Bollineni Developers Limited, Hyderabad, Hyderabad V. ACIT, Circle-1(3), Hyderabad, Hyderabad

ITA 482/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2521 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: D V ANJANEYULU
• Keywords: Capital asset; Business income; Business expenditure
• Section: 143(3); 153A; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B BENCH: HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA. NO. 482 /HYD/ 2016 ASSESSMENT YEAR: 2006 - 2007 BOLLENENI DEVELOPERS LTD., HYDERABAD. PAN: AAACB 8237 D VS. ACIT, CIRCLE - 1(3), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI D.V. ANJANEYULU FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 12.02.2018 DATE OF PRONOUNCEMENT : 16 .0 2 .2018 ORDER PER V. DURGA RAO, JM . THIS APPEAL BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER PASSED BY LD CIT (A) - 3, HYDERABAD AND IT PERTAINS TO ASSESSMENT YEAR 2006 - 2007. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS: - 1. THE LD. CIT(A) ERRED BOTH IN LAW AND FACTS CONFIRMING THE LEVY OF PENALTY RS. 7,50,000/ - U/S 271(1)(C) OF THE ACT. 2. THE LD. CIT(A) FURTHER ERRED IN LAW, CONFIRMING THE PENALTY BECAUSE OF NON - FILING OF APPEAL AGAINST THE ADDITIONS MADE CHANGE OF HEAD OF I NCOME FROM BUSINESS TO LONG TERM CAPITAL GAINS WHICH WAS ASSESSED AS BUSINESS INCOME IN SUBSEQUENT YEARS U/S 143(3) R.W.S 153A AND ALSO NO RECORD OF SATISFACTION IN ASSESSMENT ORDER TOWARDS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS EXCE PT STATING PENALTY INITIATED U/S 271(1)(C) WHICH IS AGAINST THE PROVISIONS OF SECTION 271(1)(C)K AND THE SETTLED CASE LAWS 322 ITR 158 (SC) CIT VS. RELIANCE PETRO PRODUCTS PVT LIMITED, 349 ITR 196 ( AP ) CHENNA KESHAVA PHARMACEUTICALS VS AP, 168 ITR 705 (SC) SIR SHADILAL SUGAR AND GENERAL MILLS LTD AND ANOTHER VS. CIT. 2 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN CONSTRUCTION AND DEVELOPMENT ACTIVITIES. ASSESSEE FILED ITS RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.23,50,2 30/ - UNDER THE HEAD BUSINESS INCOME. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT ASSESSED INCOME AT RS.67,78,680/ - UNDER THE HEAD LONG TERM CAPITAL GAINS AGAINST THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD BUSI NESS INCOME. IN THE ASSESSMENT ORDER, AO OBSERVED THAT AS COULD BE SEEN FROM THE RECORDS, THE ASSESSEE - COMPANY PURCHASED LAND ADMEASURING ABOUT 1057.38 SQ.Y RDS VIDE REGD. SALE DEED NO.762/2002, DATED 05.03.2002 FOR RS.57,34,708/. THE SAID LAND WAS PURC HASED AS INVESTMENT AND THE SAME HAS BEEN SHOWN AS FIXED ASSET OF THE COMPANY IN THE BOOKS OF ACCOUNT AND FINAL STATEMENT OF ACCOUNTS FOR THE AYS 2004 - 05 TO 2005 - 06. THE COMPANY ENTERED INTO AN AGREEMENT WITH THE BUILDER NAMED M/S. TRENDSET BUILDERS PVT L TD., VIDE AGREEMENT DATED 08.06.2005. ACCORDING TO THE SAID AGREEMENT, THE COMPANY TRANSFERRED 475.82 SQ.YARDS OF LAND OUT OF THE TOTAL AREA OF 1057.38 SQ.YARDS IN CONSIDERATION OF BUILT UP OF 9019 SQ.FT. IN VIEW OF THE SAID AGREEMENT, THE POSSESSION OF THE LAND WAS GIVEN TO THE SAID BUILDER IN CONSIDERATION OF CONSTRUCTION AND TRANSFER FOR BUILT UP AREA OF 9019 SQ.FT. ACCORDINGLY, THE SAID BUILDER HAS HANDED OVER THE ASSESSEE - COMPANY SIX FLATS MEASURING 9026 SQ.FT DURING THE FY 2005 - 06. ASSSESSEE COMPA NY HAS IMMEDIATELY SOLD THE SAID FLATS DURING THE FY 2005 - 06 ITSELF. THE AO FURTHER OBSERVED THAT THE COST OF THE BUIL T UP AREA OF 9026 SQ.FT RECEIVED BY THE ASSESSEE COMPANY FROM THE SAID BUILDER WORKS OUT TO RS. 57,89,392/ - AFTER ADDING 10% OF THE COST TOWARDS GROSS PROFIT OF THE BUILDER, THE MARKET VALUE OF THE BUILT UP AREA RECEIVED FROM THE BUILDER WORKS OUT TO RS. 63,68,331/ - . 3. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE AS BUSINESS INCOME AND TREATED THE SAME AS INCOME FROM CAPITAL GAINS. ASSESSEE ALSO CLAIMED THAT THE DEVELOPMENT OF SIX FLATS COST 3 RECEIVED AMOUNTING TO RS. 37,40,532/ - IS A BUSINESS EXPENSE BUT THE SAME WAS REJECTED BY THE AO ON THE GROUND THAT THE SAID EXPENSES CONSTITUTE WORK - IN - PROGRESS NOT BUSINESS EXPENSES AND DISALLOWED THE SAME. SUBSEQUENTLY, AO INITIATED THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND ISSUED NOTICE U/S 27 1(1)(C) R.W.S 274 OF THE ACT DATED 31.12.2008. 4. IN RESPONSE TO THE SAID NOTICE U/S 271(1)(C) ISSUED BY THE AO VIDE ITS LETTER DATED 29.01.2009 A DETAILED REPLY WAS SUBMITTED BY THE ASSESSEE WHICH IS REPRODUCED AS UNDER: - WE HAVE FILED OUT RETURN OF INCOME ADMITTING A TAXABLE INCOME OF RS. 23,50,230/ - AND THE SAME WAS ACCEPTED BY PROCESSING THE RETURN U/S 143(1) ON 21/07/2007. THE ASSESSMENT WAS CONVERTED TO SCRUTINY AND COMPLETED U/S 143(3) ON 31.12.2008. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER HAS DET ERMINED THE LONG TERM CAPITAL GAIN AT RS. 67,78,680/ - IN THE FOLLOWING MANNER: - I) CAPITAL GAIN ON TRANSFER OF BUILT - UP AREA OF 9026 SQ FT RS.30,03,817/ - II) CAPITAL GAIN ON TRANSFER OF LAND 581. 56 SQ YARDS RS. 37,74,871/ - THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS NOT ALLOWED THE BUSINESS EXPENDITURE ON CERTAIN HEADS OF ACCOUNT ALLEGING THAT THESE ARE NOT RELATED TO THE YEAR UNDER CONSIDERATION AND FINALLY ASSESSED THE BUSINESS LOSS AT RS. 10,12,026/ - . THE ASSESSEE SUBMIT THAT, IT IS ENGAGED IN T HE DEVELOPMENT AND CONSTRUCTION ACTIVITIES. AS ITS PART OF BUSINESS ACTIVITY, IT HAS GIVEN LAND FOR DEVELOPMENT AND GOT UNFINISHED CONSTRUCTED AREA OF 9026 SQ FT AND IT HAS DECLARED IT AS ITS BUSINESS ACTIVITY AND OFFERED THE INCOME TO TAX UNDER BUSINESS. THE ASSESSING OFFICER HAS CHANGED THE NATURE OF INCOME AND ITS HEAD OF ACCOUNT AS LONG TERM CAPITAL GAIN WHICH IS INCORRECT. HOWEVER, TO AVOID PROTRACTIVE LITIGATION AND TO MAINTAIN RAPPORT, IT HAS AGREED FOR THE ASSESSMENT AND DID NOT CHALLENGE IT IN A PPEAL THOUGH THERE ARE FAIR CHANCES OF SUCCESS IF IT IS APPEALED AGAINST. THE MERE ACCEPTANCE OF ASSESSMENT DID NOT TANTAMOUNT TO CONCEALMENT OF ANY INCOME OR FURNISHING OF INACCURATE PARTICULARS. THE ASSESSEE FURTHER SUBMIT THAT, THE ASSESSEE HAS FURNISHED THE ENTIRE BOOKS OF ACCOUNT FOR VERIFICATION AND FURNISHED WHATEVER THE PARTICULARS REQUIRED BY THE ASSESSING OFFICER TIME TO TIME DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER DID NOT FIND ANY MATERIAL OR FACTS OUTSIDE THE BOOKS OF ACCOUNT. ALL THE DETAILS ARE AVAILABLE ON RECORD. NO FRESH OR OUTSIDE MATERIAL WAS FOUND BY THE ASSESSING OFFICER. THEREFORE, IT CAN BE INFERRED THAT THE ASSESSEE 4 HAS NOT FURNISHED ANY INACCURATE PARTICULA RS OR CONCEALED ANY AFFAIRS. 5. A.O, AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, OBSERVED THAT THE INCOME OFFERED BY THE ASSESSEE AS A BUSINESS INCOME AND CLAIMING THE BUSINESS EXPENSES AGAINST CAPITAL GAINS IS NOT CORRECT AND THEREFORE LEVIED PENALTY OF RS. 7,50,000/ - U/S 271(1)(C) OF THE ACT. 6. ON AN APPEAL, LD CIT (A) CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT ON PERUSAL OF THE BALANCE SHEET IT IS CLEAR THAT THE ASSET GIVEN FOR DEVELOPMENT WAS SHOWN AS A FIXED ASSET AND SALE OF SUCH FIXED ASSET WOULD RESULT IN LONG TERM CAPITAL GAINS AND THE CLAIM MADE BY THE ASSESSEE AS A BUSINESS INCOME IS NOT CORRECT THEREFORE THE ASSESSEE THE HAS FILED INACCURATE PARTICULARS OF INCOME BY CLAIMING THE EXPENSES WHICH HAVE NO CONNECTION WITH TH E REVENUES RECEIVED BY THE ASSSESSEE. 7. ON BEING AGGRIEVED, ASSSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 8. BEFORE US, LD COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEEE IS IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. A LAN D WAS GIVEN FOR DEVELOPMENT AND THE BUILDER HAS AGREED TO HAND OVER BUILT UP AREA WHICH WAS UNFURNISHED AND THE SAME IS DEVELOPED BY THE ASSESSEE AND CONSIDERATION RECEIVED FROM THE SALE OF SUCH FLATS A S WELL AS THE EXPENDITURE INCURRED FOR THE DEVELOPMENT OF FLATS WAS DECLARED AS BUSINESS INCOME. THEREFORE, AO IS NOT CORRECT IN TREATING THE CONSIDERATION RECEIVED BY THE ASSESSEE AS CAPITAL GAINS. IT IS FURTHER SUBMITTED THAT THOUGH THE ASSESSEE IS ACCEPTED THE ORDER PASSED BY THE AO ON THAT GROUND, PENALTY U/S 271(1)(C) CANNOT BE LEVIED. IT IS FURTHER SUBMITTED THAT THE ASSESSEE FILED A DETAILED EXPLANATION BEFORE THE ASSESSING OFFICER DURING THE PENALTY PROCEEDINGS BUT THE SAME WAS REJECTED BY THE AO ON THE G ROUND THAT THE CLAIM MADE BY THE ASSESSEE IS NOT ALLOWABLE. IT IS FURTHER SUBMITTED THAT THE ASSESSEE MADE A CLAIM AND FILED ALL THE RELEVANT DETAILS BEFORE THE AO, BUT THE ASSESSING OFFICER 5 WAS OF THE OPINION THAT IT IS NOT BUSINESS INCOME BUT IT IS INCO ME FROM CAPITAL GAINS. UNDER THESE CIRCUMSTANCES, THE PENALTY CANNOT BE LEVIED U/S 271(1)(C) OF THE ACT. HE FURTHER SUBMITTED THAT NEITHER DURING THE ASSESSMENT PROCEEDINGS NOR PENALTY PROCEEDINGS, THE AO GAVE A FINDING THAT THE ASSESSEE HAS NOT FILED AN Y RELEVANT PARTICULARS AND THEREFORE IMPOSITION OF PENALTY U/S 271(1)(C) IS NOT VALID. LD COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY ( 35 TAXMANN.COM 2 50 ) AND THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT LTD (322 ITR 158) (SC). 9. ON THE OTHER HAND, LD DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS PASSED BY THE AO AND THE CIT(A). THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE SHOWN UNDER THE HEAD BUSINESS INCOME INSTEAD OF CAPITAL GAINS A TTRACTS THE PENALTY U/S 271(1)(C) OF THE ACT OR NOT. THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT AND IT PURCHASED LAND ADMEASURING 1057.38 SQ.YARDS OUT OF WHICH HE HAS TRANSFERRED 475.82 SQ.YARDS TO M/S. TRENDSET BUILDERS PVT LTD., HYD ERABAD. ACCORDING TO THE SAID BUILDER, IT HANDED OVER SIX FLATS MEASURING 9026 SQ.FT DURING THE FY 2005 - 06 AND THE SAME WAS SOLD OUT BY THE ASSESSEE IMMEDIATELY. THE ASSESSSEE ALSO UNDERTOOK THE DEVELOPMENT OF THE SAID SIX FLATS AND INCURRED AN AMOUNT OF RS. 37,40,532/ - AND THE SAME WAS CLAIMED AS BUSINESS EXPENDITURE. THE AO WAS OF THE OPINION THAT THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE I.E., SIX FLATS MEASURING 9026 SQ.FT OF RS. 67,78,680/ - CLAIMED BY THE ASSESSEE AS BUSINESS INCOME WAS REJECT ED AND ASSESSED THE SAME UNDER THE HEAD LONG TERM CAPITAL GAINS. THE DEVELOPMENT EXPENSES CLAIMED BY THE ASSESSEE COMPANY ALSO REJECTED ON THE GROUND THAT IT IS 6 ONLY WORK - IN - PROGRESS AND NOT RELATED TO THE SALE CONSIDERATION. IT