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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri Joginder Singh & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : This appeal filed by the revenue is directed against the order of the CIT(A)-33, Mumbai dated 05-02-2017 and it pertains to AY 2010-11.
The revenue has raised the following grounds of appeal:-
1. " Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the penalty Levied u/s. 271( l)(c) of the Income tax Act, 1,961, amounting to Rs.80',41^,044/-, without appreciating the view taken .by the AO.”
The brief facts of the case are that the assessee firm is engaged in the business of builders filed its return of income for AY 2010-11 on 31-
2 ITA 2946/Mum/2017 07-2010 declaring total income of Rs.2,49,96,730. The case was selected for scrutiny and the assessment was completed u/s 143(3) of the Act, on 31-01-2013 determining total income at Rs.4,40,07,670, wherein the AO has assessed surplus from sale of property at Badlapur under the head ‘Income from business’ as aginst assessee’s admission under the head ‘Income from long term capital gain’. Thereafter, the AO initiated penalty proceeding u/s 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income and after considering relevant submissions of the assessee, levied penalty of Rs.84,49,044 which is 100% tax sought to be evaded. In the meantime, the assessee preferred appeal before the Ld.CIT(A) against order passed by the AO u/s 143(3) of the Income-tax Act, 1961. The Ld.CIT(A) upheld the action of the Ld.AO in assessing surplus from sale of property under the head, ‘Income from business’ and dismissed appeal filed by the assessee. The assessee carried the matter in further appeal before the ITAT. The ITAT, Mumbai Bench “G” vide its order dated 25-05-2016 in held that surplus from sale of property at Badlapur is assessable under the head ‘Income from long term capital gain’ as claimed by the assessee as against the AO’s treatment under the head ‘Income from business’.
The assessee has filed appeal against penalty order passed by the 3 ITA 2946/Mum/2017 AO u/s 271(1)(c) before the CIT(A). Before the CIT(A), the assessee has filed order passed by the ITAT deleting addition made by the AO by treating surplus from sale of property at Badlapur under the head, ‘Income from business or profession’. The Ld.CIT(A), after considering relevant submissions of the assessee and also by considering the order passed by the ITAT held that once the addition based on which penalty u/s 271(1)(c) was imposed, has been deleted, there remains no ground for levy of penalty to survive. Accordingly, he deleted penalty levied by the AO u/s 271(1)(c) of the Act. The relevant observations of the Ld.CIT(A) is extracted below:-
I have carefully considered the above submssions of the AR of the appellant and I intend to agree with the contention made during appellate proceedings. The Hon'ble ITAT, Mumbai Bench "G". in the assessee's own case for A..Y. 2010-11 in !TA No.6692/Mumn/2013 vide order dated 25.05.2015 has held as under- "8. We have considered rival contentions and carefully gone through thwe orders of authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders os we!! as cited by Id AR & Id. AR during the course of heating before us........ 9………….
Keeping in view the totality of facts and circumstances, we can safely conclude that although the assesses has shown the Badlapur Land as WIP (i.e. inventory) in its books of accounts, yet since its inception, the accounting treatment given to Badlapur land in its books of accounts is that of/as applicable to a capital asset (i.e.investment). The Hon'ble Supreme Court has dearly held in the case of Kedarnath Jute Mfg. Co.Ltd.vs. CIT [82 ITR 363] that the entries in books of accounts are not conclusive and that the true nature of income/expense is determinative in deciding the taxability of income or allowability of an expense. 11. If we consider the surrounding circumstances and conduct of the assessee to verify the true nature of Badlapur Land ignoring the accounting entries in books of accounts then it borne out that: a) The assessee had acquired land at Badlapur in the year 1988 to 1990 and there was no development and construction activity
4 ITA 2946/Mum/2017 undertaken by the assessee on Badlapur land from last 20 years. No builder/businessman keeps the land undeveloped for such a long period of time. b) The assessee has capitalised the interest cost and other expenses to the Cost of Badlapur Land, which is inconsistence with treatment to a Capita! Asset. c) The capitalization of interest cost is also in conformity with Provisions of Income Tax Act applicable to a Capital Asset. d) Capitalisation of interest cost is neither in conformity with the accounting of inventories prescribed in AS-2 nor incompliance to the provisions of Income Tax Act as laid down by the Hon'bte Bombay High Court in the case of Lokhanawala Construction (supra) and other decisions. e) The Badlapur Land was vested as Capital Asset by the assessee through MOU dt. 4.04.7 998 entered into between the partners of the assessee firm which was executed on Rs.500 stamp paper and is duly notarised. The AO did not accept the MOU solely on the basis of doubts, surmise end conjecture, without any basis. f) The nomenclature given to Badlapur Land as WIP in books of accounts is an inadvertent mistake on the part of the assessee, solely due to the reason that the books of accounts of the assessee firm are maintained by the partner's themselves year after year who are not qualified accountants. Services of qualified Chartered Accountant's were not availed of by the assessee from last several years. Even the assessment proceedings were attended by one of the partner in earlier year without assistance of any qualified chartered accountant.
From the conduct of the assessee, surrounding circumstances and treatment .of the assesses given to Badlapur Land it is amply clear that the Badlapur Land is a Capital Asset i.e. investment in the hand of the assessee as against WIP i.e. inventory, .inadvertently reported by the assessee in its books of accounts. Thus, it is the exact and true nature of transaction which decides the taxability or otherwise of airy income or altowability of an expenses rather than mere entry in books of accounts. in this regard we piace reliance upon the following decisions: a) CIT Vs. Hitashi Estates Ltd [313 ITR 393](Deihi) b) CITVs. Pai Provision Stores [203 Taxman 196](Kamataka) c) Fort Propones Pvt. Lto Vs. CIT [203 ITR 232] (Bombay) 13. in view of the above facts and circumstances as well as legal position, we direct the AO to is treat the gains on sale of Badlapur Land as LTCG in place of business income.
10. Once the addition based on which penalty u/s. 271(1)(c) of the Act was imposed, has been deleted, there remains no ground for penalty to survive. Hence penalty of Rs.84,49,0447- imposed by the AO u/s.271(1)(c) is deleted.
None appeared for the assessee. Therefore, we heard the Ld.DR
5 ITA 2946/Mum/2017 and dispose of the appeal on the basis of material available on record.
We have heard the Ld.DR and considered the material available on record. The ITAT, Mumbai Bench “G” in vide order dated 25-05-2016 has considered the issue of surplus from sale of land at Badlapur and after considering relevant facts held that surplus from sale of land is assessable under the head ‘Income from long term capital gain” as claimed by the assessee, but not under the head “Income from business”. The AO has levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income in respect of addition made on account of change in head of income derived from sale of land. The Ld.CIT(A) deleted penalty levied by the AO, as the ITAT has deleted addition made by the AO towards surplus from sale of land at Badlapur by holding that once addition on which penalty was imposed u/s 271(1)(c) has been deleted, then there is no reason to levy penalty for furnishing inaccurate particulars of income. We do not find any error or infirmity in the order of the Ld.CIT(A). Hence, we are inclined to uphold the order of Ld.CIT(A) and dismiss the appeal filed by the revenue.
In the result, appeal filed by the revenue is dismissed.
6 ITA 2946/Mum/2017 Order pronounced in the open court on 05th October, 2018.