2015 (12) TMI 1461 - AT - Income Tax

Penalty levied u/s 271(1)(c) - receipt of interest income - Held that - So far as the offer of interest income under the head business income after netting the said income against the financial charged incurred for the purposes of business, nothing is brought on record that there is any furnishing of inaccurate particulars. It is a case of change of head of income and the CIT (A) attempted to tax it u/s 56 of the Act. In our opinion, the issue is debatable in nature, and there is no default of disclosure or furnishing of inaccurate particulars in this case relating to this issue. We have also perused the cited judgment of the Hon‟ble jurisdictional High Court in the case of Bennet Coleman & Co Ltd (supra) and find the said decision supports the arguments of the Ld Counsel for the assessee. Therefore, we are of the considered opinion that this particular addition does not invite levy of any penalty u/s 271(1)(c) of the Act. - Decided in favour of assessee Pre-ponment of sales offered in next year - Held that - The assessee offered the said income in the later assessment year basing on the principle pay as you earn . This principle is upheld by the Hon‟ble Supreme Court in the case of Excel Industires (2013 (10) TMI 324 - SUPREME COURT ) wherein it is held that the income tax cannot be levied on hypothetical income. Income accrued when it becomes due at the same time, it must also be accompanied by corresponding liability of other party to pay the amount. Only then, it can be said for the purpose of taxability that the income is not hypothetical and it has really accrued to the assessee. In the instant case, the liability to pay by the other parties is crystallized in the AY 2010-2011 not in the AY 2009-2010. But the CIT (A) insists the same would be taxable in the year under consideration. In our opinion, such additions, in principle, are unsustainable in law considering the said binding judgment. If some of the reasons, such additions are accepted by the assessee, the same will not attract penalty u/s 271(1)(c) of the Act as the said amount was already offered to tax by the assessee. In our opinion, there is neither concealment of income nor furnishing of any inaccurate particulars in such matters.- Decided in favour of assessee Addition based on the estimated total cost of construction for the project - Held that - We find that there is no dispute on the fact that the total estimated cost of the project is 1628.02 Crs. There is no fact based reasons for the CIT (A) to adopt the sum of ₹ 1425.19 Crs as an actual expenditure spent on the project till the end of AY 2012-2013, the year of completion of project. Rest of the calculations made by the CIT (A) is directly related to the change in the method of accounting rejecting the assessee‟s figures and the methods in this regard. What is the better method of accounting is a matter of debate and no concealment of penalty should be attracted to such debatable issues. We find the addition of ₹ 28.62 Crs has the genesis in the estimations on one side and preponement on the other and also on the change of method of accounting. In our opinion, penalty cannot be levied on such additions as they constitute debatable issues. It is an undisputed fact that the said profits of the project are subject to tax in the AY 2009-2010 or in AY 2012-2013. It is a matter of dispute. The above citations were also perused and we find they are relevant for the proposition that change in the method of accounting involving the estimates do not attract the penalty u/s 271(1)(c) of the Act. Therefore, we are of the opinion that the penalty levied by the AO on the said addition of ₹ 28.62 Crs is unsustainable in law. - Decided in favour of assessee Income of the project resultant of the calculations based on change of method of accounting - Held that - Considering one of the methods of accounting for determining the profits of the project adopted by the CIT (A) is not free from the debate or dispute. It is also a settled issue that when debate is an integral part of any addition, the concealment penalties will not survive. The decisions relied upon by the Ld Counsel for the assessee were also perused and found supporting to his arguments. On such facts, whether the assessee appealed against the additions or not in quantum proceedings, we are of the opinion that the penalty levied by the AO is unsustainable and therefore, we order the AO to delete the penalty accordingly. - Decided in favour of assessee

Issues Involved:
1. Penalty relating to interest income.
2. Levy of penalty regarding pre-ponement of sales offered in the next year.
3. Levy of penalty on the addition based on the estimated total cost of construction for the project.
4. Levy of penalty on the income of the project due to change in the method of accounting.

Detailed Analysis:

A. Penalty Relating to Interest Income:
The assessee received interest income of Rs. 7,32,06,243/- from fixed deposits with banks, which was set off against business-related financial charges. The assessee treated this interest income as "business income" based on various Tribunal decisions and the Apex Court judgment in the case of M/s. ACG Associated Capsules Pvt Ltd. However, the Assessing Officer (AO) taxed this income under "income from other sources" under section 56 of the Act. The Tribunal found no furnishing of inaccurate particulars by the assessee and considered the issue debatable. Therefore, it directed the AO to delete the penalty related to this issue.

B. Levy of Penalty Regarding Pre-ponement of Sales Offered in Next Year:
The assessee sold commercial area for Rs. 736.55 Crs but did not complete the area by the relevant Assessment Year (AY). The assessee offered part of the sales income based on the percentage completion method but reversed sales of Rs. 179.03 Crs to be shown in the next AY. The CIT (A) levied penalty on this preponed income. The Tribunal found that the income was already offered in the next AY and there was no failure in disclosure or furnishing inaccurate particulars. The Tribunal relied on the Supreme Court judgment in the case of Excel Industries, which held that tax should not be levied on hypothetical income, and directed the deletion of the penalty.

C. Levy of Penalty on the Addition Based on the Estimated Total Cost of Construction for the Project:
The CIT (A) made an addition of Rs. 28.62 Crs based on reworking the estimated project cost. The Tribunal found the CIT (A) disturbed the assessee's method of accounting without factual basis and that the issue was debatable. It held that penalty cannot be levied on such debatable issues and directed the deletion of the penalty on this addition.

D. Levy of Penalty on the Income of the Project Due to Change in the Method of Accounting:
The CIT (A) rejected the assessee's "cost of sales method" and adopted the "cost allocation method," leading to an addition of Rs. 63.57 Crs (later revised to Rs. 59.12 Crs). The Tribunal found the issue debatable and not free from dispute. It held that penalty should not be levied merely due to a change in the method of accounting, and directed the deletion of the penalty.

General Arguments and Conclusion:
The Tribunal noted that the total profits and tax liabilities as per the assessee and the CIT (A) were almost identical, indicating no adverse tax implications. It also observed that the penalty notice under section 274 was ambiguous, and the CIT (A) was unclear whether the penalties were for "concealment of income" or "furnishing of inaccurate particulars." The Tribunal relied on various judicial precedents, including the judgment in the case of Manjunatha Cotton & Ginning Factory, to conclude that the penalties were unsustainable. Consequently, all grounds raised by the assessee were allowed, and the appeal was decided in favor of the assessee.

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