BHISHMA REALTY LTD.,MUMBAI vs. DCIT RG 2(1), MUMBAI

PER G.S. PANNU, AM :

3 M/s. Bhishma Realty Ltd. &5726/Mum/2013 Hindoostan Spinning & Weaving Mills Ltd.’ was assigned to the assessee for development. The assessee-company undertook development of the real estate so transferred and was required to defray the debts and liabilities of ‘The Hindoostan Spinning & Weaving Mills Ltd.’ secured against the assets so transferred to it. All the expenses incurred by the assessee in pursuance to said objective were debited to the Profit & Loss Account and claimed as expenditure deductible while computing the returned loss. In the course of assessment proceedings, on being show-caused, assessee filed a revised computation of income, wherein expenses on account of workers legal due, ex-gratia to workers, interest on bank overdraft and interest on amount payable to workers totalling to Rs.3,01,91,937/- was considered as to be transferred to project work- in-progress account and thus the loss for the year was arrived at Rs.12,088/- only. The aforesaid difference between the originally returned loss and the finally assessed loss was considered by the Assessing Officer to be ‘furnishing of inaccurate particulars of income’ within the meaning of Sec. 271(1)(c) of the Act. Accordingly, in the order passed u/s 271(1)(c) of the Act, Assessing Officer levied penalty of Rs.1,01,62,606/- being 100% of the tax sought to be evaded on such income of Rs.3,01,91,937/-. The said penalty has since been affirmed by the CIT(A) and accordingly, assessee is in further appeal before us.

“6. We have perused the records and considered the rival contentions carefully. The assessee is a developer who was executing a property development project and method of accounting followed was project completion method. The assessee had however claimed

5 M/s. Bhishma Realty Ltd. &5726/Mum/2013 expenses amounting to Rs.33,11,617/- consisting interest of Rs.25,22,797/- and other day to day expenses in the profit and loss account. This has been disallowed by the AO on the ground that the expenditure could be claimed only in the year of completion. The disallowance had been accepted by the assessee. However the AO had also imposed penalty under section 271(1)(c) @ 200% of tax sought to be evaded which in appeal was reduced to 100% of tax sought to be evaded. The issue is whether on the facts of the case penalty under section 271(1)(c) can be levied.

6.1 A penalty under section 271(1)(c) is only a civil liability as held by the Hon’ble Supreme Court in case of Dharmendra Textiles and Processors (supra) and willful concealment is not required to be proved by the revenue. However each and every addition in the assessment cannot automatically lead to penalty under section 271(1)(c). A case for penalty has to be evaluated in terms of the Explanation 1 to section 271(1)(c) as per which in case of any addition made in assessment even if the assessee is not able to substantiate the explanation but is able to prove that the explanation is bonafide and all necessary details have been submitted penalty under section 271(1)(c) cannot be levied. In this case there is no dispute that details of expenses had been given. The case of the assessee is that the claim had been made under the bonafide belief that such expenses were allowable from year to year basis. We also note that allovability of expenses such as interest etc on year to year basis or in the year of completion of project has been a debatable issue. There have been contrary decisions of the various benches of the tribunal. The special bench of the tribunal in case of Wall Street Construction Pvt. Ltd. Vs JCIT (supra) had rendered decision only vide order dated 22.9.2005 in which it was held that the interest has to be allowed in the year of completion of the project. The said decision it has been pointed out was published in the ITD only in the year 2006. Moreover the decision of the special bench has been disputed before the High Court where the appeal is pending. Under such circumstances in our view it is possible to form a bonafide belief on the date of filing return of income i.e. on 31.10.2005 that the expenses could be allowed from year to year basis. The Learned AR has also submitted that the 6 M/s. Bhishma Realty Ltd. &5726/Mum/2013 assessee had no other income even till today and therefore there was no advantage to the assessee in claiming expenses and declare losses from year to year as the losses could be carried forward only for a limited number of years. In such a situation claiming the expenses in the year of completion would have been advantages to the assessee as in that case all the expenses could have been allowed. Considering the entirety of facts and circumstances, in our view, explanation of the assessee that the claim had been made under bonafide belief has to be accepted and it will not be appropriate to levy penalty under section 271(1)(c) in this case. Accordingly we set aside the order of CIT(A) and delete the penalty levied.”

Order pronounced in the open court on 30th September, 2016.