DCIT CEN CIR 5(1), MUMBAI vs. AKRUTI KAILASH CONSTRUCITON, MUMBAI

Brief facts are, the assessee, a partnership firm, is engaged in the business of property development. For the assessment year under 2 Akruti Kailash Construction dispute, the assessee filed its return of income on 31st July 2012, declaring loss of ` 3,36,32,538. During the assessment proceedings, the Assessing Officer while verifying the return of income filed by the assessee noticed that the assessee has offered interest income of ` 70,492, under the head income from other sources. Whereas, it has shown loss of ` 3,43,45,900, under the head income from business and profession. On a perusal of the Profit & Loss Account, he noticed that the loss shown by the assessee is mainly due to various expenses, such as, administrative expenses, employee cost etc. debited to the Profit & Loss Account. He observed, as per section 57 of the Act, only expenditure incurred for earning the income can be allowed. Thus, he called upon the assessee to explain as to why the expenditure debited to the Profit & Loss Account should not be disallowed. Though, the assessee justified the expenditure debited to the Profit & Loss Account, however, the Assessing Officer did not find merit in them. He observed, since the assessee has undertaken a single development project during the year, the expenditure incurred should have been capitalized and transferred to work–in–progress (WIP) account and should not have been debited to the Profit & Loss Account. Accordingly, he disallowed the loss claimed by the assessee which resulted in determination of income at ` 5,70,840. As it appears from the facts on record, the assessee did not contest the aforesaid decision of the Assessing Officer. Thus, on the basis of disallowance of 3 Akruti Kailash Construction loss claimed by the assessee, the Assessing Officer initiated proceeding for imposition of penalty under section 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income and concealment of income. Though, the assessee filed its explanation objecting to the initiation of penalty proceedings and submitted that neither there is concealment of income nor furnishing of inaccurate particulars of income, however, the Assessing Officer rejecting the explanation of the assessee proceeded to impose penalty of ` 1,06,12,880, under section 271(1)(c) of the Act. The assessee challenged the penalty imposed before the first appellate authority.

The learned Commissioner (Appeals), after considering the submissions of the assessee in the context of facts and material on record, observed that none of the expenditures claimed by the assessee were found to be bogus by the Assessing Officer. He observed, the fact that the assessee has undertaken development of the project and other income in respect of the same project on sale of TDR and FSI in earlier years has not been disputed. He found that the assessee had substantial borrowings which have been utilized in development of the project. Further, sales made in earlier years have not been received fully which is evident from the list of debtors reflected in the Balance Sheet. Whereas, borrowings of earlier years have not been re–paid fully. The major expenditure is on account of 4 Akruti Kailash Construction interest cost. He observed, the only dispute raised by the Assessing Officer is, the interest cost and administrative expenditure should have been capitalized instead of debiting to the Profit & Loss Account. Thus, he observed, merely because the expenditure was required to be capitalized would not lead to either concealment of income or furnishing of inaccurate particulars of income. Further, he observed, treating the expenditure as WIP is mere deferral of income. Further, there was no taxable income and tax payable even after assessment. Thus, there cannot be a motive on the part of the assessee to evade tax. Thus, in the aforesaid premises, learned Commissioner (Appeals) deleted the penalty imposed under section 271(1)(c) of the Act.

The learned Departmental Representative submitted, the very fact that the assessee did not contest the decision of the Assessing Officer in directing capitalization of the expenditure proves the fact that the assessee has furnished inaccurate particulars of income. Therefore, imposition of penalty under section 271(1)(c) of the Act was justified.

Per contra, the learned Authorised Representative submitted, it is only a difference of opinion between the assessee and the Assessing Officer with regard to the nature of expenditure, whether revenue or capital. He submitted, the Assessing Officer has neither disputed nor doubted the genuineness of expenditure incurred by the assessee. He

We have considered rival submissions and perused material on record. It is evident, the Assessing Officer has neither doubted nor disputed the genuineness of expenditure incurred by the assessee. In Assessing Officer’s opinion, since the development of project undertaken by the assessee is in progress, instead of debiting the expenditure to the Profit & Loss Account, the assessee should have capitalized it by transferring to WIP. Thus, there is only a difference of opinion between the assessee and the Assessing Officer with regard to the nature of expenditure. It is also a fact on record that all the necessary information relating to the expenditure has been fully disclosed by the assessee in the financial statements. In such circumstances, the assessee cannot be accused of either furnishing inaccurate particulars of income or concealing the income. As rightly observed by the learned Commissioner (Appeals), there is no dispute

In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 11.10.2019