Case Law Details
Mumbai ITAT held In the case of M/s Parinee Developers Pvt. Ltd. vs. ACIT that the concealment penalty levied by the CIT (A) in this case is on the issues which are not free from debate. In our opinion, the assessee would have got relief in most of issues relating to additions based on the estimations, change of method of accounting, pre-ponement of taxable income to AY 2009-2010 etc. Taxation of interest receipt with or without netting is under the head “profit and gains from business or profession” or “income from other sources” is also a debatable issue. Therefore, the concealment penalty in the case is not sustainable on such addition / issues. Also there are no adverse tax implications to the Revenue if the profits are finally taxed in AY 2012-2013, the year of completion.
Facts of the Case
The assessee is engaged in the business of construction and undertook a project of constructing a single commercial complex consisting 20 floors on leased plot of land, belonging to MMRDA. The project commenced its construction activity in the AY 2007-2008. During the AY 2009-2010, which is the subject matter before us, construction of 5 floors is completed and the 6th floor is in progress. As per the assessee, the project is completed in the AY 2013-14. Thus, the project took five years time for its completion. The assessee filed the return of income for all the years recognising the income based on percentage completion method. During the year relevant to the AY under consideration, assessee filed the return of income declaring the total income of Rs. 99.04 crores (rounded-of). After the scrutiny assessment made u/s 143(3) of the Act, assessed income was determined at Rs. 99,10,31,790/-. In the regular assessment made u/s 143(3) of the Act dated 27.12.2011, AO made certain additions on account of disallowance of expenses. Further CIT (A) based on facts and his calculations confirmed the addition of Rs.120.04 crores and also initiated penalty proceedings u/s 271(1) (c).
Contention of the Assessee
The ld counsel of the assessee submitted that the issue of taxing the „interest income‟ offered under the head “Business or profession” or “income from other sources‟ is a matter of dispute. Therefore, such addition does not attract penal provisions of section 271(1)(c) of the Act. He relied on various binding judgments in this regard and one of such decision is the judgment of the Hon‟ble Bombay High Court in the case of Bennet Coleman & co Ltd (259 CTR 383) (Bom).
He also submitted that this is the case of preponement of income, which is otherwise undisputedly offered to tax in the later year in order to end litigation with the Department. Since, it is already offered in the return of income for the AY 2010-2011, there is neither failure on the part of the assessee in matter of disclosure of particulars nor furnishing of any inaccurate particulars. He also demonstrated that the estimated concealment of Rs. 20.52 crores on account of the above addition of Rs. 179.03 crores is mere estimation and not based on any facts. He also submitted that with the Standard Chartered Bank, thought the agreements were entered the sales were completed as the construction work is incomplete and the relatable money of Rs. 179.03 crores was never received at this point of time. Therefore, it is the case of the assessee that the pre-ponement of such income, which is not agreed to the assessee, is unsustainable in law. Consequently, the levy of penalty on such unsustainable addition is unjustified. He also relied on the judgment of the Hon‟ble Apex Court in the case of Excel Industries (358 ITR 295) in which it was held that when there is no tax loss to the Department and the only issue is year of taxability but when the tax rates are the same on facts, it is a settled proposition in law that the Department should not disturb the assessment of income offered in the subsequent assessment years
He submitted that the projection of estimated future cost of Rs. 1106.88 crores is merely based on the estimations given by the architect of the project Therefore, the actual cost figures should be taken into account which was done by the assessee and not the projected estimated figures, which is the basis for the CIT (A) for bringing the said amount of Rs. 28.62 crores of addition on this ground of difference in the total cost of construction. He further mentioned that the said differences are based on many factors such as interest cost, various permissions from the MMRDA and other indirect attributable cost. Ld Counsel for the assessee submitted that the manner of pre-ponement done by the CIT (A) is unsustainable in law as the assessee followed “pay as you earn” basis whereas the CIT (A) thrust on the assessee his own method of accounting, which is prima facie invalid on the assessee. He also mentioned that the exercise undertaken by the CIT (A) is forcibly taxing all the profits of the project in the AY 2009-2010 is incorrect, unsubstantiated as the project was actually completed in the AY 2012-2013.
