CHAITRA REALTY LTD, MUMBAI V. DCIT CIR 2(1), MUMBAI

ITA 2520/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7885 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 31-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Keywords: Bonafide belief; Set aside
• Section: 271(1)(c); 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI N.V.VASUDEVAN (JM) AND SHRI RAJENDRA S INGH(AM) ITA NO.2520/M/2010 ASSESSMENT YEAR 2005-06 M/S. CHAITRA REALTY LTD. THE DCIT, CIRCLE -2(1), MUMBAI AKRUTI TRADE CENTRE, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD ROAD NO.7, MAROL MIDC,ANDHERI(E) MUMBAI 400 020. MUMBAI 400 093. PAN : AAACC3612P APPELLANT RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI P.N. DEVDASAN O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 18.1.2010 OF THE CIT(A) FOR THE ASSESSMENT YEAR 200 5-06. THE ONLY DISPUTE RAISED IS REGARDING LEVY OF PENALTY UNDER SECTION 2 71(1)(C). 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY WAS ONE OF THE SPECIAL PURPOSE VEHICLES SET UP AS PER T HE REHABILITATION SCHEME SANCTIONED BY THE BOARD FOR INDUSTRIAL AND FINANCIA L RECONSTRUCTION (BIFR) IN THE CASE OF M/S. HINDUSTAN SPINNING & WEAVING MILLS LTD.VIDE ORDER DATED 1.4.2004 AND WAS RESPONSIBLE FOR DEVELOPING THE PRA BHADEVI PROPERTY OF M/S. HINDUSTAN SPINNING AND WEAVING MILLS LTD. THE AO DU RING THE ASSESSMENT 2 PROCEEDINGS NOTED THAT THE ONLY INCOME DECLARED BY THE ASSESSEE WAS INTEREST ON LOANS OF RS.9,687/- AND MISCELLANEOUS INCOME OF RS.75/-. HOWEVER, THE ASSESSEE HAD CLAIMED THE FOLLOWING EXPENSES AMOUNTI NG TO RS.33,23,196/-: RS. PRINTING & STATIONERY 41,185 PROFESSION TAX 1,700 FILING FEES 2,900 AUDIT FEES 5,510 CERTIFICATION CHARGES - PRELIMINARY EXPENSES WRITTEN OFF 1,469 ELECTRICITY CHARGES 2,103 WATER CHARGES 4,920 RATES & TAXES 2,84,197 POST & COURIER CHARGES 58,858 SECURITY CHARGES 3,28,752 TRUSTEESHIP FEES 48,669 SUNDRY EXPENSES 20,136 INTEREST ON OTHERS 25,22,797 --------------- 33,23,196 ========= 3. THE AO ALSO NOTED FROM THE AUDITED REPORT THAT T HE COMPANY WAS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND DEVELOPMENT COST WOULD BE CONSIDERED IN THE PROFIT AND LOSS ACCOUNT ON PRO JECT COMPLETION METHOD. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WH Y EXPENSES OTHER THAN THE STATUTORY EXPENSES COULD NOT BE DISALLOWED AS THEY PERTAINED TO REAL ESTATE DEVELOPMENT BUSINESS. THE ASSESSEE THEREAFTER HAD A GREED FOR THE DISALLOWANCE AND AO THEREFORE DISALLOWED ALL THE EXPENSES EXCEPT THE STATUTORY EXPENSES SUCH AS PROFESSION TAX, FILING FEES, AUDIT FEES AND PRELIMINARY EXPENSES. THESE RESULTING INTO ADDITION OF RS.33,11,617 /-. THE AO ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) AND LEVIED PENA LTY @ 200% OF TAX SOUGHT TO BE EVADED AMOUNTING TO RS.24,23,604/-. 4. IN APPEAL THE ASSESSEE SUBMITTED THAT IT HAD NOT FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED ANY PARTICULARS OF INCOME. THE ASSESSEE HAD 3 GIVEN COMPLETE DETAILS AND THE LOSS HAD ONLY BEEN C ARRIED FORWARD. THERE WAS ALSO NO ADDITIONAL TAX LIABILITY. IT WAS ACCORDINGL Y URGED THAT THE PENALTY SHOULD BE DELETED. CIT(A) WAS HOWEVER NOT SATISFIED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT THE ASSESSEE WAS FOLLOWING PRO JECT COMPLETION METHOD AND THEREFORE THE EXPENSES RELATING TO THE PROJECT INCLUDING THE INTEREST SHOULD HAVE BEEN CAPITALIZED AND TAKEN TO THE WORK IN PROG RESS. THE ASSESSEE HAD ACCEPTED THE ADDITION AS NO APPEAL HAD BEEN FILED. CIT(A) ALSO OBSERVED THAT PENALTY UNDER SECTION 271(1)(C) WAS ONLY A CIVIL LI ABILITY AS HELD BY HONBLE SUPREME COURT IN CASE OF UNION OF INDIA VS DHARMEND RA TEXTILES AND PROCESSORS (306 ITR 277) AND THAT WILLFUL CONCEALME NT WAS NOT REQUIRED TO BE PROVED BY THE REVENUE. IT WAS ACCORDINGLY HELD THAT PENALTY WAS LEVIABLE. HOWEVER, CIT(A) REDUCED THE PENALTY TO 100% OF TAX SOUGHT TO BE EVADED BEING THE MINIMUM PENALTY. AGGRIEVED BY THE SAID DE CISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US THE LEARNED AR FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT THE ASSESSEE HAD NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME OR CONCEALED ANY P ARTICULARS OF INCOME. THE ASSESSEE HAD GIVEN COMPLETE DETAILS OF EXPENSES WHI CH WERE AVAILABLE AT PAGE 27 OF THE PAPER BOOK AND NOTE IV TO THE AUDITED ACC OUNTS ALSO CLEARLY MENTIONED THAT THE DEVELOPMENT COST WOULD BE CONSID ERED IN THE PROFIT AND LOSS ACCOUNT IN THE YEAR OF COMPLETION. THE ASSESSEE HA D THUS CLAIMED THE EXPENSES UNDER THE BONAFIDE BELIEF THAT THESE WERE ALLOWABLE. IT WAS ALSO SUBMITTED THAT MAIN EXPENSES WERE ON ACCOUNT OF INT EREST AND THE ISSUE OF ALLOWABILITY OF INTEREST ON YEAR TO YEAR BASIS OR I N THE YEAR OF COMPLETION WAS A DEBATABLE ISSUE. IN FACT THE SPECIAL BENCH OF THE T RIBUNAL IN CASE OF WALL STREET CONSTRUCTION LTD. VS JCIT (101 ITD 156) HAD TAKEN T HE VIEW THAT INTEREST HAD 4 TO BE CLAIMED AND ALLOWED ONLY IN THE YEAR OF COMPL ETION BUT THE SAID ORDER WAS DATED 22.9.2005 AND HAD BEEN PUBLISHED IN ITD ONLY IN THE YEAR 2006. THE ASSESSEE HAD FILED THE RETURN OF INCOME FOR THE REL EVANT YEAR ON 31.10.2005 AND WAS NOT AWARE OF THE DECISION. MOREOVER THE DEC ISION OF THE SPECIAL BENCH WAS FURTHER DISPUTED BEFORE THE HIGH COURT WHERE TH E MATTER WAS PENDING. THEREFORE ANY ADDITION MADE ON ACCOUNT OF ANY DISAL LOWANCE WHICH IS DEBATABLE CANNOT ATTRACT PENALTY UNDER SECTION 271(1)(C) AS T HE EXPLANATION IN SUCH CASES BASED ON A PARTICULAR INTERPRETATION HAS TO BE CONS IDERED AS BONAFIDE. THE DISALLOWANCE OF CLAIM ON A DEBATABLE ISSUE MADE UND ER BONAFIDE BELIEF COULD NOT BE THE BASIS FOR PENALTY UNDER SECTION 271(1)(C ). RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN CASE OF ORION TRAVE LS PVT. LTD. VS ACIT (87 TTJ 246) AND THE DECISION OF SPECIAL BENCH OF AHMEDABAD TRIBUNAL IN CASE OF GUJARAT CREDIT CORPORATION LTD. (302 ITR (AT)250). IT WAS ACCORDINGLY URGED THAT PENALTY SHOULD BE DELETED. THE LEARNED DR ON T HE OTHER HAND SUPPORTED THE ORDER OF CIT(A). IT WAS SUBMITTED THAT DISALLOW ANCE MADE BY THE AO HAD BEEN ACCEPTED BY THE ASSESSEE AND NO APPEAL HAD BEE N FILED AND THEREFORE ADDITION MADE IN THE ASSESSMENT ATTRACTED PENALTY U NDER SECTION 271(1)(C). 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DEVELOPER WHO WAS EXEC UTING A PROPERTY DEVELOPMENT PROJECT AND METHOD OF ACCOUNTING FOLLOW ED WAS PROJECT COMPLETION METHOD. THE ASSESSEE HAD HOWEVER CLAIMED EXPENSES A MOUNTING TO RS.33,11,617/- CONSISTING INTEREST OF RS.25,22,797/ - AND OTHER DAY TO DAY EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THIS HAS B EEN DISALLOWED BY THE AO ON THE GROUND THAT THE EXPENDITURE COULD BE CLAIMED ON LY IN THE YEAR OF COMPLETION. THE DISALLOWANCE HAD BEEN ACCEPTED BY T HE ASSESSEE. HOWEVER THE AO HAD ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) @ 200% OF TAX SOUGHT TO 5 BE EVADED WHICH IN APPEAL WAS REDUCED TO 100% OF TA X SOUGHT TO BE EVADED. THE ISSUE IS WHETHER ON THE FACTS OF THE CASE PENAL TY UNDER SECTION 271(1)(C) CAN BE LEVIED. 