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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAVISH SOOD
The captioned appeal by the assessee is directed against the order of the CIT(A)-31, Mumbai dated 7.2.2013, pertaining to the Assessment Year 2005-06, which in turn has arisen from the order passed by the ACIT-20(1), Mumbai dated 30.3.2011 under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, although the assessee has raised multiple Grounds of appeal, but the solitary grievance is against the action of CIT(A) in 2 M/s. Asphalt India Corporation sustaining the penalty u/s 271(1)(c) of the Act with respect to an addition of Rs.3,40,86,484/- made on account of closing work-in- progress.
3. In brief, the relevant facts are that the appellant is a partnership firm which is, inter-alia, engaged in the business of hot mix plant, road construction and hiring of equipment and vehicles. For the assessment year under consideration, it filed a return of income declaring a total income of Rs.44,33,929/-, which was subject to scrutiny assessment. In the return of income filed, assessee had, inter-alia, declared business income from executing projects for a number of Government departments. While finalizing the assessment, the Assessing Officer noted, on the basis of the replies furnished by the assessee, that there was closing work-in-progress to the extent of Rs.3,40,86,484/-, which was not shown in the Profit & Loss Account. The Assessing Officer, accordingly made an addition of Rs.3,40,86,484/- to the returned income, which was carried in appeal by the assessee. At the time of hearing, the learned representative for the assessee explained that such an addition has also been affirmed by the Tribunal vide order in dated 30.6.2011 against which an appeal is pending before the Hon'ble Bombay High Court. Be that as it may, subsequently the Assessing Officer vide order dated 30.3.2011 held the assessee guilty of concealment of income and furnishing of inaccurate particulars of income qua the aforesaid addition within the meaning of Sec. 271(1)(c) of the Act. Accordingly, the Assessing Officer vide order dated 30.3.2011 levied a penalty u/s 271(1)(c) of the Act equivalent to 100% of the tax sought to be evaded on the impugned income. This levy of 3 M/s. Asphalt India Corporation penalty was challenged by the assessee in appeal before the CIT(A) on various grounds. The CIT(A) has also affirmed the levy of penalty primarily on the ground that non-disclosure of correct figure of closing work-in-progress by the assessee demonstrated that assessee misrepresented the income on which tax was payable. Accordingly, for the aforesaid reasons, CIT(A) dismissed the appeal of assessee, against which assessee is in further appeal before us.
4. Before us, the learned representative for the assessee has made varied arguments, both on facts and in law, in order to assail the orders of the authorities below. At the outset, the learned representative submitted that since the Hon'ble Bombay High Court vide an order dated 12.3.2013 in Income Tax Appeal No.2574 of 2011 has admitted substantial questions of law against the decision of the Tribunal in quantum proceedings dated 30.6.2011 (supra), therefore, following the ratio of judgment of the Hon'ble Bombay High Court in the case of M/s. Advaita Estate Development Pvt. Ltd. in Income Tax Appeal No. 1498 of 2014 dated 17.2.2017, the impugned penalty imposed u/s 271(1)(c) of the Act is unsustainable. Secondly, the learned representative pointed out that as a consequence of the impugned addition in this year on account of closing work-in-progress, in the subsequent Assessment Year of 2006-07 the Assessing Officer vide order u/s 154 of the Act dated 21.9.2012 has amended the assessment thereby reducing the total income by the corresponding amount of Rs.3,40,86,484/- treating it as opening work-in-progress. A copy of said order has been placed on record and it is sought to be pointed out that the addition made this year has been offset in the subsequent year wherein the deduction for 4 M/s. Asphalt India Corporation the same amount has been allowed as opening stock. The learned representative pointed out that the said adjustment reflects a revenue neutral position inasmuch as the benefit of the said amount has been allowed to the assessee in the next year. By referring to the decision of Ahmedabad Bench of the Tribunal in the case of Kala Niketan (Bombaywala) in dated 7.10.2010, the learned representative pointed out that under identical situation, the Tribunal held that no penalty u/s 271(1)(c) of the Act is exigible. On this aspect, reliance has also been placed on the judgment of the Hon'ble Punjab & Haryana High Court in the case of SSP P. Ltd., 302 ITR 43 (P&H) wherein also, under similar circumstances, deletion of penalty by the Tribunal has been affirmed. In further support of his argument, the learned representative placed reliance on the decision of the Amritsar Bench of the Tribunal in the case of M/s. PMS Diesels in ITA No. 260/Asr/2013 dated 10.2.2016 wherein also, under similar circumstances, penalty u/s 271(1)(c) of the Act has been deleted. The third point made by the learned representative was that in the quantum proceedings, addition has been sustained by placing reliance on the fact that assessee admitted to the impugned closing work-in-progress in the assessment proceedings. The learned representative pointed out that notwithstanding the aforesaid, it is quite clear that there was a complete suo-moto disclosure with respect to the details of work-in- progress and, rather the addition was based on the information furnished by the assessee and under these circumstances, penalty u/s 271(1)(c) of the Act is not maintainable merely because the plea of assessee for such amounts being not taxable have been rejected. For the aforesaid proposition, he has relied upon the decision of the 5 M/s. Asphalt India Corporation coordinate Bench of the Tribunal in the case of Shri Ajay Devgan in dated 18.7.2014, a copy of which has also been placed on record. It was also emphasised before us that the ratio of the judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC) also fully covers the controversy inasmuch as none of the explanation furnished by the assessee has been found to be false so far as it relates to the closing work-in-progress.
