ACIT, NEW DELHI vs. M/S. D.D. RESORTS PVT. LTD., NEW DELHI

Brief facts of the case are that pursuant to the search and seizure operation u/s. 132 of the Income Tax Act, 1961 (“the Act”) carried out in the case of Raj Darbar group on 31.07.2008, proceedings u/s. 153C of the Act were initiated against the assessee. The assessee filed return of income for the assessment year 2009-10 on 30.09.2009 declaring income of Rs.4,51,81,260/-. By order dated 27.12.2010, the Assessing Officer made addition of Rs.1,56,80,432/- in respect of the assessment year 2009-10 by disallowing a portion of interest debited by the assessee as cost of the project and concluded the assessment at Rs.23,35,65,290/-. The Assessing Officer simultaneously initiated penalty proceedings u/s. 271(1)(c) on the charge of concealment of income and furnishing inaccurate particulars and by order dated 28.03.2013 levied a penalty of Rs.8,50,02,420/-.

Aggrieved by such levy of penalty, the assessee preferred appeal before the ld. CIT(A) and contended that the alleged addition was made by the Assessing Officer by changing the method of accounting followed by the assessee from Project Completion Method to Percentage Completion Method and such a course is not open to the Assessing Officer, since the assessee is entitled to adopt any one of the methods of accounting in the real estate business. The ld. CIT(A) analysed the contention of the assessee in the light of decision of Hon’ble Supreme Court in the case of Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 and reached a conclusion that no penalty could be levied on the income added to the total income of the assessee by changing the method of accounting. The Revenue is, therefore, aggrieved and preferred this appeal.

The ld. DR placed reliance on the penalty order and submitted that in respect of construction contracts, the prescribed Standard was AS-7(Revised) and all the builders, developers, contractors have to follow Percentage Completion Method of accounting in respect of all the revenues received on or after 01.04.2003. Since the assessee has not declared the profit as per Percentage Completion Method, the Assessing Officer completed the assessment on the basis of the same and as such the assessee had concealed the income and furnished inaccurate particulars of income. It was also her submission that the assessee did not file any reply to show cause notice and therefore, the penalty imposed has wrongly been deleted by the ld. CIT(A).

The ld. AR, at the outset, submitted before us that the quantum addition made by the Assessing Officer was deleted by the ld. CIT(A) against which the Revenue preferred an appeal to the Tribunal in for the assessment year 2009-10 and such an appeal of the Revenue was dismissed by the Tribunal by order dated 21.01.2020. He further submitted that apart from such fact, no penalty could be levied on the additions made by changing the method of accountancy, but not as a result of either concealment of income or furnishing of inaccurate particulars thereof.

We have gone through the record in the light of submissions made on either side. The assessment order clearly shows that the Assessing Officer estimated the profit of the assessee and enhanced the same by Rs.93,62,92,990/- and determined the project income at Rs.122.18 crores instead of 28.55 crores as admitted by the assessee. The assessment order further reads that the Assessing Officer took the total expected profit from the project at Rs.122.18 crores while working out the profit of the assessee on the basis of Percentage Completion Method, whereas the assessee adopted Project Completion Method.

It is, therefore, clear that the addition is made by adopting a different accounting method from the one followed by the assessee and by resorting to the estimate. Apart from the assessee choosing one of the two methods in their accounts, there is no specific allegation from the Revenue that the assessee has either concealed the particulars of income or furnished inaccurate of particulars thereof. The ld. CIT(A), therefore, was right in applying the decision of Hon’ble Apex Court in the case of Reliance Petroproducts Ltd. (supra) to reach a conclusion that the penalty cannot be sustained.

Apart from that, the quantum addition was deleted by the first appellate authority and the said order of ld. CIT(A) was confirmed by the Tribunal in (supra). The CIT(A) quashed the assessment proceedings on the ground that as on the date of assumption of jurisdiction by the Assessing Officer in respect of a person other than a searched person on 10.03.2010, the assessment proceedings for the assessment year 2009-10 were pending and stood abated. Such a finding of the CIT(A) was upheld by the Tribunal holding that for the assessment year 2009-10 also the Assessing Officer should have recorded satisfaction and after issuing the notice u/s. 153C of the Act, assessment should have been framed and because of such procedural lapse, the assessment order stood vitiated.

Viewing from any angle, we are of the considered view that the penalty could not be sustained and the appeal of the Revenue is found devoid of merits. The same is accordingly dismissed.

Coming to the cross objections, since the impugned order of ld. CIT(A) stands upheld, the cross objections of the assessee which are supportive of impugned order, are rendered to be infructuous and are, accordingly, dismissed.

In the result, the appeal of the Revenue and cross-objections of the assessee are dismissed. Order pronounced in the open court on 13th February, 2020.