TaxTMI 
TaxTMI 
2017 (11) TMI 1603
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner of Income Tax (Appeals) erred in confirming penalty of Rs. 5,24,37,851/- u/s. 271(1)(c) of the Income Tax Act, 1961 levied by the Assessing Officer. Your appellants submit that the said penalty is not leviable and not ought to be levied. Your appellants submit that the said penalty ought to be quashed. 2) Your appellants further reserve the rights to add, amend or alter the aforesaid grounds of appeal as they may think fit by themselves or by their representatives." 3. The brief facts of the case are that the assessee is engaged in the business of property developments. The assessee company is one of the three Special Purpose Vehicles(SPV) which are engaged in the business of real estate development entrusted with the task of re-construction of the company M/s. Hindoostan Spinning & Weaving Mills Ltd. as per the rehabilitation scheme dated 01.04.2004 sanctioned by Board of Industrial and Financial Reconstruction(BIFR). As per the scheme of the said arrangement approved by BIFR, Mahalaxmi Property of M/s. Hindoostan Spinning & Weaving Mills Ltd. has been assigned to the assessee for development and liabilities equivalent to the transferred value of the assets were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted during the year under consideration and the assessee was following Project Completion method. The AO however allowed the said expenses to be carried forward to Real Estate Development Work-in-Progress Account which shall be allowed in the year in which project is completed by the assessee. The A.O invoked provisions of Section 271(1)(c) for assessee having furnished inaccurate particulars of income and concealing particulars of income. During the course of penalty proceedings u/s 271(1)(c), the assessee was asked to explain why the penalty should not be levied u/s. 271(1)(c) and the assessee in nutshell submitted as under: "i) There is no doubt as regards the genuineness of the claim of expenses made by the assessee though there is difference of opinion as regards the period in which the expenses incurred by the assessee should be allowed. ii) Reliance was placed on the unreported decision of the Mumbai Bench of the Income Tax Appellate Tribunal in the case of Akshay Software Technologies Limited Vs. ACIT in ITA No.6331/Mum/2005 wherein it has been held that where a claim of the assessee is rejected merely on technical ground that the expenditure is allowab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rival contentions carefully. The assessee is a developer who was executing a property development project and method of accounting followed was project completion method. The assessee had however claimed expenses amounting to Rs. 33,11,617/- consisting interest of Rs. 25,22,797/- and other day to day expenses in the profit and loss account. This has been disallowed by the AO on the ground that the expenditure could be claimed only in the year of completion. The disallowance had been accepted by the assessee. However the AO had also imposed penalty under section 271(1)(c) @ 200% of tax sought to be evaded which in appeal was reduced to 100% of tax sought to be evaded. The issue is whether on the facts of the case penalty under section 271(1)(c) can be levied. 6.1 A penalty under section 271(1)(c) is only a civil liability as held by the Hon'ble Supreme Court in case of Dharmendra Textiles and Processors (supra) and willful concealment is not required to be proved by the revenue. However each and every addition in the assessment cannot automatically lead to penalty under section 271(1)(c). A case for penalty has to be evaluated in terms of the Explanation 1 to section 271(1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the penalty by holding as under: "6. In the aforesaid background, we have perused the decision of our coordinate Bench in the case of M/s. Chaitra Realty Ltd. (supra), which is a sister concern of the assessee and is also one of the three SPVs (apart from the assessee) which has been tasked with the implementation of the rehabilitation scheme dated 1.4.2004 sanctioned by the BIFR in the case of 'The Hindoostan Spinning & Weaving Mills Ltd.'. In the case of M/s. Chaitra Realty Ltd. also, similar additions were made and penalty was imposed u/s 271(1)(c) of the Act. In fact, in the impugned order passed by the Assessing Officer levying the penalty, a reference has also been made to the penalty imposed by him in the case of M/s. Chaitra Realty Ltd. In the case of M/s. Chaitra Realty Ltd. (supra), the Tribunal deleted the penalty by making the following discussion :- "6. We have perused the records and considered the rival contentions carefully. The assessee is a developer who was executing a property development project and method of accounting followed was project completion method. The assessee had however claimed expenses amounting to Rs. 33,11,617/- consisting i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in that case all the expenses could have been allowed. Considering the entirety of facts and circumstances, in our view, explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. Accordingly we set aside the order of CIT(A) and delete the penalty levied." 7. Following the aforesaid precedent, which has been rendered under identical circumstances, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the penalty imposed u/s 271(1)(c) of the Act. 8. In the result, appeal of assessee is allowed." It was explained before us by the Ld. Counsel for the assessee that the both the above parties M/s. Bhishma Reality Limited and Chaitra Reality Ltd. were SPV's set up as per the rehabilitation sanctioned by BIFR in the case of M/s. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at assessee has accepted the A.O assessment order u/s 143(3) which was not challenged before learned CIT(A) as in any case these expenses shall be allowed to the assessee in the year when project is completed because the assessee is following project completion method. It was submitted by learned counsel for the assessee that the claim of the assessee was wrong as the assessee should have claimed the said expenses in which the project stood completed but it was not a false/bogus claim as even admitted by the A.O. The learned counsel for the assessee relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts P Ltd. (2010) 322 ITR 158(SC). Our attention was also drawn to audited financial statements for FY 2012-13, the year in which this project got completed and the assessee has declared revenue from this project to the tune of Rs. 357.35 crores from sale of flats in its books of accounts and declared a profit on this project. Ld. CIT-DR on the other hand submitted that assessee has claimed loss of Rs. 14.54 crores in the return of income filed with the revenue . Our attention was drawn by learned CIT-DR to page no. 32-44 of the paper book wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the said loss wherein addition of 14,44,31,840/- in the assessment order was made, to be allowed to be carried to Real Estate Development Work-in-Progress Account in an assessment framed by the AO u/s 143(3). Further, there was a claim of depreciation of Rs. 1,20,090/- in respect of the vehicles transferred from M/s. Hindoostan Spinning & Weaving Mills Ltd. as per the agreement which should have formed part of the work in progress which was also added to the income by the A.O. in an assessment framed by the AO u/s 143(3). Further, assessee has incurred expenses of Rs. 16,44,673/-, the detail of which are hereunder:- Printing & Stationery Rs. 33,062/- Bank Charges/Commission Rs. 85,627/- Electricity Charges Rs. 23,700/- Rates & Taxes Rs. 5,78,346/- Post & Courier Charges Rs. 76,455/- Security Charges Rs. 29,974/- Traveling Expenses Rs. 8,431/- Trusteeship Fees Rs. 54,000/- Sundry Expenses Rs. 68,296/- Interest on others Rs. 6,35,386/- Depreciation Rs. 51,396/- Total - Rs.16,44,673/- The aforesaid expenses were debited to the Profit and Loss Account which were disallowed by the A.O as the real esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year under consideration rather the same ought to have been debited to Real Estate Development WIP which would have been carried forward and set off against revenue in the year when project stood completed. In-fact, the assessee by claiming business losses in the impugned year has put itself in to the disadvantageous position as the business losses are allowed to be carried forward only for eight years and in case project stood completed after eight years, the assessee will not get benefit of set off of business loss while if the assessee would have debited the said expenses to Real Estate Development WIP, then it could have carried forward the said WIP indefinitely till the project stood completed which could have been set off in the year when the project stood completed even if it is beyond eight years.Thus, there could not be any advantage to the assessee in claiming business losses/expenses in the year under consideration and it was a bonafide belief which led assessee to claim those expenses in the instant year which was later suo motu voluntarily rectified by the assessee itself. Thus, no malafide or an intent to defraud Revenue can be attributed to the assessee but it is a c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t such expenses were allowable from year to year basis. We also note that allowability of expenses such as interest etc on year to year basis or in the year of completion of project has been a debatable issue. There have been contrary decisions of the various benches of the tribunal. The special bench of the tribunal in case of Wall Street Construction Pvt. Ltd. Vs JCIT (supra) had rendered decision only vide order dated 22.9.2005 in which it was held that the interest has to be allowed in the year of completion of the project. The said decision it has been pointed out was published in the ITD only in the year 2006. Moreover the decision of the special bench has been disputed before the High Court where the appeal is pending. Under such circumstances in our view it is possible to form a bonafide belief on the date of filing return of income i.e. on 31.10.2005 that the expenses could be allowed from year to year basis. The Learned AR has also submitted that the assessee had no other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther on the facts of the case penalty under section 271(1)(c) can be levied. 6.1 A penalty under section 271(1)(c) is only a civil liability as held by the Hon'ble Supreme Court in case of Dharmendra Textiles and Processors (supra) and willful concealment is not required to be proved by the revenue. However each and every addition in the assessment cannot automatically lead to penalty under section 271(1)(c). A case for penalty has to be evaluated in terms of the Explanation 1 to section 271(1)(c) as per which in case of any addition made in assessment even if the assessee is not able to substantiate the explanation but is able to prove that the explanation is bonafide and all necessary details have been submitted penalty under section 271(1)(c) cannot be levied. In this case there is no dispute that details of expenses had been given. The case of the assessee is that the claim had been made under the bonafide belief that such expenses were allowable from year to year basis. We also note that allowability of expenses such as interest etc on year to year basis or in the year of completion of project has been a debatable issue. There have been contrary decisions of the vario....