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TMI Blog2019 (5) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... fect u/s 292B - as alleged notice is stereo typed printed notice in which either of the clauses as to whether penalty was invoked for furnishing of inaccurate particulars of income or for concealment of income was not struck off - HELD THAT:- The assessee did not raise this legal ground before the learned CIT(A) and also before us, no such specific ground of appeal was taken in memo of appeal filed with tribunal nor any additional ground of appeal was taken challenging levy of penalty u/s 271(1)(c) on legal grounds. However , arguments were advanced by both the parties on legal ground. Thus, keeping in view the relevance and importance of the challenge on legal grounds as to defect in notice u/s 271(1)(c) r.w.s 274 which goes to the root of the matter , we have considered it appropriate and proper to adjudicate this issue in the interest of substantial justice. No prejudice caused to the assessee by non striking of the offences in the notice dated 28.12.2011 issued by the AO u/s 271(1)(c) r.w.s 274, keeping in view factual matrix of the case as discussed above. In our considered view decision of Hon ble Bombay High Court in the case of CIT v. Smt. Kaushalaya [ 1995 (1) TMI 25 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 - - - Dated:- 30-4-2019 - Shri Mahavir Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri Prakash Pandit For the Revenue : Shri D.G. Pansari (DR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 2647/Mum/2017, is directed against appellate order dated 09.02.2017, passed by learned Commissioner of Income-Tax(Appeal)-26, Mumbai (hereinafter called the CIT(A) ) , the appellate proceedings before learned CIT(A) has arisen from the penalty order dated 12.03.2014 passed by learned Assessing Officer (hereinafter called the AO ) u/s. 271(1)(c) of the Income-tax Act,1961(hereinafter called the Act ), for assessment year(AY) 2009-10. 2. The grounds of appeal raised by assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. In the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the penalty levied by the A.O. on long term capital gain ₹ 40,79,195/- and on income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for taxation on 27 flats which were been constructed by the assessee in Project Carmel at Kamothe, Raigad District , Maharashtra on plot of land bearing no. 12 , Sector-6, Kamothe , Raigad District , Maharashtra. The aforesaid plot of land was purchased by the assessee in AY 2006-07 and construction on the said plot started in AY 2007-08 and stated to be completed in financial year 2009-10. The AO made additions to the income of the assessee of ₹ 77,99,076/- during the impugned assessment year in quantum on the ground that aforesaid income from said project was not offered for taxation by the assessee in the return of income filed with Revenue. The assessee had claimed that it is following percentage completion method of accounting for accounting revenue by following Accounting Standard AS-7 and AS-9 issued by ICAI with respect to said project and the income was offered for taxation in three years, viz. A.Y.(s) 2008-09, 2009-10 and 2010-11 and due taxes were paid to the Revenue on all these 27 flats being constructed in the Project Carmel at Kamothe. The tribunal in quantum accepted the percentage completion method followed by the assessee and offering to tax of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar i.e. 2008-09 and details furnished to the Revenue during the assessment proceedings. The assessee has submitted that merely by receiving occupation certificate on 30/03/2009 , does not by itself mean that the project is complete as there are several other work which are done post receipt of this occupancy certificate dated 30-03-2009, such as applying for electrical connection, water connection, drainage connection etc and also finishing work is to be done in these flats to complete construction of these flats, as also there are other relevant factors to be kept in mind to book revenue as per percentage completion method apart from the occupancy certificate. Thus, the assessee had submitted that he acted bonafidely and voluntarily offered to tax the entire income of the Project Carmel with respect to all 27 flats so constructed spread in three financial years namely 2007-08, 2008-09 and 2009-10 and paid due taxes to the Revenue in these three year of his own volition by following percentage completion method as the project is completed in the financial year 2009-10 and not in the financial year 2008-09 as contended by the Revenue when the occupation certificate was received. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2008-09, 2009-10 and 2010-11. In case the contention of the assessee is found to be correct that the entire profit of this Project Carmel with respect to all 27 flats so constructed is duly offered for taxation in these three years and the entire due taxes thereon are paid to the Revenue, then the addition so made of ₹ 77,99,076/- by the Revenue in the impugned assessment year by the AO and as confirmed by the CIT(A) will stand deleted as in our considered view, then no prejudice is said to be caused to the Revenue as revenue impact is tax neutral and the Revenue would have got all its due taxes on this Project Carmel albeit in three assessment year i.e. 2008- 09,2009-10 and 2010-11. Our view is consistent with the decision of Hon ble Supreme Court in the case of CIT v. Realest Builders and Services Limited(supra). We order accordingly. 