Case Law Details
Shree Balaji Construction Vs DCIT (ITAT Indore)
The issue under consideration is whether assessee can be held liable u/s 271B of the Act for not getting the books audited during the years when the advances were received from customers under percentage completion method?
In the present case, the assessee is engaged in real estate business acquired land and started construction of commercial building in the name of Balaji Tower from Assessment Year 2005-06 onwards. The construction was completed during the Financial Year 2012-13 relevant to Assessment Year 2013-14. Assessee firm adopted ‘project completion’ method and the amount received as advance from the customers were shown as liability and expenses incurred during the period of construction was shown in the trading account as work in progress. In the return of income for Assessment Year 2010-11 to 2012-13 assessee has not disclosed any turnover. However for Assessment Year 20 13-14 during which the project was completed the assessee has shown turnover and after claiming the incidental expenses including construction cost and opening work in progress declared net profit. The revenue’s allegation is that for Assessment Year 2010-11 to 2012-13 during which assessee was receiving the amount from customers should have been accounted for as sales turnover by the assessee and as the total of such amount received during each assessment year in question exceeded the prescribed turnover limit u/s 44AB of the Act, not getting the books audited leads to levy of penalty u/s 271B of the Act.
ITAT states that, the there is a reasonable cause on the part of the assessee in not getting the books of accounts audited since it adopted the percentage completion method and that the advance received from customers is not part of turnover but in the shape of liability which can be crystallized to the sale turnover only when the project is completed and the possession is handed over along with registered sale deed to the customer. Therefore as per ITAT the assessee succeeds on two counts firstly that it was not required to get books of accounts audited and if for sake of discussion if the alleged advance received from customers is presumed to be turnover then also the assessee will succeed on account of Section 273B of the Act which provides for “penalty not to be imposed in certain cases” where the assessee proves that there was a reasonable cause for the said failure and thus covers the situation of the assessee too. ITAT, thus delete the penalty levied u/s 271B of the Act in each for Assessment Year 2010-11 to 20 12-13 and allow all three appeals raised by the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
The above captioned appeals filed at the instance of the assessee pertaining to Assessment Year 2010-11 to 20 12-13 are directed against the orders of Ld. Commissioner of Income Tax (Appeals)-3 (in short ‘Ld.CIT(A)’], Bhopal dated 05.06.2018 which are arising out of the order u/s 271B of the Income Tax Act 196 1(In short the ‘Act’) dated 29.06.20 17 framed by DCIT (Central)- 2, Indore.
2. The assessee has raised common grounds of appeal challenging the order of Ld. CIT(A) confirming the action of Ld. A.O levying the penalty u/s 271B of the Act at Rs. 1,50,000/-each for the alleged failure of getting the books of accounts audited u/s 44AB of the Act for Assessment Years 2010-11 to 2012-13 respectively:-
1. That, on the facts and in the circumstances of the case, confirmation of Penalty Order passed u/s. 271B of the Income-Tax Act, 1961, by the learned CIT(A), imposing penalty at Rs. 1 ,50,000/- is quite arbitrary, erroneous, unjustified, unwarranted, excessive and bad-in-law.
2.That, the learned CIT(A) grossly erred, both on facts and in law, in confirming the penalty under s. 271B of the Income-Tax Act, 1961, for alleged failure to get its books of account audited under s. 44AB of the Act without considering the material fact that for the relevant assessment year, the turnover of the business had not exceeded the prescribed limit under s. 44AB of the Act and therefore, the appellant was not required to get its books of account audited under s. 44AB of the Act.
3. That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in confirming the penalty imposed u/s. 271B of the Act by the AO without considering the material fact that for the assessment year under consideration, the appellant was neither required to, nor it maintained, any books of account as prescribed under s. 44AA of the Act and therefore, there could not have been any occasion for the appellant to get any books of account audited.
4. That, without prejudice to the above, the learned CIT(A) grossly erred, both on facts and in law, in confirming the penalty imposed u/s. 271B of the Act by the AO without considering the material fact that there was a reasonable cause, as contemplated under the provisions of s.273B of the Act, which prevented the appellant from complying with the requirement of provisions of s.44AB of the Income-Tax Act, 1961.
5. That, the appellant further craves leave to add, alter and/or amend any of the foregoing grounds of appeal as and when considered necessary.
