2016 (3) TMI 1055 - AT - Income Tax

Applicability of provisions of sec. 142A - non rejection of books of accounts - addition u/s 69B - - Reference made to DVO u/s 142A - Held that - A decided in M/s Legend Estates Pvt Ltd. vs DCIT 2014 (4) TMI 154 - ITAT HYDERABAD A reference to DVO u/s. 142A can be made only when a requirement is felt by the AO for making such reference. Requirement would arise or could be felt only when there is some material with the AO to show that whatever estimate assessee has shown is not correct or not reliable - The use of word require is not superfluous but signifies a definite meaning whereby some preliminary formation of mind by the AO is necessary which requires him to make a reference to the DVO u/s 142A - It can only be during the course of pendency of assessment or reassessment that the AO frame his mind to refer the property to valuation cell of the Department - if there is a basis to think that the assessee may have understated the cost of construction or whatever is declared by him in this regard is not believable - reference to valuation cell u/s. 142A can be made during the course of assessment and reassessment and not for the purpose for initiating assessment Decided against Revenue. Penalty u/s 271(1)(c) - Held that - In this case, the assessee failed to furnish fully and accurately all particulars of expenditure said to be incurred for the land development. The clarification given by the assessee is not sufficient to substantiate or develop any confidence so as to hold that assessee-company has actually incurred any expenditure in land development. Even if any deduction is claimed b the assessee wrongly but bonafide and no malafide can be attributed, the penalty would not be levied. If there is a deliberate concealment and false/inaccurate return was filed, which was revised after the assessee was exposed of the falsehood, it would attract penalty. Further, where the claim made in the return appears to be ex facie bogus, it would be treated as a case of concealment or inaccurate particulars and penalty is to be levied. We may also take note of the observation of the Supreme Court in the case of Union of India vs Dharmendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT , wherein held that the explanation appended to sec. 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of sec.271(1)(c) of the Act read with the Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. Willful concealment is not an essential ingredient for attracting civil liability as in the case of prosecution u/s 276C of the Act. In view of this, we have no hesitation in reversing the order of the CIT(A) and restoring that of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act. - Decided against assessee.

Summary

Issues Involved:
1. Applicability of Section 142A for valuation of stock-in-trade.
2. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 142A for valuation of stock-in-trade:
The Revenue contested that the CIT(A) erred in holding that the provisions of Section 142A were not applicable as the Assessing Officer (AO) had not rejected the books of account of the assessee. The assessee had completed a housing project and the AO referred the matter to the Departmental Valuation Officer (DVO) who determined a higher cost of construction than what was admitted by the assessee. Consequently, an addition was made under Section 69B of the Act. The CIT(A) ruled that the AO's reference to the DVO was invalid as the books of account were not rejected, citing the Supreme Court judgment in Sargam Cinema vs CIT and the Allahabad High Court's ruling in CIT vs Lucknow Public Educational Society. The Tribunal upheld this view, referencing the Co-ordinate Bench's decision in M/s Legend Estates Pvt Ltd. vs DCIT, which emphasized that Section 142A could only be invoked during the course of assessment or reassessment proceedings and required preliminary evidence of understatement. The Tribunal concluded that without rejecting the books of account, the AO's reference to the DVO was invalid, and thus, the addition based on the DVO's report was not sustainable.

2. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act:
The Revenue challenged the deletion of penalty levied under Section 271(1)(c) for assessment year 2008-09. The AO had disallowed a claim for land development expenses, deeming the expenditure as non-genuine due to insufficient documentation and the fact that the expenses were incurred before the land was acquired by the assessee. The CIT(A) deleted the penalty, noting that the Managing Director had incurred these expenses on behalf of the company and had declared them as income in his individual capacity, paying tax thereon. The Tribunal, however, reversed the CIT(A)'s decision, stating that the claim was ex facie bogus and the assessee had failed to provide sufficient evidence of the expenditure. The Tribunal emphasized that the penalty under Section 271(1)(c) was justified as the assessee had furnished inaccurate particulars of income, and mere payment of tax by the Managing Director did not absolve the assessee from penalty. The Tribunal cited the Supreme Court's judgment in Union of India vs Dharmendra Textile Processors, which held that strict liability for concealment or inaccurate particulars was inherent in Section 271(1)(c).

Summary:
The Tribunal dismissed the Revenue's appeal regarding the applicability of Section 142A, affirming that the AO's reference to the DVO was invalid without rejecting the books of account. However, the Tribunal allowed the Revenue's appeal concerning the deletion of penalty under Section 271(1)(c), reinstating the AO's penalty order due to the assessee's submission of inaccurate particulars and the absence of genuine expenditure evidence.