M/S. TANNA & MODI, MUMBAI V. THE ITO 25(3)(4), MUMBAI

ITA 1516/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8627 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 18-01-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 29-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: SANJUKTA; PRAMOD K PARIDA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI P.M. JAPTAP, A.M. AND SHRI N. V. VASUDE VAN, J.M. I.T.A. NO.1516/MUM/2008 ASSESSMENT YEAR : 2000-01 & I.T.A. NO.1517/MUM/2008 ASSESSMENT YEAR : 2001-02 M/S. TANNA & MODI 107/108, SUPER SHOPPING COMPLEX, 1 ST FLOOR, BAJAJ CROSS ROAD, KANDIVALI (W), MUMBAI-400 067 PAN NO : AAAFT2151P INCOME TAX OFFICER25 (3)(4), C-11, PRATYAKSHKAR BHAVAN, 3 RD FLOOR, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI PRAMOD K. PARIDA & SHRI SANJUKTA RESPONDENT BY : SHRI D. SONGATE ORDER PER N. V. VASUDEVAN (JM) : BOTH THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE COMMON ORDER DATED 20.12.2007 OF COMMISSIONER OF IN COME TAX (APPEALS) - XXV, MUMBAI RELATING TO ASSESSMENT YEAR 2000-01 AND 2001-02. 2. IN BOTH THESE APPEALS THE ASSESSEE HAS CHALLENGE D THE ORDER OF LEARNED CIT(APPEALS), WHEREBY THE LEARNED CIT(APPEALS) CONF IRMED THE ORDER OF THE AO 2 BY IMPOSING PENALTY ON THE ASSESSEE U/S.270(1)(C) O F THE INCOME TAX ACT, 1961 (ACT). 3. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE PENA LTY U/S.271(1)(C) OF THE ACT WAS IMPOSED BY THE ASSESSING OFFICER ON THE ASS ESSEE ARE AS FOLLOWS :- THE ASSESSEE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF BUILDING AND DEVELOPING PROPERTIES. FOR ASSESSMENT YEAR 2000-01 THE ASSESSEE DECLARED THE TOTAL INCOME OF RS.10,330/-. FOR ASSES SMENT YEAR 2001-02 THE RETURN OF INCOME WAS FILED DECLARING TOTAL INCOME OF RS. N IL. WHILE COMPLETING THE ASSESSMENT FOR BOTH THE ASSESSMENT YEARS, THE AO NO TICED THAT THE ASSESSEE WAS FOLLOWING COMPLETED CONTRACT METHOD OF ACCOUNTING, AS PER WHICH NORMALLY THE PROFIT HAS TO BE DETERMINED ONLY IN THE YEAR OF COM PLETION OF THE PROJECT. HOWEVER, CONSIDERING THE LONG GESTATION PERIOD INVOLVED IN T HE PROJECT, THE ASSESSEE HAS BEEN DECLARING PROFIT FOR EACH INDIVIDUAL YEAR ON AN EST IMATE BASIS BASED ON THE VALUE OF WORK-IN-PROGRESS. IN THE ASSESSMENT YEAR 2000-01 TH E VALUE OF WIP WAS RS.75,43,323/- AND IN THE ASSESSMENT YEAR 2001-02 T HE VALUE OF WIP WAS RS.24,30,717/-. THE ASSESSING OFFICER ESTIMATED A N ET PROFIT RATE AT 15% OF THE VALUE OF WIP AND ESTIMATED THE NET PROFIT FROM BUSI NESS. ON APPEAL BY THE ASSESSEE, THE LEARNED CIT(APPEALS) HELD THAT INTERE ST AND OTHER DIRECT AND INDIRECT EXPENSES RELATED TO THE PROJECT SHOULD BE CAPITALIZ ED TO WORK-IN-PROGRESS AND THEREAFTER, 15% NET PROFIT RATE HAS TO BE COMPLIED TO DETERMINE THE INCOME OF THE ASSESSEE. ON FURTHER APPEAL BY THE ASSESSEE, THE HO NBLE ITAT IN ITA NO.4923 & 4924/MUM/2006 HELD THAT INTEREST EXPENDITURE HAS TO BE CAPITALIZED ONLY IN THE YEAR OF COMPLETION OF THE PROJECT AND SINCE THE ASS ESSEE HAS BEEN DECLARING PROFITS IN EACH YEAR INTEREST PAID FOR THAT PARTICULAR YEAR HAS TO BE ALLOWED AS DEDUCTION. 3 4. SIMILARLY THE ASSESSEE HAD CLAIMED DEDUCTION U /S.80IB (10) OF THE ACT, IN RESPECT OF PROFITS DERIVED FROM DEVELOPING HOUSING PROJECT. THE CLAIM OF THE ASSESSEE WAS REJECTED FOR THE REASON THAT THE CONST RUCTION OF BUILDING PROJECT HAS STARTED PRIOR TO 01.10.1998. IT IS A CONDITION FOR CLAIMING THE DEDUCTION U/S.80IB(10) OF THE ACT THAT THE ASSESSEE MUST HAVE COMMENCED DEVELOPMENT AND CONSTRUCTION OF HOUSING PROJECT ON OR AFTER 01.10.1 998. IN THE CASE OF ASSESSEE, THE ORIGINAL PERMISSION FOR CONSTRUCTION OF MULTI STORI ED BUILDING WAS GIVEN ON 20.10.1997. SINCE THE AFORESAID CONDITION WAS NOT SPECIFIED IN THE CASE OF ASSESSEE, DEDUCTION U/S.80IB(10) OF THE ACT WAS NOT ALLOWED. 5. IT IS IN RESPECT OF THE AFORESAID TWO ADDITION S MADE IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AFORESAID ASSESSMENT YEARS THAT THE AO IMPOSED PENALTY ON THE ASSESSEE HOLDING THAT THE ASSESSEE F URNISHED INACCURATE PARTICULARS OF INCOME. ON APPEAL BY THE ASSESSEE, THE LEARNED CIT( APPEALS) CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER, GIVING RISE TO THE P RESENT APPEALS BY THE ASSESSEE BEFORE THE TRIBUNAL. 