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2019 (3) TMI 475 - AT - Income TaxPenalty u/s 271(1)(c) - quantum addition deleted by ITAT - income estimated under deeming provisions - HELD THAT - Penalty U/s 271(1)(c) I.T. Act of 1, 27, 50, 670/- levied by AO and already deleted by the Ld. CIT(A); has no legs to stand when the corresponding additions made by the AO have already been deleted by ITAT When the quantum addition does not survive the penalty levied U/s 271(1)(c) of I.T. Act on the corresponding quantum addition also cannot survive. We take support from judicial precedent in the case of K.C. Builders vs. ACIT 2004 (1) TMI 7 - SUPREME COURT in which held that where the additions made in the Assessment Order on the basis of which penalty for concealment was levied are deleted there remains no basis at all for levying the penalty for concealment and therefore in such a case no such penalty can survive and the same is liable to be cancelled. In view of the foregoing appeal filed by Revenue is hereby dismissed.
Issues:
1. Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961. 2. Application of Accounting Standard - 7 (AS-7) in the assessment. 3. Determination of whether the assessee is a developer or contractor. 4. Capacity of companies providing unsecured loans. 5. Legality and tenability of the CIT(A) order. Analysis: Issue 1: Deletion of penalty under section 271(1)(c) of the Income Tax Act, 1961 The appeal by Revenue challenged the deletion of a penalty of ?1,27,50,670 under section 271(1)(c) by the Learned Commissioner of Income Tax (Appeals) for Assessment Year 2009-10. The penalty was imposed by the Assessing Officer based on an addition made under Percentage Completion Method. The CIT(A) deleted the penalty citing that as the income was estimated under deeming provisions, there was no merit in imposing the penalty. The ITAT upheld the deletion of the penalty, emphasizing that when the corresponding additions made by the AO had already been deleted, the penalty could not stand. The decision was supported by the judicial precedent in K.C. Builders vs. ACIT. Issue 2: Application of Accounting Standard - 7 (AS-7) in the assessment The addition made by the AO under AS-7 was based on the Percentage Completion Method, applicable to construction contractors, not real estate developers. The CIT(A) confirmed the addition, but the ITAT, following a similar precedent, held that AS-7 did not apply to the case as the assessee was consistently following the project completion method, accepted by the AO in previous and subsequent assessment years. The ITAT upheld the accounting system followed by the assessee, emphasizing the need for consistency in accounting methods. Issue 3: Determination of whether the assessee is a developer or contractor The ITAT in a separate order clarified that the assessee was a real estate developer, not a contractor, based on the nature of business activities and the accepted method of accounting for builders. The ITAT emphasized that the project completion method was a recognized accounting practice for builders, and the assessee's consistent application of this method was upheld. Issue 4: Capacity of companies providing unsecured loans The CIT(A) was criticized for ignoring the fact that companies providing unsecured loans did not have the capacity. However, this issue was not central to the decision regarding the penalty under section 271(1)(c) and the application of AS-7. Issue 5: Legality and tenability of the CIT(A) order The Revenue contended that the CIT(A) order was erroneous and not tenable in law and on facts. However, the ITAT dismissed the appeal, highlighting that when the quantum additions were deleted, the penalty for concealment could not stand, as per legal precedent. In conclusion, the ITAT upheld the deletion of the penalty under section 271(1)(c) and clarified the application of AS-7, confirming the assessee's status as a real estate developer. The decision emphasized the importance of consistency in accounting practices and the impact of quantum additions on penalty levies.
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