2014 (2) TMI 1107 - AT - Income Tax

Deletion of Penalty u/s 271(1)(c) of the Act Disallowance of claim of TDR purchase expenses - Held that - Assessee contended that it has consumed the base land FSI in the projects already completed by it and the balance portion of the project shall be completed on the basis of TDR purchased by it - When the assessee is computing income on the completed projects, it is not known as to how it could claim land cost pertaining to unfinished projects against those completed projects - When it was pointed out to the assessee that its claim is not correct, the assessee has accepted for the addition of a part of land cost proportionate to uncompleted project. The assessee has made an inaccurate or erroneous claim of land cost in its return of income, which has resulted in furnishing of inaccurate particulars of income - Further, the assessee has offered an explanation with regard to this claim, but has failed to substantiate it by bringing any material on record - the assessee has failed to prove that the explanation was bona find one - It is also not the case of the assessee that the claim was in accordance with the accounting practice regularly followed by it or in the trade circles thus, the assessee has failed to discharge the burden placed upon him under Explanation 1 to sec. 271 of the Act - the assessee shall be deemed to have concealed particulars of income in respect of this addition the order of CIT(A) set aside in respect of the addition also and the penalty levied by the AO is restored Decided in favour of Revenue.

Issues Involved:
1. Justification for deleting the penalty levied under section 271(1)(c) of the Income Tax Act.
2. Disallowance of expenses on purchase of Transferable Development Rights (TDR).
3. Disallowance of land cost.
4. Penalty on cash balance difference.

Issue-wise Detailed Analysis:

1. Justification for Deleting the Penalty Levied Under Section 271(1)(c):
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the penalty of Rs. 1,39,07,662/- levied by the Assessing Officer (AO) under section 271(1)(c) of the Income Tax Act. The AO had concluded that the assessee had concealed income with malafide intention by furnishing inaccurate particulars of its correct income, leading to the imposition of a penalty equivalent to 100% of the tax for furnishing inaccurate particulars of income.

2. Disallowance of Expenses on Purchase of TDR:
The assessee had claimed expenses on the purchase of TDR from M/s Ami Corporation for Rs. 3,22,29,676/-. The AO disallowed this expenditure, reasoning that the TDR rights were acquired in the subsequent financial year (2008-09) and not in the year under consideration (2008-09). The assessee accepted this disallowance and did not appeal against it. During the penalty proceedings, the AO found that the assessee had made payments to M/s Pranay Investment during the financial year relevant to the assessment year under consideration but had formally entered into an agreement in the succeeding year. The AO concluded that the payments made for the purchase of TDR could not be claimed in the instant year. The CIT(A) deleted the penalty, relying on the Supreme Court decision in CIT Vs. Reliance Petro Products Pvt Ltd (322 ITR 158)(SC), stating that the disallowance of expenses does not amount to concealment of income or furnishing inaccurate particulars of income.

3. Disallowance of Land Cost:
The assessee had claimed a sum of Rs. 1,76,73,149/- towards the cost of land. The AO disallowed Rs. 86,10,542/- of this amount, attributing it to the unutilized portion of the land, which should form part of the Work in Progress as on 31.3.2008. The assessee accepted this disallowance and did not appeal. The CIT(A) deleted the penalty on this disallowance, again relying on the decision in CIT Vs. Reliance Petro Products Pvt Ltd.

4. Penalty on Cash Balance Difference:
During survey operations, a physical cash difference of Rs. 77,000/- was found, which the assessee could not reconcile. The AO added this amount as undisclosed income, and the assessee accepted this addition. The penalty on this amount was not contested by the assessee.

Tribunal's Decision:
The Tribunal analyzed whether the assessee had furnished inaccurate particulars of income. It noted that the assessee's claim for TDR purchase expenses and land cost were disallowed because they were not allowable in the year under consideration. The Tribunal found that the assessee had made incorrect claims for deductions, which amounted to furnishing inaccurate particulars of income. The Tribunal held that the CIT(A) had erred in deleting the penalty by relying on the decision in CIT Vs. Reliance Petro Products Pvt Ltd, as the facts of the case showed that the assessee had made erroneous claims, which were not allowable in the year under consideration.

The Tribunal reversed the order of the CIT(A) and restored the penalty levied by the AO on both the disallowance of TDR purchase expenses and land cost. The Tribunal concluded that the assessee had failed to discharge the burden of proof under Explanation 1 to section 271, which deems the additions as concealment of particulars of income.

Conclusion:
The Tribunal allowed the revenue's appeal, reinstating the penalty levied by the AO for furnishing inaccurate particulars of income concerning the disallowance of TDR purchase expenses and land cost. The decision emphasized that making incorrect or erroneous claims for deductions, which are not allowable in the year under consideration, constitutes furnishing inaccurate particulars of income, warranting the imposition of penalties under section 271(1)(c) of the Income Tax Act.

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