6. BEFORE US, IT WAS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN RESPECT OF THE ADDITION ON ACCOUNT OF ESTIMATION OF NET PROFITS, WHEN AN ADDITION TO INCOME IS BASED ON ESTIMATES, PENALTY U/S.271(1) (C) CANNOT BE IMPOSED. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF HON BLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. RAJ BANS SINGH 276 ITR 351. IT WAS ALSO ARGUED THAT DISALLOWANCE OF EXPENSES OR CLAIM FOR DEDUCTION CANNOT MEAN THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE P ARTICULARS OF INCOME. WITH REGARD TO THE REFUSAL OF THE ASSESSEES CLAIM FOR D EDUCTION U/S.80IB (10) OF THE ACT, IT WAS SUBMITTED THAT ORIGINALLY THE ASSESSEE OBTAI NED PERMISSION FOR CONSTRUCTION OF MULTI STORIED BUILDING ON 20.10.1997. THE ASSESS EE SUBMITTED A REVISED PLAN AND 4 GOT PERMISSION FOR CONSTRUCTION OF ROW HOUSES, VID E PLANNING PERMISSION SANCTION DATED 30.03.2000. IT IS A PLEA OF THE ASSESSEE THAT IN VIEW OF THIS REVISED PLANNING PERMISSION, THE ASSESSEE WAS UNDER THE BONAFIDE BEL IEF THAT IT SATISFIES THE CONDITION THAT IT HAD COMMENCED DEVELOPMENT AND CONSTRUCTION OF HOUSING PROJECT AFTER 01.10.1998. IN THIS REGARD, IT IS WORTHWHILE MENTIO NING THAT AS ON 01.04.1997, THE OPENING WORK-IN-PROGRESS SHOWN BY THE ASSESSEE WAS AT RS.1,12,58,623/-. IN THE QUANTUM PROCEEDINGS ONE OF THE FACTORS WHICH WAS CO NSIDERED BY THE REVENUE AUTHORITIES WAS THAT, AS EARLY AS 01.04.1997, CONST RUCTION HAD ALREADY COMMENCED. THE COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US TH AT DISALLOWANCES OF DEDUCTION UNDER SEC.80-IB(10) OF THE ACT, CANNOT BE A GROUND FOR IMPOSING PENALTY AND IN THIS REGARD, HE RELIED ON THE DECISION OF HONBLE D ELHI HIGH COURT IN CASE OF CIT VS. DHANAPAL PREM CHAND LTD.329 ITR 572 (DEL). IT W AS ALSO SUBMITTED THAT IN RESPECT OF DEBATABLE CLAIM FOR DEDUCTION, IT CANNOT BE SAID THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF DEVSONS PVT. LTD. VS. CIT 329 ITR 483 (DEL). THE LEARNED DR RELIED ON THE ORD ERS OF THE REVENUE AUTHORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS FA R AS THE DEDUCTION U/S.80IB(10) OF THE ACT IS CONCERNED, WE ARE OF THE VIEW THAT IN THE LIGHT OF THE SUBSEQUENT PLANNING PERMISSION DATED 30.03.2000, IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80IB (10) OF THE ACT WAS A CLAIM WHICH THE ASSESSEE OUGHT NOT TO HAVE MADE. THE CLAIM MADE BY THE ASSESSEE IN OUR VIEW WAS DEBATABLE AND IT CANNOT BE SAID THAT THE VIEW ENTER TAINED BY THE ASSESSEE BASED ON THE PLANNING PERMISSION DATED 30.03.2000 THAT THEY COMMENCED PROJECT AFTER 01.10.1998 IS AN UNSUSTAINABLE VIEW. THOUGH, THE SA ID VIEW HAS NOT BEEN ACCEPTED IN THE QUANTUM PROCEEDINGS THAT WILL NOT GIVE RISE TO A PRESUMPTION THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME CALLING FOR IMPOSITION OF 5 PENALTY. AS FAR AS THE IMPOSITION OF PENALTY IN RES PECT OF ESTIMATION OF NET PROFIT IS CONCERNED, WE FIND THAT THIS ADDITION IS PURELY ON THE BASIS OF ESTIMATES. THE ASSESSEES ESTIMATE OF INCOME WAS NOT ACCEPTED AND IT WAS SUBSTITUTED BY THE ESTIMATION MADE BY THE ASSESSING OFFICER WHICH WAS MODIFIED BY THE LEARNED CIT (APPEALS) AND FURTHER MODIFIED BY THE TRIBUNAL. AS RIGHTLY CONTENTED ON BEHALF OF THE ASSESSEE ON SUCH ADDITION BASED ON ESTIMATES IT WOULD NOT BE APPROPRIATE TO IMPOSE PENALTY. IN SUCH CASES IT CANNOT BE SAID CER TAINLY THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME. TAKING INTO CONSI DERATION THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VI EW THAT IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY U/S.271(1)(C) OF THE ACT. WE THEREFORE, DIRECT THAT THE PENALTY IMPOSED TO BE CANCELLED. THE APPEALS OF THE ASSESS EE ARE TO BE ALLOWED. 8. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY, 2011. SD/- SD/- (P.M. JAGTAP ) ( N. V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 28 TH JANUARY, 2011. COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, E- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI