M/s. Neelima Constructions, Secunderabad V. ITO, Ward-10(4), Hyderabad

ITA 1571/HYD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5548 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: CH G MURALIKRISHNA MURTHY
• Keywords: Principle of natural justice; Reasonable cause; Wrong claim; Competent authority; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1571/HYD/11 : ASSESSMENT YEAR 2007 - 08 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD ( PAN - AAFFN 5453 K) V/S. INCOME TAX OFFICER WARD 10(4), HYDERABAD (APPLICANT) (RESPONDENT) APPELLANT BY : SHRI CH.G.MURALIKRISHNA MURTHY RESPONDENT BY : SHRI SOLGY JOSE T.KOTTARAM DR DATE OF HEARING 24.2.2014 DATE OF PRONOUNCEMENT 28.3.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) VI HYDERABAD DATED 17.6.2011, CONFIRMING PART OF THE PENALTY OF RS.28,41,880 IMPOSED BY THE ASSESSING OFFICER UNDER S.271(1)(C) OF THE ACT, FOR THE ASSESSMENT YEAR 2007 - 08. 2. FACTS OF TH E CA S E IN BRIEF A R E THAT THE ASSESSEE FIRM , ENGAGED IN THE BU S IN E SS O F CON S TRUC T ION OF RESIDENTIAL APARTM E NTS AND HOUSES, HAS TAKEN UP, DURING THE Y E AR THE WORK O F DEVELOPING AND BUILDING HOUSING PROJECTS IN THE NAME AND STYLE OF NEELIMA GREENS (DUPLEX HOU S ES) AND NEELIMA HEIGHTS (FLATS). A SURVEY OPERAT I ON WAS CON D U C TED IN THE BUSINES S PREMIS ES OF THE ASSESSEE ON 21.9.2006. FOR THE ASSESSMENT YEAR 2007 - 08, THE ASSESSEE FILED ITS RETURN OF INCOME ORIGINALLY ON 15.11.2007 ADMITTIN G TOTAL INCOME OF R S .18,00,000. THEREAFTER, A REVISED RETURN WAS FILED ON 9.9.2008, DECLARING TOTAL INCOME OF R S .32,85,030. ULTIMATELY, PROCEEDING ON THE BASIS OF REVISED RETURN, ASSESSMENT WAS COMPLETED UNDER S.143(3) OF THE AC T ON 31.12.2009, ON A TOTAL INCOME OF RS.1,17,27,926 , AFTER MAKING THE FOLLOWING ADDITIONS/DISALLOWANCES TO THE INCOME DISCLOSED BY THE ASSESSEE. ITA NO. 1 5 71 / HYD/20 11 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD 2 ( I ) DISALLOWANCE OF EXEMPTION CLAIMED U/S. 80IB(10) RS.28,84,404 ( II ) INTEREST PAID ON ADVANCE FOR PLOT RS.29,14,543 ( III ) DIFFERENCE IN NET PROFIT FROM NEELIMA GREENS RS.26,43,950 WHILE THUS COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER ALSO INITIATED PROCEEDINGS FOR LEVY OF PENALTY UNDER S .271(1)(C) OF THE ACT. T O TH E SHOW CAU S E NO T ICE ISSUED IN THAT BEHALF, ASSESSEE FIL E D REPLY, CONTEND ING INTER ALIA THAT NOTHING WAS UNEARTHED DURING THE SCRUTINY ASSESSMENT PROCEEDIN G S, EXCEPT DISALLOWING CERTAIN EXPENSES IN AN UNJUSTIFIABLE MANNER; AND THE DISALLO W ANCE OF EXPENDITURE IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. SUCH DISALLO W ANCE OF EXPENDITURE, ACC O R DING TO TH E