DCIT, Circle - 16(2), Hyderabad V. M/s Maheshwari Mega Ventures Limited, Hyderabad

ITA 1352/HYD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2620 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Business income; Depreciation; Cost of acquisition; Difference of opinion; Corroborative evidences; Capital expenditure
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1352/HYD/2014 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(2), HYDERABAD. VS. MAHESHWARI MEGA VENTURES LTD., HYDERABAD. PAN AADCM9780D APPELLANT RESPONDENT REVENUE BY: SHRI J. SIRI KUMAR ASSESSEE BY: SHRI K.C. DEVDAS DATE OF HEARING: 15/11/2017 DATE OF PRONOUNCEMENT: 24/01/2018 O R D E R PER S. RIFAUR RAHMAN, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A) - V, HYDERABAD DATED 28/02/2014 FOR THE AY 2 006-07. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE, CONSTRUCTIN G FLATS, SALE OF LAND AND RESTAURANT. FOR THE AY 2006-07, IT FILE D ITS RETURN OF INCOME ON 20/11/2006 ADMITTING INCOME OF RS. 1,00,3 9,650/- UNDER NORMAL PROVISIONS AND BOOK PROFIT OF RS. 2,35 ,67,546/- UNDER THE PROVISIONS OF SECTION 115JB. THE SAME WAS PROCESSED U/S 143(1) ON 07/11/2007. SUBSEQUENTLY, T HE CASE WAS SELECTED FOR SCRUTINY. 2.1 SURVEY U/S 133A WAS CONDUCTED ON 20/10/2008 IN THE CASE OF THE ASSESSEE. THE AO AFTER DISCUSSING WITH THE ASSESSEE AND ALSO BASED ON STATEMENTS RECORDED IN C OURSE OF I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 2 SURVEY, COMPLETED THE ASSESSMENT BY MAKING THE FOLL OWING ADDITIONS/DISALLOWANCES: 3. DISALLOWANCE OF DEVELOPMENT EXPENDITURE CLAIMED ON SALE OF LANDS UNDER THE HEAD INCOME FROM CAPITAL GA INS: 3.1 IN THE RETURN OF INCOME FILED BY THE ASSESSEE F OR THE AY 2006-07, THE ASSESSEE SHOWED SALE CONSIDERATION OF LANDS AT RS. 12,50,00,000/- ( 5 ACRES SOLD @ 2.50 CRORES PER ACRE.) THE ASSESSEE CLAIMED COST INCURRED TOWARDS DEVELOPMENT OF THESE LANDS AT RS. 2,31,50,000/-. THE INDEXED COST OF THE LANDS WAS SHOWN AT RS. 9,18,10,345/-. ACCORDINGLY, THE LONG T ERM CAPITAL GAINS ON SALE OF THESE LANDS WERE SHOWN AT RS. 1,00 ,39,655/- AND PAID TAXES ON THE SAME. 3.2 DURING THE COURSE OF SURVEY, AO NOTICED THAT TH E ASSESSEE DID NOT INCUR ANY DEVELOPMENT EXPENSES IN RESPECT OF THE ABOVE LANDS, AS NO VOUCHERS FOR DEVELOPMENT EXPENSES WERE FOUND DURING THE COURSE OF SURVEY AND NO DETAI LS OF EXPENSES WERE ALSO AVAILABLE IN THE BOOKS OF ACCOUN T. WHEN ASKED, THE DIRECTOR OF THE ASSESSEE COMPANY SHRI R AJKUMAR MALPANI,TO EXPLAIN WHAT WAS THE NATURE OF ABOVE DEV ELOPMENT EXPENDITURE AND WHY THEY WERE CLAIMED AS EXPENDITUR E, THE DIRECTOR STATED THAT THE ACCOUNTANT MISUNDERSTOOD T HE PAYMENTS AND WRONGLY CLAIMED AS EXPENDITURE OF THE COMPANY IN COMPUTING CAPITAL GAINS. HE STATED THAT HE HAD N O OBJECTION IN DISALLOWING THE EXPENDITURE IN COMPUTING CAPITAL GAINS INCOME IN THE HANDS OF THE COMPANY AND VOLUNTARILY ADMITTED TO PAY THE TAXES ON THE WRONG DEVELOPMENT EXPENSES BOOKED BY HIS ACCOUNTANT. ACCORDINGLY, THE AO DISALLOWED T HE ABOVE EXPENDITURE OF RS. 2,31,50,000/- IN COMPUTATION OF PROFITS OF THE ABOVE LANDS. