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Mr. Harmail Singh, D-68, Paryavaran Complex, IGNOU Road, New Delhi Vs. INCOME TAX OFFICER, WARD 24(3), NEW DELHI
July, 17th 2014
                                                         ITA NO. 1719/Del/2012

                       DELHI BENCH "E", NEW DELHI

                         I.T.A. No. 1719/DEL/2012
                                A.Y. : 2003-04
Mr. Harmail Singh,                     vs. INCOME TAX OFFICER,
D-68,   Paryavaran       Complex,           WARD 24(3),
IGNOU Road,                                 NEW DELHI
New Delhi
(APPELLANT)                               (RESPONDENT)

          Assessee by                 :   Sh. Rajesh Arora, CA
         Department by                :   Sh. Tarun Seem, DR

      This appeal by the Assessee is directed against the order of the
Ld. Commissioner of Income Tax (Appeals-XI), New Delhi                dated
2.2.2012 pertaining to assessment year 2003-04,              whereby the
order of the Ld. CIT(A) in confirming the penalty imposed by the AO
u/s. 271(1)(c) of the Income Tax Act, 1961 has been challenged.

1.1   The original grounds of appeal challenge was with regard to
imposing of penalty by the Ld. CIT(A) whereas in revised ground
the challenge is with reference to sustaining of penalty by the Ld.
CIT(A), which has been allowed. So objection of the Department in
this regard gets overruled.

2.    Brief facts of the case are that the assessee is engaged in
construction activities and filed return for the relevant assessment
year on 16.10.2003 declaring an income of Rs. 75,980/-. A survey
u/s. 133A of the Act was conducted at the premises of the assessee

                                                          ITA NO. 1719/Del/2012

on 25.11.2003 and case was selected for scrutiny. When notice u/s.
143(2) of the Act was issued, the assessee filed its revised return
declaring total income of Rs. 1,79,090/- which was assessed at Rs.
11,40,200/- as against revised income of Rs. 1,79,090/- after making
addition of Rs. 9,16,000/-.     This assessed income also           includes
disallowance of certain business expenses claimed in the profit and
loss account the detailed of which are as under:-

      Salary                                           : Rs. 54,000

      Conveyance & Telephone                           : Rs. 55,800/-

      Renovation and repair of flats on                : Rs. 48,500/-

      Account of demolition by MCD. Total                    1,58,300/-
                                                       : Rs. 1,58,300/-

2.1   Aggrieved by this order of the Assessing Officer, assessee
challenged such disallowances by preferring an appeal but Ld.
CIT(A) confirmed such addition as made by the Assessing Officer and
further assessee preferred appeal before ITAT. However, in the
meantime,      Assessing   Officer   completed   the    already     initiated
proceedings u/s. 271(1)(c) and imposed penalty @100% of the tax
sought to be evaded. The assessee challenged such action before
Ld. CIT(A) but without any success.

2.2   Still aggrieved, assessee has preferred further appeal and
while reiterating the submissions as made before lower authorities,
it was strongly pleaded that there was no occasion                   for the
Assessing Officer to levy such penalty and Ld. CIT(A) was also
unjustified in confirming the same, when all necessary proofs and
documents were furnished to establish that no malafide was
involved in this case as the flat was sold for Rs. 4,95,000/- and
balance amount spent on renovation of the property and if for some

                                                         ITA NO. 1719/Del/2012

reason, addition has been made, it cannot be sole criteria for
imposition of the penalty. Ld. AR further submitted as under:-

           "1.   The AO levied         penalty u/s. 271(1)(c)       of Rs.
                 3,02,749/- on the income of Rs. 9,61,110/- allegedly
                 sought to be evaded alleging that the assessee has
                 not given any explanation or documentary evidence
                 for the net profit shown during the year and that the
                 assessee    was    not    reflecting     the    full   sale
                 consideration received by him.         That the assessee
                 had deliberately and intentionally omitted the facts
                 in order to hide the actual sale value of flats in
                 question and hide the facts with regard to cost of
                 construction involved.

                      However,     it is neither a case of failure of
                 assessee to submit the explanation nor it is a case
                 where the explanation submitted was not bonafide.
                 The dispute is not on the declaration of receipts and
                 expenses. It is on account of difference of opinion
                 with regard to allocation of cost of construction.

