Income Tax Appellate Tribunal - Mumbai
Jain Builders (Vasai), Mumbai vs Assessee on 27 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "J", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.4706/M/2012
Assessment Year: 2006-07
M/s. Jain Builders (Vasai), ACIT 12(1),
221, Ishaq Manzil, Room No.117,
Vs.
Lamington Road, Aayakar Bhavan,
Mumbai - 400 007 M.K. Road,
PAN: AAEFJ6972G Mumbai - 400020
(Appellant) (Respondent)
Assessee by : Shri Ashok Patil, A.R.
Revenue by : Shri Jeevanlal Lavidiya, D.R.
Date of Hearing : 02.07.2014
Date of Pronouncement : 27.08.2014
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] confirming the penalty levied by the Assessing Officer (hereinafter referred to as the AO) u/s 271 (1 )(c) of the I T Act.
2. Briefly stated facts of the case are that the assessee is a partnership firm engaged in the business of Builders & Land Developers. During the assessment proceedings it was interalia observed by the AO that during the year, the assessee firm has sold a plot of land for Rs.1,25,00,000/-. Against the sale consideration, the expense claimed were cost of land at Rs. 30,62,154/-, Administration & Other Expenses of Rs. 28,80,209/- and Brought Forward expenditure not pertaining to the current financial year Rs.41,47,255/-. In all, an 2 ITA No.4706/M/2012 M/s. Jain Builders (Vasai) expenditure of Rs. 1,00,89,618/- had been claimed against the sale proceeds. The assessee was asked to show as to how the brought forward expenditure of Rs.41,47,255/- not pertaining to the year under consideration was admissible. At the same time, out of the Administrative & Other expenses, there was an accumulated claim of interest of Rs. 17,43,036/-. The majority of interest portion was not pertaining to the financial year under consideration. The assessee explained that it was maintaining its accounts on the cash basis and therefore all the expenses were debited to the current year's Profit & Loss account. It was also stated that such expenditure was allowable as assessee was following Project Completion Method. It was further stated that said expenses were debited to Profit & Loss a/c on year-to-year basis. The AO after considering the assessee's submissions observed that in Form No.3CD, col. No.11(a) the method of accounting was mentioned as 'Mercantile' and not 'Cash system of accounting' as was contended by the assessee. He further observed that in Tax Audit Report nowhere it was mentioned that assessee was following Project Completion Method for the computation of income/profit. Even in the past returns, nowhere it was stated that assessee following Project Completion Method as well as cash system of accounting for maintaining the books of accounts. The AO further observed that the interest on the loans borrowed had been paid from year to year with tax deducted at source. He further observed that in the return of income filed earlier to Assessment Year 2006-07, nowhere it was mentioned that expense incurred were being accumulated and shown as work-in- progress. The losses incurred on account of payment of interest on loans as well as other administrative & establishment expenses were never sought to be allowed to be carried forward. In view of the observations 3 ITA No.4706/M/2012 M/s. Jain Builders (Vasai) made by him, he held that the assessee-firm was keeping their books on mercantile basis and was also showing the income/losses from year to year and that it was not following Projects Completion Method. Therefore the AO interalia disallowed brought forwarded expenses of Rs.47,41,255/- and added back to the assessee's total income for the year under assessment. The penalty proceedings were also initiated.
3. In appeal against the assessment order (quantum appeal), the learned CIT(A) after considering the assessment orders for the Assessment Years 1989-90 and 1994-95 and the accounts of the assessee observed that in the present case, the assessee had purchased the plots long back and because of no construction activities, the expenses had been carried over and no income had been offered for taxation. The assessee had taken loan from number of persons and was paying interest thereupon which was debited to P&L account and transferred to balance sheet as "Work in progress". He further observed that though there was no specific finding given by the AO that the assessee followed the project completion method, yet, the AO had allowed the work in progress to be capitalized during the earlier assessment years. In none of the earlier assessment years, the AO had computed the income of the assessee under the percentage completion method. He therefore considering the position adopted by the AO in the earlier years and also in view of the fact that no profits had been shown in the earlier years, only expense had been shown as capitalized, which were mainly interest expenditure, directed the AO to compute the income on the basis of Project Completion Method.
4. In further appeal by the Revenue before this Tribunal, the Tribunal observed that since no construction activity had been carried out by the 4 ITA No.4706/M/2012 M/s. Jain Builders (Vasai) assessee after acquisition of land in the year 1987 and cost of land was treated by the assessee as stock-in-trade, hence the CIT(A) was not justified in holding that the income of the assessee was to be computed on the basis of the Project Completion Method. The order of the CIT(A) was thus set aside by the Tribunal and that of the AO was restored.
5. In penalty proceedings, the AO observed that in the instant case, the assessee had furnished inaccurate particulars of income and tried to get undue benefit. If an assessee falsely claims a deduction, it will amount to concealing the particulars of income or deliberately furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. She therefore levied penalty @100% of the of the amount of tax sought to be evaded at Rs.20,33,487/-.
6. In appeal against the penalty order before the ld. CIT(A), the ld. CIT(A) observed that in view of the fact that the ITAT had upheld the findings of the AO disallowing the claim of brought forwarded expenditure, it was clear that the assessee had made a wrong claim of brought forward expenses and thus had furnished inaccurate particulars of income, thereby concealing his income. He therefore upheld the levy of penalty by the AO in respect of the disallowance of brought forward expenses. The assessee is, thus, with the present appeal before us.
7. We have heard the rival contentions of the parties and also gone through the records. There is no doubt to the position that the disallowance of assessee's claim of brought forwarded expense by the AO, has been upheld by the Tribunal. However it is also a fact on the file that, as has been observed by the ld. CIT(A) in the quantum appeal proceedings, the AO had allowed the work in progress to be capitalized during the earlier assessment years. In none of the earlier assessment years, the AO had computed the 5 ITA No.4706/M/2012 M/s. Jain Builders (Vasai) income of the assessee under the percentage completion method. Under such circumstances, it cannot be said that the assessee's claim was not bonafide. The computation adopted by the assessee was according to one of the possible views/methods of accounting, which though was not accepted by the AO and further by the Tribunal, but was held to be justified by the ld. CIT(A) in quantum assessment/appellate proceedings. In our view, merely because the accounting method of the assessee was not accepted by the AO or that the claim of brought forwarded expenses was disallowed because of the peculiar fact that no construction activity could be carried out by the assessee during the past years, that itself, ipso facto, cannot be a ground in holding that the assessee had furnished inaccurate particulars of income or had concealed its income. Hence, we hold that it is not a fit case for levy of penalty and accordingly the penalty levied by the lower authorities is hereby set aside.
8. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the open court on 27.08.2014.
Sd/- Sd/-
(D. Karunakara Rao) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 27.08.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
6 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.