3. Brief facts of the facts common for all the three assessment years are that the assessee is a partnership firm engaged in the civil construction business was subjected to search and seizure operation u/s 132 of the Act on 28.2.20 14. During the course of assessment proceedings carried out u/s 143(3) r.w.s. 153C of the Act Ld. A.O on observing that the turnover of the assessee for Assessment Years 2010-11 to 20 12-13 is above the prescribed limit for audit as per provisions of Section 44AB of the Act but the assessee had not get the books of accounts audited u/s 44AB of the Act and thus held the assessee liable to pay penalty of Rs. 1,50,000/- u/s 271B of the Act for Assessment Years 2010-11 to 20 12-13.
4. Aggrieved assessee preferred appeal before Ld. CIT(A) against the alleged levy of penalty u/s 271B of the Act contending that the assessee firm follows project completed method and the alleged turnover as observed by the Ld. A.O is actually the amount of advance received from customers which was adjusted in the subsequent years when the project was completed and immoveable properties were transferred to the customers. It was also submitted that in case of failure on the part of the assessee to complete the project advance was liable to the refunded. However Ld. CIT(A) was not convinced and he confirmed the penalty observing as follows:-
6. Common written submissions filed by the appellant for all the assessment years have been duly considered in the light of the facts of this case. Appellant has basically raised two grounds ‘of appeal which are common in all the appeals pertaining to imposition of penalty of Rs. 1,50,000/- u/s 271 B of the Act in all the years. Ground # 1 of all the appeals is general in nature by which appellant has contended that imposition of penalty u/s 271 B of the Act was improper, arbitrary, excessive, unjustified, unwarranted and bad-inlaw. Ld AR of the assessee vide written submission has stated that ground is general in nature, hence no specific submissions have been considered necessary. In view of this, ground being general in nature is treated as dismissed. Ground # 2 whereby appellant has contested the appeal on the ground that turnover during the relevant’ years was not exceeding the prescribed limit provided u/s 44AB of the Act, so appellant was not exceeding the prescribed limit provided u/s 44AB of the Act, hence, the appellant was not required to get its accounts audited u/s 44AB of the Act. This has been contended that during the relevant period, the assessee firm constructed one 3-storyed building titled as ‘Balaji Tower’ and construction work was under progress during this period. As per Id AR, since the appellant had adopted ‘project competition method’ for revenue recognition no income had accrued to the appellant. By this way, the assessee has filed consolidated accounts for AY 2010-11 to AY2013-14. As observed by Id AO in para 7.5 of. assessment order that one of the partners of the assessee firm, namely Shri Ram Khandelwal has admitted in his statement that books of accounts of assessee firm have not been. audited for AY 2010-11 to A.Y 2012-13. During assessment proceedings, Id AO estimated the unaccounted sales based on estimated turnover of the firm and determined the total income at Rs. 4,25,45,340/- Rs. 1,99,14,200/- and Rs. 1,81,80,390/- for A.Y 2010- 11, A.Y 2011-12 & A.Y 2012-13 respectively. The argument of the appellant that because it was recognizing revenue on ‘project completion method’ the receipts shown earlier are not his ‘revenue receipts’ but shown on liability side of balance sheet till A.Y “2012-13 is devoid of any merit because treatment given in books of accounts will not alter the basic nature of any revenue receipt. The fact remains that money received from the buyers of units constructed by the assessee firm will remain to be ‘revenue’ in all circumstances de hors the treatment given by the assessee in its books of accounts. Thus, this very fact that assessee firm has recognized the receipts against sales made during earlier years as its revenue only during the financial year 2012-13 relevant to A. Y 2013-14 has no bearing on the issue because ultimately assessee has also treated these receipts as business receipts in A. Y 2013-14. In view of. this,assessee was required to get its accounts audited during AY 2010-11 to AY 2012-13 because receipts against sales of units were exceeding the limits prescribed u/s 44AB of the Act. I do not’agree with the contention of the assessee and hold that case of assessee falls under clause (a) of sec 44AB of the Act being “gross receipts” were exceeding the prescribed limits. This is most important to note that for earlier years i.e. A.Y 2010-11 to A.Y 2012-1 3, the appellant failed to furnish any return of income though required, as every firm is compulsorily required to file its return of income every year irrespective of amount of taxable income and for this default penalty u/s 271F have been levied and confirmed by the undersigned. So, the theory of following the ‘project completion method’ seems an afterthought because assessee firm has filed its returns only for A.Y 2013-14 ‘for which time was available [date of search 28.02.2014] after detection of default by the department. Thus, the contention of the appellant that it was under bonafide belief that it was not required to get its accounts audited for earlier years as it followed ‘project completion method’ is nothing but an alibi to save its skin from imposition of penalty u/s 271 B of the act and other provisions. In the present case, I have no hesitation to say, the assessee has knowingly and deliberately did not get its accounts audited, therefore, case of the assessee does not fall in the category of “reasonable cause”. Ld AR has placed reliance on the decision of Esque Finmark (P) Ltd v/s ACIT (supra) where penalty was deleted by Hon’ble ITAT because assessee was following ‘project completion method’ for recognizing revenue and returning income, the adjustment of income by the A. O. resulted into increase in turnover which made assessee liable for audit u/s 44A-B of the Act. On perusal of relevant decision (para 4.1), it is seen that Hon’ ble ITA T expressed its agreement with the views expressed by Lucknow ITAT in the case of DCIT v/s Gopal Krlshan Builders (2004) 91 lTD 124 (Luck) that word ‘gross receipts’ would include the amounts received from by the assessee-builder towards construction from its customers. Finally rejected the contention of the appellant that no profit element included therein by observing that as such, assessee’s contention with regard to its exclusion i.e. as not bearing a, profit element is without merit both on facts and in law. In the case of Esque Finmark (P) Ltd (ibid), the assessee company duly obtained & furnished an audit report u/s 224 of the companies Act which was considered by Hon’ble ITAT as part compliance. Further, in the above-cited case, Id A.O. levied penalty because assessee’s work-in-progress has witnessed an increase during the year for an amount beyond prescribed limit by including ‘purchase’ in the counting. On the other hand, Id CIT (A) sustained the penalty by considering’ advances’ from customers as part of ‘gross receipts’. Thus, AO initiated penalty on one ground and ClT (A) sustained the penalty on other ground which was not found proper by Hon’ble ITAT. These peculiarities are missing in the instant case. Thus, assessee’s case does not qualify to be covered under ‘reasonable cause’.
In alternate contention, Id AR has vehemently contended that penalty u/s 271 B of the Act for not getting the books of accounts audited should not be imposed when penalty levied u/s 271 A for not maintain books of accounts already imposed by the Id AO. To buttress this proposition, Id AR has also placed reliance on several case laws including CIT v/s Bisauli rroctors (2008) 299 ITR 219 (Ail). The contention of the appellant is not acceptable because (a) the assessee himself has claimed that it has maintained books of accounts, this being so, penalty u/s 271 B of the Act cannot be deleted for the reason that ‘no books were maintained’, so no question of levy of penalty u/s 271 B of the Act (b) the penalty imposed u/s 271 A of the Act has been already deleted by me vide penalty order passed bearing no CIT(A)-3/BPL/IT-12056, 12057, 10154, 12059, 12142 & 12144/2017- 18 dated 31.05.2018. Hence, case laws relied upon by Id AR are not applicable to facts of instant case.
In view of above discussion, I am of considered view that these are the fit cases for imposing of penalty u/s 27J B of the Act because assessee is guilty of not getting its books of accounts audited as required u/s 44AB of the Act without any “reasonable cause”, hence liable for penalty. Therefore, penalty of Rs. 1,50,000/- imposed by Id AO u/s 271 B of the Act is hereby sustained. Ground :# 2 of all the appeals is dismissed.
5. Aggrieved assessee is now in appeal before the Tribunal.
6. At the outset Ld. Counsel for the assessee reiterated the submissions made before the Ld. CIT(A) and pleaded that the issue stands squarely covered by the decision of Co-ordinate Bench of Bombay in the case of Esque Finmark (P) Ltd Vs. ACIT (2014) 40 CCH 810. Reliance was also placed on following decisions:-
1. Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Market Committee (2012) 80 DTR 213 (PH HC)
