2014 (8) TMI 1172 - AT - Income Tax

Penalty levied u/s 271(1)(c) - bonafide claim - disallowance of assessee s claim of brought forwarded expense by the AO - assessee had furnished inaccurate particulars of income or had concealed its income - HELD THAT - In the quantum appeal proceedings the AO had allowed the work in progress to be capitalized during the earlier assessment years. In none of the earlier assessment years the AO had computed the income of the assessee under the percentage completion method. Under such circumstances it cannot be said that the assessee s claim was not bonafide. The computation adopted by the assessee was according to one of the possible views/methods of accounting which though was not accepted by the AO and further by the Tribunal but was held to be justified by the CIT(A) in quantum assessment/appellate proceedings. Merely because the accounting method of the assessee was not accepted by the AO or that the claim of brought forwarded expenses was disallowed because of the peculiar fact that no construction activity could be carried out by the assessee during the past years that itself ipso facto cannot be a ground in holding that the assessee had furnished inaccurate particulars of income or had concealed its income - It is not a fit case for levy of penalty and accordingly the penalty levied by the lower authorities is hereby set aside. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against penalty under section 271(1)(c) of the Income Tax Act.
2. Disallowance of brought forward expenses by Assessing Officer.
3. Computation of income based on Project Completion Method.
4. Validity of penalty levied by Assessing Officer.

Analysis:

1. The appeal was filed against the penalty imposed under section 271(1)(c) of the Income Tax Act. The Commissioner of Income Tax (Appeals) confirmed the penalty levied by the Assessing Officer. The assessee, a partnership firm engaged in the business of Builders & Land Developers, sold a plot of land during the year for a specific amount. The Assessing Officer disallowed certain expenses claimed by the assessee against the sale proceeds, leading to the initiation of penalty proceedings.

2. The Assessing Officer disallowed brought forward expenses not pertaining to the current financial year and added them back to the assessee's total income. The penalty proceedings were initiated based on the belief that the assessee furnished inaccurate particulars of income. The Commissioner of Income Tax (Appeals) observed discrepancies in the assessment orders for previous years and directed the Assessing Officer to compute income based on Project Completion Method.

3. The Tribunal, in an appeal by the Revenue, set aside the Commissioner's order and restored that of the Assessing Officer. The Tribunal noted that no construction activity had been carried out by the assessee after acquiring the land, and the cost of land was treated as stock-in-trade, thus rejecting the application of Project Completion Method.

4. Regarding the validity of the penalty, the Assessing Officer argued that the assessee furnished inaccurate particulars of income, justifying the penalty imposition. The Commissioner of Income Tax (Appeals) upheld the penalty, citing the disallowance of brought forward expenses. However, the Tribunal found that the assessee's accounting method was a possible view/method, and the disallowance was not sufficient to establish inaccurate particulars or income concealment. The Tribunal set aside the penalty, ruling it was not a fit case for penalty imposition.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the penalty imposed by the lower authorities.