6.1 A PENALTY UNDER SECTION 271(1)(C) IS ONLY A CI VIL LIABILITY AS HELD BY THE HONBLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILE S AND PROCESSORS (SUPRA) AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVE D BY THE REVENUE. HOWEVER EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AU TOMATICALLY LEAD TO PENALTY UNDER SECTION 271(1)(C). A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF THE EXPLANATION 1 TO SECTION 271(1)(C) AS PER WHICH IN CASE OF ANY ADDITION MADE IN ASSESSMENT EVEN IF THE ASSESSEE IS NOT ABLE TO SUBS TANTIATE THE EXPLANATION BUT IS ABLE TO PROVE THAT THE EXPLANATION IS BONAFIDE A ND ALL NECESSARY DETAILS HAVE BEEN SUBMITTED PENALTY UNDER SECTION 271(1)(C) CANN OT BE LEVIED. IN THIS CASE THERE IS NO DISPUTE THAT DETAILS OF EXPENSES HAD BE EN GIVEN. THE CASE OF THE ASSESSEE IS THAT THE CLAIM HAD BEEN MADE UNDER THE BONAFIDE BELIEF THAT SUCH EXPENSES WERE ALLOWABLE FROM YEAR TO YEAR BASIS. WE ALSO NOTE THAT ALLOVABILITY OF EXPENSES SUCH AS INTEREST ETC ON YEAR TO YEAR BA SIS OR IN THE YEAR OF COMPLETION OF PROJECT HAS BEEN A DEBATABLE ISSUE. T HERE HAVE BEEN CONTRARY DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL. T HE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF WALL STREET CONSTRUCTION PVT. L TD. VS JCIT (SUPRA) HAD RENDERED DECISION ONLY VIDE ORDER DATED 22.9.2005 I N WHICH IT WAS HELD THAT THE INTEREST HAS TO BE ALLOWED IN THE YEAR OF COMPLETIO N OF THE PROJECT. THE SAID DECISION IT HAS BEEN POINTED OUT WAS PUBLISHED IN T HE ITD ONLY IN THE YEAR 2006. MOREOVER THE DECISION OF THE SPECIAL BENCH HA S BEEN DISPUTED BEFORE THE HIGH COURT WHERE THE APPEAL IS PENDING. UNDER SUCH CIRCUMSTANCES IN OUR VIEW IT IS POSSIBLE TO FORM A BONAFIDE BELIEF ON THE DAT E OF FILING RETURN OF INCOME I.E. ON 31.10.2005 THAT THE EXPENSES COULD BE ALLOWED FR OM YEAR TO YEAR BASIS. THE 6 LEARNED AR HAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO OTHER INCOME EVEN TILL TODAY AND THEREFORE THERE WAS NO ADVANTAGE TO THE A SSESSEE IN CLAIMING EXPENSES AND DECLARE LOSSES FROM YEAR TO YEAR AS TH E LOSSES COULD BE CARRIED FORWARD ONLY FOR A LIMITED NUMBER OF YEARS. IN SUC H A SITUATION CLAIMING THE EXPENSES IN THE YEAR OF COMPLETION WOULD HAVE BEEN ADVANTAGES TO THE ASSESSEE AS IN THAT CASE ALL THE EXPENSES COULD HAV E BEEN ALLOWED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES, IN OUR VIE W, EXPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN MADE UNDER BONAFID E BELIEF HAS TO BE ACCEPTED AND IT WILL NOT BE APPROPRIATE TO LEVY PEN ALTY UNDER SECTION 271(1)(C) IN THIS CASE. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED. 8. ORDER WAS PRONOUNCED IN THE OPEN COURT 18.03.201 1. SD/- SD/- ( N.V.VASUDEVAN ) (RAJENDR A SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : .03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR C BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK 7