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 3 4. COMPUTATION OF PROFIT ON SALE OF LAND UNDER THE HEAD INCOME FROM BUSINESS INSTEAD OF LONG TERM CAPITAL G AINS: 4.1 THE AO OBSERVED THAT THE ASSESSEE COMPANY SHOWE D PROFIT ON SALE OF LANDS AND COMPUTED LONG TERM CAPI TAL GAINS TAX AT RS. 1,00,39,655/-. WHEN ASKED TO EXPLAIN AS TO WHY THE PROFITS ON SALE OF THE LANDS SHOULD NOT BE TAXED AS BUSINESS INCOME, THE ASSESSEE SUBMITTED THAT THE FIRST MOU W AS ENTERED WITH THE LAND LORD ON 05/04/2002 BY ITS DIR ECTOR IN HIS INDIVIDUAL CAPACITY AND THEREFORE, THE PERIOD SHOUL D BE RECKONED FROM THIS DATE FOR COMPUTING LONG TERM CAP ITAL GAINS, EVEN THOUGH IT WAS NOT IN EXISTENCE DURING THE RELE VANT PERIOD. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY IS A BUILDER AND DEVELOPER AND THESE LAND WERE PURCHASED WITH AN INTENTION TO SELL AND MAKE THE PROFIT. THE AO, THER EFORE, WAS OF THE VIEW THAT THERE WAS NO MERIT IN THE EXPLANATION OF THE ASSESSEE FOR TAXING THESE LAND UNDER THE HEAD LONG TERM CAPITAL GAINS AND PROFIT ON SALE OF LANDS WAS TREAT ED TO BE TAXED AS BUSINESS INCOME. 5.. REJECTION OF ASSESSEE'S CLAIM THAT THE LONG TER M CAPITAL GAINS SHOWN BY IT WAS ON NOTIONAL BASIS AND NOT LIA BLE FOR TAX AT ALL: 5.1 DURING THE YEAR UNDER CONSIDERATION, THE ABOVE LANDS OF 5 ACRES WERE SOLD FOR RS. 12,50,00,000/- TO PRAKRUT I INFRASTRUCTURE AND DEVELOPERS (P) LIMITED AND RECEI VED ADVANCES OF RS.4 CRORES FROM THE PURCHASER IN RESPE CT OF THE ABOVE LANDS. AN MOU WAS ENTERED WITH THE PRAKRUTI INFRASTRUCTURE AND DEVELOPERS (P) LIMITED FOR SALE OF THESE LANDS. THE ASSESSEE COMPANY WAS TAKING THE STAND TH AT IT HAS NO RIGHTS OVER THE LANDS SOLD AS THE SAME ARE NOT Y ET REGISTERED IN ITS NAME DUE TO CERTAIN LEGAL DISPUTE S. THE ASSESSEE REQUESTED THAT THE CAPITAL GAINS INCOME OF FERED BY I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 4 IT IN THE RETURN OF INCOME SHOULD NOT BE TAXED AS I T HAS OFFERED THE SAME UNDER THE WRONG UNDERSTANDING OF LAW. 5.2 AFTER CONSIDERING THE EXPLANATION OF THE ASSESS EE, THE AO OBSERVED THAT THE MOU ENTERED BY THE ASSESSEE-CO MPANY FOR SALE OF LANDS TO PRAKRUTI INFRASTRUCTURE AND DE VELOPERS (P) LIMITED CLEARLY STATES THAT THE ASSESSEE-COMPANY WA S AN ASSIGNEE AND THE AGREEMENT HOLDER FROM THE LANDLORD AND IT HAS GOT THE RIGHTS TO DEVELOP THE PROPERTY AND ALSO TO SETTLE DISPUTES AND CLAIMS. FURTHER, HE OBSERVED THAT IT A LSO STATES THAT IT HAS GOT THE POWER TO DEAL WITH THIRD PARTIE S OUT OF THE AGREED AREA AND REALIZE THE SALE AMOUNT FOR MAKING PAYMENT TO THE ASSIGNOR. UNDER THIS MOU, THE ASSESSEE-COMPA NY SOLD THE LANDS FOR RS.12.50 CRORES. THIS MOU ALSO CLEARL Y STATES THAT THE ASSESSE-COMPANY BEING THE ASSIGNEE HAS GOT ALL THE RIGHTS AND POWERS TO ENTER MOU WITH THE PRAKRUTI INFRASTRUCTURE & MAHESHWARI MEGA VENTURES LTD & DEV ELOPERS (P) LIMITED. SIMILARLY, IT WAS OBSERVED THAT THE AG REEMENT ENTERED BY THE ASSESSEE COMPANY WITH THE LANDLORD C LEARLY STATES THAT IT HAS OBTAINED ALL THE RIGHTS TO PURCH ASE THE LANDS WITH A RIGHT OF DEVELOPMENT ENTERED BY ITS DIRECTOR THROUGH MOU ON 5-4-2002 AND THE FRESH MOU IS ENTERED ON 6-1 -2006 ONLY TO CHANGE THE RIGHTS FROM THE DIRECTOR TO THE COMPANY'S NAME. THE MOU CLEARLY INDICATES THAT THE ASSESSEE-C OMPANY IS HAVING RIGHTS OVER THE LANDS AND ALSO MADE PART PAYMENT TO THE LANDLORD AND IT HAS RIGHT TO SELL THESE LANDS A ND THEREFORE, THE PROFIT ACCRUING ON SALE OF THESE LANDS IS TAXAB LE IN THE HANDS OF THE ASSESSEE-COMPANY AS BUSINESS INCOME EV EN THOUGH THERE MAY BE SOME LITIGATIONS ON THE LAND. I T WAS ALSO OBSERVED THAT THE ASSESSEE-COMPANY PASSED THE ENTRI ES IN THE BOOKS OF ACCOUNT REGARDING PURCHASE OF THESE LANDS AND THE AMOUNT PAYABLE TO THE LANDLORD WAS SHOWN AS LIABILI TY AND THE LANDS PURCHASED ARE SHOWN AS ASSETS IN THE BALANCE SHEET. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 5 THE AO OPINED THAT IT IS ONLY AN AFTERTHOUGHT ON TH E PART OF THE ASSESSEE-COMPANY TO WITHDRAW THE CAPITAL GAINS OFFE RED IN THE RETURN OF INCOME. THEREFORE, THE ASSESSEE'S REQ UEST FOR NOT TAXING THE PROFIT ON SALE OF THESE LANDS, WAS NOT A CCEPTED. ACCORDINGLY, THE COMPUTATION OF INCOME ON SALE OF L ANDS BY CONSIDERING THE ABOVE THREE ISSUES WAS DONE AS UNDE R IN THE SAID ORDER: SALE CONSIDERATION RECEIVED - RS. 12.50,00,000 LESS: PURCHASE COST OF LANDS - RS. 7,50,00,000 ----------------- RS. 5,00,00,000 LESS: DEVELOPMENT EXPENSES AS DISCUSSED ABOVE RS. NIL INCOME ON SALE OF LANDS RS. 5,00 ,00,000 ========= 6. DISALLOWANCE OF CONTRACT PAYMENTS U/S 40(A)(IA): 6.1 ON VERIFICATION OF THE DETAILS, THE AO NOTICED THAT THE ASSESSEE-COMPANY THOUGH DEDUCTED THE TDS ON CONTRAC T PAYMENTS AMOUNTING TO RS.84,610/-, YET FAILED TO RE MIT THE SAME TO THE CENTRAL GOVERNMENT WITHIN THE TIME STIP ULATED. AS SUCH, THE ASSESSEE FAILS TO COMPLY WITH THE PROVISI ONS OF TDS. IN VIEW OF THIS, THE EXPENDITURE OF RS.84,610/- IS NOT ALLOWABLE ONE AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT. ACCORDINGLY, THE AMOUNT OF RS.84,610/- WAS DISALLOW ED AND ADDED BACK. 7. DISALLOWANCE OF ROC CHARGES PAID FOR INCREASE IN AUTHORIZED SHARE CAPITAL: 7.1 THE AO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED AN AMOUNT O F RS.10,02,600/- TO PROFIT & LOSS ACCOUNT TOWARDS REG ISTRATION I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 6 FEE PAID FOR INCREASE IN AUTHORIZED SHARE CAPITAL. SINCE THIS EXPENDITURE WAS A CAPITAL EXPENDITURE, AO DISALLOWE D THE SAME RELYING ON THE DECISION IN THE CASE OF BHARAT CARBON & RIBBON MFG. CO. LTD VS. CIT [1981] 127 ITR 239 (DEL HI). 8. ADDITION OF DIRECT DEPRECIATION ON CONSTRUCTION EQUIPMENT TO THE WIP OF PROJECTS UNDER CONSTRUCTION : 8.1 THE AO OBSERVED THAT DURING THE YEAR, THE ASSES SEE- COMPANY CLAIMED DEPRECIATION @ 15% ON PROPS (CENTRI NG EQUIPMENT) OF RS.24,80,498/-. THE DEPRECIATION CLAI MED COMES TO RS 3,72,74/-. HE HELD THAT AS THIS WAS DIR ECT DEPRECIATION RELATING TO THE PROJECTS UNDER CONSTRU CTION, THE SAME WAS DISALLOWED AND ADDED TO THE WIP OF THE PRO JECTS UNDER CONSTRUCTION. 9. ADDITION OF INDIRECT EXPENSES TO THE WORK-IN-PR OGRESS (WIP) OF PROJECTS UNDER CONSTRUCTION: 9.1 AO OBSERVED THAT DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE-COMPANY WAS CONSTRUCTING A COMMERCIAL COMPLEX IN HIMAYATNAGAR AND A FIVE STAR HOTEL IN YELLAREDDYGUDA. BANJARA HILLS AND HOTEL CITY PARK I N ABIDS. THE ASSESSEE-COMPANY SHOWED THE CONSTRUCTION EXPEND ITURE AND RELATED INTEREST ON THIS PROJECT AS CAPITAL WIP . SIMILARLY, THE CONSTRUCTION EXPENDITURE AND INTEREST RELATING TO THE PROJECT OF HIMAYATNAGAR WAS SHOWN UNDER THE HEAD WI P. NO PROFIT WAS SHOWN ON THE ADVANCES RECEIVED IN RESPEC T OF HIMAYATNAGAR PROJECT ON THE GROUND THAT CONSTRUCTIO N OF THE COMMERCIAL COMPLEX WAS IN THE INITIAL STAGE. THE WI P/DIRECT EXPENDITURE SHOWN IN RESPECT OF HIMAYATNAGAR PROJEC T FOR THE YEAR UNDER CONSIDERATION WAS RS.1 ,69,23,458/- 9.2 FURTHER, AO OBSERVED THAT SIMILARLY, THE DIRECT EXPENDITURE INCURRED FOR THE FIVE STAR HOTEL DURING THE YEAR I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 7 WAS RS.4,02,40,278/-. DURING THE YEAR, HOTEL CITY P ARK WAS ALSO CONSTRUCTED AND THE COST OF CONSTRUCTION FOR T HIS YEAR WAS SHOWN AT RS.19, 76,481/-. 