TaxTMI 
TaxTMI 
2023 (2) TMI 312
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....e recognized had increased from zero to Rs.1,83,86,690/- for A.Y. 2016-17 in the return filed in response to notice issued u/s. 153A, which falls under purview of explanation 5A to 271 (1 )(c of the Income Tax Act, 1961." 3. We next note that the CIT(A)'s detailed discussion reversing the Assessing Officer's findings levying the impugned penalty of Rs.63,63,266/- in his order dated 28.06.2019 reads as follows : 4. "In brief, search u/s 132 of the IT Act 1961, in the ease of the assesses was conducted on 29.08.2016. During the course of search, it was noticed from the site office that the ongoing project 'Crossroads" at Wakad was substantially completed and sales were executed, but revenue was not recognized and profit arising thereof was not offered for tax. During the course of search proceedings, at the business premises of Raviraj Group at Millennium Tower, Pune, some loose papers which denotes certificate issued by the architect was found and inventoried as page nos. 110 & 111 of Loose Paper Bundle no 11, Shri Ravindra Sakla was asked to go through it and describe the notings made on it. In response, Shri Ravindra Sakla in his statement recorded u/s 132(4) of th....
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....prescribed in the accounting standards notified by ICAI. However, after consulting our taxation experts, we realize that considering the stage of completion of the projects mentioned above, the revenue should have been booked. Accordingly, the assessee accepted that a revenue of Rs.2,89,36,437/- should have been recognised for the project being developed by the assessee. 5. The assessee filed its original return u/s 139(1) of the I.T. Act on 05/08/2016 declaring total income of Rs.NIL. Subsequently, revised return of income was filed by the assessee on 17/10/2016 declaring total income of Rs.1,83,86,690/-.In response to the notice u/s 153A, the assessee e-filed its return of income for AY 2016-17 by declaring total income at Rs.1,83,86,690/-. In the revised return as well as in the return filed u/s 153A of the Act, the income was offered by following the 'percentage completion of method' as against the 'project completion method' followed while filing the original return of income. The assessment u/s 143(3) r.w.s. 153A of the Act was completed at the returned income. However, penalty proceedings as per explanation 5A to section 271(1)(c) of the I.T. Act, 1961 were....
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....e appellant has relied on : • CIT vs Suraj Bhan 294 ITR 481 (P & H HC) • The S.M.J. Housing v CIT 357 ITR 698 (Madras HC) (ii) No penalty can be levied, in the absence of any addition made to assessee's income over and above the declared income. For this proposition, the appellant has relied on : • PCIT vs Rajkumar Gulab Badgujar 111 taxman.com 257 (SC). (iii) Project Completion method followed by the appellant earlier is a valid method. The search party informed the assessee that as per the guidelines of ICAI percentage completion method could also be followed for recognizing the income. Since this was the 1st year in which the basic conditions of percentage completion method were fulfilled, the assessee without taking into consideration the legal position that percentage completion method is not mandatory and project completion is also an acceptable method of revenue recognition, agreed to recognize the revenue under percentage of completion method. For this proposition, the appellant has relied on : • M/s. Ajay Traders vs DCIT 81 taxmann.com 463 (ITAT Jaipur) • Trident Estate (P) Ltd Vs ITO(2021) ....
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....hereafter the assessee filed the revised return on 17/10/2016 and the assessment u/s 143(3) r.w.s. 153A was completed at such revised return income 9. One of the arguments of the appellant is that it was following an acceptable method of accounting and the income was declared only due to the change in the method of accounting. The appellant has further argued that that percentage completion method is not mandatory and project completion is also an acceptable method of revenue recognition, but in order to buy peace of mind and to avoid litigation, it agreed to recongize the revenue under percentage of completion method. In such situation no penalty should be levied on the income disclosed in the revised-return filed by it. The issue as to whether the 'percentage completion method' is mandatory or not for the assessment years prior to insertion of section 43CB of the Act w.r.e. f 1.4.2017 i.e. AY 2017-18, has been discussed by various tribunals wherein it has been held that the percentage completion method has been made compulsory by insertion of section 43CB of the Act and is mandatory only for assessment years 2017-18 and onwards. Some of these decisions are as under -....