5. At the time of hearing, the learned representative also referred to pages 5-21 of the Paper Book, wherein is provided the details of closing stock submitted to the Assessing Officer as well as the party- wise and year-wise statement of works executed for various departments in order to demonstrate that the impugned amount of closing work-in-progress reflected expenditure incurred, which was not recoverable from the respective Government departments. It was emphasised that the failure to appreciate the aforesaid nature of the impugned sum has resulted in the impugned addition. It was sought to be pointed out that if due regard is given to the fact that the impugned expenditures, comprised in the closing work-in-progress, have not been ultimately recovered from the clients, the impugned addition itself is unsustainable, which would show that penalty u/s 271(1)(c) of the Act is unjustified. For all the above reasons, the learned representative vehemently submitted that both on facts and in law, the lower authorities have grossly erred in levying penalty u/s 271(1)(c) of the Act.
6 M/s. Asphalt India Corporation
On the other hand, the ld. DR appearing for the Revenue has defended the imposition of penalty by pointing out that the details and explanation furnished by the assessee in the course of assessment proceedings itself showed that there was a default of non-disclosure of the correct figure of closing work-in-progress in the return of income and, therefore, the provisions of Sec. 271(1)(c) of the Act were clearly attracted. The ld. DR also pointed out that the Tribunal vide its order dated 30.6.2011 (supra) has also affirmed the addition after considering the explanation furnished by the assessee and, therefore, insofar as the infirmity in the return of income filed is concerned, the same stands proved. The ld. DR also referred to the discussion in the assessment order to point out that the break-up of the closing work-in-progress furnished in the course of assessment proceedings was furnished under the signature of the Partner of the assessee firm and, therefore, it clearly showed that the return of income filed suffered from non- disclosure of correct closing work-in-progress, which has formed the basis for Assessing Officer to impose penalty u/s 271(1)(c) of the Act.
We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to levy penalty if an assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is quite clear that an essential requirement of Sec. 271(1)(c) of the Act is that the Assessing Officer ought to be satisfied that the assessee has either concealed the particulars of income or furnished inaccurate particulars of income. In both the limbs, it is quite obvious that there ought to be loss of tax revenue to the exchequer, which is triggered on account of 7 M/s. Asphalt India Corporation concealment of income or furnishing of inaccurate particulars of income by the assessee. In this background, we may now examine the fact- situation in the present case. First and the foremost, the learned representative has pointed out that if the income of the impugned year has been enhanced on account of non-disclosure of closing work-in- progress, at the same time, it has increased the value of the opening work-in-progress in the next year thereby providing a commensurate tax-benefit to the assessee in the next year. In fact, the assessee has furnished a copy of order passed by the Assessing Officer on 21.9.2012 amending the assessment of subsequent Assessment Year of 2006-07 whereby the amount of opening work-in-progress of Rs. 3,40,86,484/- has been reduced from the total income. In such a situation, the judgment of the Hon'ble Punjab & Haryana High Court in the case of SSP P. Ltd. (supra) is clearly attracted. In the case before the Hon'ble High Court, assessee was found to have not shown certain amount in the closing stock, which was added to the returned income. It was noticed that simultaneously the amount was considered as the opening stock in the subsequent year. Thus, noting that the net result to the income of assessee was zero inasmuch as addition made in one year was offset against the deduction allowed in the subsequent year, the Hon'ble High Court held that penalty u/s 271(1)(c) of the Act was not exigible in such a situation. In view of the order of Assessing Officer dated 21.9.2012 (supra) for Assessment Year 2006-07, wherein deduction for opening work-in-progress of Rs.3,40,86,484/- has been allowed, which corresponds to the addition made in the instant assessment year as closing work-in-progress, the instant fact-situation is on all fours to that considered by the Hon'ble Punjab & Haryana High Court and, therefore,
8 M/s. Asphalt India Corporation in our view, the penalty u/s 271(1)(c) of the Act is unsustainable in this case also following the parity of reasoning laid down by the Hon'ble Punjab & Haryana High Court.