9.3 AO NOTED THAT APART FROM THE ABOVE WORKS, DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS DONE CONTRACT WORK AND THE DIRECT EXPENDITURE OF THIS CO NTRACT WORK WAS SHOWN AT RS.87,26,923/-. SIMILARLY, THE ASSESSE E- COMPANY WAS RUNNING A RESTAURANT AND THE OPERATING EXPENDITURE OF THIS RESTAURANT IS SHOWN AT RS.28,10 ,174/-. DURING THE YEAR, THE ASSESSEE SHOWED PROFIT/INCOME ONLY ON CONTRACT WORK AND RESTAURANT. THE TOTAL EXPENDITURE OF THE COMPANY INCURRED DURING THE YEAR IN RESPECT OF THE ABOVE PROJECTS/CONTRACTS/RESTAURANT COMES TO RS. 7.6 CROR ES (APPROX.). THE EXPENDITURE IN RESPECT OF CONTRACT W ORKS AND RESTAURANT COMES TO RS 1.15 CRORES (APPROX.). THE A BOVE EXPENDITURE SHOWS THAT ABOUT 84% OF THE WORK OF THE COMPANY DURING THE YEAR RELATES TO THE CONSTRUCTION OF PROJ ECTS UNDER CONSTRUCTION. ONLY 16% OF THE WORK OF THE COMPANY R ELATES TO CONTRACT WORK/RESTAURANT WORKS. THE ASSESSEE INCURR ED INDIRECT EXPENDITURE IN THE SHAPE OF ADMINISTRATIVE AND GENERAL EXPENSES OF RS.41,84,365/- WHICH EXCLUDES ROC CHARG ES, SALARIES TO STAFF INCLUDING DIRECTORS' SALARIES OF RS.42,32,673/- AND DEPRECIATION OF RS.17,38,030/- WHICH WAS EXCLUS IVE OF DEPRECIATION ON HOTEL BUILDINGS AND HOTEL PLANT & M ACHINERY OF RS. 19,67,339/-. HOWEVER, THE ASSESSEE-COMPANY NOT ALLOCATED ANY INDIRECT EXPENDITURE OTHER THAN INTER EST TO THE PROJECTS UNDER CONSTRUCTION EVEN THOUGH THESE ACCOU NT FOR AROUND 84% OF THE ASSESSEE'S BUSINESS. NON-ALLOCATI ON OF THE INDIRECT EXPENSES TO THE WIP RESULTED IN UNDER ESTI MATION OF WIP OF THE PROJECTS UNDER CONSTRUCTION AFFECTING TH E PROFIT SHOWN ON THE CONTRACT INCOME AND RESTAURANT INCOME. FOR EXAMPLE, THE CONTRACT RECEIPTS SHOWN BY THE ASSESSE E ARE I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 8 RS.1.40 CRORES AND THE DIRECT EXPENDITURE RELATING TO THIS CONTRACT WORKS WAS RS.87.26 LAKHS. THIS GIVES A GRO SS PROFIT OF AROUND RS.53 LAKHS ON CONTRACT WORKS. HOWEVER, IN R EALITY, THE NET PROFIT ON THE CONTRACT RECEIPTS SHOWN BY THE AS SESSEE WAS LOSS DUE TO ALLOCATION OF ENTIRE INDIRECT EXPENSES TO THIS WORK ONLY. THE ASSESSEE WAS REQUESTED TO EXPLAIN WHY THE INDIRECT EXPENSES SHOULD NOT BE ALLOCATED TO THE PROJECTS UN DER CONSTRUCTION BASED ON THE RATIO OF TOTAL EXPENDITUR E. THE AUTHORIZED REPRESENTATIVE STATED THAT THE ADMINISTR ATIVE EXPENDITURE, SALARIES AND DEPRECIATION SHOULD NOT B E ADDED TO THE WIP OF THE PROJECTS UNDER CONSTRUCTION AS THESE ARE NOT DIRECTLY RELATED TO THE PROJECTS. THE EXPLANATION O F THE ASSESSEE WAS CONSIDERED AND FOUND NOT ACCEPTABLE. N ON- ALLOCATION OF THE INDIRECT EXPENSES TO THE PROJECTS UNDER CONSTRUCTION RESULTS IN SHOWING LOWER PROFITS IN RE SPECT OF OTHER DIVISIONS AND THE PROFIT GETS POSTPONED TO TH E SUBSEQUENT YEARS. 