DCIT Vs M/s Nirala Housing Pvt. Ltd. (ITAT Delhi)
Conclusion: When an assessee accepts the protective additions made in assessment order by not filing any appeal against it, the character of the additions changes from protective addition to substantive addition.
Held: NHPL and NDPL were companies in Nirala Group. AO computed undisclosed incomes against assessees after search operation conducted in the premises of the companies. One of the two assessees, NHPL, instead of substantiating the manner in which undisclosed income was derived, actually took a contrary stand, in contradiction of the disclosures made by Nirala Group during assessment proceedings, that the disclosed income had not accrued in accordance with Project Completion Method and thus was in clear default of Section 271AAA(2)(ii) whereby it was hit by Section 271AAA(1). AO initiated penalty proceedings against both assessees. NHPL however contended that no penalty could be levied in respect of additions made by AO on protective basis. It was held when a protective addition is made because an assessee changes its stand leading to uncertainty about the year in which the income is to be assessed, the assessee cannot be permitted to benefit from uncertainty created by its own conduct. It was further said that when an assessee accepts the protective additions made in assessment order by not filing any appeal against it, the character of the additions changes from protective addition to substantive addition. A valid presumption can legitimately arrived at, that the same income, which is assessed in the hands of the assessee in one year and has been accepted by the assessee, will not be offered by the assessee in any subsequent year. Subsequent conduct of NHPL, was not recognizing any income under Project completion Method, in any subsequent year, despite substantial lapse of time imparted validity to this presumption. Thus, the character of the income assessed in the Assessment Orders, changed from protective additions (at the time of Assessment Order) to substantive additions at the time when penalty orders were passed by AO because NHPL had accepted the additions by not filing the appeals. As both assessees, NHPL and NDPL had failed to comply with Section 271AAA(2)(i), (ii) and (iii) clause , therefore, penalty was justifiable.
FULL TEXT OF THE ITAT JUDGEMENT
These five appeals by the Assessees (ITA Nos.- 3135, 3136, 3137 & 3155/Del/2015) and Revenue (ITA No.-3531/Del/2015) are filed against orders of Learned Commissioner of Income Tax (Appeals)-XXVI, New Delhi-110092. Grounds of appeal are as under:
ITA No.- 3531/Del/2015
i. The Ld. Commissioner of Income Tax (Appeals) has erred in law, as well as on facts in deleting the penalty u/s 271(1)(c) of the Income Tax Act, 1961 amounting to Rs. 66,94,323/-.
ii. (a) The order of the Ld. CIT(Appeals) is erroneous and not tenable in law and on facts.
(b) The appellant craves leaves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.
ITA No.-3135/Del/2015
i. The Learned CIT(A) erred in fact and in law in confirming the penalty o f Rs. 20,15,300 imposed u/s 271 AAA which is not only bad in law but also against the facts and circumstances of the case.
ii. That the addition made, based on which penalty was imposed, was protective and not substantive.
ITA no. 3136/Del/2015
i. The Learned CIT(A) erred in fact and in law in confirming the penalty of Rs. 2,00,000 imposed u/s 271 AAA which is not only bad in law but also against the facts and circumstances of the case.
ii. That the addition made, based on which penalty was imposed, was protective and not substantive.
ITA No. -3137/Del/2015
i. The Learned CIT(A) erred in fact and in law in partly confirming the penalty on a addition of Rs. 63,00,000 imposed u/s 271 (1)(c) which is not only bad in law but also against the facts and circumstances of the case.
ITA No. 3155/Del/2015
i. The Learned CIT(A) erred in facts and in law in confirming the penalty o f Rs. 19,54,700/- imposed u/s 271AAA which is not only bad in law but also against the facts and circumstances of the case.
(1.1) In this order, the following abbreviations have been used:
