Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: SHRI R.C. SHARMA (AM) & SHRI RAM LAL NEGI (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “F”, MUMBAI BEFORE SHRI R.C. SHARMA (AM) AND SHRI RAM LAL NEGI (JM) Assessment Year: 2011-2012 M/s SRM Sites Pvt. Ltd., The Commissioner of Income Shree Ram Mills Premises, Tax (Appeals)-14 Ganpatrao Kadam Marg, Mumbai Lower Parel, Vs. Mumbai - 400013 PAN: AANCS0873M (Appellant) (Respondent) & Assessment Year: 2010-2011 M/s SRM Sites Pvt. Ltd., The Income Tax Officer-7(2)(4), Shree Ram Mills Premises, Mumbai Ganpatrao Kadam Marg, Lower Parel, Vs. Mumbai - 400013 PAN: AANCS0873M (Appellant) (Respondent) Assessee by : Shri Pradeep Sharma (AR) Revenue by : Shri Saurabh Kumar Rai (DR) Date of Hearing: 15/03/2019 Date of Pronouncement: 30/05/2019
O R D E R PER RAM LAL NEGI, JM These appeals have been filed by the assessee against the orders dated 16.12.2014 and 22.01.2016 passed by the Ld. Commissioners of Income Tax (Appeals)-14, Mumbai, for the assessment years 2010-2011 and 2011-12 respectively, whereby the Ld. CIT (A) has dismissed the appeals filed by the assessee against penalty orders passed u/s 271 (1) (c) of the Income Tax Act, 1961 (for short ‘the Act’). Since, these appeals are connected and the issues Assessment Years: 2010-2011 and 2011-12
involved in both the appeals are identical, these appeals were clubbed, heard together and are being disposed of by this common and consolidated order for the sake of convenience.
ITA No. 3512/MUM/2016 (Assessment Year: 2011-2012 Since, both the appeals arise from the same set of facts, we take the brief facts of the case pertaining to the assessment year 2011-12 as lead case. The assessee company engaged in the business of construction, filed its return of income for the assessment year 2011-12 on 28.09.2011, declaring the total income of Rs. 3,62,365/-. The return was processed u/s 143 (1) of the Act. A survey action u/s 133A was carried out on the business premises of the assessee company on 30.10.2012. During the survey action, a dispute arose regarding accounting policy followed by the assessee with regard to the recognition of the revenue on the construction contract. The assessee agreed to offer revenue on such construction contract by offering of income at the rate of 5% on the incremental construction work in progress on year on year basis subject to the condition that the revenue will not levy penalty on such voluntary declaration. 2. Subsequently, the assessment was reopened u/s 147 of the Act after issuing notice u/s 148 of the Act. In response to the notice u/s 148 of the Act the assessee company filed its return of income declaring the total income at Rs. 1,85,68,786/-. During the year relevant to the assessment year under consideration the assessee had shown Capital Work in Progress (CWIP) of Rs. 108,80,28,173/-. Out of the said amount the assessee had shown labour charges of Rs. 36,53,44,153/- paid to sub contractor M/s Raghuveer Urban Construction Company Pvt. Ltd. Since, the assessee had not recognized the revenue in its original return as per revised accounting standard (AS-7) (percentage/progressive completion method) during the year relevant to the assessment year under consideration and since the assessee had agreed to Assessment Years: 2010-2011 and 2011-12
offer 5% of the total amount of work in progress, the AO made addition of Rs. 1,82,06,430/- to the income of the assessee. On the basis of the aforesaid said addition, AO initiated penalty proceedings and levied penalty of Rs. 60,47,721/- u/s 271 (1) (c) of the Act. In the first appeal, the Ld. CIT (A) confirmed the penalty levied by the AO. The assessee is in appeal against the order passed by the Ld. CIT (A). 3. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following grounds:- 1. “The Hon’ble Commissioner of Income Tax (Appeals) hereinafter referred as “CIT (A”) has erred in confirming the order of learned assessing officer [hereinafter referred as “AO”) levying penalty of Rs. 1,25,00,000/- U/s 271 (1) (c) of Income Tax Act, 1961 being 100% of the amount of addition of Rs. 3,61,94,979/-, which is 5% of Total Construction WIP, in the assessment order U/s 143 (3) of Income Tax Act, 1961. It is submitted that during the assessment proceedings, a Survey action has been carried by the Income Tax Department on the assessee Company’s premises on 30.10.2012. During such survey, as there was a dispute regarding the accounting policy followed by the assessee Company with regard to the recognition of revenue on the construction contract, it was agreed by the Appellant that it will offer the Revenue on such construction contract by offering the income @ 5% on the incremental Construction Work-in-Progress on a year-on- year basis subject to condition that non levy of penalty on such declaration It is further submitted that the assessee Company has accepted the stand of the Department just to buy peace and accordingly agreed to offer the Revenue from such construction contract in each year based on the work completed at the end of each year.