                      Profit from Sale of Flat at A-104, Paryavaran
                 Complex of Rs. 9,90,081/- (Penalty imposed on Rs.

           1.1   The assessee, an illiterate small time worker filed
                 his return without a supporting P&L account. Survey
                 u/s 133A was conducted and the assessee revised
                 the return of a total income of Rs.1,79,086/ - along
                 with the receipts and expenses in the P&L account
                 in response to letter dated 27.1.2005.           That the
                 assessee declared in the said P&L account, receipt

                                            ITA NO. 1719/Del/2012

      of Rs. 14,50,000/- for the properly in question and
      the se is not disputed by the Ld. A.O in calculating
      the alleged profits of Rs. 9,90,081/-. Hence, the
      allegation that the assessee was not reflecting full
      sale consideration is not warranted and completely

1.2   That the First Floor of flat at A - 104, Paryavaran
      Complex, was sold to the buyers, Mrs. Janki Rawat
      and Mr. Gopal Singh Rawat, for sale consideration
      of Rs. 4,95,000/-, and       further a amount of Rs.
      9,55,000/- was received by the assessee from them
      for the purpose of renovation. That the same is
      reflected as Rs. 14,50,000/- (Rs. 4,95,000 + Rs.
      9,55,000) in the P&L a/c filed before the AO.
      Henceforth, there was no omission of facts as to the
      value of flat as alleged by the AO.

1.3   That the total cost (excluding commission) of the
      Flat at A - 104, Paryavaran Complex comes to Rs.
      16,23,677/- as per the impounded material. The
      assessee allocated Rs. 12,61,554/- towards the cost
      of First Floor at A -104, Paryavaran Complex since
      renovation was done on the said floor upon buyers'
      instruction and the area of the floor was larger than
      other   floors.   The   AO   computed    the    cost    of
      construction of the 1st floor by allocating the cost
      equally to all the floors whereas the assessee
      allocated the same according to the area of floors
      and taking the effect of renovation into account.
      Thus, the difference in cost of· construction is
      account of difference in opinion between the
                                          ITA NO. 1719/Del/2012

      assessee and the A.O. The allocation of cost made
      by the assessee was indeed a bonafide one.

1.4   That the AO has allocated the cost of construction
      equally among Ground Floor, First Floor, Second
      Floor and Third Floor. The A.O has erred on the fact
      that the Ground Floor was already existing and in
      possession of the assessee. It was thus not subject
      to any construction. The documents in support
      thereof in the form of telephone bills were placed on
      record before the    A.O. The allocation of cost of
      construction made by the A.O was thus made on
      presumption and surmises.

1.5   That the documentary evidence that buyer had paid
      Rs.4,95,000/- as sales consideration and thereafter,
      Rs. 9,55,000/- for the purpose of renovation of the
      flat were placed on record. The confirmation of
      buyer was also placed before the CIT(A) during the
      quantum proceedings. u/r 46A. That, the glaring
      fact was never confirmed or rebutted by the
      department. The addition was confirmed without
      any rebuttal by the department, and without
      proving as to how the submission of the assessee
      was erroneous.

1.6   That since the loan amount of Rs. 9,55,000/- was
      sanctioned on 27.02.2003 as evident from the GIC
      Offer Letter and Disbursement letter and received
      after the date of sale of the First Floor i.e.
      03.12.2003 there was no question of passing any
      "on money" as alleged in the quantum proceedings.

                                               ITA NO. 1719/Del/2012

      That such an allegation was only on presumptive
      basis and cannot defy the facts on record that the
      flat had been sold much earlier than date when
      amount of Rs. 9,55,000/- was received.

1.7   That since the property at A -104, Paryavaran
      Complex was built in different segments over the
      period of time, to assessee also had option to
      calculate the profits using "completion method."
      The addition in question was confirmed following
      the method on yearly basis. Following completion
      method,    the   profit     per   flat   comes      out    to
      Rs.1,73,341, whereas the assessee has declared a
      profit of Rs. 1,88,446/-.

