TaxTMI 
TaxTMI 
2019 (5) TMI 617
X X X X Extracts X X X X
X X X X Extracts X X X X
....n confirming the penalty levied by the A.O. on long term capital gain Rs. 40,79,195/- and on income from other sources Rs. 3,00,000/- under section 271(1 )(C) of the Income Tax Act 1961. 2. The reasons given by the learned CIT(A) for confirming the penalty levied by the A.O. on long term capital gain Rs. 40,79,195/- and on income from other sources Rs. 3,00,000/- under section 271(1)(C) of the Income Tax Act 1961, are insufficient and contrary to the facts and evidence on record. 3. The Appellant craves leave to add, amend, alter, modify or omit any of the aforesaid grounds of appeal as occasion may arise or demand." 3. The brief facts of the case are that the assessee is proprietor of M/s Vicky Electrical Corporation and M/s E.V. Homes. M/s Vicky Electrical Corporation is engaged in the business of Contractor and M/s E.V. Homes is engaged in the business of Builders and Developers. 4. This appeal filed by the assessee with tribunal is against penalty levied by the A.O under Sec. 271(1)(c) of the Act vide penalty orders dated 12.03.2014 , which was later challenged by the assessee by filing first appeal with learned CIT(A) who was pleased to partly allow rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Carmel at Kamothe in three AY's namely AY(s) 2008-09, 2009-10 and 2010-11 , subject to verification by the A.O. that infact the said income was offered to taxation by the assessee in aforesaid three years , by holding as under in ITA No.199/Mum/2013 for AY 2009-10 vide appellate order dated 18.05.2016: "17. We have considered the rival contentions and also perused the material on record including case laws relied upon . We have observed that the assessee has constructed 27 flats in the Project known as 'Project Carmel' which the assessee was constructing on the plot of land bearing no 12 , Sector-6, Kamothe , Raigad District , Maharashtra. The plot was purchased by the assessee in the assessment year 2006-07 and construction on the said plot started in the assessment year 2007-08 and stated to be completed in the financial year 2009-10. The assessee is following percentage completion method of accounting for accounting revenue as stipulated vide accounting standards AS -7 and AS-9 prescribed by ICAI. The assesseee has stated to have disclosed the profit from this Project Carmel with respect to all 27 flats so constructed over the three years i.e. financial year 2007-08, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... those flats which were not completed by the end of the previous year ended 31-03-2009 were given in the financial year 2009-10 and 2010-11, while the project was completed in financial year 2009-10. The assessee has placed possession letter's bearing dates of 2009-10 and 2010-11 in the paper book page 120-140. The assessee stated to have acted with a bona-fide belief that the income has to be offered to tax based on percentage completion method based on the stages of completion of the project and the receipt of the occupancy certificate is one of the relevant factors to be taken into account for determining the completion of the project but it is not the only or the sole relevant and conclusive factor for determining the completion of the project for booking revenue under the percentage completion method. It is stated that there were other works such as finishing work which were required to complete the project which was done in the financial year 2009-10 and the assessee has stated to have incurred Rs. 31,79,171/- in the succeeding financial year 2008-09 to complete this Project Carmel , while the Revenue is considering the receipt of occupancy certificate on 30-03-2009 as conclu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der passed by the AO u/s 271(1)(c) of the 1961 Act by relying on the appellate order dated 18.05.2016 passed by tribunal in assessee's own case in quantum in ITA no. 199/Mum/2013 for AY 2009-10 and the penalty u/s 271(1)(c) of the 1961 Act levied by the A.O on the said addition of Rs. 77,99,056/- was deleted by learned CIT(A) vide appellate order dated 09.02.2017, by holding as under: "5.6.2. The ITAT Mumbai vide its order dated 18-05-2016 deleted the addition of Rs. 77,99,076/- made on account of income on completion of project (para 17 of the order) subject to remarks that in case the contention of the assessee is found to be correct that the entire profit of the Project Carmel with respect to all 27 flats so constructed is duly offered for taxation in the three years i.e. AY 2008-09, 2009-10, and 2010-11 and entire due taxes thereon paid to the Revenue. Further, the ITAT also allowed the cost of improvement on the factory building amounting to Rs. 48,22,390/- subject to limited verification in the ambit of calculation of total amount backed with account payee cheque by the AO." The