4.5 The AO had in the meantime levied penalty u/s. 271(1)(c) of the 1961 Act on the said addition of ₹ 77,99,056/- to the income of the assessee in quantum, vide penalty orders dated 12.03.2014 passed u/s 271(1)(c) of the 1961 Act. The learned CIT(A) accepted the contentions of the assessee in the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as cash gift on the marriage of son of the assessee. Since in quantum the assessee could not offer plausible explanation as to cash deposit of ₹ 3,00,000/- in bank account ,the learned CIT(A) was pleased to confirm the addition of ₹ 3,00,000/-. The assessee did not raise this issue before the Tribunal in appeal in ITA no. 199/Mum/2013 for AY 2009-10 against quantum assessment , which appeal was decided by tribunal vide orders dated 18.05.2016 and thus the said addition of ₹ 3,00,000/- being cash deposited in bank attained finality so far as quantum addition is confirmed. The assessee in penalty proceedings u/s 271(1)(c) also could not offer any plausible explanation before the A.O. as well as before the learned CIT(A) and only bald statements were made as to receipt of ₹ 3,00,000/- as cash gifts on the occasion of marriage of son but however no details/evidences whatsoever was given with respect to these cash gifts of ₹ 3,00,000/- received on the occasion of marriage of son. This cash gifts were stated to be deposited in bank. Even before us, the assessee has not offered any explanation supported by evidences as to receipt of cash gifts of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r evidence/details are forthcoming from the assessee. The learned DR has strongly argued for confirming the penalty levied by the AO u/s 271(1)(c) on merits of the issue which was later confirmed by learned CIT(A). We donot find any reasons to believe the contentions of the assessee that the said sum was received on the occasion of marriage of son of the assessee as there is no evidence before us to accept this explanation and we have no hesitation in rejecting the same as it is not supported by any evidence whatsoever. Thus, so far as merit of the issue is concerned , we hereby confirm penalty as levied by the AO u/s 271(1)(c) of the 1961 Act on the cash deposit of ₹ 3,00,000/- in bank account, which stood later confirmed by learned CIT(A). We order accordingly. 4.7 The assessee has also challenged before the Bench while advancing arguments as to levy of penalty u/s 271(1)(c) on the said cash deposit of ₹ 3,00,000/- in bank account on the legal grounds that the notice dated 28.12.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act is stereo typed printed notice in which either of the clauses as to whether penalty was invoked for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no occasion for the AO to struck off either of the limbs of Section 271(1)(c) in the penalty notice of even dated viz. 28.12.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act. The assessee was fully aware of the charge which it had to meet within penalty provisions as are contained in Section 271(1)(c) and the assessee duly participated in the penalty proceedings conducted by the AO u/s 271(1)(c) and submitted detailed explanations. It cannot be said that the AO levied penalty u/s 271(1)(c) for one limb while notice was issued for another limb of Section 271(1)(c) . Thus, with due respect decision of Hon ble Bombay High Court in the case of CIT v. Samson Perinchery (2017) 392 ITR 4(Bombay) is not applicable to the factual matrix of the case. There may be situations which may warrant levy of penalty on both the counts. Even decision of Hon ble Karnataka High Court in the case of CIT v. Manjunath Cotton Ginning Factory(2013) 359 ITR 565(Karnataka) held that there could be situations which may warrant levy of penalty u/s 271(1)(c) of the 1961 Act for both the offences as are stipulated under Section 271(1)(c), vide para 60 wherein Hon ble High Court he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to additions made to the income of the assessee in quantum on account of capital gains on sale of depreciable assets. The assessee has claimed to have sold factory premises at Nerul for a total consideration of ₹ 1,16,00,000/- . The said factory premises was claimed to be depreciable asset existing in one of his proprietary concern , M/s Vicky Electrical Corporation . The assessee reported short term capital gains of ₹ 33,14,640/- on sale of said factory premises. The assessee did not offer said short term capital gains to tax and claimed that it has acquired three shops for ₹ 53,00,000/- and the block of asset did not cease to exist and hence it was claimed that there is no liability to pay tax. The closing WDV as on 31.03.2009 was shown at ₹ 19,85,359/- . The assessee claimed that it acquired three shops from its proprietary concern M/s E.V.Homes in the project E.V.Regency for which it made payments and it was claimed that these shops were not acquired through a book entry. The assessee explained that he was under a bonafide belief that the investment is made in the same block of assets and the said new additions by way of three shops will be add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, which detailed in this architect certificate dated 10-09-2007 the extensive repair and modification work required in the factory building to avoid the building from collapsing. The architect has also certified that the beams and columns have developed cracks and water is seeping into the interiors of the building. The architect has also certified that the reinforcements are damaged severely. This architect certificate dated 10-09-2007 and the