TMI Blog2019 (1) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss accounts proportionate to the project area sold, in cases where threshold of 30% had been exceeded. Full details with regard to the expenses claimed under selling, administrative and another expenses had been disclosed. As noticed above, the figures given in columns and heads have not been disturbed by the Assessing Officer and no addition has been made by doubting and disturbing the figures and amounts mentioned. The Tribunal has also not stated that full and complete disclosure of material facts was not made by the appellant-assessee. Given the aforesaid facts, i.e. the relevant clauses of AS-7, applicable Guidance Notes, the fact that the accounts were duly audited and the disclosures made in the audit notes, the loss income as declared, small taxable income as assessed even after the additions were made and that the expenses as claimed were otherwise eligible and allowed in the next assessment year, we would accept that the appellant-assessee had shown that they had acted bonafidely. Thus, the appellant-assessee should not have been burdened with penalty for concealment of income under Section 271(1)(c) of the Act. - decided in favour of assessee. - ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for stay of recovery of outstanding penalty by coercive steps, prosecution etc. in which interim orders have been passed. While admitting the appeals vide order dated 24.01.2018 liberty was granted to the Revenue to file criminal complaint under Section 276C of the Act but with stipulation not to proceed by taking further steps. The appellant-assessee on the prayer for stay of demand was required to first approach the Assessing Officer to explain difficulties in the context of business operations. By subsequent order dated 02.04.2018, Revenue was directed to maintain status quo with respect to filing of complaint against the directors. Interim applications were disposed of vide order dated 20.4.2018 with directions that Revenue shall not take coercive steps to enforce the penalty demand attributable to the subject matter of the appeals. 4. The facts which are required to be noticed in the present appeals are rather short and brief. 4.1. The appellant-assessee is a company engaged in real-estate development. 4.2. Appellant-assessee had commenced construction of two housing projects Lotus Boulevard and Lotus Panache in Noida, during the period relevant to the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o years, while the revenue earned from the Lotus Boulevard project was proportionately booked in in the assessment year 2011-12 and revenue from Lotus Panache project was proportionately booked in the assessment year 2012-13. Indirect costs like cost of construction and development for the Lotus Boulevard project for the assessment year 2010-11 and Lotus Panache project for the assessment year 2011-12 should be booked and treated as capital work in progress . For this reason, addition of ₹ 11,03,88,382/- and ₹ 21,28,05,101/- was made in the returned income for the assessment years 2010-11 and 2011-12, respectively. Consequent to the disallowance, the assessed income for the assessment years 2010-11 and 2011-12 was computed at ₹ 3,55,933/- and ₹ 5,67,046/, respectively. 7. The appellant-assessee did not appeal and the assessment orders have attained finality. 8. As noticed above, the issue raised in the present appeal relates to imposition of penalty under Section 271(1)(c) of the Act on account of the said additions. The Tribunal in the impugned order has reversed the findings recorded by the CIT (Appeals) and affirmed the order of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee with a view to avoid litigation and buy peace and to make an amicable settlement of the dispute. Hon'ble Supreme Court held that voluntary disclosure does not release the assessee from the mischief of penal proceedings, and that the law does not provide that when an assessee makes voluntary disclosure of his income he had to be absolved from penalty. We are also guided by the order of Hon'ble Jurisdictional High Court in the case of CIT vs. HCIL Kalindee Arsspl (2013) 37 taxmann.com 347 (Delhi). In this case Hon'ble Delhi High Court held that merely because assessee complied with statutory procedural requirement of filing prescribed form and certificate of Chartered Accountant it could not absolve the assessee of its liability, if act or attempt in claiming deduction was not bona fide; and upheld the imposition of penalty under Section 271(1)(C). We are also guided by the order of Hon ble Jurisdictional High Court in the case of CIT vs. NG Technologies Ltd. (2015) taxman.com 389 (Delhi). In this case Hon'ble Delhi High Court upheld the levy of penalty u/s 271(1)(c) of I.T. Act in view of the fact that the assessee did not file revised return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) (c) of the Act was justified. 9. We begin by reproducing relevant portion of Section 271(1)(c) and Explanation 1 to the said sub-section, which read as under: Failure to furnish returns, comply with notices, concealment of income, etc. 271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) xxx (b) xxx (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) xxx (iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and material for computation of the total income were duly disclosed. 