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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 ..... r 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER For The Appellant : Shri Rajan R. Vora, Nikhil Tiwari For The Respondent : Shri Deepkant Prasad, DR ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by the assessee on 22.11.2013 is against the order of the CIT (A)-37, Mumbai dated 27.9.2013 for the assessment year 2009-2010. This appeal relates to the penalty levied u/s 271(1)(c) of the Act by the CIT (A), who made the enhancement in the regular assessment during the appellate proceedings on quantum issues. 2. Briefly stated relevant facts of the case are that the assessee is engaged in the business of construction and undertook a project of constructing a single commercial complex consisting 20 floors on leased plot of land, belonging to MMRDA. The said plot is located at Plot No.C-38 39, G Block, Bandra Kurla Complex, Bandra East, Mumbai-51. The project commenced its construction activity in the AY 2007-2008. During the AY 2009-2010, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment has reached finality. 5. Meanwhile, the CIT (A) initiated the penalty proceedings u/s 271(1)(c) of the Act in connection with the above said enhanced assessment and levied the penalty of ₹ 40.80 Crs @ 100% of the tax sought to the evaded vide the order of the CIT (A) dated 27.9.2013. The order of the CIT (A) contains the submissions of the assessee and the facts relevant for such levy of penalty. CIT (A) discussed number of judicial pronouncements relied upon by the assessee in his favour and against the unsustainability of the penalties levied by the CIT (A). Aggrieved with the above order of the CIT (A), assessee is in appeal before us. 6. During the proceedings before us, at the outset, Ld Counsel for the assessee brought to our notice that the said penalty was required to be revised downwards considering the modification order passed by the CIT (A) reducing the quantum of additions from the said amount of ₹ 120.04 Crs. The assessed income as per the CIT (A) after the said enhancement is determined at ₹ 219.02 Crs. After the said amendment u/s 154 of the Act, the revised income has kept at ₹ 214.62 Crs. As per the Ld Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom). This judgment is relevant for the proposition that the penalty cannot be levied barely on the change of head of income. In reply to the above said legal proposition, Ld DR for the Revenue could not demonstrate any other contrary decisions on the issue. Therefore, he relied on the order of the CIT (A). 7. On hearing both the parties and on perusal of the orders of the Revenue Authorities, we find there is no dispute on facts. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed a fixed method of accounting. He also demonstrated that the estimated concealment of ₹ 20.52 Crs on account of the above addition of ₹ 179.03 Crs is mere estimation and not based on any facts. Further, he submitted that the whole issue revolves around the preponement and the debatability of the CIT (A). He also submitted that with the Standard Chartered Bank, thought the agreements were entered the sales were completed as the construction work is incomplete and the relatable money of ₹ 179.03 Crs was never received at this point of time. Therefore, it is the case of the assessee that the preponement of such income, which is not agreed to the assessee is unsustainable in law. Consequently, the levy of penalty on such unsustainable addition is unjustified. He also submitted that the revised return of income was filed, in order to satisfy Revenue Authorities as there is no adverse tax implications, to the assessee, the penalty is unsustainable. Relying on the judgment of the Hon‟ble Apex Court in the case of Excel Industries (358 ITR 295), copy of which is placed in page 304 of the paper book, Ld Counsel for the assessee submitted that when there is no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. The decisions relied upon by the Ld Counsel for the assessee includes the order of the Tribunal in the case of Siddhraj Developers Pvt Ltd (ITA No.185/Ahd/2008), dated 11.5.2010 (Ahd); Goutam Enterprise (ITA No.5847/Mum/2010) dated 10.12.2012 (Ahd); Jain Builders (Vasai) (41 CCH 031) (Mum) and Gurucharan Singh Co (72 TTJ 774) (Chd). These are relevant for the proposition that no penalty shold be levied on a declared income irrespective of the year of disclosure. Therefore, we are of the opinion that this addition does not attract penalty u/s 271(1)(c) of the Act. Accordingly we order the deletion of penalty on this issue. C. Levy of penalty on the addition based on the estimated total cost of construction for the project: Briefly stated relevant facts in this regard are that in the enhancement, CIT (A) made addition of ₹ 28.62 Crs on reworking the estim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many factors such as interest cost, various permissions from the MMRDA and other indirect attributable cost. Bringing our attention to the table placed at page 25 of the summarized facts sheet, Ld Counsel mentioned that MMRDA payment is increased by ₹ 72.11 Crs and all other heads such as construction cost, overheads and interest cost are in fact reduced. Criticising the CIT (A)‟s approach in preponing the expenditure of the later AYs to the AY under consideration, Ld Counsel for the assessee submitted that the manner of preponement done by the CIT (A) is unsustainable in law as the assessee followed pay as you earn basis whereas the CIT (A) thrust on the assessee his own method of accounting, which is prima facie invalid on the assessee. Such debatable issues on the additions, if any, relevant to such method of accounting is unsustainable in law. He also mentioned that the exercise undertaken by the CIT (A) is forcibly taxing all the profits of the project in the AY 2009-2010 is incorrect, unsubstantiated as the project was actually completed in the AY 2012-2013. There are plenty of evidences to support assessee‟s contention that the project was not completed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atable 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. D. Levy of penalty on the income of the project amounting to ₹ 63.75 Crs, the resultant of the calculations based on change of method of accounting described above. Briefly stated relevant facts in this regard are that that during the enhancement proceedings, CIT (A) rejected the assessee‟s method of accounting ie cost of sales method‟ and adopted the cost allocation method‟ on the basis of unit sold w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed the fact that the addition was revised downwards to ₹ 59.12 Crs by virtue of rectification. The said addition is undisputedly the outcome of the method adopted by the CIT (A). As such there is a problem in applying such method as it is not in tune with AS-7 and ICDS notified by the CBDT. Therefore, such additions are not free from any debate or dispute. In any case, assessee has not contested the additions on merits. That should not come on the way of deciding the penalty proceedings. It is a settled legal issue that the penalty proceedins are different from that of the assessment proceedings or enhancement proceedings. If contested, assessee would have got a relief on this account. Therefore, we have to decide whether the present penalty relatable to the said invalid addition of ₹ 59.12 Crs is justified? 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -19.04 12-13 114.10 196.09 37.02 63.62 26.60 1.34 3.19 31.14 13-14 186.77 126.38 60.59 41.00 -19.59 -0.99 0 -20.58 Total 624.51 624.5 206.82 206.86 0.04 0.0023 15.15 15.19 17. Further, Ld Counsel for the assessee argued that no penalty can be levied on the quantum additions merely on the ground that the same are accepted by the assessee for buying peace and avoid litigation. For this proposition, he relied on the judgment of the jurisdictional High Court in the case of CIT vs. M/s. Dalmia Dyechem Industries Ltd in Income Tax Appeal No.1396 of 2013, dated 6.7.2015. The Tribunal‟s order in the case of Bostan Consulting Group (India) P Ltd (7 ITR 417) (Mum)[page 356 of the paper book]; Pune Bench decision in the case of Kanbay Softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant for all the 4 segments of the penalties discussed above. Per contra, no contrary judgments are brought to our notice by the Ld DR. 19. To summarise, the concealment penalty was levied by the CIT (A) in this case on the issues which are not free from debate. In our opinion, the assessee would have got relief in most of issues relating to additions based on the estimations, change of method of accounting, preponement of taxable income to AY 2009-2010 etc. Taxation of interest receipt with or without netting is under the head profit and gains from business or profession or income from other sources is also a debatable issue. Therefore, the concealment penalty in the case is not sustainable on such addition / issues. Further, the decision in the case of Manjunatha Cotton Ginning Factory (supra) helps the assessee considering the lack of clarity in the mind of the CIT (A), at the time when notice u/s 274 was issued. Further also, it is demonstrated beyond doubt that there are no adverse tax implications to the Revenue if the profits are finally taxed in AY 2012-2013, the year of completion. Therefore, we are of the opinion that this is not a fit case for levy of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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