MOU dated 03-09-2007 are certified by the assessee in the paper book certificate that these documents were duly placed before the learned AO and the learned CIT(A) during the course of relevant proceedings before these authorities. The assessee has incurred these expenses for the extensive structural repairs and modifications in the factory building apart from repairs to the compound wall and leveling of plot, for which the assessee submitted the details/documents including invoices regarding the material cost and labour charges etc. incurred for these extensive structural repairs and modifications towards the factory building apart from repairs to the compound wall and leveling of plot, in terms of the MOU dated 03-09-2007. The payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k to the factory building prior to its sale, nor the statement of the buyer of the afore-stated property was recorded. No technical expert such as DVO was appointed by the Revenue to enquire about the extensive structural repairs and modification claimed to be carried on by the assessee to disprove and demolish the contentions of the assessee . No enquiry was even made with the office of the municipal authorities to ascertain the status of construction and structural repairs and modification of the factory building , if any carried on by the assessee in the impugned assessment year to disprove the contentions of the assessee. The case of the Revenue is based on the non-existence of two parties at the given addresses vide inspector report, which is not sufficient enough to come to the conclusion that the entire theory of extensive structural repair and modification of the factory building as brought out by the assessee is a farce , in-fact the reliance by the Revenue on the inspector report without conducting further probe to conclusively disprove and demolish the contentions of the assessee, has led the revenue conclusions fall into the realm of conjectures and surmises on suspicio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for dispatch of material and rendering of labour services. The payments for these invoices are stated to be made by account payee cheques and tax was also deducted at source on these invoices where-ever applicable as per provisions of Chapter XVII-B of the Act. These cogent material brought on record by the assessee backed with the chain of events starting from signing of MOU dated 03-09-2007 and ending with deed of assignment dated 20-01-2009 , which comprised agreement to sell land and factory building for ₹ 1.16 crores vide MOU dated 03-09-2007 with conditions agreed by the assessee to make the factory building fit and usable as the building required extensive structural repairing and modification to suit the buyers requirement, architect certificate dated 10-09-2007 pointing out deficiencies in the factory building structure to avoid the collapsing of building, invoices for material and labour expenses incurred by the assessee towards extensive repairs and modification to the factory building during the period April November 2008 , payments of these invoices by account payee cheque s, deduction of tax at source on these payments where-ever applicable under Chapter XV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper book page 92-111, we have observed that the same totaled to ₹ 38,18,517/-( excluding one invoice which is placed twice at page 100 and101 being Ritesh Transport of ₹ 92,192/- bearing number 385 dated 31/05/2008) ) against the expenses of ₹ 48,22,390/- claimed by the assessee, to that extent , we are directing the AO to undertake limited verification before allowing the claim of the assessee after satisfying that complete invoices of ₹ 48,22,390/-backed with account payee cheque payments as claimed by the assessee are on record with the Revenue duly reconciled to protect the interest of Revenue. We direct accordingly. 4.9 Thus, with the allowability of additions of ₹ 48,22,390/- to the improvement of the factory building, the assessee s block of asset has substantial gone up while the short term capital gain of ₹ 3,41,380/- on which penalty was levied by the AO was reduced to Nil . However, there will be long term capital gains chargeable to tax of ₹ 40,79,195/-, which admittedly was not offered for tax arising on the sale of land underneath the factory building in the return of income filed by the assesee with Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g capital gains chargeable to tax in filing its return of income with Revenue. It is claimed that if the computation of capital gains as was done by the AO between short term capital gain on factory building and long term capital gain on land component is sustained then in that situation , the assessee w.d.v. of the Block of the depreciable assets being Building will go up than the wdv of the Block of Asset being Building adopted by the assessee on which depreciation was claimed since AY 2010-11 onwards till AY 2016-17 and hence the assessee will be entitled for claiming higher depreciation in the years to come post impugned assessment year on the higher w.d.v. of the Block of Asset of depreciable assets being Building. It was explained that the assessee was allotted land by CIDCO on leasehold basis for which lease premium was paid by the assessee. It was explained that the assessee is not the owner of said leasehold land allotted by CIDCO and CIDCO continued to be the owner of the said land. It was explained that the assessee constructed factory building on the said leasehold land. It was explained that the assessee had recorded in its books of accounts