindoostan Spinning Weaving Mills Ltd. . In the case of M/s. Chaitra Realty Ltd. also, similar additions were made and penalty was imposed u/s 271(1)(c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered decision only vide order dated 22.9.2005 in which it was held that the interest has to be allowed in the year of completion of the project. The said decision it has been pointed out was published in the ITD only in the year 2006. Moreover the decision of the special bench has been disputed before the High Court where the appeal is pending. Under such circumstances in our view it is possible to form a bonafide belief on the date of filing return of income i.e. on 31.10.2005 that the expenses could be allowed from year to year basis. The Learned AR has also submitted that the assessee had no other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in that case all the expenses could have been allowed. Considering the entirety of facts and circumstances, in our view, explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalt ..... 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