2016 (8) TMI 902 - AT - Income Tax

Penalty u/s. 271(1)(c) - whether assessee s project is complete or not? - Held that - In view of the order of the Third Member in assessee s own case, it is clear that the issue is highly debatable whether assessee s project is complete or not and this being the situation, we are of the view that the penalty is not leviable u/s. 271(1)(c) of the Act. Furthermore, the assessee has not furnished any inaccurate particulars of income for the reason that the assessee s view that the project was not complete due to the ongoing litigation, whereas the AO was of the view that the project was completed during the year under consideration. He has computed the income based on all the facts and figures available in the Finance Statements of the assessee and accordingly this is not a case of furnishing of inaccurate particulars of income. In terms of the above, we confirm the order of the CIT(A) deleting the penalty. - Decided against revenue.

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Assessment method for recognizing income in the construction business.
3. Disclosure of material facts and particulars by the assessee.
4. Impact of ongoing litigation on revenue recognition.

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty levied under Section 271(1)(c) of the Income Tax Act:
The primary issue in this case revolves around the penalty of ?1,50,00,000/- levied by the Assessing Officer (AO) under Section 271(1)(c) of the Income Tax Act. The penalty was imposed on the grounds that the assessee furnished inaccurate particulars of income amounting to ?3,48,03,446/-. The CIT(A) deleted the penalty, emphasizing that the addition made during the assessment proceedings should not automatically lead to the imposition of a penalty. The CIT(A) noted that the assessee had disclosed all relevant details and that the penalty proceedings and assessment proceedings are distinct, and an addition in the assessment does not necessarily justify a penalty.

2. Assessment method for recognizing income in the construction business:
The assessee company, engaged in the construction and real estate business, adopted the project completion method for recognizing income. This method had been consistently followed and accepted by the ITAT in earlier years. However, for the assessment year in question, the AO applied the percentage completion method, leading to an addition of ?3,48,03,446/- to the income. The CIT(A) and the ITAT both recognized that the project completion method is a legitimate method for income recognition in the construction business, as previously upheld by the ITAT.

3. Disclosure of material facts and particulars by the assessee:
The assessee argued that it had disclosed all particulars of income and expenditure in the audited accounts, including the status of the project and the accounting policy adopted. The CIT(A) and the ITAT found that the assessee had indeed disclosed all material facts in its return of income, balance sheet, and profit and loss account. The ITAT concluded that the assessee had not concealed income or furnished inaccurate particulars, as all necessary details were provided, and the income was estimated based on these disclosed facts.

4. Impact of ongoing litigation on revenue recognition:
A significant factor in this case was the ongoing litigation involving the assessee, MHADA, and the Chandivali Residence Association. The assessee contended that due to this litigation, it was under a bona fide belief that the project could not be considered complete. The CIT(A) and the ITAT acknowledged that the litigation created uncertainty regarding the project's completion and revenue recognition. The ITAT referred to the Third Member's decision, which highlighted the disputes and the potential impact on the assessee's right to appropriate the income. The ITAT concluded that the issue of whether the project was complete was highly debatable, and thus, the penalty under Section 271(1)(c) was not warranted.

Conclusion:
The ITAT upheld the CIT(A)'s decision to delete the penalty of ?1,50,00,000/- levied under Section 271(1)(c) of the Income Tax Act. The Tribunal found that the assessee had disclosed all material facts and adopted a recognized method for income recognition. The ongoing litigation further complicated the determination of the project's completion status. Consequently, the ITAT ruled that no penalty should be imposed, as the assessee had not furnished inaccurate particulars of income. The appeal of the revenue was dismissed.