It is therefore submitted that the Appellant had submitted all the details during the assessment proceedings and therefore there is neither any act of concealment of income nor Assessee Company has furnished inaccurate particulars of income. Assessment Years: 2010-2011 and 2011-12
In view of the above, it is submitted that Penalty levied in these case is unwarranted and the same should be deleted.”
During the pendency of the appeal, the assessee moved an application for allowing additional ground of appeal against the said order under rule 11 of the Income Tax Appellate Tribunal Rules, 1963. The additional ground raised by the assessee reads as under:- Without prejudice to the other grounds of appeal, the learned assessing officer erred in levying penalty without issuing proper notice U/s 271 (1) © of the Income Tax Act, 1961. The penalty notice is invalid in law as the learned Assessing Officer has not arrived at any conclusion whether the addition made is “concealment of income” or “furnishing of inaccurate particulars of income”. The learned assessing officer failed to strike off the relevant clause in the notice issued u/s 271 r.w.s. 271 (1) c) of the Income Tax Act, 1961 rendering the notice as invalid.”
Since, the additional ground raised by the assessee is on legal issue, after hearing the Ld. Departmental Representative (DR), we allowed the application and permitted the assessee to argue on the legal ground raised by the assessee. 6. There is a delay of 43 days in filing the present appeal. The assessee has filed an application for condonation of delay in the form of affidavit stating that since the staff had misplaced the copy of order passed by the Ld. CIT (A), the assessee could not file the present appeal within the prescribed period. In the light of the aforesaid facts, the Ld. counsel for the assessee submitted that the since the assessee was prevented by sufficient cause from filing the present appeal within the prescribed period, the request of the assessee may be allowed and delay of 43 days may be condoned and the assessee may be permitted to argue its case on merits. 7. Per contra, the Ld. DR opposed the application for condonation of delay on the ground that the application has been filed in a mechanical manner as the Assessment Years: 2010-2011 and 2011-12
assessee has not produced any evidence to establish that there was a reasonable cause for not filing the appeal within the limitation period. The Ld. DR further submitted that since the assessee has failed to prove sufficient cause for condonation of delay in filing the present appeal, the prayer of the assessee is liable to be rejected. 8. We have heard the rival submissions and also gone through the material on record including the case relied upon by the parties. Sub-section 5 of section 253 of the Income Tax Act provides that the Tribunal may admit appeal or permit filing of memorandum of cross- objection of respondent after expiry of relevant period of limitation referred to in sub-section 3 and 4 section 253, if it is satisfied that there was sufficient cause for not presenting the appeal within the limitation period. Expression “sufficient cause” appearing in this section has also been used in section 5 of Indian Limitation Act, 1961. This expression has come for consideration before the Hon’ble High Courts as well as before the Hon’ble Supreme Court, and the Hon’ble Courts are unanimous in observing that whenever such issue comes for consideration before adjudicating authority, then “sufficient cause” should be considered with justice oriented approach. In the case of Collector Land Acquisition vs. Mst. Katiji & Others, 1987 AIR 1353, the Hon’ble Supreme Court has held as under:
“1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day's delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. Assessment Years: 2010-2011 and 2011-12
When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.
There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.”
Similarly, in the case of Improvement Trust Ludhiana vs. Ujagar Singh and others (Civil Appeal No 2395 of 2009), the Hon’ble Supreme Court has held that unless mala fides are apparent on the conduct of the parties, as a general rule delay should be condoned and an attempt should be made to allow the matter to be contested on merits rather than to through it on technical grounds. In the present case we do not find any mala fides on the part of the assessee in not filing the appeal within the limitation period. Hence, respectfully following the ratio laid down by the Hon’ble Supreme Court in the cases discussed above, we allow the application for condonation of delay filed by the assessee in the interest of justice and permitted the Ld. counsel for the assessee to argue the case of the assessee on merits.
Before us, the Ld. counsel for the assessee submitted that the assessee was awarded construction contract by the M/s Shree Ram Urban Infra Ltd. which is a holding company of the assessee and the assessee further awarded sub contract to M/s Raghuveer Urban Company Pvt. Ltd. (a group concern of the assessee). The Ld. counsel further submitted that as per prevailing practice in construction industries, the initial scope of work for raising the bill was at minimum 30% of the contract value. During the assessment year the assessee Assessment Years: 2010-2011 and 2011-12
did not raise any bill as the work completed was below 30%. Accordingly, the assessee in its books of account had shown capital work in progress of Rs. 1,085,80,28,173/- and labour charges of Rs. 36,53,44,153/- paid to its sub contractor M/s Raghuveer Urban Infra Pvt. Ltd. The assessee during the financial year 2011-12 offered total taxable income of Rs. 9 crore approximately from construction project. The Ld. counsel further pointed out that as per the addendum to the first construction agreement entered between the assessee and Shree Ram Urban Ltd., the assessee was entitled to raise bill on completion of minimum 30% of the contract value. The Ld. counsel invited our attention to addendum to the first construction agreement between the assessee and Shree Ram Urban Infra Ltd. dtd. 02/09/2009. Similarly, in respect of second construction agreement dated 22.03.2011 addendum was executed on 26.03.2011 and addendum in respect of third construction agreement dated 13.12.2011 was executed on 16.12.2011. The Ld. counsel further submitted that this clause was inserted as per the prevailing industrial practice in the construction industry. The Ld. counsel further pointed out that Mr. SK Laharuka, Director has already explained the stand of the assessee company in his statement recorded u/s 131 of the Act. The Ld. counsel further submitted that this was the first year of business activity and work under progress of Rs. 72.83 crores had been disclosed in the return of income for the A.Y. 2010-11. The assessee had already filed return of income for the A.Y. 2011-12 and 2012-13 disclosing total income of Rs 7.2 crore on 28.09.2012 i.e. before the survey operation. The Ld. counsel further pointed out that the formula adopted by the assessee resulted in substantial reduction of income for the A.Y. 20012-13 which had already been disclosed necessitating filing of revised return of income for the A.Y. 2012-13 of Rs. 6.76 crores resulting in refund of Rs. 1.24 crores. So the assessee neither concealed any income nor furnished any inaccurate particulars of its income so as to impose penalty u/s 271 (1) (c) of the Act. The cases relied on by the Assessing Officer are not Assessment Years: 2010-2011 and 2011-12
applicable to the facts of the present case. The Ld. counsel further submitted that at the most it is a case of difference of opinion which does not warrant penalty u/s 272(1)(C) of the Act. Since, the impugned order is contrary to the settled principles of the law, the impugned order is liable to be set aside.