2. Hon’ble ITAT Jodhpur in the case of ITO vs. Narendra Kumar (2004)23 CCH247 (JodhTrib)
3 Hon’ble ITAT Delhi in the case of Anoop Kumar Beri vs. ACIT (2004)23 CCH 395 (DeI Trib)
4. Hon’ble Allahabad High Court in the case of CIT vs. Bisauli Tractors (2008) 299ITR 219 (All)
5. Hon’ble Gauhati High Court in the case of Surajmal Parsuram Todivs. CIT(1997) 222 ITR. 691 (Gau.)
6. Hon’ble Jurisdictional High Court, of Madhya Pradesh in the case of ITO vs. Nanak Singh Guliani (2002)257 ITR 677 (MP)
7. Hon’ble High Court of Gujarat in the case of ITO vs. Sachinam Trust (2010) 320ITR 445 (GujHC)
8. Hon’ble High Court of Uttarakhand in the case of CIT & Anr. vs. Iqbalpur Cooperative Cane Development Union Ltd. (2009) 23 DTR 060 (UA HC)
9. Hon’ble High Court of Calcutta in the case of CIT vs. Capital Electronics (2003)261 ITR 004 (Kol HC)
10. Hon’ble ITAT Kolkata in the case of Off-Shore India Ltd. vs. DCIT (2017)51 CCH 626 (Kol Trib)
11. Hon’ble ITAT Lucknow in the case of DCIT vs. Gopal Krishan Builders (2005)92 TTJ215 (Lucknow Trib)
12.Hon’ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 0026 (SC)
7. Per contra Ld. Departmental Representative vehemently argued and supported the orders of both the lower authorities.
8. We have heard rival contentions and perused the records placed before us and carefully gone through the cases relied by the Ld. Counsel for the assessee. The common issue raised in the three appeals relates to levy of penalty u/s 27 1B of the Act by the Ld. Assessing Officer for the alleged default on the part of the assessee to get the books of accounts audited observing that the turnover of the assessee exceeded the prescribed lint of turn over provided u/s 44AB of the Act for the three assessment years in question before us.
9. We observe that the assessee is engaged in real estate business acquired land and started construction of commercial building in the name of Balaji Tower from Assessment Year 2005-06 onwards. The construction was completed during the Financial Year 2012-13 relevant to Assessment Year 20 13-14. Assessee firm adopted ‘project completion’ method and the amount received as advance from the customers were shown as liability and expenses incurred during the period of construction was shown in the trading account as work in progress. In the return of income for Assessment Year 2010-11 to 2012-13 assessee has not disclosed any turnover. However for Assessment Year 20 13-14 during which the project was completed the assessee has shown turnover of Rs. 10,61,12,633/- and after claiming the incidental expenses including construction cost and opening work in progress declared net profit at Rs.59,99,505/-. In the computation of income, taxable income of Rs. 60,02,565/- has been shown and offered to tax accordingly.
10. The revenue’s allegation is that for Assessment Year 20 10-1 1 to 20 12-13 during which assessee was receiving the amount from customers should have been accounted for as sales turnover by the assessee and as the total of such amount received during each assessment year in question exceeded the prescribed turnover limit u/s 44AB of the Act, not getting the books audited leads to levy of penalty u/s 271B of the Act.
11. In these given facts “where the assessee has adopted the percentage completion method and has disclosed the turnover in the year of completion of project to offer income for tax can the assessee be held liable u/s 271B of the Act for not getting the books audited during the years when the advances were received from customers”.
12. We observe that similar issue came for adjudication before the Co-ordinate Bench of Bombay in the case of Esque Finmark (P) Ltd Vs. ACIT (supra) wherein also the company was engaged in the business as builder and developers and followed project completion method for recognizing the sale and failed to get the accounts audited during the years when the assessee received amount from the customers in the nature of advance and the Income Tax Officers levied the penalty u/s 27 1B of the Act, Tribunal decided in favour of assessee observing as follows:-
“4. We have heard the parties, and perused the material on record, giving our careful consideration to the matter.
4.1 We find considerable merit in the Revenue’s case, This is for the reason that the Legislature has provided three parameters, viz. ‘sales’, ‘turnover’ or ‘gross receiptsç as the case may be, in defining the criteria for determining the legal obligation for tax audit ujs.44AB of the Act. The word ‘gross receipts’ would include the amounts received by the assessee-builder toward construction from its customers. The same are only in pursuance to a contract of sale, and of revenue character. Further, the same stands excluded in reckoning the assessee ‘s income for the year only for the reason that it adopts a particular method,i.e., the; project completion method, for recognizing income, and which by itself, even as found by the tribunal in Gopal Krishan Builders (supra), would be of no consequence; there being no reference to ‘income’ or any income criteria in the relevant provision. In fact, but for the same, as where the assessee were to follow percentage completion method, the receipt would give rise to profit (or loss). it is the nature of the receipt, and not the profit element therein, that is relevant. As such, the assessee ‘s contention with regard to its exclusion, i.e., as not bearing a profit element, is without merit both on facts and in law.
