ESQUE FINMARK PVT. LTD., MUMBAI V. ASST. C.I.T.9(1), MUMBAI

ITA 1624/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79363 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 03-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: APEKSHA GADA
• Keywords: Reasonable cause
• Section: 273B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 1624/MUM/2011 ( / ASSESSMENT YEAR: 2005-06) ESQUE FINMARK PVT. LTD. 9/A CHUNAWALA COMPOUND, PAREL TANK ROAD, KALACHOWKI, MUMBAI-400 033 / VS. ASST. CIT-9(1), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ./ ./PAN/GIR NO. AAACE 8370 P ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : MS. APEKSHA GADA !' # $ / RESPONDENT BY : SHRI PRAKASH L. PATHADE % &'( # )* / DATE OF HEARING : 03.07.2014 +,- # )* / DATE OF PRONOUNCEMENT : 11.07.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-19, MUMBAI (CIT(A) FOR SHORT ) DATED 20.09.2010, CONFIRMING THE LEVY OF PENALTY U/S.271B OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) ON THE ASSESSEE FOR THE ASSESSMENT YEAR (A.Y.) 2005-06 BY THE ASSESSING OFFICER (A.O.) VIDE ORDER DATED 20.06.2008. 2 ITA NO.1624/MUM/2011 (A.Y. 2005-06) ESQUE FINMARK PVT. LTD. VS. ASST. CIT 2. AT THE VERY OUTSET, IT WAS OBSERVED BY THE BENCH THAT THE INSTANT APPEAL IS DELAYED BY A PERIOD OF 63 DAYS. HOWEVER, ON THE BASIS OF TH E CONDONATION PETITION FILED ALONG WITH, AS WELL AS THE AFFIDAVIT DATED 02.07.2014 BY SHRI HARRESH MEHTA, DIRECTOR AND SHRI ATUL B. GANDHI, EMPLOYEE, WE ARE SATISFIED THAT THI S IS A CASE OF A HONEST AND BONA FIDE DELAY AND, THEREFORE, NEEDS TO BE CONDONED TO ADVAN CE THE CAUSE OF SUBSTANTIAL JUSTICE. THE DELAY WAS, ACCORDINGLY, CONDONED AND THE HEARIN G PROCEEDED WITH, ADMITTING THE ASSESSEES APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS IN THE BUSINESS AS BUILDERS AND DEVELOPERS, FOLLOWING THE PROJECT COMP LETION METHOD FOR RECOGNIZING AND RETURNING INCOME. IN THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER (A.O.) THAT WHILE IT HAD FILED AU DIT REPORT UNDER THE COMPANIES ACT, NO SEPARATE REPORT IN FORM 3CA, AS REQUIRED U/S.44AB O F THE ACT, HAD BEEN FILED. THIS, IN HIS VIEW, WAS REQUIRED AS THERE WAS AN INCREASE IN WORK -IN-PROGRESS (WIP) FOR THE YEAR IN EXCESS OF RS.40 LACS, THE QUALIFYING LIMIT OF TURNO VER, SO THAT A BREACH THEREOF WOULD ATTRACT SECTION 44AB. RELIANCE WAS PLACED BY HIM ON THE DECISION IN THE CASE OF ASST. CIT VS. B.K. JHALA & ASSOCIATES [1999] 69 ITD 141 (PUNE) AS WELL AS CIRCULAR NO. 3 87 DATED 06.07.1984 ISSUED IN THE FORM OF AN EXPLANATORY NOT E ON INTER ALIA THE PROVISION OF SECTION 44AB ON ITS INTRODUCTION BY FINANCE ACT, 