TaxTMI 
TaxTMI 
2019 (1) TMI 655
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....assessment year 2010-11 and 2012-13. Application is allowed with clarification that the legal effect has not been commented upon and is left open to be decided in the main appeal. ITA No.398/2017 and ITA No.399/2017 Above-captioned appeals under Section 260A of the Income Tax Act, 1961 ('Act', for short) by M/s Granite Gate Properties Pvt. Ltd. ('appellant-assessee', for short) arise from common order dated 16.12.2016 passed by the Income Tax Appellate Tribunal ('Tribunal' for short) accepting the appeals preferred by the Revenue against the order of the Commissioner of Income Tax (Appeals) ['CIT (Appeals) for short] deleting penalty and upholding the orders of the Assessing Officer imposing penalty for concealment of income under Section 271(1)(c) of the Act. The appeals pertain to the assessment years 2010-11 and 2011-12. 2. The appeals were admitted for hearing vide order of this Court dated 24.01.2018 by framing the following substantial question of law. "Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the penalty under Section 271(1)(c) of the Income Tax Act, 1961 was leviable in the circumstances of the case, when the assessee asserted that i....
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....or the said year and further years and offered to tax. 4.7. Threshold of 30% of development for the Lotus Panache project was crossed in the period relevant to the assessment year 2011-12 and accordingly proportionate cost and revenue therefrom was booked in the profit and loss account for the return for the said year and further years and offered to tax. 4.8. 'Indirect' expenses in the nature of selling, administrative and another expenses, commission and finance cost in respect of Lotus Boulevard and Lotus Panache projects were treated and shown by the appellant-assessee as deductible in the returns for the assessment years 2010-11 and 2011-12, respectively. 5. Returns for the assessment years 2010-11 and 2011-12 were taken up for scrutiny assessment. Plea and contention of the appellant-assessee that they under the PoC Method had rightly not accounted for the revenue in respect of Lotus Boulevard project for the assessment year 2010-11 and Lotus Panache project for the assessment year 2011-12 as the projects had not crossed the threshold of 30 per cent which was accepted by the Assessing Officer in principle and on facts. 6. The Assessing Officer observed and held that the a....
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....ispute; because the assessee has accepted the assessment orders for both Assessment Years 2010-11and 2011-12. The issue before us is whether it is a fit case for levy of penalty u/s 271(1)( c) of IT Act for assessment years 2010-11 and 2011-12. We find it pertinent that the claim for expenses made by the assessee was inconsistence with the Guidance Notes 2006, issued by ICAI; which was applicable at the relevant time when the assessee filed the returns of income. Therefore, it cannot be said that the assessee's claim for expenses was bonafide. The explanation offered by the assessee is that the claim of expenses is in accordance with Guidance Notes 2012 of ICAI This explanation, however, is not bona fide because at the relevant time when returns were filed by the assessee, Guidance notes 2012 had not been issued by ICAI, and instead, Guidance Notes issued by ICAI in 2006 were applicable. Therefore, the assessee is clearly hit by Explanation 1(B) to section 271(1)(c) of IT Act. We also take guidance from the order of Hon'ble Supreme Court of India in MAK Date (P.) Ltd. V. Commissioner of Income-tax-II (2013) 38 taxmann.com 448 (SC). In this case the Hon'ble Apex Court up....
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....liable to penalty under section 271 (1)(c). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return 'would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims of this nature, actuated by a ma/a fide intention to evade tax otherwise payable by them, would get away without paying the tax legally payable by them,' if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. "(Para 20)" * Thereafter, the impugned order makes reference to several judgments of the Supreme Court....
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....e amount i.e. 'indirect' expenses could not have been claimed as expense under AS-7 as it was inconsistent with the Guidance Note, 2006 which was applicable when the returns were filed. Reference made to Guidance Note, 2012 was considered irrelevant as they were not applicable at the relevant time when the returns of income were filed. Sham and bogus claim reducing the tax liability would be lame excuse and not a bona-fide explanation. Certificate of the Chartered Accountant in compliance with the statutory requirements would not absolve the assessee from the penalty if the act or attempt in claiming the deduction was not bona fide. An explanation even on a legal claim when without any basis and foundation should be rejected as this would give a license to unscrupulous assessees to make wholly untenable and unsustainable claims in the hope that the return would not be taken for scrutiny assessment. The dictum as expounded is correct. The issue relates to application of the principles to the case in hand. An assessee to escape penalty for concealment as per clause (B) to Explanation 1 must establish its bona fides in making the rejected and disallowed claim. In addition, the assesse....
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....d can be attributed to the contract; and (c) such other costs as are specifically chargeable to the customer under the terms of the contract 16. Costs that relate directly to a specific contract include: (a) site labour costs, including site supervision; (b) costs of materials used in construction; (c) depreciation of plant and equipment used on the contract; (d) costs of moving plant, equipment and materials to and from the contract site; (e) costs of hiring plant and equipment; (f) costs of design and technical assistance that is directly related to the contract; (g) the estimated costs of rectification and guarantee work, including expected warranty costs; and (h) claims from third parties. These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract. XXX 19. Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include: (a) general administration costs for which reimbursement is not specified in the c....
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....all significant risks and rewards of ownership, revenue is recognised by applying the percentage of completion method in the manner explained in AS 7, Construction Contracts. xxx 8. When the seller has transferred to the buyer all significant risks and rewards of ownership, it would be appropriate to recognize revenue at that stage subject to fulfillment of other conditions specified in paragraph 6 above, provided the seller has no further substantial acts to complete under the contract. However, in case the seller is obliged to perform any substantial acts after the transfer of all significant risks and rewards of ownership, revenue should be recognised on proportionate basis as the acts are performed, i.e., by applying the percentage of completion method in the manner explained. Accounting Standard (AS) 7, Construction Contracts. An example is a building or other facility on which construction has not been completed though all significant risks and rewards of ownership have been transferred pursuant to the fulfillment of conditions stated in paragraph 7 above. Another example is of a land which is yet to be developed though the seller has transferred all significant risks and r....
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.... account of indirect project expenses NA Selling, Administrative & Other expenses 109,924,787 28,578,534 NA Commission/Finance Cost 2,543,099 184,226,567 NA Less: Suo moto disallowance by Assessee in ITR 2,079,504 ‐ NA Transfer Pricing Adjustment NA NA 85,158,538 Total Disallowance by AO in assessment order 110,388,382 212,805,101 85,158,538 Assessed Income 355,933 567,040 706,297,648 * During the financial year relevant to assessment year 2010-11, construction of the project named "Lotus Boulevard" was yet to cross the threshold of 30% as per POCM, and therefore, no revenue therefrom was recognised, and the cost of construction/development was booked under 'Capital Work‐in‐Progress'. ** During the financial year relevant to assessment year 2011‐12, project named "Lotus Boulevard" crossed the stage of 30% development as per POCM, and therefore, proportionate cost and revenue therefrom was booked in the Profit and Loss account for the financial yea....