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2017 (11) TMI 1603 - AT - Income TaxPenalty u/s. 271(1)(c) - allowability of expenses on year to year basis or in the year of completion of project - assessee has claimed expenses and consequently business losses to be carried forward in the previous year relevant to the assessment year while the project was not completed in the previous year under consideration and since the assessee is following project completion method, these expenses could not have been claimed in the year under consideration - Held that - It is possible to form a bonafide belief on the date of filing return of income i.e. on 31.10.2005 that the expenses could be allowed from year to year basis. The Learned AR has also submitted that the assessee had no other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in that case all the expenses could have been allowed. Considering all explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. Accordingly we set aside the order of CIT(A) and delete the penalty levied. SEE Chaitra Reality Ltd. v. DCIT 2011 (3) TMI 1746 - ITAT MUMBAI - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Confirmation of Penalty under Section 271(1)(c) of the Income Tax Act, 1961 Background: The assessee, engaged in property development, was penalized under Section 271(1)(c) for furnishing inaccurate particulars of income and concealing particulars of income. The penalty amounting to ?5,24,37,851/- was confirmed by the CIT(A). The assessee appealed against this decision. Facts of the Case: - The assessee followed the Project Completion method but claimed certain expenses in the profit and loss account, which were disallowed by the AO as the project was not completed during the year. - The disallowed expenses included a loss on the sale of assets amounting to ?14,44,31,840/-, depreciation of ?1,20,090/- on vehicles, and other expenses totaling ?16,44,673/-. - These expenses were required to be carried forward to the Real Estate Development Work-in-Progress account but were instead added to the profit and loss account. Assessee's Argument: - The assessee argued that the expenses were genuine and the difference was only regarding the period in which they should be allowed. - Cited the case of Akshay Software Technologies Limited Vs. ACIT, where it was held that penalty under Section 271(1)(c) is not warranted if the claim is rejected merely on technical grounds. - Relied on judicial pronouncements in Banaras Textorium Vs. CIT, CIT Vs. T. Govindankutty Menon, and Hotel & Allied Trades (P) Ltd. Vs. CIT. Tribunal's Observations: - The Tribunal noted that the disallowance of expenses was accepted by the assessee, and no grounds of appeal were raised on these issues before the CIT(A). - The Tribunal referenced similar cases involving related companies, such as Chaitra Realty Ltd. and Bhishma Realty Ltd., where penalties under similar circumstances were deleted. - The Tribunal emphasized that each addition in assessment does not automatically lead to penalty under Section 271(1)(c). The explanation of the assessee must be considered bonafide, and all necessary details must be submitted. Precedents Referenced: - In the case of Chaitra Realty Ltd., the Tribunal deleted the penalty by acknowledging that the claim was made under a bonafide belief and that the allowability of such expenses was a debatable issue. - Similarly, in the case of Bhishma Realty Ltd., the Tribunal deleted the penalty, noting that the expenses were claimed under a bonafide belief and there was no advantage to the assessee in declaring losses from year to year. Conclusion: - The Tribunal concluded that the assessee's claim was made under a bonafide belief and that there was no intention to defraud the Revenue. - The Tribunal held that no penalty under Section 271(1)(c) was exigible in this case, following the precedent set in the cases of Chaitra Realty Ltd. and Bhishma Realty Ltd. - The penalty levied by the AO and confirmed by the CIT(A) was ordered to be deleted. Final Order: - The appeal of the assessee was allowed, and the penalty under Section 271(1)(c) was deleted. Order Pronounced: - The order was pronounced in the open court on 28.11.2017.
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