19 84. AS CLARIFIED THEREBY, THE SAME IS NOT ONLY TO VERIFY THE SALES BUT ALSO PURCHASES, WH ICH IN THE INSTANT CASE WERE TO THE TUNE OF RS.280 LACS. THERE WAS, AS SUCH, NO REASON FOR N OT COMPLYING WITH THE PROVISION OF SECTION 44AB, LEADING TO THE LEVY OF PENALTY U/S.27 1B OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN APPEAL, WHEREAT, THE LD. CIT(A) OBSERVED THE GROSS RECEIPTS TO BE ADMITTEDLY IN EXCESS OF RS.40 LACS. AS SUCH, EVEN IF THE SAME DID NOT QUALIFY TO BE CONSIDERED AS SALES OR TURNOVER, THE SAME IS DEFINITELY GROSS RECEIPT; THE PROVISION OF SECTION 44AB MENTIONING EACH OF THE TH REE DISTINCTIVELY, SO THAT THE APPLICATION OF EVEN ONE WOULD BE SUFFICIENT FOR THE PURPOSE OF ATTRACTING THE PROVISION. REFERENCE WAS MADE BY HER TO THE DECISION IN THE CA SE OF DY. CIT VS. GOPAL KRISHAN BUILDERS [2004] 91 ITD 124 (LUCK), WHEREIN, THE TRIBUNAL, C ONSIDERING THE MATTER AT 3 ITA NO.1624/MUM/2011 (A.Y. 2005-06) ESQUE FINMARK PVT. LTD. VS. ASST. CIT LENGTH, AND IN ALL ITS FACETS, INCLUDING CIRCULAR N O. 387 BY THE BOARD AS WELL AS THE CORRESPONDING RULES, HAD CLARIFIED THAT THE RECEIPT FROM CUSTOMERS IN CASE OF A BUILDER FOLLOWING THE PROJECT COMPLETION METHOD WOULD STAND TO FORM PART OF THE QUALIFYING CRITERIA. THE ARGUMENT THAT THE SAME WAS IN A NATUR E OF AN ADVANCE IN SUCH A CASE, I.E., WHERE THE PROJECT COMPLETION METHOD IS FOLLOWED, WA S FOUND BY THE TRIBUNAL TO BE TO NO AVAIL. THE PROVISION OF SECTION 44AB STOOD THUS ATT RACTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND, ACCORDINGLY, PENALTY U/S.271B STOO D, IN VIEW OF THE ADMITTED DEFAULT, RIGHTLY IMPOSED. AGGRIEVED, THE ASSESSEE IS IN SECO ND APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, GIVING OUR CAREFUL CONSIDERATION TO THE MATTER. 4.1 WE FIND CONSIDERABLE MERIT IN THE REVENUES CAS E. THIS IS FOR THE REASON THAT THE LEGISLATURE HAS PROVIDED THREE PARAMETERS, VIZ. SA LES, TURNOVER OR GROSS RECEIPTS, AS THE CASE MAY BE, IN DEFINING THE CRITERIA FOR DETER MINING THE LEGAL OBLIGATION FOR TAX AUDIT U/S.44AB OF THE ACT. THE WORD GROSS RECEIPTS WOUL D INCLUDE THE AMOUNTS RECEIVED BY THE ASSESSEE-BUILDER TOWARD CONSTRUCTION FROM ITS C USTOMERS. THE SAME ARE ONLY IN PURSUANCE TO A CONTRACT OF SALE, AND OF REVENUE CHA RACTER. FURTHER, THE SAME STANDS EXCLUDED IN RECKONING THE ASSESSEES INCOME FOR THE YEAR ONLY FOR THE REASON THAT IT ADOPTS A PARTICULAR METHOD, I.E., THE PROJECT COMPLETION M ETHOD, FOR RECOGNIZING INCOME, AND WHICH BY ITSELF, EVEN AS FOUND BY THE TRIBUNAL IN GOPAL KRISHAN BUILDERS (SUPRA), WOULD BE OF NO CONSEQUENCE; THERE BEING NO REFERENCE TO INCOME OR ANY INCOME CRITERIA