learned CIT(A) deleted the penalty levied by the AO u/s 271(1)(c) with respect to offe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u/s 271(1)(c) of the 1961 Act on cash gift of Rs. 3,00,000/- as no explanation was forthcoming from the assessee , by holding as under vide appellate order dated 09.02.2017: "5.7. Now penalty is required to be levied for disallowance of (i) Rs. 3,00,000/- on account of cash deposits and (ii) Computation of Long Term Capital Gain of Rs. 40,79,195/-. AO levied penalty on amount Rs. 3,00,000/- on account of cash deposits in the form of Gifts received at the marriage of his son for want of evidence. At the time of assessment, the appellant had given explanation vide his letter dated 12-12-2011 in respect of cash deposits of Rs. 10,66,000/- in the bank account maintained in Abhydaya Co-op Bank, the AO has accepted explanation to the extent of Rs. 7,66,000/-. However, the AO was not satisfied about the gift of Rs. 3,00,000/- deposited in the bank which was received from various persons at the occasion of appellant's son's marriage. It is submitted that the appellant has given explanation and the AO except for the reason that he is not satisfied that the said gifts are genuine and levied penalty thereon. Therefore, the same amounts to not accepting appellant's explana....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to case laws to contend that penalty is not sustainable in the eyes of law as the appropriate column in the aforesaid penalty notice dated 28.12.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act as to whether penalty proceedings are invoked for levying penalty for furnishing of inaccurate particulars of income or for concealment of income was not struck off. Thus, it is claimed that limb under which penalty proceedings were initiated u/s 271(1)(c) is not discernible from the notice dated 28.12.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act. We have gone through the assessment order dated 28.12.2011 (penalty notice is also dated 28.12.2011) passed by the AO u/s 143(3) of the 1961 Act and have observed that the AO invoked penalty proceedings u/s 271(1)(c) against the assessee on this issue of cash deposit of Rs. 3,00,000/- in bank on the grounds that the assessee has concealed taxable income by furnishing inaccurate particulars of income(para 5.4 /page 18 of the assessment order dated 28.12.2011) . The A.O. while passing penalty order dated 12.03.2014 on this issue of cash deposit of Rs. 3,00,000/- in bank account had also levied p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences...." The assessee did not raise this legal ground before the learned CIT(A) and also before us, no such specific ground of appeal was taken in memo of appeal filed with tribunal nor any additional ground of appeal was taken challenging levy of penalty u/s 271(1)(c) on legal grounds. However , arguments were advanced by both the parties on legal ground. Thus, keeping in view the relevance and importance of the challenge on legal grounds as to defect in notice u/s 271(1)(c) read with Section 274 of the 1961 Act which goes to the root of the matter , we have considered it appropriate and proper to adjudicate this issue in the interest of substantial justice. We donot find any prejudice caused to the assessee by non striking of the offences in the notice dated 28.12.2011 issued by the AO u/s 271(1)(c) read with Section 274 of the 1961 Act, keeping in view factual matrix of the case as discussed above. In our considered view decision of Hon'ble Bombay High Court in the case of CIT v. Smt. Kaushalaya (1995)216 ITR 660(Bom.) is relevant. Prin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....22,390/- to the factory premises by undertaking substantial structural repairs and modifications before its sale , which was also rejected by the AO. The matter went in appeal upto Tribunal in quantum so far as claim of additions to the tune of Rs. 48,22,390/- to the factory premises towards major structural repairs and modifications is concerned before its sale and the Tribunal was pleased to accept the contentions of the assessee that it has spent on improvement of the said factory premises at Nerul by way of major structural repairs and modifications, wherein the Tribunal allowed the benefit of such improvement subject to limited verification by the AO of the quantification of the amount spent on such improvement to factory premises at Nerul before its sale, in ITA no. 199/Mum/2013 vide orders dated 18.05.2016 for AY 2009-10 , by holding as under: "10. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee was the owner of the land and factory building at 32-A, Sector-1, Shirwane, Nerul, Navi Mumbai-400 706 with the leasehold rights in plot of size of 511.50 square meters , while the constructed are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd conjectures on suspicion by terming the invoices of material and labour submitted by the assessee as bogus and accommodation entries. No cogent incriminating material has been brought on record by the authorities below to prove that assessee has made bogus purchases except inspector report which is not sufficient to fasten the liability to tax on the assessee. The inspector report has merely submitted that two of the vendors from whom steel was bought by the assessee namely Payal Enterprsies and Bhumi Enterprises were found not existing at the addresses given in their invoices. The inspector report is placed at page 112 of paper book. We have seen from the invoices placed in the paper book that both these vendors namely Payal Enterprsies and Bhumi Enterprises are registered with VAT authorities and they have also charged Maharashtra VAT on the invoices issued to the assessee . Revenue has made no further enquiries with the VAT department or with the bankers of these two vendors as the payment were all made through account payee cheques. No further enquiry was conducted by the Revenue to bring on record cogent incriminating material to disprove and demolish the contentio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee. The ground which has been taken by the ld. CIT(A) to reject the contention of the assessee such as MOU dated 3rd September, 2007 is entered on one hundred rupee stamp paper and it does not talk about any schedule of payment and only says that the entire balance payment will be made within a period of six months from the date of signing of the MOU are irrelevant de-hors fastening of the liability to tax on the assessee . Similarly to contend that the said MOU did not find mention in the deed of assignment dated 20-01-2009 and is merely an after-thought is based on surmises and conjectures on suspicion , while the MOU did talk of payment of Rs. 3 lacs vide cheque dated 15-10- 2007 which find mention in the deed of assignment dated 20-01-2009 . To contend that the MOU dated 03-09-2007 has preceded the permissions received by the assessee from CIDCO on 31/10/2008 is again of no-use to the Revenue as it is very probable that the tax-payer will first enter into a binding agreement with a serious buyer of the property who has also advanced some amount of money and then approach the CIDCO for seeking permission to sell the property. No cogent incriminating material has been broug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....09, which completes full chain of event of the transaction for sale of land and factory building for which necessary structural repairs and modifications were done by the assessee as contended, on the touch stone of preponderance of probabilities which cannot be simply brushed aside or demolished by the Revenue based on conjectures and surmises on suspicion , except through cogent incriminating material which revenue has failed to bring on record in the instant case. In our considered view, the assessee has duly discharged his burden cast under the Act and now it was for the Revenue to have brought on record cogent incriminating material and evidences to rebut and demolish the contentions of the assessee conclusively on the touchstone of preponderance of probabilities which the revenue could not do except by bringing on record inspector report that two of the parties are not existing on the addresses given on the invoices which is not sufficient enough to fasten the liability on the assessee as it does not prove that these purchases were bogus and are accommodation entries as set out above by Revenue . Even for the sake of argument it is assumed that the assessee has not obtained t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng to Rs. 40,79,195/- and Rs. 3,41,382/- under the head Short Term Capital Gain as not offered in the return of income. The appellant had adjusted the sale proceeds on sale of factory building from the Block of Assets and further added new asset for Rs. 53,00,000/- on account of purchase of shops from his own proprietary concern namely M/s E.V. Homes. The AO held with regard to addition of Rs. 53,00,000/- to the block of assets, that one cannot make a financial transaction with himself. During the appellate proceedings against the penalty order also, the appellant has submitted the same working of adjustment in the block of assets instead of declaring STCG on sale of depreciable assets. Hence, it is clear that the appellant has furnished inaccurate particulars of income. Here again the plea of the appellant that issue is debatable does not hold good. The penalty on this issue is leviable as per law and has rightly been levied by the AO. However, the quantum of addition on account of STCG has changed to NIL after the effect of the Hon'ble Tribunal's order and penalty is upheld to the extent of tax effect on the LTCG addition for Rs. 40,79,195/-. 5.9. Thus, on considerin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y authorities, to bring them to tax separately. It was explained that if the computation of capital gains is made in this manner then w.d.v. of depreciable asset as is existing in its books as on 31.03.2009 of Rs. 19,85,339/- will go up entitling assessee for higher depreciation in succeeding years while assessee was all along since AY 2010-11 till AY 2016-17 was claiming lower depreciation on lower w.d.v. of block of assets consisting of depreciable assets . The calculation under different scenario was submitted by the assessee,which is reproduced as hereunder: "Submission on the proposition that no penalty leviable on not offering short term capital gain of Rs. 3,41,382/- and long term capital gain of Rs. 40,79,195/- (i) During the year under assessment, the assessee has sold his factory premises on a CIDCO land for a consideration of Rs. 1,16,00,000/- after the sale of the said factory premises the said assessee's block of depreciable asset was reflected as follows: WDV as on 1.04.2008 Rs. 34,62,969/- Add Improvement to the structure Rs. 48,22,390/- Rs. 82,85,359/- Less: Sale consideration Rs. 1,16,00,000/- Rs.-33,14,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....- Therefore it is submitted that the assessee has disclosed all the details of his income including the fact of sale of factory for a consideration. Depreciation was claimed by treating the asset as depreciable asset on the footing that depreciable asset merges with the lease premium and the assessee is not a owner of the land. Calculation made by the A. O. in respect of short term capital gain on sale of depreciable asset was rejected by the CIT(A) and the alternate submission of the assessee of bifurcation of consideration received on sale of the lease component treating part of the transaction as long term capital gain was accepted by the CIT(A) and ITAT has also modified the order of the CIT(A) by confirming assessees action that there was improvement to the structure. Therefore the penalty levied by the A.O. is on the issue which is not free from debate because the long capital gain is calculated on an asset which is not owned by the assessee and in view of the alternate submission after ITAT order WDV has increased which has entitled the assessee to claim higher depreciation (pl be noted that the assessee till this date has not claimed higher depreciation on the enhanced WDV)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly an erroneous action on the part of the assessee who is supported by a qualified chartered accountant and whose accounts are audited to treat land as part of block of asset viz. building and is against the basic fundamentals of the accounting as the land could not be a depreciable asset which could form part of the Block of Asset viz Building. The Revenue on its part did not get the Revenue which it was legitimately entitled to on long term gains arising on sale of land component by the erroneous accounting done by the assessee. We have also observed that this land and factory building was rented out by the assessee in financial year ending 31.03.2008 and no depreciation was claimed for AY 2008-09(pb/page 49 and 68) . The decision of Hon'ble Delhi High Court in the case of CIT v. N.G.Technologies Limited reported in (2015) 370 ITR 7(Delhi) is relevant and applicable, wherein Hon'ble Delhi High Court held as under: "16. We have examined the aforesaid reasoning but are unable to accept the said finding. All claims or deductions wrongly made cannot be treated as bona fide and protected by Explanation 1 to section 271(1)(c) of the Act. Whether or not the conduct of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oticeable that most of the income-tax returns are accepted without scrutiny or regular assessment and self-compliance of tax provisions is a rule required to be followed. The view, which we have taken, is in consonance with the ratio expounded in Reliance Petroproducts (P.) Ltd. (supra). 19. The second aspect, which arises for consideration, is whether the revised return was filed voluntarily and before the notice of the inaccurate particulars by the Assessing Officer. The factum of filing a revised return to rectify an earlier mistake is an important and relevant factor to determine whether the conduct of the assessee was bona fide. The Tribunal, in the impugned order, has held that the revised return was filed before any specific query was raised by the Assessing Officer. The Tribunal at the same time observed that the Assessing Officer had directed the assessee to file tax audit report, depreciation chart, details of all exemptions and deductions as well as details of addition to fixed assets but no question had been raised about deduction in respect of the assets. The aforesaid reasoning by the Tribunal accepts the fact that the assessee had been asked to furnish detai....