TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1149
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....n 25.8.2005 in the assessee's own case during which certain incriminating documents were seized. Subsequently, the case has been centralized and accordingly, the A.O. issued notices u/s 153A of the Act in response to which the assessee has filed the return of income admitting same income as in the original return filed. The cases have been taken up for scrutiny and the A.O. has completed assessment u/s 143(3) r.w.s. 153A of the Income Tax Act, 1961 (hereinafter called as 'the Act') and determined total income making certain additions. 3. Against the above, the assessee filed appeal before the CIT(A), who has granted certain relief, but has confirmed the addition relating to estimation of gross profit on MIMS project. The assessee has preferred further appeals before the ITAT. The ITAT, has upheld certain additions and has allowed relief in respect of certain additions and has also set aside the issue relating to undisclosed income in respect of MIMS project for all the 3 years to the A.O. to re-do the same as per certain workings given by the ITAT, after verification of the same with reference to details on record. The A.O. completed assessments as per the directions of the ITAT a....
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....od by taking into account the total gross profit earned from the project as a whole. The assessee further submitted that it had submitted bills in respect of the project to the contractee, however, the contractee has not accepted the bills because of variations in quality and quantity of work executed. As such, the certainity of realization of revenue from the project is not known at the time of finalization of accounts for the assessment year 2005-06 and accordingly, the assessee has not recognized an amount of Rs. 1,21,03,760/- either in the form of work in progress or contract receipts. But, the fact is that the assessee on its own declared the said receipt for the assessment year 2008-09 and 2010-11, therefore, it cannot be considered as willful concealment of particulars of income or furnishing inaccurate particulars of income which warrants levy of penalty u/s 271(1)(c) of the Act. 5. The A.O. after considering the explanations furnished by the assessee, held that as seen from the quantification made by the ITAT, there is an infallible finding by it that the assessee had income in the form of receipts from MIMS project which were not disclosed/admitted as required under the ....
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....2005-06, based on the assessee's own book results which resulted in additional undisclosed income of Rs. 1,21,03,760/-. The assessee further submitted that except preponement of recognition of income, there is no factual difference between gross receipts admitted by the assessee and income determined by the A.O., therefore, the A.O. was erred in holding that the assessee has concealed particulars of income which warrants levy of penalty u/s 271(1)(c) of the Act. To support his arguments, relied upon the decision of Hon'ble Supreme Court, in the case of CIT Vs. Realest Builders and Services Ltd. (2008) 307 ITR 202 and ITAT, decision in the case of ACIT Vs. Milap Textiles Ltd. (1994) 46 ITD 449. 7. The CIT(A) confirmed the levy of penalty u/s 271(1)(c) of the Act, by holding that the assessee has failed to offer any explanations with regard to the additional undisclosed income quantified by the A.O., consequent to the directions of ITAT. The CIT(A) further held that there is no merit in the contention of the assessee that the additions made by the A.O. is on estimation basis, as the A.O. has estimated the additions as per the directions of the ITAT, in turn the Hon'ble ITAT has foll....
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....s on estimation basis which cannot be considered as willful concealment of particulars of income so as to levy penalty u/s 271(1)(c) of the Act. The A.R. further submitted that the ITAT, has re-worked work in progress in the assessment year 2005-06, based on the assessee's own admission of contract receipts from MIMS project for the assessment year 2008-09 to 2010-11. The assessee has admitted contract receipts on actual receipt basis, however, ITAT has worked out work in progress on equitable gross profit distribution method by taking into account, the project as a whole which results in preponement of recognition of revenue for the assessment year 2003-04 to 2005-06, except this there is no factual difference in total contract receipts admitted by the assessee and determined by the A.O. The additions made by the A.O. is revenue neutral, because the A.O. himself has allowed deductions towards income admitted by the assessee for the assessment year 2008- 09 and 2010-11. This results in preponement of recognition of income for the earlier period, however, there is no additional revenue declared, as such the A.O. was not correct in holding that the assessee has willfully concealed pa....
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....hat it has not recognized the correct work in progress for the assessment year 2005-06, because there was an uncertainty in realization of revenue because of dispute between the assessee and the contractee in respect of quality and quantity of work executed. The assessee further submitted that the contractee has not accepted the bill raised by the assessee, because of some disputes which were resolved in the subsequent years and accordingly the assessee has recognized the revenue in the assessment year 2008-09 and 2010-11 on actual receipt basis. The ITAT has reworked work in progress based on the assessee's own admission of revenue from the MIMS project for the assessment year 2008-09 and 2010-11, which resulted in preponement of recognition of revenue for the earlier period. Except this, there is no factual difference between total contract receipt from the project and gross profit determined by the A.O. The assessee further contended that the A.O. has allowed deduction towards income admitted by the assessee for the assessment year 2008-09 and 2010-11, because of which the entire exercise becomes revenue neutral as there is no difference between the income finally assessed by th....
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....AT, the A.O. was not correct in coming to the conclusion that the assessee has concealed particulars of his income which warrants levy of penalty u/s 271(1)(c) of the Act. 13. The question whether there was a reasonable cause for which the requirement of concerned provisions of section could not be complied with is primarily an essential question of fact and it has to be decided in each case on consideration of materials placed before the concerned authority. The levy of penalty u/s 271(1)(c) of the Act is not automatic. Before levy of penalty, the concerned authority is required to find out that any valuation referred to in the said provisions is without a reasonable cause. The initial burden is on the assessee to show that there exist a reasonable cause which was the reason for the failure referred to in the concerned provisions of the Act, therefore, the A.O. dealing with the matter is to consider whether the explanations offered by the assessee or the person as the case may be is reasonable and as regards the reason was on account of reasonable cause. In the present case on hand, on perusal of the facts available on record, we find that the assessee has not recognized the work....
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.... of accounting followed by the assessee results in under-estimation of the profits/net income. Though reasoning of the High Court was not valid, since the Department has not gone into the above vital aspect regarding method of accounting under s. 145, there is no reason to interfere with the impugned judgment. The High Court has proceeded on the basis of 'rule of consistency'. The view taken by the High Court on that count is not acceptable. In cases where the Department wants to tax an assessee on the ground of the liability arising in a particular year, it should always ascertain the method of accounting followed by the assessee in the past and whether change in method of accounting was warranted on the ground that profit is being under-estimated under the impugned method of accounting. If the AO comes to the conclusion that there is underestimation of profits, he must give facts and figures in that regard and demonstrate to the Court that the impugned method of accounting adopted by the assessee results in underestimation of profits and is therefore rejected. Otherwise, the presumption would be that the entire exercise is revenue neutral. In this case, that exercise has ....
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....e on the basis of its books of accounts in which no specific defects could be pointed out, the imposition of penalty under s. 271(1)(c) was not justified. Penalty u/s 271(1)(c) r/w Expln. 1(B) was not justified where Tribunal restored a part of addition on estimate basis." 16. Considering the facts and circumstances of the case and also following the ratios of the case laws discussed above, we are of the view that the A.O. was not correct in coming to the conclusion that the assessee has concealed particulars of his income or furnished inaccurate particulars of income, as the undisclosed income determined by the A.O. based on the directions of the ITAT is on estimation basis. The ITAT has estimated the work in progress for the assessment year 2005-06 and re-apportioned the gross profit on equitable gross profit distribution method based on the assessee's own book results. There is no factual difference in contract receipt admitted by the assessee and contract receipt determined by the A.O. from the MIMS project. Except preponement of recognition of revenue, there is no difference in income admitted by the assessee from the MIMS project, therefore, we are of the view that the A.O.....