2015 (7) TMI 722 - AT - Income Tax

Net profit determination - AO has applied 15% of the contract receipts - ld.CIT(A) has restricted the same to 8% - Held that - The appellant has purchased land during the year and has shown work in progress of ₹ 9,42,319/-. The cost of the land has been shown to be ₹ 98,96,100/-. Since the appellant is constructing the building to its share holders cum members, the profit element on account of land will not be there. However, there would be a profit element in the construction work that has been carried out by the appellant on the land as the appellant is charging for the construction on a lumpsum basis. Therefore, the profit rate should be applied on the W.I.P. of ₹ 9,.42,319/-. The A.O. has applied profit rate of 15% on the receipts shown by the appellant. The rate applied by the A.O. is without any basis or any comparable instance. Normally, the rate of profit in this line of business is adopted @ 8% of the contract receipts. The A.O. is, therefore, directed to estimate the income of the appellant by applying the profit rate of 8% on the W.I.P. of ₹ 9,42,319/-. - Decided against revenue. Penalty u/s.271(1)(c) - penalty has been imposed by the A.O. as the income was assessed by him at ₹ 17,14,395/- as against a loss of ₹ 1,680/- shown in the return of income - Held that - The appellant had given all the particulars regarding the claim in the return of income and the accounts were also presented before the assessing officer. It was his bonafide belief that the he has not earned any income from the activity. The assessing officer did not accept his claim. The addition made by the assessing officer on the basis of estimate does not make the case fit for imposition of penalty. The appellant did not furnish any inaccurate particulars or misrepresented any fact in his return of income. He furnished the return giving all the facts. Where there is no finding that any details were supplied by the assessee in its return of income found to be incorrect or erroneous or false there was no question of invoking the penalty under section 271(1)(c). Mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Considering the above facts and circumstances, the penalty imposed by the assessing officer is deleted and the appeal is allowed. See Reliance Petro products Pvt.Ltd. reported in 2010 (3) TMI 80 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues:
1. Quantum appeal by Revenue for AY 2005-06.
2. Cross-objection by Assessee for AY 2005-06.
3. Penalty appeal by Revenue for AY 2005-06.
4. Cross-objection by Assessee for AY 2005-06.

Quantum Appeal by Revenue for AY 2005-06:
- The Revenue appealed against the CIT(A)'s decision to estimate income by applying an 8% profit rate on work-in-progress (WIP) instead of the 1% rate by the Assessing Officer.
- The CIT(A) restricted the profit rate to 8% due to the nature of the construction project for shareholders.
- The Revenue's appeal was dismissed as the CIT(A)'s decision was based on sound reasoning and the AO had not provided a valid basis for the 15% profit rate.
- The general grounds raised by Revenue were not considered separately and were dismissed.
- The appeal was ultimately dismissed, upholding the CIT(A)'s decision.

Cross-objection by Assessee for AY 2005-06:
- Assessee objected to the tax effect and the CIT(A)'s decision to estimate income at an 8% profit rate for WIP.
- The objection regarding tax effect was rejected due to the Revenue's appeal dismissal.
- Assessee's other grounds were rejected as no representation was made during the hearing.
- The cross-objection was ultimately dismissed for lack of proper prosecution.

Penalty Appeal by Revenue for AY 2005-06:
- The Revenue appealed against the CIT(A)'s deletion of the penalty imposed under section 271(1)(c) of the Act.
- The CIT(A) canceled the penalty as the appellant had provided all details in good faith, and there was no deliberate concealment of income.
- The Revenue's appeal was rejected as the CIT(A)'s decision was based on the appellant's genuine belief and compliance with tax laws.
- The grounds raised in the Revenue's appeal were dismissed, upholding the CIT(A)'s decision.

Cross-objection by Assessee for AY 2005-06:
- Assessee supported the CIT(A)'s decision to cancel the penalty based on genuine explanations and compliance with tax laws.
- The cross-objection was dismissed as the Revenue's appeal had been rejected, rendering the cross-objection academic.
- The cross-objection was ultimately dismissed in line with the decision on the Revenue's appeal.

In conclusion, both the Revenue's appeals and the Assessee's cross-objections for AY 2005-06 were dismissed by the Appellate Tribunal ITAT Ahmedabad, with the CIT(A)'s decisions largely upheld in both the quantum and penalty matters.