He also mentioned that such attempt of the CIT (A) is not based on the real income concept and it is merely a case of taxing the income, which is never earned in the year under consideration and it is a hypothetical figure generated by the CIT (A). Further, relying on the various decisions, Ld Counsel for the assessee mentioned that it is neither a case of furnishing of inaccurate particulars nor a case of concealment of income. He also submitted that no penalty is levyable merely on change of estimates based on change of method of accounting. Relying on the judgment of the Hon‟ble Madras High Court in the case of TPK Ramalingam vs. CIT [1995] 211 ITR 520 (Mad) and the decision of the coordinate Bench in the case of Parsoli Corporation Ltd (41 CCH 370, Ld Counsel for the assessee demonstrated that such additions are unsustainable in law. He also relied on the judgment of the Hon‟ble Gujarat High Court in the case of Pancharatna Hotels P Ltd (313 ITR 398) (Guj) and decision of the ITAT, Mumbai in the case of Kripashankar Chaturvedi (30 SOT 40) (Mum) for identical proposition.
It is the allegation of the assessee that the CIT (A), while changing the method for recognizing the cost has not touched the method of the assessee for recognizing the income. Therefore, there is a total disparity in the method adopted by the CIT (A) as revenue and cost are recognized by the method, which is in accordance with the AS-7 or ICDS notified by the CBDT. Therefore, the method adopted by the CIT (A) is unsustainable and it should be rejected. For this proposition, Ld Counsel for the assessee relied on the decision of the ITAT, Ahmedabad in the case of ACIT vs. Siddhraj Developers Pvt Ltd (ITA No.185/Ahd/2008) dated 11.5.2010; decision of the ITAT in the case of Jain Developers (Vasai) vs. CIT (41 CCH 031) (Mumbai Tribunal); Gautam Enterprise (ITA No.5847/M/2010) dated 10.12.2012 (Ahd); Gurucharan Sing & Co (72 TTJ 774) (Chd).
He argued that no penalty can be levied on the quantum additions merely on the ground that the same are accepted by the assessee for buying peace and avoid litigation. For this proposition, he relied on the judgment of the jurisdictional High Court in the case of CIT vs. M/s. Dalmia Dyechem Industries Ltd in Income Tax Appeal No.1396 of 2013, dated 6.7.2015. The Tribunal‟s order in the case of Bostan Consulting Group (India) P Ltd (7 ITR 417) (Mum)[page 356 of the paper book]; Pune Bench decision in the case of Kanbay Software India (P) Ltd (122 TTJ 721) (Pune) (2009) are relevant in this regard.
Further, he relied on various decisions of the Tribunal to support his argument that the penalty should not be levied when the CIT (A) is not clear in reasons for levying the penalty. He also mentioned that the CIT (A) cannot initiate penalty for one reason and levy for other reasons. In this regard, he relied on the judgment of the Hon‟ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (92 DTR 111) (Kar. HC) and the coordinate Bench decision in the case of Shri Samson Perinchery (ITA Nos. 4625 to 4630/M/2013), dated 11.10.2013. He also relied on the following decisions viz (i) M/s. Ittina Properties Pvt Ltd (ITA No.36/Bang/2014), dated 21.11.2014 (Bang); (ii) Dharini Developers (ITA No.1848 to 1851/M/2012), dated 7.1.2015 (Mum) and others.
Contention of the Revenue
The ld counsel of the revenue supported the order of CIT (A).
In relation to preponment of income, the ld counsel of the revenue submitted that assessee did not offer the said income in the year under consideration initially, but for the decision of the CIT (A) to tax the whole of the sale proceeds in the year under consideration.
Further he submitted that the CIT (A) has adopted one of the available methods of accounting and did not deny the fact of existence of debate on which is a better method of accounting applicable to the facts of the present case.
Held by CIT (A)
The CIT (A) after examine the entire project of the assessee, which is in progress proposed an enhancement of assessment as per the provisions of section 251(2) of the Act and made various additions on ground of preponment of income, change in estimate or total cost of construction, change in method of accounting and on account of interest income. The total additions enhanced by the CIT (A) come out to Rs. 120.04 Crores.