ASSESSEE DOES NO T CONSTITUTE CONCEALMENT OF INCOM E, AND THE ASSESSEE , HAVING DISCLOSED ALL FAC T S MATERIAL FOR TH E COMPLETION OF ASSESSMENT OF HIS INCOME, NO P E N A LTY IS LEVIABLE, EVEN IF THE ASSESSING OFFICER COM E S TO A DIFFERENT CONCLUSION OTHER THAN THAT OF THE ASSESSEE. IT WAS AL S O FURTHER CONTENDED THAT T HERE MUST BE ABSENCE O F REASONABLE CAUSE WHICH FACT HAS TO BE OBJECTIVELY FOUN D BY TH E A UTHO R I T Y IN TH E LIGHT O F THE EXPLANATION OFFERED BY THE ASSESSEE BEFORE LEVYING PENALT Y , AND THE R EVENUE HAS TO ESTABLISH THAT THE EXPLANATION OFFE R ED WAS NO T SUBSTANTIATED. 3. NOT FINDING MERIT IN TH E CON T ENTIONS O F TH E ASSESSEE, THE ASSESSING OFFICER IMPOSED PENALTY OF R S .28,41,880, WITH REFERENCE TO THE ABOVE ADDITIONS/DISALLOWANCES MADE IN THE A SSESSMENT, VIDE O R DER OF PENALTY DATED 29.6.2010 PASSED UNDER S.271(1)(C) OF THE ACT. ON APPEAL, T HE CIT(A) DELETED THE PENALTY IMPOSED BY THE ASSESSING OFFICER ONLY WITH REGARD TO THE ESTIMATED ADDITION OF RS.26,43,950 MADE TO THE PROFIT FROM NEELIMA G REENS, OBSERVING THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCIES OR INACCURACIES NOTED IN THE ACCOUNTS, AND PENALTY CANNOT BE LEVIED ON GENERALIZED ESTIMATES OF INCOME, BUT CONFIRMED THE SAME IN RELATION TO THE O T H E R TWO ADDITIONS/DISALLO W ANCES , AND THUS, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO. 1 5 71 / HYD/20 11 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD 3 4. STILL AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE DISPUTE BEFORE US RELATES TO THE L EGALITY AND VALIDITY OF THE PENALTY IMPOSED BY THE ASSESSING OFFICER, WITH REFERENCE TO ADDITIONS/DISALLOWANCES MADE IN THE ASSESSMENT, (I) OF RS.28,84,404 BY DENIAL OF RELIEF UNDER S.80IB(10) CLAIMED BY THE ASSESSEE; AND (II) DISALLOWANCE OF INTEREST PAID ON ADVANCE FOR PLOT OF RS.29,14,543. 6. AS FOR THE FIRST ITEM OF DENIAL OF RELIEF UNDER S.80IB(10), IT IS EVIDENT FORM RECORD THAT THE ASSESSEE CLAIMED DEDUCTION OF R S .4,37,22,728 UNDER S.80IB(10) IN RESPECT OF ITS PROJECT, NEELIMA HEIGHTS IN THE OR IGINAL RETURN FILED BY IT. LATER, IN THE REVISED RETURN FILED ON 9.9.2008, THE CLAIM WAS REVISED TO RS.28,84,403. SUBSEQUENTLY, THE ASSESSEE FIELD A LETTER DATED 14.11.2009 WITHDRAWING THE CLAIM ALTOGETHER. IT WAS EXPLAINED THAT THE ASSESSEE WAS UNABLE T O OBTAIN THE COMPLETION CERTIFICATE FROM THE COMPETENT AUTHORITY AS REQUIRED UNDER THE PROVISIONS OF THE ACT, AND WAS THUS NOT ELIGIBLE FOR THE CLAIM. THE ASSESSING OFFICER, OBSERVING THAT IT WAS ONLY DURING THE COURSE OF SCRUTINY PROCEEDINGS THAT THE ASS ESSEE CAME FORWARD TO WITHDRAW THE CLAIM AND THIS WAS NOT A VOLUNTARY WITHDRAWAL. IT