2015 (7) TMI 662 - AT - Income Tax

Disallowance of Development expenses - Held that - It is evident from records that the compound wall was already in existence and there is no permanent structure or building on the land. The Assessing Officer visited the site to have first hand information and found that there is only a compound wall and small tin shed on the land under question. Thus, the claim of ₹ 3,26,500/- for fixing 30 light point, 15 plug point and 4 fan point etc. is not tenable. Even the enquiries made by Assessing Officer from the persons who have allegedly worked on the land does not infuse confidence, therefore, the same were disbelieved. Further, the Assessing Officer observed that most of the parties who had allegedly carried out development work were shown as sundry creditors outstanding as on 31-03-2008. The assessee had allegedly made payments to the said person in assessment years 2009-10, 2010-11 and 2011-12 through cheques drawn on, The Thane Janata Sahakari Bank, Nigadi Branch. The enquiry made by the Assessing Officer revealed that most of the outstanding sundry creditors were paid by bearer cheques and in majority of the cases amount was withdrawn by one Shri Jaganan Thorat who is stated to be a close relative of one of the partners of the assessee firm. Since, the assessee was not able to substantiate the claim, the amount of ₹ 50,02,425/- was offered for tax.In the light of above facts, we do not find any infirmity in the order of Commissioner of Income Tax (Appeals) in confirming disallowance. - Decided against assessee. Levy of penalty u/s. 271(1)(c) - Held that - In the instant case, admittedly explanation has been offered. Whether it is bonafide or not that has to be seen. The assessee has placed on record the agreements and other documents to show sale transactions of land. The assessee has also placed on record bills to show the expenditure on development of land. Some of the bills/invoices have been rejected by treating them as not genuine by Revenue, however, the persons who have issued the bills have not denied the issuance of bills. The Assessing Officer has rejected the bills on certain presumptions. Thus, in our view, there is no concealment of any information by the assessee. Thus it is not a fit case for levy of penalty for concealment of income or for furnishing inaccurate particulars of income - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of development expenses in quantum appeal.
2. Levy of penalty under section 271(1)(c) in penalty appeal.

Disallowance of Development Expenses in Quantum Appeal:
The case involved two appeals by the assessee against the orders of the Commissioner of Income Tax (Appeals) for the assessment year 2008-09. The first appeal, ITA No. 993/PN/2013, challenged the disallowance of Rs. 50,02,425 on account of development expenses. The brief facts revealed that the assessee, a partnership firm engaged in land transactions, purchased a plot of land and subsequently sold it, claiming development expenses of Rs. 71,53,380. However, the Assessing Officer disallowed a portion of these expenses as the assessee failed to substantiate Rs. 50,02,425 of the claimed amount. The Commissioner of Income Tax (Appeals) confirmed this disallowance, leading to the appeal before the ITAT Pune.

The representatives of both sides presented their arguments. The assessee contended that all bills and vouchers for the development expenses were genuine, while the Department argued that most bills were suspicious, being handwritten on plain paper with similar handwriting and dated after the land sale. The Assessing Officer's on-site inspection revealed discrepancies, such as claims for electrical fittings on a land with no structures except a tin shed. The Revenue's contention was that bills were fabricated post-sale. The ITAT Pune examined the documents and found that the compound wall existed before the claimed expenses, indicating inconsistencies in the assessee's claims. Additionally, payments to alleged creditors were dubious, leading to the conclusion that Rs. 50,02,425 was rightly disallowed. Consequently, the ITAT Pune upheld the Commissioner's order, dismissing the appeal for lack of merit.

Levy of Penalty under Section 271(1)(c) in Penalty Appeal:
The second appeal, ITA No. 992/PN/2013, challenged the penalty of Rs. 17,00,324 imposed under section 271(1)(c) for failure to substantiate the development expenses. The ITAT Pune emphasized the distinction between quantum and penalty proceedings, highlighting that penalty is not automatic when disallowances are made. The assessment focuses on income computation, while penalties address the assessee's conduct, particularly in cases of concealment or inaccurate particulars.

In this case, the penalty was imposed due to the assessee's inability to prove Rs. 50,02,425 of development expenses. Although some bills were rejected, the Revenue acknowledged partial expenditure substantiation. The ITAT Pune referred to the explanation clause of section 271(1)(c), emphasizing that penalties should not apply if the explanation, even if unsubstantiated, is bona fide and discloses all material facts. The assessee's explanations, supported by agreements and documents, demonstrated a good faith effort to justify the expenses. Despite some rejected bills, the absence of mala fide intent or concealment led the ITAT Pune to delete the penalty, allowing the appeal.

In conclusion, the ITAT Pune allowed the penalty appeal (ITA No. 992/PN/2013) and dismissed the quantum appeal (ITA No. 993/PN/2013) in favor of the assessee, pronouncing the order on July 10, 2015, at Pune.

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