9.4 IN VIEW OF THE ABOVE OBSERVATIONS, THE AO RELYI NG ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD., 188 ITR 44, OPINED T HAT THE ALLOCATION OF INDIRECT EXPENSES TO THE PROJECTS UND ER CONSTRUCTION IS NECESSARY TO WORK OUT THE CORRECT W IP THE TOTAL OF INDIRECT EXPENSES AS DISCUSSED ABOVE COMES TO 1,01,55,068/- (ADM. RS. 41,84,365 + SALARIES: RS.42 ,32,673 + DEPRECIATION: RS.17,38,030). AS HELD IN THE EARLIER PARAS, 84% OF THE WORK RELATES TO CONSTRUCTION OF THE PROJECTS , WHICH ARE UNDER CONSTRUCTION, THE INDIRECT EXPENSES TO THE EX TENT OF 84% DEBITED TO PROFIT & LOSS ACCOUNT WERE DISALLOWED AN D ADDED TO THE WIP VALUES OF THE PROJECTS UNDER CONSTRUCTION. THE DISALLOWANCE ON THIS COUNT COMES TO RS.85,30,257/-. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 9 10. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) AGAINST THE ORDER OF AO AND CONTESTED THE FOLLOWING THREE ADDITIONS: 1. DISALLOWANCE OF DEVELOPMENT EXPENDITURE CLAIMED ON SALE OF LANDS UNDER THE HEAD INCOME FROM CAPITAL GA INS- RS. 5,00,00,000/- 2. ADDITION OF DIRECT DEPRECIATION ON CONSTRUCTION EQUIPMENT TO THE WIP OF PROJECTS UNDER CONSTRUCTION - RS. 3,72,074/-. 3. ADDITION OF INDIRECT EXPENSES TO THE WORK-IN-PRO GRESS (WIP) OF PROJECTS UNDER CONSIDERATION - RS. 85,30, 257/-. 10.1 THE CIT(A) GAVE RELIEF IN THE RESPECT OF 1 ST ISSUE AND CONFIRMED THE OTHER TWO ADDITIONS. 10.2 WHEN ASSESSEE CARRIED THE MATTER IN APPEAL BEF ORE THE ITAT, THE ITAT UPHELD THE ORDER OF AO. 11. THEREAFTER, THE AO INITIATED PENALTY PROCEEDING S U/S 271(1)(C) ON THE GROUND THAT THE ASSESSEE HAD FURNI SHED INACCURATE PARTICULARS OF INCOME AND THEREBY SOUGHT TO EVADE TAX AND ISSUED A NOTICE ACCORDINGLY. 12. THE ASSESSEE CONTENDED THAT THE ADDITIONS WERE MADE ON THE BASIS OF MATERIAL ALREADY AVAILABLE ON RECOR D AND TAKING A DIFFERENT VIEW FROM THAT OF THE ASSESSEE AND ALSO IN VIEW OF VARIOUS JUDICIAL DECISIONS, THE PENALTY PROCEEDINGS U/S 271(1)(C) CANNOT BE INITIATED AGAINST THE ASSESSEE. FURTHER, IT WAS CONTENDED THAT THE AO HAS NOT ESTABLISHED IN TH E ASSESSMENT ORDER THAT THE ASSESSEE HAS CONCEALED TH E PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS OF INCOME. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 10 12. REJECTING THE SUBMISSIONS OF THE ASSESSEE, THE AO LEVIED A MINIMUM PENALTY OF RS. 2,01,92,479/- U/S 2 71(1)(C) OF THE ACT. 13. AGAINST THE SAID PENALTY ORDER, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE CIT(A). 14. BEFORE CIT(A), T HE AR OF THE ASSESSEE SUBMITTED THAT MERE FACT OF UPHOLDING OF ADDITIONS BY THE HON'BLE ITAT WOULD NOT TANTAMOUNT TO ESTABLISHING OF CONCEALMENT OF PA RTICULARS OF INCOME. IT WAS MENTIONED THAT PENALTY PROCEEDINGS U /S. 271(1)(C) ARE INDEPENDENT PROCEEDINGS AND CONCEALME NT OF THE FACTS ARE TO BE ESTABLISHED BEFORE LEVYING PENA LTY. THE AR LAID RELIANCE ON THE FOLLOWING CASES: A. BANARAS TEXTORIUM VS CIT (169 ITR 782) (ALL) B. CIT VS SARAF TRADING CORPORATION (65 ITR 60) (KE R) C. CIT VS D RATNAM (1995) (TAX LR 504, 506) D. DILIP N SHROFF VS JCIT, 2007, (291 ITR 519 SC) E. T.ASHOK PAI VS JCIT (292 ITR 11) (SC) 14.1 FURTHER, THE AR MENTIONED THAT AS OBSERVED BY THE HON'BLE ITAT LUCKNOW BENCH IN THE CASE OF STAR INTE RNATIONAL (P) LTD. V. ASST. CIT [2009] 122 TTJ 380 UNLESS THE ASSESSING OFFICER GIVE A FINDING THAT ASSESSEE DID NOT SUBSTA NTIATE THE EXPLANATION OFFERED, THE SAME WAS NOT BONAFIDE AND ALL THE FACTS AND MATERIAL RELATING TO THE COMPUTATION OF T OTAL INCOME WAS NOT DISCLOSED, THERE WAS NO SCOPE TO LEVY PENAL TY U/S 271(1)(C) OF THE ACT. 14.2 THUS, THE AR OF THE ASSESSEE VEHEMENTLY ARGUED BEFORE THE CIT(A) THAT IN THE FACTS AND CIRCUMSTANCES OF T HE CASE OF THE ASSESSEE THERE WAS NO SCOPE TO LEVY PENALTY U/S .271(1)(C) OF THE IT ACT AND THEREFORE THE SAME WAS LIABLE TO BE DELETED. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 11 15. THE CIT(A) AFTER EXAMINING ALL THE ADDITIONS MA DE BY THE AO ELABORATELY, DELETED THE PENALTY LEVIED U/S 271( 1)(C) OF THE ACT BY OBSERVING AS UNDER: 9.3 AFTER GOING THROUGH ALL THE FACTS AND CIRCUMSTA NCES OF THE CASE AS WELL AS ARGUMENTS PUT FORTH BY THE A R OF THE APPELLANT THE CONCLUSIONS THAT CAN BE ARRIVED A T ARE: I. THE ASSESSEE FILED ALL DETAILS REGARDING LAND TRANSACTION ALONG WITH THE RETURN OF INCOME DECLARI NG THE PROFIT UNDER THE HEAD CAPITAL GAINS. II. THE ASSESSING OFFICER AFTER GOING THROUGH THE R ELEVANT DETAILS REWORKED OUT THE PROFIT IN THAT LAND TRANSA CTION ARRIVING AT THE CONCLUSION THAT THE SAME SHOULD BE BROUGHT TO TAX UNDER THE HEAD BUSINESS. III. THE CLAIM OF THE EXPENDITURE AS DEDUCTION WAS WITHDRAWN BY THE ASSESSEE THOUGH THERE WAS NO SPECI FIC INFORMATION ON RECORD TO ESTABLISH THAT THE SAME WA S BOGUS. IV. AS DISCUSSED IN THE EARLIER PART OF THIS ORDER, THE ISSUE INVOLVED WITH REGARD TO ASSESSING OF THE PROF IT ACCRUED IN LAND TRANSACTION UNDER A SPECIFIC HEAD I S A DEBATABLE ISSUE. V. DISALLOWANCE U/S.40(A)(IA) OF THE I.T ACT CANNOT BE CONSIDERED AS A GROUND FOR LEVY OF PENALTY U/S.271( 1)(C) OF THE IT ACT IN THE LIGHT OF DECISION OF THE HON'B LE ITAT, HYDERABAD. VI. THE EXPENDITURE INCURRED TOWARDS ROC CHARGES WA S DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THUS THE RELEVANT INFORMATION WAS DISCLOSED BY THE ASSESSEE IN THE FINANCIAL STATEMENTS. DISALLOWANCE OF CLAIM OF DEDUCTION BY THE ASSESSING OFFICER BECAUSE THE SAME WAS OF CAPITAL NATURE, IN MY VIEW DOES NOT AMOUNT T O CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. VII. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE DEPRECIATION BASING ON THE FACTS ALREADY DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME. VIII. THE ASSESSING OFFICER REWORKED OUT THE WORK-I N- PROGRESS ATTRIBUTABLE TO PROJECTS UNDER CONSTRUCTIO N, IGNORING THE CONSISTENT PROCEDURE ADOPTED BY THE I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 12 ASSESSEE IN HIS ACCOUNTS AND SUCH REWORKING OUT BAS ING ON THE DETAILS ALREADY AVAILABLE ON RECORD MAY NOT CONSTITUTE CONCEALMENT OF PARTICULAR OF INCOME. 9.4 THUS, THE ASSESSING OFFICER MADE THE ADDITIONS / DISALLOWANCES BASING ON THE FINANCIAL STATEMENTS WH ICH WERE FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME. UNDER THESE CIRCUMSTANCES, I AM OF THE OPIN ION THAT THERE IS NO CASE TO CONCLUDE THAT THE ASSESSEE CONCEALED PARTICULARS OF INCOME OR FURNISHING INACC URATE PARTICULARS OF INCOME. 