CHAITANYA ENTERPRISES,MUMBAI vs. ITO 25(1)(1), MUMBAI

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ITA 133/MUM/2015Status: DisposedITAT Mumbai10 August 2016AY 2006-076 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the percentage completion method of accounting is for accounting profits and does not exempt the assessee from the mandatory audit requirement under Section 44AB. Advances received for booking flats are considered 'gross receipts' for the purpose of Section 44AB.

What were the facts?

The assessee, a builder and developer, failed to get its accounts audited despite receiving advance payments for booking of flats in under-construction projects. The Assessing Officer levied a penalty under Section 271B for this failure. The CIT(A) upheld the penalty.

What were the issues?

Whether the assessee was liable for audit under Section 44AB despite following the percentage completion method of accounting, and whether the penalty under Section 271B was justified.

Which sections of the Income-tax Act were involved?

Section 271B,Section 44AB

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI

Before: SHRI R.C. SHARMA & SHRI SANDEEP GOSAIN

For Respondent: Shri Neil Philip
Hearing: 19/07/2016Pronounced: 10/08/2016

The present appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-35 (in short ‘ CIT(A)’), Mumbai dt. 20.10.2014 for A.Y 2006-07 on the following ground of appeal :

1) On facts & circumstances of the case & law on subject the Assessing Officer erred in levying penalty of Rs.150000/- u/s 271B of the Income Tax Act, 1961. On facts & circumstances of the case & law on the subject the CIT(A) erred in upholding the penalty of Rs.1,50,000/-. On facts & circumstances of the case & law on the subject the levied penalty be deleted.

2.

The brief facts of the case are that a return of income was filed on 30.10.2006 declaring a total income of Rs. (-) 3,52,122/-. The case was selected for scrutiny and a notice u/s 143(2) dated 31.7.2007 and 142(1) dated 25.10.2008 were issued and served upon assessee. The assessment was completed on 26.12.2008 determining the total income of Rs. (-) 3,52,120/-.

3.

Assessee is a builder and developer and during the year was engaged in the construction and development activities. The assessee is following the project completion method of accounting. During the year, assessee had three projects in hand which was under construction viz. Radha Raman Apartment, Sheetal Co-op. Hsg. Society and Mahim project which were not completed as on 31.3.2006. Since on account of construction of the aforementioned projects assessee had received amounts against booking of flats in the aforementioned projects, therefore, according to the Assessing Officer, assessee was required to have got audit done and failure to do so invites penalty u/s 271B of the Act. Therefore, the Assessing Officer imposed penalty of Rs.1,50,000/-. At the time of passing order of penalty it was held by Assessing Officer that the advance received by the assessee for booking of flats comprises an element of profit, therefore, it falls under the meaning of “gross receipt” for the purpose of Sec. 44AB of the Act. Aggrieved by the order of imposition of penalty, assessee preferred an appeal before CIT(A), but the CIT(A) also considering the case of both the parties had dismissed the case filed by the assessee. Aggrieved by the order of CIT(A), assessee preferred an appeal before us on the grounds mentioned hereinabove. On the date of hearing, neither the assessee nor his authorized representative appeared before us, although the case was called several times. No application for adjournment was moved which shows that assessee was not interested to pursue the present appeal. On the other hand, the ld. DR present in the court was ready for argument, therefore, with the assistance of ld. DR as well as considering the orders passed by the lower authorities, we decided to dispose of the appeal on merits.

4.

The sole ground taken by the assessee before us is that the ld. CIT(A) erred in upholding the order passed by Assessing Officer for imposition of penalty of Rs.1,50,000/- u/s 271B of the Act. We have heard the ld. DR present in the court and we have also perused the details placed on record including the orders passed by the lower authorities. We have noted that ld. CIT(A) has dealt with the present issue as given below :

“I have gone through the facts of the case and contention of the appellant. The first issue raised during appeal is regarding initiation of penalty proceedings during the course of assessment. In this regard it is seen that while penalty proceedings related to assessment would definitely need to be initiated during the course of assessment, however section 271B is not restricted by any such provision. All that the sec 271B mentions is that “if any one fails to get his accounts audited …………….. the AO may direct that the said person shall be ………” Therefore this contention of the appellant regarding initiation of penalty proceedings cannot be accepted.

As regards the provisions of section 275 regarding the time in which penalty is to be initiated and imposed once again it is seen that provisions of sec. 275 would not be applicable to the facts of the present case. In any case, after the expiry of FY in such proceedings in the course of which action for the imposition of penalty has been initiated is not applicable to the facts of the present case. Within the sec. 271B there is no inherent limitation also cast.

As to the merits of the case, the contention of the appellant is that since he is following percentage completion method therefore he was not liable to maintain books of account. Percentage completion method as prescribed in the Accounting Standards is only a method of accounting for receipts/expenses in the case of contracts where the project takes certain number of years to start and reach its completion. It is merely an accounting process which takes in the turnover and all other receipts/expenses of a given year. Percentage completion method is a prescribed accounting standard only for accounting profits. It does not give assessee the immunity to not get his accounts audited if the provisions of section 44AB otherwise mandates a tax payer to do so.

5.

In the result, the appeal is dismissed.”

5. After perusal of the aforementioned order and on perusal of the grounds raised

by the assessee before us as well as the submissions filed by assessee before the ld. CIT(A), we have noted that the ld. CIT(A) has rightly dealt with all the contentions raised by the assessee. The ld. CIT(A) has rightly appreciated the ground raised by the assessee that he is following percentage completion method. In this respect, the ld. CIT(A) has rightly concluded that the percentage completion method as prescribed in the Accounting Standard is only a method of accounting for receipts/expenses in the case of contracts where the project takes certain number of years to start and reach its completion. Since the percentage completion method is merely an accounting process which takes in the turnover and all other receipts/expenses of a given year, therefore, percentage completion method was held to be a prescribed Accounting Standard only for accounting profits and it does not give assessee the immunity to not get his accounts audited as the provisions of Sec. 44AB otherwise mandates a tax-payer to do so. We have also appreciated that in similar circumstances, the Lucknow Bench of the Tribunal in the case of DCIT v. Gopal Krishan Builder (2004)

91. ITD 124 has rightly held that the advance received by the construction firm for booking of flats comprises an element of profit, therefore, the advance received by the construction companies falls under the meaning of “gross receipts” for the purpose of Sec. 44AB of the Act. Therefore, while concurring with the findings recorded by the coordinate bench and following the judicial precedent, we are of the view that the ld. CIT(A) has passed a well reasoned and judicious order in the present case and we see no reason to deviate from or interfere with the order passed by the ld. CIT(A).

6.

In the net result, appeal filed by the assessee is dismissed.

Order pronounced in the open court on 10th August, 2016.

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