both the leased hold land a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 66,59,973/- Less: Indexed cost of the land (17,04,998 x 582/389) ₹ 25,80,778/- Long Term Capital Gain ₹ 40,79,195/- WDV of the factory as on 1/04/2008 ₹ 17,57,972/- Add: Improvement to the structure ₹ 48,22,390/- ₹ 65,80,362/- Less: Sale consideration being the Proportionate cost of the building (1,16,00,000-66,59,973) ₹ 49,40,027/- ₹ 16,40,335/- Add: Transfer of shops as a capital Asset from E.V. Homes ₹ 53,00,000/- WDV to be carried forward ₹ 69,40,335/- After CIT(A)-26, Mumbai order assessee s block of assets on which penalty is levied will look as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled for depreciation on 44,81,008/- Therefore it is submitted that the assessee has disclosed all the details of his income including the fact of sale of factory for a consideration. Depreciation was claimed by treating the asset as depreciable asset on the footing that depreciable asset merges with the lease premium and the assessee is not a owner of the land. Calculation made by the A. O. in respect of short term capital gain on sale of depreciable asset was rejected by the CIT(A) and the alternate submission of the assessee of bifurcation of consideration received on sale of the lease component treating part of the transaction as long term capital gain was accepted by the CIT(A) and ITAT has also modified the order of the CIT(A) by confirming assessees action that there was improvement to the structure. Therefore the penalty levied by the A.O. is on the issue which is not free from debate because the long capital gain is calculated on an asset which is not owned by the assessee and in view of the alternate submission after ITAT order WDV has increased which has entitled the assessee to claim higher depreciation (pl be noted that the assessee till this date has not claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r computing capital gains chargeable to tax . This is completely an erroneous action on the part of the assessee who is supported by a qualified chartered accountant and whose accounts are audited to treat land as part of block of asset viz. building and is against the basic fundamentals of the accounting as the land could not be a depreciable asset which could form part of the Block of Asset viz Building. The Revenue on its part did not get the Revenue which it was legitimately entitled to on long term gains arising on sale of land component by the erroneous accounting done by the assessee. We have also observed that this land and factory building was rented out by the assessee in financial year ending 31.03.2008 and no depreciation was claimed for AY 2008-09(pb/page 49 and 68) . The decision of Hon ble Delhi High Court in the case of CIT v. N.G.Technologies Limited reported in (2015) 370 ITR 7(Delhi) is relevant and applicable, wherein Hon ble Delhi High Court held as under: 16. We have examined the aforesaid reasoning but are unable to accept the said finding. All claims or deductions wrongly made cannot be treated as bona fide and protected by Explanation 1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary and ineffective and would fail to, check and stop fanciful and incredible claims. It is noticeable that most of the income-tax returns are accepted without scrutiny or regular assessment and self-compliance of tax provisions is a rule required to be followed. The view, which we have taken, is in consonance with the ratio expounded in Reliance Petroproducts (P.) Ltd. (supra). 19. The second aspect, which arises for consideration, is whether the revised return was filed voluntarily and before the notice of the inaccurate particulars by the Assessing Officer. The factum of filing a revised return to rectify an earlier mistake is an important and relevant factor to determine whether the conduct of the assessee was bona fide. The Tribunal, in the impugned order, has held that the revised return was filed before any specific query was raised by the Assessing Officer. The Tribunal at the same time observed that the Assessing Officer had directed the assessee to file tax audit report, depreciation chart, details of all exemptions and deductions as well as details of addition to fixed assets but no question had been raised about deduction in respect of the assets. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,44,380 in the original return. 20. Therefore, it is clear to us that the assessee had not filed revised return voluntarily but had filed the revised return after the Assessing Officer confronted the assessee and they were asked to explain how and why the loss on account of sale of fixed assets was claimed in the profit and loss account. The said loss, capital in nature and could not have been claimed in the profit and loss account. 21. In view of the aforesaid discussion, we answer the substantial question of law in favour of the Revenue and against the respondent-assessee. We uphold levy of penalty by the Assessing Officer under section 271(1)(c) of the Act. The appeal is disposed of. No costs. We are of the view that explanation offered by the assessee cannot be considered to be a bonafide and it will not take the assessee out of clutches of penalty provisions as are contained in Section 271(1)(c) of the 1961 Act read with Explanation 1 to Section 271(1)(c) of the 1961 Act. Thus, on merits of the issue, we are of the considered view that the authorities below has rightly levied the penalty by invoking provisions of Section 271(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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