9.5 IN THE LIGHT OF DETAILED DISCUSSION, I AM OF TH E OPINION THE PENALTY U/S.271(1)(C) WAS LEVIED BASING ON CONCLUSIONS ARRIVED AT IN THE ASSESSMENT ORDER AND BASING ON ADDITIONS/DISALLOWANCES MADE WHILE COMPUTING THE TOTAL INCOME. THERE IS NO INDICATION IN THE PENALTY ORDER THAT THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER CONSTITUTED CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME FOR THE PURPOSE OF LEVY OF PE NALTY U/S.271(1)(C) OF THE IT ACT. IN THE ABSENCE OF ANY INDEPENDENT SUPPORTING EVIDENCE WITH REGARD TO CONCLUSION ARRIVED AT REGARDING CONCEALMENT OF INCO ME FOR THE PURPOSE OF LEVY OF PENALTY THERE IS NO SCOP E TO UPHOLD THE ACTION OF THE ASSESSING OFFICER. HENCE, THE PENALTY LEVIED U/S.271(1)(C) OF THE IT ACT IS DELET ED. 16. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE CIT(A) OUGHT TO HAVE UPHELD THE PENALTY AS T HE ADDITIONS WERE ALSO SUSTAINED BY THE ITAT. 3. THE CIT(A) OUGHT TO CONSIDERED THAT THE PENALTY WAS LEVIED ON THE GROUNDS THAT THE ASSESSEE COMPANY FURNISHED INACCURATE PARTICULARS AND RESULTED TO DISALLOWANCE. 4. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIM E OF HEARING. 17. LD. DR SUBMITTED THAT BECAUSE OF SURVEY PROCEED INGS ONLY, THE ISSUES CAME TO LIGHT, OTHERWISE, IT WOULD HAVE GONE UNNOTICED. FURTHER, HE SUBMITTED THAT HONBLE ITAT HAS I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 13 CONFIRMED ALL THE ADDITIONS CONTESTED BY THE ASSESS EE. AO HAS DISCUSSED ELABORATELY IN THE PENALTY ORDER TO JUSTI FY THE LEVY OF PENALTY. HE RELIED ON THE DECISION IN THE CASE OF C IT VS. ANWER ALI 76 ITR 697 (SC). HE BROUGHT TO OUR NOTICE THE PARA 4.10.1 AND PARA 9.3 OF CIT(A) ORDER TO SUBMIT THAT CIT(A) HAS IGNORED THAT ASSESSEE HAS SUBMITTED INACCURATE PART ICULARS AND CAME TO WRONG CONCLUSION. FURTHER, HE RELIED ON THE FINDINGS OF HONBLE ITAT ON THESE ADDITIONS (PAGE 4 0 OF PAPER BOOK). 18. LD. AR SUBMITTED THAT REVENUE DEPARTMENT HAS RA ISED ONLY EFFECTIVE GROUND I.E. GROUND NO. 3 OF GROUNDS OF APPEAL THAT THE DISALLOWANCE MADE BY THE AO IS AUTOMATIC T O CONFIRMATION OF PENALTY. HE FURTHER SUBMITTED THAT THE SURVEY WAS CONDUCTED ONLY ON DEVELOPMENT EXPENSES AND THE SAME WAS ACCEPTED BY THE ASSESSEE AND PAID THE TAX DUES VOLUNTARILY. THE AO HAS CHANGED THE HEAD OF INCOME, WHICH WAS DISPUTED BEFORE THE CIT(A). IT IS RELEVANT TO N OTE THAT CIT(A) HAS ALLOWED THE APPEAL IN FAVOUR OF THE ASSE SSEE. THE DEVELOPMENT EXPENSES WERE NOT THE SUBJECT MATTER OF THE ASSESSMENT AND APPEALS, THE ISSUE WAS ONLY THE HEAD OF INCOME. IT IS ONLY THE DIFFERENCE OF OPINION AND WI LL NOT LEAD TO FURNISHING OF INACCURATE PARTICULARS. HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CONCORD OF INDIA INSURANCE CO. LTD., VS. SMT. NIRMALA DEVI & OTHERS, 118 ITR 507 (SC) TO SUGGEST THAT AS PER THE PROFESSIONAL AD VICE, ASSESSEE HAS FORMED THE OPINION AS THE HEAD OF INC OME. MOREOVER, AO HAS NOT RECORDED IN ASSESSMENT ORDER T HAT IT HAS FURNISHED INACCURATE PARTICULARS OF INCOME. 18.1 WITH REGARD TO ROC CHARGES, AR SUBMITTED THAT THERE ARE CONFLICTING DECISIONS ON THIS ISSUE, SOME ARE I N FAVOUR OF ASSESSEE. THE ASSESSEE HAS FOLLOWED THE ADVICE OF C OUNSELS, I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 14 AO CANNOT FRAME PENALTY UNDER THIS BACK GROUND, HE RELIED ON VIJAY VISHIN MEGHANI VS. DCIT, 398 ITR 250 (BOM.) 18.2 WITH REGARD TO WIP VALUATION, AR SUBMITTED THA T ASSESSEE HAS TWO DIFFERENT INDEPENDENT BUSINESSES, THE EXPENSES WERE ALLOCATED TO THE BUSINESS WHICH IS RU NNING PROFITABLY AND BY MISTAKE IT WAS NOT ALLOCATED TO T HE PROJECT UNDER CONSTRUCTION. HE RELIED ON THE DECISION IN TH E CASE OF BR LTD. VS. VP GUPTA, CIT (SC) 113 ITR 647 (PLACED AT PAGE 1 OF PAPER BOOK III). 