WAS FURTHER OBSERVED THAT THE PROJECT HAD NOT BEEN COMPLETED, AND AS SUCH, THE ASSESSEE WAS NOT ELIGIBLE FOR THE DEDUCTION. THE CIT(A), TAKING NOTE OF THE FACT THAT THE CLAIM FOR RELIEF UNDER S.80IB(10) WAS MADE EVEN IN THE REVISED RETURN, ALBEIT FOR A REVISED AMOUNT, AND ALSO THE FACT, THAT THE CLAIM WAS WITHDRAWN ALTOGETHER ONLY WHEN THE ASSESSING OFFICER MADE A SPECIFIC QUERY DURING THE COURSE OF ASSESSMENT PROCEEDING S, AND AS SUCH , THE WITHDRAWAL OF THE CLAIM WAS NOT VOLUNTARY, CONFIRMED THE PENALTY LEVIED BY THE ASSESSING OFFICER, WITH REFERENCE TO THIS AMOUNT OF DISALLOWANCE MADE , DENYING THE CLAIM FOR RELIEF UNDER S.80IB(10) OF THE ACT. ITA NO. 1 5 71 / HYD/20 11 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD 4 7. IT WAS THE CA S E OF T HE ASSESSEE RIGHT FROM THE BEGINNING THAT THE ASSESSEE WAS UNDER A BONA FIDE BELIEF AT THE TIME OF FILING O F THE RETURN, THAT THE PROJECT WOULD BE COMPLETED IN TIME, GIVEN THE CONSTRUCTION BOOM PREVAILIN G IN TH E MARKET. THUS, BASED ON THI S BELIEF AND HAVIN G SATISFIED THE CONDITIONS IMPOSED UNDER S.80IB(10 ), THE ASSESSEE CLAIMED THE DEDUCTION AND FIELD A NIL RETURN OF INCOME. SUBSEQUENT LY , THERE WAS A LULL IN TH E CON S TRUCTION ACTIVITY AND THE MARKET WAS NOT AS I T WAS VISUALIZED TO BE, AND THUS THE PROJECT COULD NOT BE COMPLETED AND WAS IN A SEMI - FINISHED STAGE. TH E STATE O F AFFAIRS REMAINED THE SAME EVENT T ODAY. CON SE QUENTLY, THE ASSESSEE VOLUNTARILY FIL E D REVISED RETURN OF INCOME WITHDRAWING THE SAID CLAIM OF 80IB. THE REVISED RETURN WAS FILED BECAUSE TH E CONDITIONS OF THE SECTION COULD NO T B E COMPLIED WITH, VIZ. SECURING THE COMPLETION CERTIFICATE FROM THE LOCAL AUTHORITY, WHICH FACT WAS ACCEPTED BY THE ASSESSING OFFICER ALSO, VIDE PARA 4.3 ON PAGE 4 OF THE ASSESSMENT ORDER. THERE IS NOTHING ON RECORD TO SUGGEST THE FALSITY OF THE EXPLANATION OF THE ASSESSEE IN THIS BEHALF. IT IS ON ACCOUNT OF CHANGING SCENARIO IN THE CONSTRUCTION MARKET, THAT THE PERCEPTION AND THE BELIEF OF THE ASSESSEE AS TO THE LIKELY COMPLETION OF THE PROJECT CHANGED FROM TIME T O TIME AND ULTIMATELY, THE ASSESSEE, DURING THE COURSE OF ASSESSMENT WITHDRAW THE ENTIRE CLAIM MADE BY IT UNDER S.80IB(10) OF THE ACT. WHILE THERE CANNOT BE ANY VALID DISPUTE WITH REGARD TO THE DENIAL OF RELIEF TO THE ASSESSEE UNDER S.80IB(10) OF THE ACT, IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE REVENUE TO ATTRIBUTE MOTIVES TO THE WITHDRAWAL OF THE CLAIM FOR RELIEF UNDER S.80IB(10) IN TOTO BY THE ASSESSEE, THE IMPUGNED PENALTY WITH A REGARD TO THIS AMOUNT CANNOT BE JUSTIFIED. WE ACCORDINGLY CANCEL THE PENALTY IMPOSED BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) WITH REGARD TO THIS AMOUNT OF RELIEF UNDER S.80IB(10) OF RS.28,84,404, DISALLOWED BY THE ASSESSING OFFICER. 7. AS FOR THE SECOND ITEM OF ADDITION OF RS.29,14,543 MADE IN THE ASSESSMENT , WITH REFERENCE TO WHICH IMPUGNED PENALTY HAS BEEN IMPOSED, THE ASSESSEE WAS ASKED TO FILE CONFIRMATION OF LOAN SAID TO HAVE BEEN TAKEN FROM SHRI CH.RAMESH GOUD ON WHICH INTEREST OF RS.29,14,543 HAD BEEN CLAIMED. ITA NO. 1 5 71 / HYD/20 11 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD 5 ASSESSEE SUBMITTED THEREAFTER THAT THE CREDIT WAS AN ADVANCE AND NOT A LOAN AND THAT THE AMOUNT H A D BEEN ERRONEOUSLY SHOWN AS LOAN BY THE ACCOUNTANT. HENCE, THE ASSESSING OFFICER DI S ALLO W ED THE IN TE REST IN THE ASSESSMENT A ND MADE ADDITION IN THAT BEHALF. P E NALTY WAS ALSO IMPOSED WITH REFERENCE TO THAT THAT AMOUNT O F ADDITION, SINCE THE WRONG CLAIM WAS UNEARTHED ONLY DUE TO VERIFICATION BY THE ASSESSING OFFICER. THE CIT(A) TOO CONFIRMED THE PENALTY IMPOSED WITH REGARD TO T HIS AMOUNT OF RS.29,14,543 , OBSERVING THAT IT IS DIFFICULT TO ACCEPT THE EXPLANATION OF THE ASSESSEE THAT IT WAS ONLY DUE TO MISTAKE OF THE ACCOUNTANT THAT THE CLAIM FOR THE INTEREST HAS COME TO BE MADE. 8. ON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES ON THIS ASPECT, WE DO NOT FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO PENALTY IMPOSED IN RELATION TO THIS ADDITION OF RS.29,14,543. THE ONLY EXPLANATION IN RELATION TO THE CLAIM FOR THIS AMOUNT, IS THE MISTAKE OF THE ACCOUNTAN T. AS OBSERVED BY THE CIT(A) IN THE IMPUGNED ORDER, WHILE ERRONEOUS CLASSIFICATION OF CREDIT AS LOAN IN PLACE OF ADVANCE, BY THE ACCOUNTANT IS UNDERSTANDABLE, IT IS DIFFICULT TO ACCEPT THAT THE ACCOUNTANT HAS ALSO DEBITED SUBSTANTIAL AMOUNT OF RS.29,14,54 3 TOWARDS INTEREST IN THE BOOKS AND THE DEBIT WAS ALSO AUDITED AND APPROVED. THUS, AS FOR THE PLEAS OF THE ASSESSEE WITH REGARD TO PENALTY IN RELATION TO THIS INTEREST AMOUNT OF RS.29,14,543, WE FIND NO MERIT IN THE SAME. WE ACCORDINGLY UPHOLD THE PENALTY IMPOSED WITH REGARD TO THIS SUM OF RS.29,14,543 AND REJECT THE CONTENTIONS OF THE ASSESSEE ON THIS ASPECT. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 28.3 .2014 SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 28 TH MARCH , 2014 ITA NO. 1 5 71 / HYD/20 11 M/S. NEELIMA CONSTRUCTIONS, HYDERABAD 6 COPY FORWARDED TO: 1. M/S. NEELIMA CONSTRUCTIONS, C/O. M/S. CH.G.KRISHNA MURTHY & CO., CHARTERED ACCOUNTANTS, 133/1, PRENDERGHAST ROAD, SECUNDERABAD 500 003. 2 . INCOME TAX OFFICER WARD 10(4), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V I HYDERABAD 4. COMMISSIONER OF INCOME - TAX V , HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S