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TMI Blog2015 (12) TMI 1461X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010, which is the subject matter before us, construction of 5 floors is completed and the 6th floor is in progress. As per the assessee, the project is completed in the AY 2013-14. Thus, the project took five years time for its completion. The assessee filed the return of income for all the years recognising the income based on percentage completion method. During the year relevant to the AY under consideration, assessee filed the return of income declaring the total income of Rs. 99.04 Crs (rounded-of). After the scrutiny assessment made u/s 143(3) of the Act, assessed income was determined at Rs. 99,10,31,790/-. In the regular assessment made u/s 143(3) of the Act dated 27.12.2011, AO made certain additions on account of disallowance of expenses. Aggrieved with the additions made by the AO, assessee carried the matter in appeal before the first appellate authority. 3. During the first appellate proceedings, assessee made various submissions before the CIT (A)against the additions. However, the CIT (A) examined the entire project of the assessee, which is in progress. On examining the said project, CIT (A) proposed an enhancement of assessment as per the provisions of section 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment is considered, the penalty would be reduced to Rs. 39.29 Crs (rounded-of) from the original penalty of Rs. 40.80 Crs. We find merit in the assessee‟s point of reference and direct the AO to adopt the correct figures subject to findings of the sustainability of the penalties on the additions mentioned above. We shall now take up the merits of the penalties on each of the 4 grounds of additions. A. Penalty relating to interest income: Briefly stated relevant facts in this regard include that the assessee received interest income of Rs. 7,32,06,243/- of the fixed deposits with the banks. The said income was set-off in the books of account against the interest and financial charges claimed by the assessee. These fixed deposits were made by the assessee in order to avail bank facilities like secured loans and Over Drafts (OD), which are required to be utilised for the construction of the commercial complex, the core business activity of the assessee. Considering the business nexus, the said interest income was offered as „business income‟ of the assessee after netting the business related finance expenses. The assessee relied on various coordinate Bench decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this particular addition does not invite levy of any penalty u/s 271(1)(c) of the Act. Accordingly, AO is directed to deleted relatable penalty. B. Levy of penalty of Rs. 179.03 Crs regarding pre-ponment of sales offered in next year: Briefly stated relevant facts of the case are that the assessee sold 1,51,520 sq ft of commercial area for a sum of Rs. 736.55 Crs, but the said area was not completed by the time relevant to the AY under consideration. Basing on the method of accounting followed ie percentage completion method, the assessee offered sum of Rs. 239.27 Crs (ie around 43% of the total sales based on the project) for the year under consideration as the completed area works out to 42.92%. However, assessee reversed the sale to the extent of 36,038 sq ft amounting to Rs. 179.03 Crs for some reasons / developments. This amount of sales was not shown by the assessee in the AY 2009-2010 basing on the percentage completion method. However, the said amount was reflected in the return for the AY 2010-2011 based on the principle of „pay as you earn‟. During the first appellate proceedings ie enhancement of assessment, the whole of the sales made to the Standard Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f taxability but when the tax rates are the same on facts, it is a settled proposition in law that the Department should not disturb the assessment of income offered in the subsequent assessment years. In this case, Rs. 179.03 Crs was offered as income of the assessee in the AY 2010-2011 and the CIT (A) brought the same to tax in the current year where the tax rates are same in both the AYs. Therefore, on merits, such additions are unsustainable in law considering the above referred judgment of the Hon‟ble Supreme Court in the case of Excel Industries (supra). 9. Per contra, Ld DR for the Revenue submitted that the assessee did not offer the said income in the year under consideration initially, but for the decision of the CIT (A) to tax the whole of the sale proceeds in the year under consideration. However, on sustainability of the said addition Ld DR has nothing to state except that the above addition was accepted by the assessee and the same has reached finality. 