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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Pawan Singh (JM)
Both the appeals were heard together and are being disposed of by this common order, for the sake of convince.
Facts related to the issue are stated in brief. The assessee is a partnership firm constituted under a partnership deed dated 11.7.2006. It commenced its business as builder and real estate developers. Consequent to search operation conducted in the hands of the Hicons & Pranay Group of cases on 24.2.2009 and consequent to seizure of certain documents relating to the assessee, notice u/s. 153C was served upon the assessee on 4.1.2010. The 2 M/s. City Developers Assessing Officer noticed that the assessee did not file returns of income for A.Y. 2007-08 and 2008-09 before the due date of prescribed u/s. 139(1) of the Act. However, the assessee filed returns of income for both the years on 1.10.2009 declaring a total income of ` 4,07,132/- for A.Y. 2007-08 and ` 8,44,970/- for A.Y. 2008-09. Both the returns were filed after the date of search.
4. In response to the notice issued u/s. 153C of the Act, the assessee filed returns of income declaring same income in both the years. The Assessing Officer completed the assessment for A.Y. 2007-08 determining total income at Rs4,13,948/-. The Assessing Officer completed assessment for AY 2008-09 determining total income at ` 8,51,900/-. In both the years small addition u/s 40(a)(ia) of the Act was made. Since the assessee had filed returns of income after completion of search operation, the Assessing Officer took the view that the assessee filed returns of income only after detection of undisclosed income by the revenue. Accordingly, by placing reliance on the decision rendered by Hon'ble Madras High Court in the case of Dr. Mohd. Abdul Qadir (2003) 206 ITR 650 and also on the decision rendered by Hon'ble Rajasthan High Court in the case of CIT Vs. Mohd. Mohtram Farooqui (2003) 259 ITR 132, the Assessing Officer took the view that the penalty is leviable even on the income returned by the assessee. Accordingly, he levied minimum penalty of ` 1,39,336/- and ` 2,63,237/- respectively for A.Y. 2007-08 and 2008-09 u/s. 271(1)(c) of the Act. The learned CIT(A) also confirmed the same by holding that explanation 5A to section 271(1)(c) of the Act is applicable to the facts of the present case. Aggrieved, the assessee has filed these appeals before us.
We have heard the parties and perused the record. Learned counsel appearing for the assessee submitted that the project of the assessee was at infancy stage in both the years under consideration. He submitted that the assessee has competed less than 5% of the total project by 31.3.2007 and less than 25% by 31.3.2008. He submitted that the assessee is not required to recognise any income at this stage of completion of project as per the 3 M/s. City Developers Accounting Standard. The assessee was constrained to file the return of income due to search operations by estimating income at 8% of the Construction cost and the same was accepted by the AO in the proceedings completed u/s 153C of the Act also. He submitted that the impugned penalty is not sustainable, since income has been estimated, particularly, when the assessee is not obliged to estimate the income when the stage of completion of project was less.
On the contrary, the Ld D.R submitted that the provisions of Explanation 5A shall apply to the assessee. He submitted that the assessee has offered income after its detection by the revenue and further he is required to offer explanations even if the returned income is accepted. The Ld D.R took support of following decisions in this regard:- (a) MAK Data P Ltd Vs. CIT (Civil Appeal No.9772 of 2013) (b) CIT Vs. Mohtram Farooqui (2002)(125 Taxman 164)(Raj)
We have heard rival contentions and perused the record. The Ld A.R has submitted that the project executed by the assessee was at infancy stage, i.e. it was less than 5% by 31.3.2007 and 25% by 31.3.2008. Since the project was at initial stages, the profitability could not be reliably estimated due to attendant risks attached to the project. Hence the income is not normally estimated at this level. Hence there is merit in the contentions of the assessee that he was constrained to estimate the income due to search operations. Since the income from the project has been estimated, in our view, there is merit in the contentions of the assessee that such kind of estimation would not amount to concealment of income. We notice that the revenue did not unearth any material with regard to any undisclosed investment in the project, meaning thereby, there is no case of any undisclosed income. In that view of the matter, we agree with the contentions of Ld A.R that the income estimated in both the years under consideration on an incomplete project should not be taken as a case of admission of income after its detection. Accordingly we find merit in the submission of the assessee that mere estimation of income would
4 M/s. City Developers not give rise to any penalty. Accordingly we set aside the order passed by Ld CIT(A) in both the years and direct the AO to delete the impugned penalty in both the years.
In the result, both the appeals filed by the assessee are dismissed.
Order has been pronounced in the Court on 23.11.2016