ESKAYS CONSTRUCTIONS PRIVATE LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE 47, MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-50, Mumbai, dated 26.02.2016, which in turn arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated 27.09.2017 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us: “1. The learned Commissioner of Income Tax (Appeal) {CIT(A)} has erred in levying penalty of Rs.25,55,610/- under section 271(1)(c) of the income Tax Act, 1961 ('Act.'). On the basis of facts and in the circumstances of P a g e | A.Y. 2010-11 M/s Eskays Construction Pvt. Ltd. Vs. Commissioner of Income-tax (Appeals)-50 the case, said order is ought to be quashed or penalty levied ought to be deleted on the following ground: (a) The order is passed beyond the time allowed u/s 275(1)(a) of the Act and is invalid. (b) The quantum on which penalty is levied does not resulted into enhancement, the order passed is invalid. (c) The appellant has made f ull disclosure in the return of income and at the time of assessment proceedings. (d) The appellant craves leave to add, alter, amend and/or rescind any grounds of appeal during the course of the hearing.”

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after necessary deliberations deleted the addition of Rs.4,00,00,000/- on account of understatement of sale proceeds in respect of a flat that was sold by the assessee. Also, the disallowance of loan processing charges of Rs.1,40,77,082/- was vacated by him. As regards the addition of Rs.2,39,00,000/- made by the A.O towards profit under percentage completion method in the hands of the assessee, the basis adopted by the A.O for working out the said addition was not accepted by the CIT(A). As a matter of fact, the CIT(A)

The A.O after receiving the order of the CIT(A), dated 26.02.2016 in the quantum appeal of the assessee, imposed penalty under Sec.271(1)(c) of Rs.25,55,610/- as regards the aforesaid addition of Rs.85,18,702/- that was upheld by him.

Aggrieved, the assessee assailed the penalty imposed under Sec.271(1)(c) before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee upheld the penalty of Rs.25,55,610/- imposed by the A.O under Sec. 271(1)(c) of the Act.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee had submitted that the addition of Rs.85,18,702/- as regards the profit in respect of the unsold area that was sustained by the CIT(A) (by adopting the average sale price at Rs.28,808/-) while disposing off the quantum appeal of the assessee, vide his order dated 26.02.2016, had been deleted by the Tribunal vide its order viz. Dy. CIT, Central Circle -8(4), Mumbai Vs. M/s Eskays Construction Pvt. ltd. (ITA No. 3722/Mum/2016, dated 10.07.2019) (copy placed on record). It was submitted by the ld. A.R, that now when the quantum addition had been vacated by the P a g e | A.Y. 2010-11 M/s Eskays Construction Pvt. Ltd. Vs. Commissioner of Income-tax (Appeals)-50 Tribunal, therefore, the penalty imposed under Sec. 271(1)(c) cannot be sustained and has to meet the same fate.

Per contra, the ld. Departmental Representative (for short „D.R‟) did not controvert the aforesaid claim of the counsel for the assessee.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that the Tribunal while disposing off the quantum appeal of the assessee for the year under consideration i.e. A.Y. 2010-11 had vacated the addition of Rs.85,18,702/- that was confirmed by the CIT(A). The Tribunal while vacating the aforesaid addition had observed as under: “7.1. The next aspect to be decided with regard to the addition of Rs 2.39 crores is with regard to the valuation of unsold flats as on 31.3.2010. The assessee had valued the unsold flats the lower of cost or market value as on 31.3.2010, which is in accordance with generally accepted accounting principles for valuation of inventories. We find that the Hon‟ble Supreme Court in the case of Chainrup Sampatram Vs. CIT reported in 24 ITR 481 (SC) and United Commercial Bank vs. CIT reported in 106 Taxman 601 (SC) had accepted the basis of valuation of inventories at lower of cost or market value and had also held that no profit could arise out of valuation of closing stock. Their Lordships held that valuation of unsold stock at the close of an accounting period is a necessary part of the process of determining the trading results of that period and can in no sense be regarded as the source of such profits. We find that the ld CITA by valuing unsold flats at the average of sale price Ld. CIT(A) had assessed profit attributable to unsold flats which is not permissible. Respectfully following the aforesaid decisions of Hon‟ble Supreme Court and applying the same to the facts of the instant case before us, we direct the Ld A.O. to accept the valuation of unsold flats as on 31.3.2010 as done by the assessee.” We are of the considered view that now when the quantum addition of Rs.85,18,702/- had been vacated by the Tribunal, therefore, the penalty of Rs.25,55,610/- imposed by the A.O under Sec.271(1)(c) in respect of the said addition cannot be sustained and is accordingly P a g e | A.Y. 2010-11 M/s Eskays Construction Pvt. Ltd. Vs. Commissioner of Income-tax (Appeals)-50 deleted. The Ground of appeal