IS A FACT THAT THE ASSESS EE IS CARRYING ON BUSINESS OF CONSTRUCTION AND DEVELOPMENT. IN ALL THE EARLIER YEARS, THE INCOME OF THE ASSESSEE WAS ASSESSED UNDER THE HEAD BUSINESS INCOME (PAGE 49 OF THE PAPER BOOK IS RELEVANT) I.E., FOR THE AYS 2004 - 05 TO 2010 - 11 EXCEPT THE AY 2006 - 07 , WHICH IS UNDER CONSIDERATION. NOWHERE IN THE ASSESSMENT ORDER OR PENALTY ORDER AO GAVE A FINDING THAT THE ASSESSEE HAS NOT DISCLOSED RELEVANT FACTS DURING THE ASSESSMENT PROCEEDINGS. FURTHER, DURING THE PENALTY PROCEEDINGS, ASSSESEE HAS GIVEN A DETAILE D EXPLANATION BUT THE SAME WAS REJECTED BY THE AO ON THE GROUND THAT THE SAME IS NOT CORRECT. AO HAS COME TO THE CONCLUSION THAT THE SALE CONSIDERATION RECEIVED BY THE ASSESSEE OUGHT TO HAVE BEEN OFFERED UNDER THE HEAD CAPITAL GAINS BUT NOT UNDER THE HEA D BUSINESS INCOME AND THEREFORE, IT AMOUNTS TO CONCEALMENT OF INCOME U/S 271(1)(C) OF THE ACT. WE FIND THAT THE ASSESSEE NEITHER FILED INACCURATE PARTICULARS NO R CONCEALED INCOME. THIS IS ONLY THE CASE WHERE THE CLAIM MADE BY THE ASSESSEE IS NOT ACCEPTED BY THE AO. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE BY FILING INACCURATE PARTICULARS OF INCOME MADE A CLAIM OR BY CONCEALMENT OF INCOME THE ASSESSEE HAS DECLARED BUSINESS INCOME. UNDER THESE CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT TH E ASSESSEE NEITHER CONCEALED INCOME NOR FILED ANY INACCURATE PARTICULARS AND THEREFORE THE PENALTY U/S 271(1)(C) CANNOT BE LEVIED. THE CASE LAW RELIED ON BY THE LD COUNSEL FOR THE ASSESSEE IN THE CASE OF MANJUNATHA COTTON MILLS (SUPRA) THE HONBLE HIGH CO URT HELD THAT THE IMPOSITION OF PENALTY IS NOT AUTOMATIC I.E., IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED, IS NOT AUTOMATIC. EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID THE SAME, THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES WHICH HAS 7 RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILITY CAME TO BE ADMITTED, AND IF NOT, IT WOULD HAVE E S CAPED FROM TAX NET AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER (PARA 64 OF THE JUDGMENT) . IN THE PRESENT CASE, THE ASSESSEE HAS FILED ALL THE RELEVANT DETAILS WHILE CLAIMING THE BUSINESS INCOME B UT THE ASSESSING OFFICER HAS TREATED THE SAME AS INCOME FROM CAPITAL GAINS IN THE ABSENCE OF ANY MATERIAL FOUND BY MAKING ENQUIRY OF THE FACTS AND DETAILS ARE DISCLOSED BY THE ASSESSEE. IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT LTD., THE HONBLE SUPREME COURT OBSERVED THAT WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C). A MERE MAKING OF CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. IN THIS CASE, THE ASSESSEE H AS ONLY MADE A CLAI M WHICH IS NOT ACCEPTABLE TO THE A.O. AND THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OR CONCEALED INCOME. KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY (SUPRA) AS WELL AS THE JUDGMENT OF THE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT LTD (SUPRA) WE REVERSE THE ORDER PASSED BY THE LD. CIT(A) AND APPEAL FILED BY THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY, 2018 SD/ - SD/ - (B. RAMAKOTAIAH) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 16 TH FEBRUARY, 2018. OKK, SR.PS 8 COPY TO 1. M/S. M. ANJANEYULU & CO., CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD 500 080. 2. ACIT, CIRCLE - 1(3), HYDERABAD. 3. CIT (A) - 3 , HYDERABAD. 4. PR. CIT - 1 , HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE