IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "J", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.4706/M/2012
Assessment Year: 2006-07
M/s. Jain Builders (Vasai), ACIT 12(1),
221, Ishaq Manzil, Room No.117,
Vs.
Lamington Road, Aayakar Bhavan,
Mumbai 400 007 M.K. Road,
PAN: AAEFJ6972G Mumbai - 400020
(Appellant) (Respondent)
Assessee by : Shri Ashok Patil, A.R.
Revenue by : Shri Jeevanlal Lavidiya, D.R.
Date of Hearing : 02.07.2014
Date of Pronouncement : 27.08.2014
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the
order of the Commissioner of Income Tax (Appeals) [hereinafter referred
to as the CIT(A)] confirming the penalty levied by the Assessing Officer
(hereinafter referred to as the AO) u/s 271 (1 )(c) of the I T Act.
2. Briefly stated facts of the case are that the assessee is a
partnership firm engaged in the business of Builders & Land
Developers. During the assessment proceedings it was interalia
observed by the AO that during the year, the assessee firm has sold a
plot of land for Rs.1,25,00,000/-. Against the sale consideration, the
expense claimed were cost of land at Rs. 30,62,154/-, Administration &
Other Expenses of Rs. 28,80,209/- and Brought Forward expenditure not
pertaining to the current financial year Rs.41,47,255/-. In all, an
2 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
expenditure of Rs. 1,00,89,618/- had been claimed against the sale
proceeds. The assessee was asked to show as to how the brought
forward expenditure of Rs.41,47,255/- not pertaining to the year under
consideration was admissible. At the same time, out of the
Administrative & Other expenses, there was an accumulated claim of
interest of Rs. 17,43,036/-. The majority of interest portion was not
pertaining to the financial year under consideration. The assessee
explained that it was maintaining its accounts on the cash basis and
therefore all the expenses were debited to the current year's Profit &
Loss account. It was also stated that such expenditure was allowable as
assessee was following Project Completion Method. It was further stated
that said expenses were debited to Profit & Loss a/c on year-to-year
basis. The AO after considering the assessee's submissions observed that
in Form No.3CD, col. No.11(a) the method of accounting was
mentioned as 'Mercantile' and not 'Cash system of accounting' as was
contended by the assessee. He further observed that in Tax Audit Report
nowhere it was mentioned that assessee was following Project
Completion Method for the computation of income/profit. Even in the
past returns, nowhere it was stated that assessee following Project
Completion Method as well as cash system of accounting for
maintaining the books of accounts. The AO further observed that the
interest on the loans borrowed had been paid from year to year with tax
deducted at source. He further observed that in the return of income
filed earlier to Assessment Year 2006-07, nowhere it was mentioned that
expense incurred were being accumulated and shown as work-in-
progress. The losses incurred on account of payment of interest on loans
as well as other administrative & establishment expenses were never
sought to be allowed to be carried forward. In view of the observations
3 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
made by him, he held that the assessee-firm was keeping their books on
mercantile basis and was also showing the income/losses from year to
year and that it was not following Projects Completion Method.
Therefore the AO interalia disallowed brought forwarded expenses of
Rs.47,41,255/- and added back to the assessee's total income for the
year under assessment. The penalty proceedings were also initiated.
3. In appeal against the assessment order (quantum appeal), the
learned CIT(A) after considering the assessment orders for the
Assessment Years 1989-90 and 1994-95 and the accounts of the assessee
observed that in the present case, the assessee had purchased the plots
long back and because of no construction activities, the expenses had
been carried over and no income had been offered for taxation. The
assessee had taken loan from number of persons and was paying interest
thereupon which was debited to P&L account and transferred to balance
sheet as "Work in progress". He further observed that though there was
no specific finding given by the AO that the assessee followed the
project completion method, yet, the AO had allowed the work in
progress to be capitalized during the earlier assessment years. In none of
the earlier assessment years, the AO had computed the income of the
assessee under the percentage completion method. He therefore
considering the position adopted by the AO in the earlier years and also
in view of the fact that no profits had been shown in the earlier years,
only expense had been shown as capitalized, which were mainly interest
expenditure, directed the AO to compute the income on the basis of
Project Completion Method.
4. In further appeal by the Revenue before this Tribunal, the Tribunal
observed that since no construction activity had been carried out by the
4 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
assessee after acquisition of land in the year 1987 and cost of land was
treated by the assessee as stock-in-trade, hence the CIT(A) was not
justified in holding that the income of the assessee was to be computed
on the basis of the Project Completion Method. The order of the CIT(A)
was thus set aside by the Tribunal and that of the AO was restored.
5. In penalty proceedings, the AO observed that in the instant case, the
assessee had furnished inaccurate particulars of income and tried to get undue
benefit. If an assessee falsely claims a deduction, it will amount to concealing
the particulars of income or deliberately furnishing inaccurate particulars of
income within the meaning of section 271(1)(c) of the Act. She therefore
levied penalty @100% of the of the amount of tax sought to be
evaded at Rs.20,33,487/-.
6. In appeal against the penalty order before the ld. CIT(A), the ld. CIT(A)
observed that in view of the fact that the ITAT had upheld the findings of the
AO disallowing the claim of brought forwarded expenditure, it was clear that
the assessee had made a wrong claim of brought forward expenses and thus had
furnished inaccurate particulars of income, thereby concealing his income. He
therefore upheld the levy of penalty by the AO in respect of the disallowance of
brought forward expenses. The assessee is, thus, with the present appeal before
us.
7. We have heard the rival contentions of the parties and also gone through
the records. There is no doubt to the position that the disallowance of
assessee's claim of brought forwarded expense by the AO, has been upheld by
the Tribunal. However it is also a fact on the file that, as has been observed by
the ld. CIT(A) in the quantum appeal proceedings, the AO had allowed
the work in progress to be capitalized during the earlier assessment
years. In none of the earlier assessment years, the AO had computed the
5 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
income of the assessee under the percentage completion method. Under
such circumstances, it cannot be said that the assessee's claim was not
bonafide. The computation adopted by the assessee was according to one
of the possible views/methods of accounting, which though was not
accepted by the AO and further by the Tribunal, but was held to be
justified by the ld. CIT(A) in quantum assessment/appellate proceedings.
In our view, merely because the accounting method of the assessee was
not accepted by the AO or that the claim of brought forwarded expenses
was disallowed because of the peculiar fact that no construction activity
could be carried out by the assessee during the past years, that itself,
ipso facto, cannot be a ground in holding that the assessee had furnished
inaccurate particulars of income or had concealed its income. Hence, we
hold that it is not a fit case for levy of penalty and accordingly the
penalty levied by the lower authorities is hereby set aside.
8. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the open court on 27.08.2014.
Sd/- Sd/-
(D. Karunakara Rao) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 27.08.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
6 ITA No.4706/M/2012
M/s. Jain Builders (Vasai)
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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