RELIANCE LAND DEVELOPERS, MUMBAI V. ITO 12(1)(3), MUMBAI

ITA 3720/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84397 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 25-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: AJAY R SINGH

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BE NCH, MUMBAI , !' #$% , !& ! ' BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 3720/MUM/2012 ( ( ( ( ( / ASSESSMENT YEAR : 2004-05 M/S. RELIANCE LAND DEVELOPERS, 403, TIRTHANKAR, S.K. BOLE ROAD, DADAR (W), MUMBAI-400 028 / VS. THE CIT-12, MUMBAI ) !& ./ * ./ PAN/GIR NO. : ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . ! / APPELLANT BY: SHRI AJAY R. SINGH ,-)+ / . ! / RESPONDENT BY: SHRI LOVE KUMAR / 0& / DATE OF HEARING :01.12.2014 12( / 0& / DATE OF PRONOUNCEMENT : .12.2014 !3 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)-23, MUMBAI DT.06.03.2012 PERTAINING TO A.Y.2 004-05. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE L D. CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S. 271(1)(C) OF TH E ACT AMOUNTING TO RS. 2,57,070/-. ITA NO. 3720/M/2012 2 3. THE ASSESSEE IS A BUILDER. RETURN FOR THE YEAR WAS TAKEN FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF THE SCRU TINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE FIRM HAS STARTED ITS PROJECT AT PLOT NO. 1174/75 AT DADAR DU RING THE YEAR 1998-99. THE AO FURTHER NOTICED THAT THE ASSESSEE FIRM IS AD OPTING PERCENTAGE COMPLETION METHOD OF ACCOUNTING. IT WAS FURTHER NO TICED THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES EXCEPT BANK C HARGES OF RS. 50/- AND PROFESSIONAL FEES OF RS. 2,500/-. THE ASSESSEE HAS SHOWN ADVANCE RECEIVED AT RS. 2.56 CRORES AGAINST FLAT BOOKINGS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME SHOULD NOT BE TREATED AS SA LE PROCEEDS. IT WAS EXPLAINED THAT THE PROJECT UNDERTAKEN BY THE ASSESS EE FOR CONSTRUCTION WAS ON ENCUMBERED LAND AND THERE WAS AN ARRANGEMENT THA T THE TENANTS WILL BE GIVEN ALTERNATIVE ACCOMMODATION FREE OF COST AND AL SO THREE FLATS IN THE NEWLY CONSTRUCTED APARTMENTS BY THE ASSESSEE. THE PROJECT GOT DELAYED AND CAUSED LOTS OF INCONVENIENCE TO THE NEW FLAT PU RCHASERS AND RESULTED IN LEGAL ISSUES WITH THE OWNERS OF THE LAND. 3.1. THE ASSESSEE FURTHER EXPLAINED THAT IT HAD TO PAY ADDITIONAL COST IN THE FORM OF PROPERTY TAX AND HAS INCURRED LOSSES AS THE PART OF EXPENSES ON BMC TAXES HAVE TO BE BORNE BY THE ASSESSEE. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLETIO N METHOD AND THE PROJECT IS STILL NOT COMPLETED AND THE ASSESSEE HAS DECLARED THE PROFIT YEAR AFTER YEAR ON ESTIMATED WORK-IN-PROGRESS. THE EXPL ANATION OFFERED BY THE ASSESSEE WAS NOT ACCEPTED AND THE ASSESSMENT WAS CO MPLETED BY TREATING THE ADVANCES OF RS. 2.56 CRORES AS SALE RECEIPTS OF THE FLATS AND PENALTY PROCEEDINGS WERE INITIATED. 3.2. IN HIS SHOW CAUSE NOTICE ISSUED U/S. 274 R.W. SECTION 271(1) OF THE ACT, THE AO MENTIONED THAT THE PENALTY PROCEEDI NGS HAVE BEEN ITA NO. 3720/M/2012 3 INITIATED FOR FURNISHING INACCURATE PARTICULARS OF ITS INCOME. THE ASSESSEE FILED A DETAILED REPLY DT. 16.5.2007 STATING THAT T HE ASSESSEE HAS RECOGNIZED -THE REVENUE AND DECLARED THE PROFIT FRO M YEAR AFTER YEAR WHEREAS THE ASSESSMENT HAS BEEN COMPLETED ON THE BA SIS OF COMPLETED SALES IN THE YEAR 2003-04. IT WAS FURTHER EXPLAINE D THAT THOUGH THE PROFIT RECOGNIZED YEAR AFTER YEAR BUT THE SAME FELL SHORT OF THE ASSESSED INCOME NOT BECAUSE THERE IS ANY CHANGE IN REAL INCOME BUT BEING THE CHANGE IN ESTIMATES. THE EXPLANATION FILED BY THE ASSESSEE W AS NOT ACCEPTED BY THE AO. THE AO LEVIED THE PENALTY AT RS. 2,57,070/ - FOR THE DEFAULT COMMITTED BY THE ASSESSEE U/S. 271(1)(C) OF THE ACT . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFOR E THE LD. CIT(A). IT WAS EXPLAINED BEFORE THE LD. CIT(A) THAT THE AO HAS PROCEEDED ON WRONG FOOTING THAT THE ASSESSEE IS FOLLOWING PROJEC T COMPLETION METHOD WHEREAS THE ASSESSEE IS FOLLOWING PERCENTAGE COMPLE TION METHOD. IT WAS FURTHER EXPLAINED THAT WHEN PROJECT IS INCOMPLETE, IT IS INCORRECT TO TAKE ADVANCES AS SALES. IT WAS ALSO BROUGHT TO THE NOTI CE OF THE LD. CIT(A) THAT THE OCCUPATION AND COMPLETION CERTIFICATE WERE NOT ISSUED BY THE MUNICIPAL CORPORATION. 4.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S, THE LD. CIT(A) OBSERVED THAT IF THE CASE HAD NOT BEEN SCRUTINIZED BY THE AO, THE ASSESSEE COULD WELL HAVE CONTINUED SHOWING THE RECEIPTS AS W ORK IN PROGRESS INDEFINITELY WITHOUT SHOWING THE PROJECT AS COMPLET ED. THE LD. CIT(A) HAVING OBSERVED AS SUCH CONFIRMED THE LEVY OF PENAL TY. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. ITA NO. 3720/M/2012 4 6. THE LD. COUNSEL FOR THE ASSESSEE ONCE AGAIN CLAI MED THAT THE AO HAS NOT ONLY COMPLETED THE ASSESSMENT BUT ALSO THE PENALTY PROCEEDINGS ON THE WRONG PRESUMPTION OF THE METHOD OF ACCOUNTIN G FOLLOWED BY THE ASSESSEE, THEREFORE THE PENALTY LEVIED AND CONFIRME D BY THE LD. CIT(A) ARE ON WRONG APPRECIATION OF THE FACTS AND THE ASSE SSEE HAS NEVER FILED ANY INACCURATE PARTICULARS OF FACTS WHICH COULD JUS TIFY THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LD. CIT(A). 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. APPARENTLY, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD CLAIMED ITS METHOD OF ACCOUNTING TO BE PERCENTAGE COMPLETION METHOD. IT IS ALSO APPARENT FROM THE ASSESSMENT ORDER THAT THE AO HAS PROCEEDED BY T AKING THE METHOD OF ACCOUNTING AS PROJECT COMPLETION METHOD. THE ADVAN CES RECEIVED BY THE ASSESSEE WERE VERY MUCH DISCLOSED IN THE BALANCE SH EET AGAINST WORK IN PROGRESS. THEREFORE, IT CANNOT BE SAID THAT THE AS SESSEE HAS NOT FULLY AND TRULY DISCLOSED THE MATERIAL FACTS RELEVANT TO THE ASSESSMENT PROCEEDINGS. SINCE THE ASSESSEE IS FOLLOWING ONE OF THE RECOGNIZ ED METHOD OF ACCOUNTING RECOGNIZED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA, THE HIGHEST ACCOUNTANT BODY CREATED BY AN ACT OF PA RLIAMENT, THE ASSESSEE HAS FOLLOWED A WELL ACCEPTED ACCOUNTING PRINCIPLE A ND THEREFORE IT CANNOT BE SAID THAT THIS IS A FIT CASE FOR LEVY OF PENALT Y FOR FILING INACCURATE PARTICULARS OF INCOME. THE CLAIM OF THE ASSESSEE I S WELL SUPPORTED BY THE ACCOUNTING PRINCIPLE AS WELL AS VARIOUS JUDICIAL DE CISIONS WHERE PERCENTAGE COMPLETION METHOD HAS BEEN ACCEPTED. TH E FACTS OF THE CASE ARE WELL SUPPORTED BY THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS 322 ITR 154. WE, A CCORDINGLY, SET ASIDE ITA NO. 3720/M/2012 5 THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO T O DELETE THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DEC.2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) /JUDICIAL MEMBER !& / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 05/12/2014 . . ./ RJ , SR. PS !3 !3 !3 !3 / // / ,0 ,0 ,0 ,0 5!(0 5!(0 5!(0 5!(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 ,0 , , / DR, ITAT, MUMBAI 6. 8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, -0 ,0 //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI