2021 (4) TMI 374 - AT - Income Tax

Penalty levied u/s. 271(1)(c) - method of accounting for recognition of income of the project - method of revenue recognition adopted by assessee - difference between the returned income and assessed income has mainly arisen due to the assessing officer estimating the appellant's profit from building project Sai Sthaan' on final basis and making an addition - HELD THAT - On a perusal of the order of the Ld.CIT(A), we find that Ld.CIT(A) considered all the aspects of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and taking note of the Tribunal order in quantum proceedings, deleted the penalty levied u/s. 271(1)(c). The appellant could have chosen if he had so desired not to offer any income from the project until the project was substantially completed and sold. The AO has not noticed any discrepancy in the accounts as maintained by the appellant. There is no allegation from the AO that any entry made in the books of accounts does not truly or correctly reflect the transactions of the appellant. It is not the case of the Assessing Officer that any receipt of the appellant from any project has been suppressed or deduction of any expenditure not actually incurred by the appellant has been claimed. The entire dispute relates to the method of working of income from the project for assessment during an intermediary year until the first outcome of the project is known in the year of completion. As noted that the main plank of the Assessing Officer in the assessment order that income from project 'Sai Sthaan' should be assessed on final basis for Assessment Year 2009-10 has not been accepted by Hon'ble ITAT. It cannot be said that there is concealment of income or furnishing of inaccurate particulars of income for the reason only that there is difference of opinion in respect of allocation of income of the project amongst different years. Hence, two views are possible in the appellant's case as addition made by the AO is debatable in nature. As long as all primary facts are correctly stated by the appellant the penalty cannot be levied as decided in the judgement of Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. 2010 (3) TMI 80 - SUPREME COURT . In view of these facts and circumstances, penalty cannot be sustained. - Decided in favour of assessee.

Issues Involved:
1. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act.
2. Method of accounting for revenue recognition in real estate projects.
3. Assessment of income from the project "SAI STHAAN" for the Assessment Year 2009-10.
4. The relevance of the Occupancy Certificate in determining the completion of the project.
5. The correctness and completeness of the accounts maintained by the assessee.
6. Applicability of the Supreme Court decision in CIT v. Reliance Petroproducts (P) Ltd.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The appeal was filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) deleting the penalty levied under Section 271(1)(c) of the Act. The penalty was initially imposed by the Assessing Officer (AO) for alleged concealment of income or furnishing of inaccurate particulars of income. However, the CIT(A) and the ITAT found that the primary facts were correctly stated by the assessee, and the difference in income allocation was due to a difference in opinion regarding the method of accounting. Hence, the penalty could not be sustained.

2. Method of Accounting for Revenue Recognition in Real Estate Projects:
The assessee, engaged in developing real estate, followed the percentage of incremental work-in-progress method for revenue recognition, which had been accepted in previous years. The AO, however, did not accept this method for the Assessment Year 2009-10, asserting that the project should be assessed on a final basis due to the issuance of the Occupancy Certificate. The ITAT, however, agreed that the year of the Occupancy Certificate did not signify the completion of the project and directed a reasonable basis for income allocation.

3. Assessment of Income from the Project "SAI STHAAN" for the Assessment Year 2009-10:
The AO made an addition of ?6,31,61,224/- to the assessee's income, estimating the profit from the project "SAI STHAAN" on a final basis. The assessee had shown a larger amount in the subsequent year, which was the final year of the project. The ITAT directed that the income should be allocated based on the percentage of work completed, and any addition for the current year should be adjusted in the subsequent year.

4. The Relevance of the Occupancy Certificate in Determining the Completion of the Project:
The AO based the final assessment of the project on the issuance of the Occupancy Certificate. However, the ITAT found that the Occupancy Certificate was not a definitive indicator of project completion. The tribunal observed that the project should be considered complete when all costs are incurred, and the entire sale price is received, irrespective of the issuance of the Occupancy Certificate.

5. The Correctness and Completeness of the Accounts Maintained by the Assessee:
The AO did not find any discrepancies in the accounts maintained by the assessee. There was no allegation of suppressed receipts or inflated expenses. The ITAT noted that the main issue was the method of income recognition and not the accuracy of the accounts. The tribunal upheld the method followed by the assessee, provided it was consistently applied and correctly reflected the transactions.

6. Applicability of the Supreme Court Decision in CIT v. Reliance Petroproducts (P) Ltd.:
The assessee relied on the Supreme Court decision in CIT v. Reliance Petroproducts (P) Ltd., which held that if primary facts are correctly stated, there could be no concealment of income or furnishing of inaccurate particulars. The ITAT found this applicable to the assessee's case, as the difference in income allocation was due to a legitimate difference in opinion on the method of accounting.

Conclusion:
The ITAT upheld the CIT(A)'s order deleting the penalty levied under Section 271(1)(c) of the Income Tax Act. The tribunal found that the AO's basis for assessing the project on a final basis due to the Occupancy Certificate was incorrect. The assessee had consistently followed a recognized method of accounting, and there was no suppression of income or inflation of expenses. The difference in income allocation was due to a legitimate difference in opinion, and hence, the penalty could not be sustained. The tribunal dismissed the revenue's grounds for appeal.

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