10. In the present case appellant- assessee had given an explanation justifying the claim for indirect expenses though it had not accounted for the revenue from the two projects. The explanation was rejected during the course of the assessment proceedings and accordingly addition in the form of disallowance of the indirect expenditure was made. Disallowance made having attained finality is not to be directly examined and decided in these appeals, albeit the nature and quality of the explanation offered can be examined to consider and decide bona fides of the assessee in making the claim. Assessment proceedings which relate to computation of taxable income are in this manner different and distinct from penalty proceedings. 11. On the question of accounting standards, our attention was drawn to paragraphs 24 and 25 of AS-7, 2002 that relate to accounting under the PoC Method and read as under:- 24. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is match ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich reimbursement is not specified in the contract; (b) selling costs; (c) research and development costs for which reimbursement is not specified in the contract; and (d) depreciation of idle plant and equipment that is not used on a particular contract . 13. The Guidance Note, 2006 applicable to AS-7, 2002 had explained: 3. The real estate sales take place in a variety of ways and may be subject to different terms and conditions as specified in the agreement for sale. Accordingly, the point of time at which all significant risks and rewards of ownership can be considered as transferred, is required to be determined on the basis of the terms and conditions of the agreement for sale. In case of real estate sales, the events, such as, transfer of legal title to the buyer or giving possession of real estate to the buyer under an agreement for sale, usually, provide an evidence to the effect that all significant risks and rewards of ownership have been transferred to the buyer. It may, however, be noted that in case of real estate sales, the seller usually enters into an agreement for sale with the buyer at initial stages of construction. This agreement for sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be developed though the seller has transferred all significant risks and rewards of ownership of the land to the buyer through an agreement for sale as per paragraph 7 above . It is accepted and admitted position that the expenses were claimed under the head selling administrative and other expenses commission/finance cost . In case of construction contracts, difference is made between direct and indirect costs. Question would arise whether such difference should be accepted in the case of a real-estate developer. At times Assessing Officer reject claims on the ground of prior period expenditure. In hindsight the claim made by the appellant-assessee may not look as justified, but we would not reject the plea of lack of bona fides for this reason alone without reference to other factors including the disclosures made. 14. We would like to reproduce the chart filed by the appellant-assessee, which reflects the effect the additions/disallowance made by the Assessing Officer in the two assessment years. The chart reads :- Granite Gate Properties Pvt. Ltd. Reconciliation of Figures for Assessment Years 2010‐11 to 2012‐13 Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NA Transfer Pricing Adjustment NA NA 85,158,538 Total Disallowance by AO in assessment order 110,388,382 212,805,101 85,158,538 Assessed Income 355,933 567,040 706,297,648 * During the financial year relevant to assessment year 2010-11 , construction of the project named Lotus Boulevard was yet to cross the threshold of 30% as per POCM, and therefore, no revenue therefrom was recognised, and the cost of construction/development was booked under 'Capital Work‐in‐Progress'. ** During the financial year relevant to assessment year 2011‐12, project named Lotus Boulevard crossed the stage of 30% development as per POCM, and therefore, proportionate cost and revenue therefrom was booked in the Profit and Loss account for the financial year 2010‐11 and offered to tax. As regards the project Lotus Panache , during the financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had recognized revenue from the projects based on PoC Method in relation to sold areas on the basis of percentage of actual construction and other related costs incurred thereon excluding land cost as against the total estimated cost of the project under execution subject to such actual cost being 30% or more of the total estimated cost. Similarly, there were disclosures under the heading 'inventory and cost of construction/development' to the effect that 'work in progress' was valued at lower of the cost than net realizable value, cost of pricing of land including development rights, material services and other overheads. Costs of construction/development incurred would be discharged to the profit and loss accounts proportionate to the project area sold, in cases where threshold of 30% had been exceeded. Full details with regard to the expenses claimed under selling, administrative and another expenses had been disclosed. As noticed above, the figures given in columns and heads have not been disturbed by the Assessing Officer and no addition has been made by doubting and disturbing the figures and amounts mentioned. The Tribunal has also not stated that ful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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