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2023 (2) TMI 312 - AT - Income TaxPenalty u/s 271(1 )(c) - changing method of recognition of income from project completion to percentage completion - Necessity to mention specific provision - income recognized had increased from zero in the return filed in response to notice issued u/s. 153A - HELD THAT - In AO s penalty order that he has nowhere invoked the foregoing deeming fiction of furnishing of inaccurate particulars of undisclosed taxable income as per his detailed discussion comprising of nine pages. Revenue has further not placed on record any such notice to this clinching effect. Explanation 5A to sec.271(1)(c) is a special provision imposing deeming fiction of an assessee having both concealed particulars of his taxable income as well as furnishing of inaccurate particulars of such income, as the case may be, in an instance of a search carried out on or after 01.06.2007. Once the Assessing Officer had nowhere invoked the above specific provision, there is hardly any justification on Revenue s part to quote general principles of furnishing of inaccurate particulars u/s.271(1)(c) of the Act. The Revenue could further not dispute the clinching fact taken note of both in the assessment order as well as the CIT(A)'s order before us the assessee had already filed his revised return declaring the very income of Rs.1,83,86,690/- which stood duly accepted and processed. Revenue s reliance on hon'ble apex court s decision Mak Data Pvt. Ltd. 2013 (11) TMI 14 - SUPREME COURT we note that the said assessee was found in possession of bogus share application form and other documents as against facts of the instant case wherein this taxpayer had only followed project completion method. We make it clear that Revenue s instant arguments deserve to be rejected only in light of the foregoing factual matrix i.e., non-application of Explanation 5A to sec.271(1)(c) of the Act and filing of revised return at the assessee s behest indicated hereinabove. Decided against revenue.
Issues Involved:
1. Whether the CIT(A) erred in deleting the penalty under Section 271(1)(c) of the Income Tax Act, 1961, levied by the Assessing Officer. 2. Applicability of Explanation 5A to Section 271(1)(c) regarding the change in the method of revenue recognition from project completion to percentage completion. 3. Whether the revised return showing higher income post-search justifies the imposition of penalty. Detailed Analysis: Issue 1: Deletion of Penalty under Section 271(1)(c) - The CIT(A) reversed the Assessing Officer's findings, which levied a penalty of Rs. 63,63,266/- for the assessment year 2016-17, based on the change in the method of revenue recognition from project completion to percentage completion. The CIT(A) noted that the penalty was not justified as the change in the method of revenue recognition did not amount to furnishing inaccurate particulars of income or concealment of income. - It was observed that the assessee had originally filed a return declaring NIL income, but revised it to declare an income of Rs. 1,83,86,690/- after the search. The penalty proceedings were initiated on the grounds of furnishing inaccurate particulars of income, but the CIT(A) found that the income declared was based on a change in accounting method, which is a debatable issue and not a clear case of concealment or inaccurate particulars. Issue 2: Applicability of Explanation 5A to Section 271(1)(c) - Explanation 5A to Section 271(1)(c) was considered, which imposes a deeming fiction of an assessee having concealed particulars of income or furnished inaccurate particulars of income in cases of search conducted on or after 01.06.2007. The CIT(A) noted that the material found during the search was a certificate from an architect indicating the project completion percentage, which suggested that the conditions for applying the percentage completion method were fulfilled. - The CIT(A) concluded that the issue of whether the percentage completion method was mandatory before the insertion of Section 43CB (effective from AY 2017-18) is debatable. Various tribunals have held that the percentage completion method was not mandatory before AY 2017-18, making it a debatable issue, and thus, no penalty should be levied on such grounds. Issue 3: Justification for Penalty Based on Revised Return Post-Search - The Revenue argued that the revised return showing higher income post-search indicated concealment of income. However, the CIT(A) and the Tribunal found that the revised return was filed voluntarily by the assessee after consulting tax advisors and recognizing revenue under the percentage completion method, which was not mandatory before AY 2017-18. - The Tribunal highlighted that the Assessing Officer did not invoke the specific provision of Explanation 5A in the penalty order and that the revised return was accepted and processed. The Tribunal also noted that the reliance on the Supreme Court decision in Mak Data Pvt. Ltd. vs. CIT was misplaced as the facts differed significantly from the present case. Conclusion: - The Tribunal upheld the CIT(A)'s decision to delete the penalty under Section 271(1)(c), emphasizing that the change in the method of revenue recognition was a debatable issue and did not constitute furnishing inaccurate particulars or concealment of income. The Revenue's appeal was dismissed, and the penalty was directed to be deleted.
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