CIT (A) also initiated the penalty proceedings u/s 271(1)(c) of the Act in connection with the above said enhanced assessment and levied the penalty of Rs. 40.80 Crs @ 100% of the tax sought to the evaded. CIT (A) discussed number of judicial pronouncements relied upon by the assessee in his favour and against the unsustainability of the penalties levied by the CIT (A).
Held by ITAT
Penalty relating to interest income
We find there is no dispute on facts. So far as the offer of interest income under the head „business income‟ after netting the said income against the financial charged incurred for the purposes of business, nothing is brought on record that there is any furnishing of inaccurate particulars. It is a case of change of head of income and the CIT (A) attempted to tax it u/s 56 of the Act. In our opinion, the issue is debatable in nature, and there is no default of disclosure or furnishing of inaccurate particulars in this case relating to this issue. We have also perused the cited judgment of the Hon‟ble jurisdictional High Court in the case of Bennet Coleman & Co Ltd. (259 CTR 383) (Bom) and find the said decision supports the arguments of the Ld Counsel for the assessee.
Levy of penalty of rs. 179.03 Crs regarding pre-ponement of sales offered in next year
We find there is no dispute on the facts that the said sum of Rs. 179.03 Crs is undisputedly offered in the AY 2010-2011 and the same is now taxed in the year under consideration, where the tax rates are identical in both the years. The assessee offered the said income in the later assessment year basing on the principle „pay as you earn‟. This principle is upheld by the Hon‟ble Supreme Court in the case of Excel Industries (358 ITR 295) wherein it is held that the income tax cannot be levied on hypothetical income. Income accrued when it becomes due at the same time, it must also be accompanied by corresponding liability of other party to pay the amount. Only then, it can be said for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee. In our opinion, such additions, in principle, are unsustainable in law considering the said binding judgment. If some of the reasons, such additions are accepted by the assessee, the same will not attract penalty u/s 271(1) (c) of the Act as the said amount was already offered to tax by the assessee. In our opinion, there is neither concealment of income nor furnishing of any inaccurate particulars in such matters.
Levy of penalty on the addition based on the estimated total cost of construction for the project
We find that there is no dispute on the fact that the total estimated cost of the project is 1628.02 crores. There is no fact based reasons for the CIT (A) to adopt the sum of Rs. 1425.19 crores as an actual expenditure spent on the project till the end of AY 2012-2013, the year of completion of project. Rest of the calculations made by the CIT (A) is directly related to the change in the method of accounting rejecting the assessee‟s figures and the methods in this regard. What is the better method of accounting is a matter of debate and no concealment of penalty should be attracted to such debatable issues. We find the addition of Rs. 28.62 crores has the genesis in the estimations on one side and pre-ponement on the other and also on the change of method of accounting. In our opinion, penalty cannot be levied on such additions as they constitute debatable issues. The above citations were also perused and we find they are relevant for the proposition that change in the method of accounting involving the estimates do not attract the penalty u/s 271(1)(c) of the Act.
Levy of penalty on the income of the project amounting to Rs. 63.75 crores, the resultant of the calculations based on change of method of accounting described above
We have already discussed the fact that the addition was revised downwards to Rs. 59.12 crores by virtue of rectification. The addition is undisputedly the outcome of the method adopted by the CIT (A). As such there is a problem in applying such method as it is not in tune with AS-7 and ICDS notified by the CBDT. Therefore, such additions are not free from any debate or dispute. In any case, assessee has not contested the additions on merits. That should not come on the way of deciding the penalty proceedings. It is a settled legal issue that the penalty proceedings are different from that of the assessment proceedings or enhancement proceedings. If contested, assessee would have got a relief on this account. It is also a settled issue that when debate is an integral part of any addition, the concealment penalties will not survive. The decisions relied upon by the ld Counsel for the assessee were also perused and found supporting to his arguments. On such facts, whether the assessee appealed against the additions or not in quantum proceedings, we are of the opinion that the penalty levied by the AO is unsustainable and therefore, we order the AO to delete the penalty accordingly.
Accordingly, appeal of the assessee allowed.