4.2 So, however, we are nevertheless unable to agree with the Revenue that the assessee is liable to penalty u/s.271B of the Act. Our reasons for the same are,’ as follows. The word ‘gross receipt’ is liable to be construed in more than one way; the: matter in fact having travelled to the tribunal in the case of B.K. Jhala & Associates (supra) and Gopal Krishan Builders:(supra), both at the instance of the Revenue, so that the assessee had succeeded at the first appellate stage. The matter, accordingly, cannot be considered to be without an element of contentiousness associated therewith; so that it is liable to be considered as giving rise to a debatable question, constituting. a reasonable cause within the ‘meaning of section 273B of the Act, saving penalty. We say so as the words ‘sales’, ‘turnover’ as well as. ‘gross receipts’ give rise to: connotation of receipts of revenue nature, forming part of the income statement for the relevant year.
The assessee, it may be noted, is a company. It is, therefore, in compliance of s. 44AB of the Act, required to get its accounts audited and, further, obtain and furnish an audit report both under the Companies Act, 1956 as well as under the Act, Le., in terms of the said provision. The audit report u/s,.224 of the Companies Act, which stands duly furnished” is thus itself toward and in’ compliance of section 44AB, albeit partly. Non obtaining another audit report from its Auditors, i.e., in Form 3CA, under the circumstances, is, therefore, only on account of a bona fide belief that its turnover not exceeding- the qualifying monetary limit, stands to be excluded. Further, the purpose of verification of accounts, including purchases, cited by the A. 0. as the underlying reason for the legal obligation of audit while explaining the ratlonale of the provision, stands thus satisfied in the facts and circumstances of the case.
The explanation that receipts from customers were only in the nature of advance/s is not technically incorrect in-as-much as it is only when the same shall stand adjusted against sale price on the completion or near completion of the project, that the same is liable to be considered as ‘sales’. The notice of penalty and the basis for the A. 0. in levying the penalty was that the assessee ‘s work-in-process (WIP) had witnessed an increase during the year for an amount beyond the prescribed limit. Though, therefore, we do not regard the Id. CIT(A) to have, in confirming the penalty, based it on a different cause; the default being the same, it does amount to a different view being adopted on the same set offacts, confirming the view, if one was required, that the matter is liable to be considered in more ways than one.
The inclusion of ‘purchases’, as stated by the A. O. with reference to the decision by the apex court in the case of George Oks Pvt. Ltd. under the Sales Tax Act, for the purpose of invoking s. 44AB, is without merit. This is for the simple reason that the word ‘turnover’ stands dearly and separately defined under the sales-tax legislation to include purchases as well. Even following the legal principles on the basis of the legal maxims ejusdem generis and noscitus A Sociis would operate to exclude ‘purchases’ from forming part of the qualifying criterion. Rather, a provision, for the purpose of levy of penalty, is to be even otherwise strictly construed. It is perhaps for the reason of the same not finding approval of the Id. C!T(A) that she chose not to advert thereto in the impugned order.
As explained by the apex court in Hindustan Steel Ltd. vs. State of Orissa [1972] 83 ITR 26 (sq, a penalty, even where the provision stands attracted, may lawfully be not levied where the default is not found to be a result of a conscious disregard by the tax payer of his legal obligations or a conduct contumacious, which is clearly not the case in the instant case.
5 In view of the foregoing, we are of the dear and unambiguous view that the assessee’s case, despite a default of s. 44AB of the Act, is not liable in law for penalty ujs.271B in the facts and circumstances of the case. We, accordingly, direct its deletion.
6 In the result, the assessee’s appeal is allowed”.
13. We therefore respectfully following the above decision of Hon’ble Tribunal, Bombay which is squarely applicable in the case of assessee are of the considered view that the there is a reasonable cause on the part of the assessee in not getting the books of accounts audited since it adopted the percentage completion method and that the advance received from customers is not part of turnover but in the shape of liability which can be crystallized to the sale turnover only when the project is completed and the possession is handed over along with registered sale deed to the customer. Therefore in our view the assessee succeeds on two counts firstly that it was not required to get books of accounts audited and if for sake of discussion if the alleged advance received from customers is presumed to be turnover then also the assessee will succeed on account of Section 273B of the Act which provides for “penalty not to be imposed in certain cases” where the assessee proves that there was a reasonable cause for the said failure and thus covers the situation of the assessee too. We, thus delete the penalty levied u/s 27 1B of the Act at Rs. 1,50,000/- each for Assessment Year 2010-11 to 20 12-13 and allow all three appeals raised by the assessee.
14. In the result all the appeals of the assessee for Assessment Year 2010-11 to Assessment Year 20 12-13 are allowed.
The order pronounced in the open Court on 29.01.2020.