18.3 WITH REGARD TO CENTRING MATERIAL DEPRECIATION, AR SUBMITTED THAT THERE ARE TWO VIEWS POSSIBLE AND ASS ESSEE HAS REGULARLY FOLLOWED THE SAME METHOD OF ACCOUNTING. H E RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ANWAL ALI [1970] 76 ITR 696 AND CIT VS. REL IANCE PETROPRODUCTS PVT. LTD., [2010] 322 ITR 158 (SC). 19. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. IN THE INSTANT CASE, WITH REGAR D TO GROUND NO. 2, THE EXPLANATION OFFERED BY THE ASSESSEE IN R ESPECT OF THE ADDITIONS IS BONAFIDE. THERE IS NO FRAUD OR ANY GROSS OR WILLFUL NEGLECT ON PART OF THE ASSESSEE. IT IS A S ETTLED LAW THAT THE PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDI NGS ARE DISTINCT AND SEPARATE. THE FINDINGS IN THE ASSESSME NT PROCEEDINGS THOUGH RELEVANT AND GOOD FOR MAKING THE QUANTUM ADDITION DOES NOT AUTOMATICALLY JUSTIFY THE IMPOSIT ION OF PENALTY AS THE REGULAR ASSESSMENT ORDER IS NOT THE FINAL WORD IN PENALTY PROCEEDINGS AND HOWSOEVER RELEVANT AND G OOD THE FINDINGS IN THE ASSESSMENT ORDER MAY BE, THEY ARE N OT CONCLUSIVE SO FAR AS THE PENALTY PROCEEDINGS ARE CO NCERNED. FOR THE ABOVE PROPOSITION RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: (I) BANARAS TEXTORIUM VS. OT (1988) 169 ITR 782 (AL L.) I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 15 (II) CIT VS. DHARAMCHANDL SHAH (1993) 204 ITR 462 (BOM.) (III) NATIONAL TEXTILE CORPORATION VS. CIT(2000) 16 4 OR 209 (GUJ.) 19.1 IN THE GIVEN CASE, THE ASSESSEE HAS CLAIMED DEVELOPMENT EXPENSES BY MISTAKE DUE TO WRONG UNDERSTANDING OF ACCOUNTANT. THIS WAS NOT THE DISPU TE BEFORE APPELLATE AUTHORITIES AS THE SAME WAS ACCEPTED AND PAID TAX DUES DURING THE ASSESSMENT PROCEEDING STAGE ITSELF. WITH REGARD TO CHARGING OF INCOME UNDER THE HEAD BUSINE SS INCOME, WHICH WAS FINALLY ACCEPTED BY ITAT, BUT, CI T(A) HAS ADJUDICATED IN FAVOUR OF ASSESSEE I.E. AS CAPITAL G AINS. THEREFORE, THIS ISSUE IS DEBATABLE CONSIDERING THE FACT THAT THERE ARE TWO POSSIBLE VIEWS. THEREFORE, THIS CANN OT BE A POINT WHICH WILL FALL UNDER FURNISHING OF INACCURAT E PARTICULARS AND IS NOT FIT CASE TO ATTRACT THE PROVISIONS OF SE CTION 271(1)(C). WITH REGARD TO OTHER ISSUE OF ROC CHARGE S, ALLOCATION OF EXPENSES AND DEPRECIATION, THE ASSESS EE HAS RELIED ON THE OPINION OF EXPERTS AND POSSIBILITY OF DIFFERENT VIEWS. ALL THE ISSUES UNDER DISPUTE ARE PART OF INF ORMATION FILED BEFORE THE AO, IT IS NOT THE CASE OF UNEARTHING INF ORMATION FROM OUTSIDE THE BOOKS OF ACCOUNT. THEREFORE, IT CA NNOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. 19.2 IN OUR CONSIDERED VIEW, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE PENALTY LEV IED BY THE AO U/S 271(1)(C) AND ACCORDINGLY, WE DISMISS THE GR OUNDS RAISED BY THE REVENUE. I.T.A. NO. 1352/HYD/14 MAHESHWARI MEGA VENTURES LTD., HYD. 16 20. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 24 TH JANUARY, 2018 KV COPY FORWARDED TO: 1. DCIT, CIRCLE 16(2), ROOM NO. 611, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S MAHESHWARI MEGA VENTURES LTD., 4-1-833, 3 RD FLOOR, MPM MALL, ABIDS, HYD. 3. CIT(A) V, HYD. 4 CIT - IV, HYD. 5 THE DR, ITAT, HYDERABAD 6 GUARD FILE