10. On hearing both the parties, we find there is no dispute on the facts that the said sum of Rs. 179.03 Crs is undisputedly offered in the AY 2010-2011 and the same is now taxed in the year under consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the documents filed before the CIT (A), the projected / estimated total cost is Rs. 1939.07 Crs. Till the end of the AY 2009-2010 ie 31.3.2009, the actual cost is Rs. 832.19 Crs which means the balance of Rs. 1106.88 Crs is meant to be spent on the project in the AYs 2010-11; 2011-12 & 2012-13 and as the AY 2012-13 is the year of completion of project. During the proceedings relating to the enhancement of the assessment, the CIT (A) obtained the data on the actual cost spent till the end of the AY 2012-13 and find actual cost of the project is only 1628.02 Crs. Thus, there is a variation of 311.05 Crs ie difference between 1939.08 Crs minus 1628.02 Crs. For some reasons, the CIT (A) restricted the actual cost of entire project from 1628.02 to Rs. 1425.19 Crs. CIT (A) calculated the relatable income of Rs. 115.59 Crs (ie 214.59 minus the profits of Rs. 99 Crs already disclosed in the books of account for AY 2009-2010). There is no reconciliation as how Rs. 214.59 of profits is arrived at as the difference is works out to 202.83 Crs only. This is matter of statistics and it does not matter as the issue relates to penalty. It is the allegation of the assessee that the CIT (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oject, which was actually completed in AY 2012-2013. Ld Counsel for the assessee also mentioned that such attempt of the CIT (A) is not based on the real income concept and it is merely a case of taxing the income, which is never earned in the year under consideration and it is a hypothetical figure generated by the CIT (A). Further, relying on the various decisions, Ld Counsel for the assessee mentioned that it is neither a case of furnishing of inaccurate particulars nor a case of concealment of income. He also submitted that no penalty is levyable merely on change of estimates based on change of method of accounting. Relying on the judgment of the Hon‟ble Madras High Court in the case of TPK Ramalingam vs. CIT [1995] 211 ITR 520 (Mad) and the decision of the coordinate Bench in the case of Parsoli Corporation Ltd (41 CCH 370), copies of which are placed at pages 292 to 294 and 297A to 297E of the paper book, Ld Counsel for the assessee demonstrated that such additions are unsustainable in law. He also relied on the judgment of the Hon‟ble Gujarat High Court in the case of Pancharatna Hotels P Ltd (313 ITR 398) (Guj) and decision of the ITAT, Mumbai in the case of Kri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as you earn". Assessee relied on the Accounting Standard (AS)-7 as per the ICAI guidelines in adopting projecting completion method ie revenue is recognized on the basis of work completed. Assessee justified the same as per the discussion given in para 29 of the said summary facts sheet. It is the allegation of the assessee that the CIT (A), while changing the method for recognizing the cost has not touched the method of the assessee for recognizing the income. Therefore, there is a total disparity in the method adopted by the CIT (A) as revenue and cost are recognized by the method, which is in accordance with the AS-7 or ICDS notified by the CBDT. Therefore, the method adopted by the CIT (A) is unsustainable and it should be rejected. The addition made by the CIT (A) amounting to Rs. 69.57 Crs (which is subsequently brought down to Rs. 59.12 Crs by virtue of modification orders passed u/s 154 of the Act) is unsustainable in law. In this regard, Ld Counsel for the assessee also submitted that no penalty on additions relatable to the change in the method of accounting as they do amount to neither concealment of income nor furnishing of any inaccurate particulars of income. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty levied by the AO is unsustainable and therefore, we order the AO to delete the penalty accordingly. 16. Further, Ld Counsel for the assessee raised other general arguments common to all the above additions and penalties. In this regard, he brought our attention to a table placed in para 7 of the said summarized facts sheet and analyzed the "profit credited in the returns" filed by the assessee for all the AYs 2009-2010 to 2013-14 and the same is worked out to Rs. 624.51 Crs. He also mentioned that the "profits for all the above AYs as per the CIT (A)" worked out to Rs. 624.5 Crs. Thus, he mentioned that there is no change in profits either as per the both the assessee and also as per the CIT (A)‟s workings. Comparing the tax on the above profits worked out by the assessee and the CIT (A), Ld Counsel for the assessee demonstrated that tax for all the AYs as per the returns and the tax as per the CIT (A) are Rs. 206.82 Crs and Rs. 206.86 Crs respectively. Further, the tax liabilities of the above, including that of the statutory interests, there is hardly any difference between the assessee‟s method as well as that of the CIT (A). For the purpose completion of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come‟ in respect of the change in estimated cost. By all these variations, the CIT (A) is not clear as to whether the penalties are levied for "concealment of income" or "furnishing of inaccurate particulars of income". Further, Ld Counsel for the assessee brought our attention to various decisions of the Tribunal to support his argument that the penalty should not be levied when the CIT (A) is not clear in reasons for levying the penalty. Ld Counsel for the assessee also mentioned that the CIT (A) cannot initiate penalty for one reason and levy for other reasons. In this regard, Ld Counsel for the assessee relied on the judgment of the Hon‟ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (92 DTR 111) (Kar. HC) and the coordinate Bench decision in the case of Shri Samson Perinchery (ITA Nos. 4625 to 4630/M/2013), dated 11.10.2013, copy of which is placed at page 366 of the paper book, wherein one of us (AM) is a party to the said order of the Tribunal (supra). He also relied on the following decisions viz (i) M/s. Ittina Properties Pvt Ltd (ITA No.36/Bang/2014), dated 21.11.2014 (Bang); (ii) Dharini Developers (ITA No.1848 to 1851/M/2012), dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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