On the other hand, the Ld. departmental representative relying on the orders passed by the authorities below submitted that since the assessee had not followed the revised accounting standard (AS-7) regarding construction contract and agreed to offer the income @ 5% on the incremental construction work in progress on year to year basis, the Ld. CIT (A) has rightly confirmed the penalty levied by the AO u/s 271 (1) (c) of the Act. Since, the findings of the Ld. CIT (A) are based on the evidence on record and as per the provisions of law, there is no merit in the contention of the assessee.
We have heard the rival submissions and gone through the material on record in the light of the rival contentions. As pointed out by the Ld. counsel for the assessee during the search proceedings no incriminating documents or evidence was found hence no inventory was prepared. There was an oral discussion on the method of revenue recognition and after discussion a decision was taken by the company for amending the revenue recognition and to offer 5% of the CWIP from the A.Y. 2010-11 onwards to be shown as year wise income of the company. The formula adopted by the assessee resulted in substantial deduction of income for the A.Y. 20012-13 which had already been disclosed. Accordingly, assessee had to revise its return of income for the A.Y. 2012-13, which resulted refund of Rs. 1.24 crores. Further we find force in the contention of the assessee that the authorities below have wrongly held that the assessee has completed more than 30% of the work contract and the amount paid to sub contractor was the expenditure of the assessee and not the income. The value of the first contract was Rs. 450 crores and 30% of which Assessment Years: 2010-2011 and 2011-12
comes to 135 crores. Hence, on the basis of bill raised by the sub-contractor, it cannot be concluded that the assessee had completed more than 30% of work.
We further notice that as per the addendum to the contract agreement, the assessee was entitled to raise the initial bill only after completion of 30% of the work awarded to the assessee. The addendum to the first contract agreement between the assessee and Shree Ram Urban Infra Urban is reproduced as under:-
2 Existing Clause E on the The developer intends to award a page No. 4 of the First contract for construction of a part of Agreement the project involving of 2 million sq.ft. at an estimated value of 450 crores (Work). The developer would periodically indentify and the issue the specific scope of work to be executed and contract value attributable (part of work). The initial scope of work has been captured in Schedule-II at a firm contract value of 143 crores. 2. Revised Clause E on the The developer intends to award a page no. 4 of the First contract for construction of a part of Agreement the project at an estimated value of Rs. 450 crores (work) as per Schedule –II. The developer would periodically identify and the issue the specific scope of work to be executed. The contractor will raise the bill only after completion of the 30% value of the works of Rs. 450 crores. Further, First Construction Agreement dtd: 02/09/2009, clause 9 on page no. 9 was replaced as under:- 2 Existing Clause 9 On completion of each part of work, Considering Sub-clause the developer shall reimburse the (9.11) on the page no. 9 Contractor the agreed consideration for such part within a period of 15 days of receipt of such invoice raised by the contractor. The agreed consideration Assessment Years: 2010-2011 and 2011-12
for the initial part of work is Rs. 143 crores. 2. Revised Clause 9 On completion of 30% of the work, Consideration Sub- clause contractor shall be entitled to either 5% (9.1) on the page no. 9 of total construction cost including overhead and other administrative expenses incurred by it or as mutually decided between the parties herein above and the developer shall reimburse the Contractor the said 5% as consideration or as mutually decided for such part within a period of 30 days of receipt of such invoice raised by the contractor.
The contents of the addendum to the contract supports the contention of the assessee that the assessee was entitled to raise the initial bill only after completion of 30% of the work awarded. During the course of survey, the assessee company agreed to offer revenue on such construction by offering the income @ 5% on incremental constriction work-in-progress on year on year basis subject to the condition that the revenue would not initiate penalty proceedings against the assessee. The assessee accepted the stand of the department to buy peace. Now the question arises whether the addition made under the aforesaid circumstances, penalty u/s 271 (1) (c) of the Act can be levied against the assessee? In order to answer this question it is necessary to discuss the ingredients of section 271 (1) (c) of the Act. As per section 271(1)(c)of the Act, AO can impose penalty if he is satisfied that the assessee has either concealed the particulars of its income or furnished inaccurate particulars of such income. 15. In the present case, the AO has levied penalty for “concealment of particulars of income”. As per the settled law, initial burden is on the assessee to show that there is no concealment of particulars of income. However, when the initial onus is discharge by the assessee further onus shifts to the revenue Assessment Years: 2010-2011 and 2011-12
to show that the amount in question constituted income and not otherwise. Explanation 1 to section 271 reads as under:
Where in respect of any facts material to computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation is found by the AO to be false or (B) such person offers and explanation which is not able to substantiate and fails to prove that the such explanation is bona fide and that all the facts relating to same and material to computation of his total income have been disclosed by him, then the amount of added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to be represent the income in respect of which particulars have been concealed.
In the present case since the assessee has explained the circumstances under which the addition in question has been made and further established that the explanation is bona fide and it has disclosed all the facts material to the computation of its total income, the Ld. CIT(A) has wrongly confirmed the addition made by the AO. In our considered opinion, this is not a case of concealment of particulars of income by the assessee. We do not find any active concealment of particulars of income by the assessee in the present case which is a pre condition for imposing penalty under the said section.
As per the settled law, the penalty proceedings are different from the assessment proceedings and the standard of proof required in penalty proceeding is different from that of assessment proceeding for making additions. The Ld. CIT(A) has confirmed the order passed by the AO without considering the fact that the AO has not recorded any conclusive findings based on evidence to hold the assessee liable for concealing the particulars of Assessment Years: 2010-2011 and 2011-12
its income. As per the ratio of law laid down by the Hon’ble Supreme Court In the case of CIT vs. Reliance petroproducts Pvt.Ltd.322 ITR 158(SC), mere rejection of a claim made by the assessee does not ipso facto make the assessee liable for penalty u/s 271(1)(c) of the Act. 18. Hence, in our considered opinion since, the assessee has explained the circumstances under which the addition has been made, there is no reason to draw a conclusion that the explanation offered by the assessee is false. Further the assessee has established that the explanation offered is bona fide, therefore, there is no justification of imposing penalty under section 271(1)(c) of the Act. Hence, we allow the ground of appeal raised by the assessee on merits and set aside the impugned order passed by the Ld CIT(A). Accordingly, we direct the AO to delete the penalty. 19. So far as the additional ground raised by the assessee challenging the legality of notice issued u/s 274 of the Act is concerned, since we have allowed the appeal of the assessee on merits, the said ground has become academic. Hence, we do not deem it necessary to decide the said ground.
ITA No. 979/MUM/2015 (Assessment Year: 2010-2011 Appeal pertaining to the assessment year 2010-11 and the 2011-12, discussed above are connected as both the appeals have emerged from the same set of facts. Since we have discussed the facts of the case in appeal pertaining to the assessment year 2011-12 and since the facts and the issues involved in the present case are identical except the quantum of addition and the penalty levied u/s 271(1)(c) of the Act, we do not consider it necessary to reproduce the facts again. 2. The grounds of appeal raised in the present case are identical the grounds raised in the appeal pertaining to the assessment year 2011-12 discussed above. Assessment Years: 2010-2011 and 2011-12
Since, we have allowed the appeal filed by the assessee pertaining to the assessment year 2011-12 on merits and since there is no material change of facts in the present case, our decision in the case of appeal pertaining to the assessment year 2011-12 shall apply mutatis mutandis in the present appeal which pertains to the assessment year 2010-11. In the result, both the appeals filed by the assessee for assessment years 2010-2011 and 2011-12 are allowed.
Order pronounced under Rule 34(4) of the Appellate Tribunal Rules. (R.C. SHARMA) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 30/05/2019
Alindra PS
आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपील र्थी / The Appellant 1. 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.
आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //// उि/सहायक िंजीकार (Dy./Asstt.