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TMI Blog2016 (11) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04 to 2005-06. - I.T.A. Nos. 640,641 & 642/Vizag/2014 - - - Dated:- 22-9-2016 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member Appellant by : Shri I. Kamasastry, AR Respondent by : Shri Aravindakshan, DR ORDER Per G. Manjunatha, Accountant Member These appeals filed by the assessee are directed against the common order of the CIT(A), Visakhapatnam dated 28.10.2014 for the assessment year 2003-04, 2004-05 2005-06. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed off, by way of this common order for the sake of convenience. 2. The brief facts of the case are that the assessee is an individual engaged in the business of civil construction works in the name and style of M/s. HNR Constructions, filed his return of income for the assessment years 2003-04, 2004-05 2005-06 on 1.12.2003, 1.11.2004 31.3.2006 respectively declaring a total income of ₹ 28,38,780/-, ₹ 25,49,300/- and ₹ 8,52,510/- respectively. A search and seizure operation was conducted on 25.8.2005 in the assessee s own case during which certain incriminating documents were seized. Subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated basis and hence, no penalty is leviable u/s 271(1)(c) of the Act, for concealment of particulars of income. It was further contended that the gross profit determined by the ITAT was for a period of 4 years and which was allowed as deduction in the assessment year 2008-09 and 2010-11 which had resulted in the entire exercise becoming revenue neutral and as such penalty is not leviable. The assessee further submitted that the ITAT, has re-worked the gross profit based on the assessee s own admission of income from MIMS project for the assessment year 2008-09 2010-11 and the gross profit determined by the ITAT is equal to the amount disclosed by the assessee in those two assessment years. Except this, there is no factual difference in total contract receipts received from MIMS project and gross profit declared by the assessee, however, the only difference is the assessee has disclosed the said receipt on actual receipt basis in the year of receipts, but the ITAT has pre-poned the recognition of revenue for the assessment year 2003-04 to 2005-06 on the basis of equalized gross profit distribution method by taking into account the total gross profit earned from the project as a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. further observed that as regards question of estimation of income and levy of penalty, it is stated that penalty is leviable even when an addition is made on estimation basis. With these observations, levied penalty of an amount equal to 100% of tax sought to be evaded under the provisions of section 271(1)(c) of the Act for the assessment years 2003-04 to 2005-06. 6. Aggrieved by the penalty orders, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee further submitted that the additions made by the A.O., towards difference in gross profit from MIMS project is on estimation basis and the ITAT has determined work in progress for the assessment year 2005-06, based on assessee s own disclosure of contract receipts for the assessment year 2008-09 2010-11. The assessee further submitted that the ITAT has re-worked gross profit by following the method of equitable gross profit distribution by taking into account the gross profit from the project as a whole and distributed equally for the assessment years 2003-04 to 2005-06, based on the assessee s own book results which resulted in add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has not disclosed true and correct particulars of his income, therefore, the A.O. was right in holding that the assessee has concealed particulars of income and furnished inaccurate particulars of his income. With these observations, confirmed the levy of penalty u/s 271(1)(c) of the Act. Aggrieved by the CIT(A) order the assessee is in appeal before us. 8. The assessee has raised common grounds for 3 assessment years. From these grounds of appeal, the assessee has challenged the validity of penalty proceedings, by stating that the initiation of penalty proceedings is not as per law, therefore, the entire penalty proceedings are vitiated and bad in law, as the A.O. has not arrived at a satisfaction to allege that whether the assessee has concealed particulars of his income or furnished inaccurate particulars of his income. In addition to legality of the issue, the assessee has contended the issues on merit. The A.R. for the assessee submitted that the CIT(A) was erred in confirmed the levy of penalty u/s 271(1)(c) of the Act, as the additions made by the A.O. towards difference in gross profit from MIMS project is on estimation basis which cannot be considered as willful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and furnished inaccurate particulars of income. The A.O. was of the opinion that the assessee has not disclosed true and correct income from the MIMS project on accrual basis, even though he had followed mercantile system of accounting. The A.O. further was of the opinion that the ITAT has determined undisclosed income based on equitable gross profit distribution method which resulted in additional undisclosed income over and above income disclosed by the assessee from the MIMS project. Though the ITAT has determined gross profit on estimation basis, the methodology followed by the ITAT to distribute the gross profit evenly for the assessment years 2003-04 to 2005-06 is based on a method suggested by the accounting standard 7 issued by the ICAI. As per the accounting standard 7, the assessee has to recognize the revenue on percentage completion method, whether or not the bills are raised for the particular period. In the present case on hand, the assessee deliberately postponed recognition of revenue, therefore opined that it is a fit case for levy of penalty u/s 271(1)(c) of the Act. 11. It is the contention of the assessee that it has not recognized the correct work in pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod, whether or not, the revenue is received from the project. Though there is a difference in income admitted by the assessee from the MIMS project for the assessment years 2003-04 to 2005-06, the net effect of additions made by the A.O. towards difference in gross profit is revenue neutralized, because the assessee has admitted same amount of income of ₹ 1,21,03,760/- for the assessment years 2008-09 and 2010-11. Therefore, we are of the view that the A.O. was not correct in holding that assessee has willfully concealed particulars of his income or furnished inaccurate particulars of income. We further noticed that there is no factual difference in gross receipts and income determined by the A.O., when compared to the books of accounts of the assessee. The only difference is that the assessee has recognized revenue on actual receipt basis, whereas the A.O. has worked out revenue on percentage completion method which resulted in preponement of revenue for these assessment years. Since there is no difference in the contractual work receipts recognized by the assessee and the contractual work receipts worked out by the A.O. as well as the ITAT, the A.O. was not correct in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the assessee has concealed particulars of his income or furnished inaccurate particulars of income inspite of the fact that the assessee has explained the reasons for not disclosing the work in progress for the assessment year 2005-06. 14. It is pertinent to discuss the case laws relied upon by the assessee. The assessee relied upon the decision of Hon ble Supreme Court, in the case of Realest Builders and Services Ltd. (2008) 307 ITR 202. The Hon ble Supreme Court, under similar circumstances held that when the whole exercise is revenue neutral, the addition itself cannot be sustained, hence levy of penalty on additions made on estimation basis cannot sustain in the eyes of law. The relevant portion of the order is extracted below: Under s. 145, it is always open to the Department to insist on the change in the method of accounting followed by the assessee over the years (which is the case here/n) if the impugned method of accounting results in under-estimation of profits/net income. In this case, no allegation of that nature was ever made by the Department. In fact, the assessment order also does not indicate whether the impugned method of accounting followed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loss suffered by the assessee in the floods. Thus while the Tribunal has held in the quantum appeal that the assessee has not been able to fully prove the extent of loss in the floods, it cannot be said that the Tribunal has held that the claim of loss in floods was false. In fact, the Tribunal has accounted that since the factory of the assessee was located near the bed of the river, it did suffer a loss on account of sudden and unexpected floods, but how much was the loss is question of estimate. Taking all these facts into account, in this case the assessee has been able to give a reasonable explanation for fall in its profits as compared to last year and although tha explanation was not fully accepted by the Tribunal, the very fact that the CIT(A) had accepted I and even the Tribunal has restored only partial additions would mean that the explanation giver by the assessee was a plausible and bona fide explanation and, hence, the CIT(A) was justified in taking the view that where an addition has been restored even by the Tribunal on an estimated basis and the assessee has given a plausible and bona fide explanation for its having filed a return of income on the basis of its bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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