Further, the assessment of Rs.3,40,86,484/- to the returned income has been affirmed by the Tribunal in the quantum proceedings vide order dated 30.6.2011 (supra). It is noticeable that the appeal of assessee against such a decision of the Tribunal has been admitted by the Hon'ble Bombay High Court on the following substantial questions of law :-
“(a) Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in confirming the addition of Rs.3,40,86,484/- on account of closing stock and work-in-progress without discharging the onus of proof of the actual existence of such stock and work-in-progress at the end of year ?
(b) Whether on the facts and in the circumstances of the case and in law the Tribunal erred in not admitting the additional evidences filed by the Appellate before the Tribunal as per Rules 29 of the Appellate Tribunal Rules, 1963?”
On the basis of the judgment of the Hon'ble Bombay High Court in the case of M/s. Advaita Estate Development Pvt. Ltd. (supra) it is canvassed by the assessee that when the appeal has been admitted in the quantum proceedings by the Hon’ble Court, that by itself is an evidence to show that the issue was debatable, thus obviating the imposition of penalty u/s 271(1)(c) of the Act. In our view, the ratio of the judgment of the Hon'ble Bombay High Court in the case of M/s. Advaita Estate Development Pvt. Ltd. (supra) is clearly attracted in the instant case and 9 M/s. Asphalt India Corporation penalty u/s 271(1)(c) of the Act is not warranted. In fact, in the case of M/s. Advaita Estate Development Pvt. Ltd. (supra), the Hon'ble High Court had noticed that the Tribunal had not only followed its earlier decision in the case of Nayan Builders and Developers, 368 ITR 722 (Bom), but also the judgment of the Hon'ble Delhi High Court in the case of Liquid Investment and Trading Co. in of 2099 dated 5.10.2010 to delete the penalty. Thus, by considering the aforesaid aspect also, the present penalty imposed by the lower authorities is unsustainable.
Another pertinent point which has been vehemently brought out by the learned representative is to the effect that the addition itself was not maintainable and, therefore, the penalty levied u/s 271(1)(c) of the Act is liable to be deleted. We are conscious that the quantum proceedings are not before us, so however, even in penalty proceedings, where an assessee is able to demonstrate that the addition itself was not maintainable, then, the same is relevant in order to determine the efficacy of the levy of penalty. It is quite well-settled that the assessment proceedings and penalty proceedings are distinct and independent and the findings in the assessment proceedings cannot be considered as conclusive for the purpose of penalty proceedings, though such findings are relevant. On this aspect, the learned representative had pointed out that the impugned closing work-in-progress represented expenditure incurred on projects undertaken for various Government departments and that such expenses were not recoverable and were not indeed recovered. The details of such expenses have been placed in the Paper Book and it is 10 M/s. Asphalt India Corporation sought to be pointed out that they have been incurred either to remove certain defects or they have been incurred at the directions of the officers with the promise to release the payment later, but no such payment was forthcoming. The assessee has also pointed out that the expenses on certain projects were incurred on the requirement of the officers concerned for the reason to remain as A1 contractor with the Government organization. We are conscious that such explanation of assessee has not been accepted in the assessment proceeding, but the point is whether the bona fides of such an explanation has been found to be lacking or not. In our considered opinion, non-acceptance of explanation by itself does not lead to the levy of penalty u/s 271(1)(c) of the Act so long as the bona fides of the explanation have not been found to be missing. In this context, we have perused the orders of respective authorities in the quantum proceedings and find that though the explanation of assessee was rejected, yet the bona fides of the same have not been doubted. Moreover, the entire addition is based on details and explanation provided by the assessee itself in the assessment proceedings. In our view, the bona fides of the claim made in the return of income cannot be doubted inasmuch as in the very next year, deduction for such expenditure has been allowed by the Assessing Officer himself vide order dated 21.9.2012 (supra). Thus, the difference between the assessee and the Revenue is on the timing of deduction – whether allowable in this year or next year; and, not on merit of the deductibility. Therefore, considering the entirety of facts and circumstances of the case, in our view, it is not a case where it can be clinchingly said that assessee has concealed or furnished inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act
11 M/s. Asphalt India Corporation qua the impugned addition. Thus, we set-aside the order of CIT(A) and direct the Assessing Officer to delete the penalty imposed u/s 271(1)(c) of the Act with respect to the addition of Rs.3,40,86,484/- made on account of closing work-in-progress.
Resultantly, the appeal of assessee is allowed.
Order pronounced in the open court on 12th April, 2017.