1.8   That the assessee substantiated three alternate
      calculations to show that no income beyond the
      stated income was earned during the year under

1.9   That the revenue did not accept the explanation of
      the assessee but brought nothing on record to
      prove that the explanation was false or incorrect.

1.10 That for levy of penalty, totality of circumstance and
      facts needs to be considered. Neither has the total
      cost incurred nor the total amount received by the
      assessee been disputed. The difference is merely on
      account of difference of opinion with regard to
      allocation of cost.

1.11 That merely because the assessee's explanation
      was not agreed with for the purpose of making

                                           ITA NO. 1719/Del/2012

     additions, the same does not automatically attract
     penalty thereupon.

1.12 Various judicial pronouncements have            clarified
     when the assessee's explanation is not fantastic or
     fanciful, but the same has not been accepted during
     the quantum proceedings, it cannot be held that
     penalty is attracted on the same.

1.13 Explanation of the assessee for the purpose of
     avoidance of penalty must be an acceptable
     explanation; it should not be fantastic or fanciful
     one. Once the initial burden is discharged, the
     assessee would be out of the mischief unless further
     evidence   is   adduced.   CIT   v.   Mussadilal     Ram
     Bharose, (1987) 60 CTR (SC) relied on.

1.14 If an assessee offers an explanation, which is not
     found to be false, he can save himself . from
     penalty even if he were not able to substantiate his
     case as long as the explanation of the assessee is
     bonafide and as long as he places all the relevant
     facts material to computation of his total income
     irrespective of the fact that the same explanation
     was not accepted for the purpose of assessment.
     ACIT vs. Malhotra Mukesh Satpal (2008) 113 TTI 401
     (Hon'ble ITAT, Pune Bench)

1.15 The explanation of the assessee has nowhere been
     alleged to be false or short. Neither is it alleged to
     be not bonafide. Therefore, penalty ought not to be
     levied on the assessee, even if the additions have
     been confirmed in quantum proceedings. Thus, the

                                                       ITA NO. 1719/Del/2012

                   penalty levied on the same is unjustified, and
                   should be deleted."

3.     Ld. DR in     his written submissions    firstly challenged the
wording of the ground raised which has since been revised by the
assessee and the same has been           accepted by     the Bench as
mentioned in para 1.1 of this order while overruling the objection of
the Department.

4.     Now coming to the merits of the case, Ld. DR while

reproducing the conclusions of the order of the ITAT and the

quantum appeal has further submitted that the situation with

reference to adducing the evidence to dispel the conclusion of the

contumacious conduct on the part         of the assessee as remained

unchanged during the penalty proceedings.              Ld. CIT(A) has

confirmed the penalty and since assessee has failed to present any

evidence why penalty for concealment of income levied by the AO

and the confirmed by the CIT(A) should be deleted.       It was pleaded

for confirmation of the impugned order.

5.     We have heard both the sides and considered the material on

record and we find that in view of the facts and circumstances of the

case    and material on record, assessee is found to have made out

the case in light of the decisions relied upon and incorporated in the

Snap-Shot of the arguments filed by the AR of the assessee and

mentioned in para 2.2 of our order. Considering the plea raised in

light of the case laws relied upon and discussed, we are of the view

                                                      ITA NO. 1719/Del/2012

that this case is not fit for imposition of penalty as none of the

ingredients incorporated in the relevant provisions have been

fulfilled by the AO before arriving at the conclusion to impose the

penalty. Therefore, accepting the appeal of the assessee we direct

to delete the penalty imposed by the AO and confirmed by the Ld.


6.    In the result, the Appeal filed by the Assessee stands allowed.

      Order pronounced in the Open Court on 16/7/2014.

      Sd/-                                               Sd/-

[SHAMIM YAHYA]                                            BEDI]
                                                  [U.B.S. BEDI]
ACCOUNTANT MEMBER                               JUDICIAL MEMBER

Date 16/7/2014
Copy forwarded to: -
1.    Appellant -

2.    Respondent -
3.    CIT
4.    CIT (A)
5.    DR, ITAT

                            TRUE COPY
                                                  By Order,

                                                  Assistant Registrar,
                                                  ITAT, Delhi Benches

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