TaxTMI 
TaxTMI 
2019 (1) TMI 655
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....7 and 25.01.2018 for assessment year 2012-13. (v) Copy of Reconciliation of Figures for 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 ....
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....1 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. 4.7. 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 wh....
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.... the disallowance of expenses by the AO in the assessment order was as per law or not. That issue is settled and presently not in dispute; 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 Indi....
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....ion furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be 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 ....
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....n the assessment orders. Mere surrender and voluntary disclosure by an appellant-assessee cannot be a ground to delete penalty for concealment. Secondly, the 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 pe....
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.... "15. Contract costs should comprise: (a) costs Shot relate directly to the specific contract; (b) costs that are attributable to contract activity in general and 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....
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....fied in paragraphs 10 and 11 of AS 9 are satisfied, any further acts on the real estate performed by the seller are, in substance, performed on behalf of the buyer in the manner similar to a contractor. Accordingly, in case the seller is obliged to perform any substantial acts after the transfer of 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 whic....
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....3,944,214 Less: Indirect Project Expenses disallowed during AY 2010‐11/AY 2011‐12, claimed in the ITR for subsequent years, i.e., AY 2011‐12/AY 2012‐13 and allowed in the assessment order for the respective years ‐110,388,382 ‐212,805,101 Returned Income/Loss ‐109,842,458 ‐212,238,085 621,139,113 Add: Disallowance made by AO on 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....
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..... The appellant-assessee was not to gain any substantial benefit and advantage by shifting profits or loss from one year to another. 16. These facets and aspects have been completely ignored by the Tribunal in their reasoning. These aspects were relevant and had required due consideration when examining the issue of bona-fides in making the claim. 17. On the question of full and true disclosure, we would like to refer the accounts of the appellant-assessee that were audited. The audit report placed on record had stated that the appellant-assessee had recognized revenue from the projects based on PoC Method in relation to sold areas on the basis of percentage of actual construction and other related costs incurred thereon excluding land cost as against the total estimated cost of the project under execution subject to such actual cost being 30% or more of the total estimated cost. Similarly, there were disclosures under the heading 'inventory and cost of construction/development' to the effect that 'work in progress' was valued at lower of the cost than net realizable value, cost of pricing of land including development rights, material services and other overh....