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.... compulsory by subsequent insertion of section 43CB of the Act, which is not applicable to the impugned assessment year. (Emphasis supplied) 9.2. In the case of Ashoka Hi-Tech Builders (P) Limited Vs DCIT ITA No. 121/Ind/2016 & 686/lnd/2016, Hon'ble ITAT, Indore, has also held that before insertion of section 43CB of the Act, it was not mandatory for a real estate developer to follow the 'percentage completion method'. The relevant portion of the decision is as under: "42. Before parting of with adjudication of this issue it would be relevant to take note of the amendment brought in statute with retrospective effect w.e.f. 1.4.2017 by way of insertion of Section 43CB for the purpose of computation of income from construction and service contract. The relevant provision of Section 43CB of the Act reads as follows; "43CB. Computation of income from construction and service contracts - (1) The profits and gains arising from a construction contract or a contract for providing services 'shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under subsec....
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....velopers to workout their profits by following percentage of completion method as prescribed by the Institute of Chartered Accountants of India under AS7. 9.5 The above decisions suggest that whether the real estate developers were mandatorily required to follow the 'percentage completion method' for the assessment years prior to AY 2017-18, is a debatable issue and there are decisions holding that the same was not mandatory, Therefore, for the year under consideration, whether the appellant was mandatorily required to follow the percentage completion method, remains a debatable issue. 10. Further, the issue as to whether penalty u/s 271(1)(C) of the Act should be levied on a debatable issue, has also been examined by various Courts/Tribunals and it has been held that no penalty u/s 271(1)(c) of the Act can be levied on a debatable issue. Some of the decisions on this issue are as under. 10.1. In the case of CIT vs Harshvardhan Chemicals & Mineral Ltd, 259 ITR 212 (Raj, HC), the Hon'ble Rajasthan High Court held - 'In view of the finding of the Tribunal that when the assessee had claimed some amount though that was debatable, in such case, it could no....
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....served that - 13. What is the better method of accounting is a matter of debate and no concealment of penalty should be attracted to such debatable issues. We find the addition of Rs. 28.62 Crs has the genesis in the estimations on one side and preponement on the other and also on the change of method of accounting. In our opinion, penalty cannot be levied on such additions as they constitute debatable issues..... 11.1. In the present case, the appellant filed its original return of income by following the 'project completion method' which was an acceptable method of accounting. During, the search, the authorised officer, based on the fact that the project was completed about 45%, confronted the partner as to why the percentage completion method was not followed. The Partner of the appellant AOP after consulting with his tax advisor agreed to recognise revenue as per 'percentage of completion method'. The appellant has further claimed that it agreed to follow the percentage completion method only to buy peace of mind and to avoid litigation because this method only results in preponement of taxability of profits of the project. The present case pe....
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....espective stands against and in support of the CIT(A)'s foregoing detailed discussion deleting the impugned penalty. Mr. Jasnani quoted Mak Data Pvt. Ltd. vs. CIT [2013] 358 ITR 593 (SC) that the mere fact of the assessee having declared his income from real estate development business of Rs.1,83,86,690/- post-facto the search conducted in its case on 29.08.2016 would hardly absolve it from the penalty proceedings in issue. He further placed reliance on sec.271(1)(c) Explanation-5A that the presumption of such an instance is of the assessee having furnished inaccurate particulars of its taxable income only. 5. All these Revenue's arguments hardly carry any substance. We first of all note from the Assessing Officer's penalty order that he has nowhere invoked the foregoing deeming fiction of furnishing of inaccurate particulars of undisclosed taxable income as per his detailed discussion comprising of nine pages. The Revenue has further not placed on record any such notice to this clinching effect. We make it clear that Explanation 5A to sec.271(1)(c) is a special provision imposing deeming fiction of an assessee having both concealed particulars of his taxable income as well ....