IN THE RELEVANT PROVISION. IN FACT, BUT FOR THE SAME, AS W HERE THE ASSESSEE WERE TO FOLLOW PERCENTAGE COMPLETION METHOD, THE RECEIPT WOULD GIV E RISE TO PROFIT (OR LOSS). IT IS THE NATURE OF THE RECEIPT, AND NOT THE PROFIT ELEMENT T HEREIN, THAT IS RELEVANT. AS SUCH, THE ASSESSEES CONTENTION WITH REGARD TO ITS EXCLUSION, I.E., AS NOT BEARING A PROFIT ELEMENT, IS WITHOUT MERIT BOTH ON FACTS AND IN LAW. 4.2 SO, HOWEVER, WE ARE NEVERTHELESS UNABLE TO AGRE E WITH THE REVENUE THAT THE ASSESSEE IS LIABLE TO PENALTY U/S.271B OF THE ACT. OUR REASONS FOR THE SAME ARE AS FOLLOWS. 4 ITA NO.1624/MUM/2011 (A.Y. 2005-06) ESQUE FINMARK PVT. LTD. VS. ASST. CIT THE WORD GROSS RECEIPT IS LIABLE TO BE CONSTRUED IN MORE THAN ONE WAY; THE MATTER IN FACT HAVING TRAVELLED TO THE TRIBUNAL IN THE CASE OF B.K. JHALA & ASSOCIATES (SUPRA) AND GOPAL KRISHAN BUILDERS (SUPRA), BOTH AT THE INSTANCE OF THE REVENUE, SO TH AT THE ASSESSEE HAD SUCCEEDED AT THE FIRST APPELLATE STAGE. THE MATTER, ACCORDINGLY, CANNOT BE CONSIDERED TO BE WITHOUT AN ELEMENT OF CONTENTIOUSNESS ASSOCIATED TH EREWITH, SO THAT IT IS LIABLE TO BE CONSIDERED AS GIVING RISE TO A DEBATABLE QUESTION, CONSTITUTING A REASONABLE CAUSE WITHIN THE MEANING OF SECTION 273B OF THE ACT, SAVING PENA LTY. WE SAY SO AS THE WORDS SALES, TURNOVER AS WELL AS GROSS RECEIPTS GIVE RISE TO CONNOTATION OF RECEIPTS OF REVENUE NATURE, FORMING PART OF THE INCOME STATEMENT FOR TH E RELEVANT YEAR. THE ASSESSEE, IT MAY BE NOTED, IS A COMPANY. IT IS, THEREFORE, IN COMPLIANCE OF S. 44AB OF THE ACT, REQUIRED TO GET ITS ACCOUNTS AUDIT ED AND, FURTHER, OBTAIN AND FURNISH AN AUDIT REPORT BOTH UNDER THE COMPANIES ACT, 1956 AS WELL AS UNDER THE ACT, I.E., IN TERMS OF THE SAID PROVISION. THE AUDIT REPORT U/S.224 OF THE COMPANIES ACT, WHICH STANDS DULY FURNISHED, IS THUS ITSELF TOWARD AND IN COMPLIANCE OF SECTION 44AB, ALBEIT PARTLY. NON OBTAINING ANOTHER AUDIT REPORT FROM ITS AUDITORS, I .E., IN FORM 3CA, UNDER THE CIRCUMSTANCES, IS, THEREFORE, ONLY ON ACCOUNT OF A BONA FIDE BELIEF THAT ITS TURNOVER NOT EXCEEDING THE QUALIFYING MONETARY LIMIT, STANDS TO BE EXCLUDED. FURTHER, THE PURPOSE OF VERIFICATION OF ACCOUNTS, INCLUDING PURCHASES, CITE D BY THE A.O. AS THE UNDERLYING REASON FOR THE LEGAL OBLIGATION OF AUDIT WHILE EXPLAINING THE RATIONALE OF THE PROVISION, STANDS THUS SATISFIED IN THE FACTS AND CIRCUMSTANCES OF TH E CASE. THE EXPLANATION THAT RECEIPTS FROM CUSTOMERS WERE O NLY IN THE NATURE OF ADVANCE/S IS NOT TECHNICALLY INCORRECT IN-AS-MUCH AS IT IS ON LY WHEN THE SAME SHALL STAND ADJUSTED AGAINST SALE PRICE ON THE COMPLETION OR NEAR COMPLE TION OF THE