ACIT - 26(1), MUMBAI vs. GRACE SHELTER, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER;

1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty of Rs.37,72,900/- levied u/s 271(1)(c) of the Income Tax Act, 1961 holding that once there is contractual obligation on the assessee and in the context of the terms of the agreement, if the provision is made then it cannot be said that the claim of the assessee is not bona fide.

2. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty of Rs.37,72,900/- levied u/s 271 (1)(c) of the Income Tax Act, 1961 ignoring the following the facts:

a) That although as per the terms of contract the assessee was liable to construct residential quarters for the municipal corporation employees ete. free of cost since 2004, the portion of land on which the quarters were proposed to be constructed was under encroachment and the assessee had not received possession of this part of land in the period relevant to A.Y. 201 0-11 under consideration or even subsequently. b) That the assessee had failed to substantiate that it had indeed incurred any expenditure against the "provision for expenses" of Rs.1,22,10,000/- stated to be provided towards construction of the staff quarters. c) That it had been clearly emerged that neither the time period of incurring of such expenditure nor the quantum of expenditure, which would be dependent on the period in which the construction would take place, is ascertainable and therefore such provision as made by the assessee can only be termed as 'vague liability'. d) That a vague liability whose amount and period of incurrence is not ascertainable and which is contingent upon the occurrence of some event in future, cannot be said to be an expense laid out or expended wholly and exclusively for the purposes of business. e) That under the circumstances, the claim of deduction of the assessee on this count is not only absolutely untenable but also cannot be termed as made in good faith and hence penalty u/s 271 (1 )(c) of the IT Act r.w. explanation 1 thereto is clearly leviable on this issue."

3. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the penalty levied u/s 271 (1)(c), relying on the Supreme Court's judgement in the case of CIT VS. Reliance Petro Products Pvt. Ltd. (322 ITR 158) (SC) without appreciating that the principles laid down by the Apex Court in the judgement cited supra are not applicable to the facts of the assessee's case since besides being incorrect in law, the claim of deduction towards provision of expenses made by the assessee is also not bona fide" 2

6. "The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the A.O. be restored."

, however, as per our considered view the only substantial ground of appeal is if the order passed by ld CIT(A) in deleting the penalty levied under section 271(1)( c) is justified or not. The ld. DR for the Revenue relied upon the order of Assessing Officer. The ld. DR further submits that the addition/disallowance made by Assessing Officer was confirmed by the ld. CIT(A). The assessee furnished inaccurate particular of income and committed default within the meaning of Explanation 1 of section 271(c). The ld. DR prayed for reversing the order of ld. CIT(A) and restored the order of Assessing Officer.

4. On the other hand, the ld. AR of the assessee submits that the assessee has neither concealed any income nor furnished inaccurate particular thereof. 4 The ld. AR of the assessee submits that the assessee is engaged in the business of rehabilitation project under Slum Rehabilitation Scheme. The assessee had to construct the Municipal Staff Quarter free of cost as well as Depot, being one of the conditions in the project approved by Slum Rehabilitation Authority. The assessee calculated the total cost of project and made the provision of Rs. 1,22,10,000/- towards the cost of construction of Municipal Staff Quarter and Depot as well as compound wall as the legal liability. The assessee made provisions which was based on settled accounting concept and matching principle. Therefore, the assessee has neither furnished inaccurate particular nor concealed any income. The ld. AR of the assessee further submits that the ld. CIT(A) after appreciating the fact deleting the penalty. The assessee furnished all the details; however, the assessing officer adopted different view and disallowed. No particulars furnished by assessee were discovered to be false. No penalty was leviable on the assessee on the facts of the case.

5. We have considered the rival submission of both the parties and gone through the orders of authorities below. The Assessing Officer while making the assessment order disallowed the cost of the provision towards construction of Municipal Staff Quarter. The Assessing Officer levied the penalty @ 100% of tax sought to be evaded. Before the ld. CIT(A), the assessee urged that assessee is following the percentage completion method for offering the income for his project according to which income 5 was offered every year but basis of progress of work vis-à-vis agreement for sale executed in respective years. The assessee also explained that while calculating the cost of project, the assessee made provision of Rs. 1.22 crore towards the cost of construction of Municipal Staff Quarter and Road Depot as well as compound wall.

There is no dispute about the basic factual aspect of the claim made by assessee either by Assessing Officer or by ld. CIT(A) or by the Tribunal.

The ld. CIT(A) while relying upon the decision of Reliance Petro Products Ltd. 322 ITR (SC); wherein Hon’ble Supreme Court held that merely making of claim, which is not sustainable in law, by itself will not amount to furnish inaccurate particulars regarding the income of assessee. On the basis of his observation, the ld. CIT(A) concluded that there is not even remote suggestion of any false particular or material detailed furnished by the assessee. The claim of assessee was not accepted will not come itself 6 to inevitable conclusion that the detailed supplied by assessee were false, inaccurate or suffered from any concealment and deleted the penalty.

Order pronounced in the open court on 30/08/2018.