PROJECT, THAT THE SAME IS LIABLE TO BE CONSIDERED AS SALES. THE NOTICE OF P ENALTY AND THE BASIS FOR THE A.O. IN LEVYING THE PENALTY WAS THAT THE ASSESSEES WORK-IN -PROCESS (WIP) HAD WITNESSED AN INCREASE DURING THE YEAR FOR AN AMOUNT BEYOND THE P RESCRIBED LIMIT. THOUGH, THEREFORE, WE DO NOT REGARD THE LD. CIT(A) TO HAVE, IN CONFIRM ING THE PENALTY, BASED IT ON A DIFFERENT CAUSE; THE DEFAULT BEING THE SAME, IT DOES AMOUNT T O A DIFFERENT VIEW BEING ADOPTED ON THE 5 ITA NO.1624/MUM/2011 (A.Y. 2005-06) ESQUE FINMARK PVT. LTD. VS. ASST. CIT SAME SET OF FACTS, CONFIRMING THE VIEW, IF ONE WAS REQUIRED, THAT THE MATTER IS LIABLE TO BE CONSIDERED IN MORE WAYS THAN ONE. THE INCLUSION OF PURCHASES, AS STATED BY THE A.O. WITH REFERENCE TO THE DECISION BY THE APEX COURT IN THE CASE OF GEORGE OKS PVT. LTD. UNDER THE SALES TAX ACT, FOR THE PURPOSE OF INVOKING S. 44AB, IS WITHOUT MERIT. THIS IS FOR THE SIMPLE REASON THAT THE WORD TURNOVER STANDS CLEARLY AND SEPARATELY DEFINED UN DER THE SALES-TAX LEGISLATION TO INCLUDE PURCHASES AS WELL. EVEN FOLLOWING THE LEGAL PRINCIP LES ON THE BASIS OF THE LEGAL MAXIMS EJUSDEM GENERIS AND NOSCITUS A SOCIIS WOULD OPERATE TO EXCLUDE PURCHASES FROM FORMING PART OF THE QUALIFYING CRITERION. RATHER, A PROVISION, FOR THE PURPOSE OF LEVY OF PENALTY, IS TO BE EVEN OTHERWISE STRICTLY CONSTRUED . IT IS PERHAPS FOR THE REASON OF THE SAME NOT FINDING APPROVAL OF THE LD. CIT(A) THAT SHE CHO SE NOT TO ADVERT THERETO IN THE IMPUGNED ORDER. AS EXPLAINED BY THE APEX COURT IN HINDUSTAN STEEL LTD. VS. STATE OF ORISSA [1972] 83 ITR 26 (SC), A PENALTY, EVEN WHERE THE PROVISION STANDS ATTRACTED, MAY LAWFULLY BE NOT LEVIED WHERE THE DEFAULT IS NOT FOUND TO BE A RESUL T OF A CONSCIOUS DISREGARD BY THE TAX PAYER OF HIS LEGAL OBLIGATIONS OR A CONDUCT CONTUMA CIOUS, WHICH IS CLEARLY NOT THE CASE IN THE INSTANT CASE. 5. IN VIEW OF THE FOREGOING, WE ARE OF THE CLEAR AN D UNAMBIGUOUS VIEW THAT THE ASSESSEES CASE, DESPITE A DEFAULT OF S. 44AB OF TH E ACT, IS NOT LIABLE IN LAW FOR PENALTY U/S.271B IN THE FACTS AND CIRCUMSTANCES OF THE CASE . WE, ACCORDINGLY, DIRECT ITS DELETION. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. /-)0 &12/) # ' 3 ) # ) 45 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 11, 2014 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; 6& DATED : 11.07.2014 6 ITA NO.1624/MUM/2011 (A.Y. 2005-06) ESQUE FINMARK PVT. LTD. VS. ASST. CIT '.&../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % 7) ( ) / THE CIT(A) 4. % 7) / CIT CONCERNED 5. :';< !)&=1 , * =1- , % ( / DR, ITAT, MUMBAI 6. <>2 ?( / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI