ANANT SHELTERS PVT. LTD.,MUMBAI vs. I.T.O.9(1)(1), MUMBAI

The solitary issue in this appeal is with regard to levy of penalty of Rs.3,60,200/-.

The brief background and facts of the case are that during the year, assessee was engaged in the business of ‘builder and developer’. During the course of assessment proceedings, it was noted by the assessing officer that Assessee Company was following percentage completion method of accounting whereby Assessee Company was estimating gross profit on work done basis. It was also noticed by the assessing officer that percentage of gross profit determined on the basis of work done of various preceding years had lot of variations and there was lack of consistency in the results shown. Under these circumstances, the AO proposed estimated gross profit @14%. With a view to avoid litigation, the assessee did not file any appeal against the assessment order. Subsequently, the Ld. AO initiated penalty proceedings wherein assessee replied that assessee had offered additional income of Rs.10.5 lakhs only for payment of tax on voluntary basis and the assessee did not make this offer for levy of penalty as well. However, the AO was of the opinion that assessee was following incorrect system of accounting and was disclosing lesser income, and therefore, he levied penalty of Rs.3,60,200/- on the addition of Rs.10.5 lakhs. 4. Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein arguments made before the AO were reiterated and it was also submitted that assessee was carrying on two projects during the year, one at Goregaon and the other at Andheri, but one consolidated account was maintained for both the projects and the architect of the assessee had certified the work in progress and on that basis accounts were prepared and return was filed. Though, offer for payment of tax on additional income was made, that does not mean that assessee accepted any type of concealment of income and, therefore, levy of penalty was not justified. But Ld CIT(A) was not satisfied with the submissions of the assessee; he confirmed the penalty with the following observations: “I have carefully considered the facts of the case, the submissions of the appellant, penalty order. The A.O. had elaborated at para 2 of the penalty order the reasons for which the method of computation of gross profit and the valuation of work-in-progress was flawed. The A.O. proposed adoption of G.P. of 14% of the works done and vide letter dated 18.12.09 the assessee company accepted the flaws and offered additional income of Rs. 10.5 Lacs. Thus, the disclosure of additional income was after the analysis and examination of books of a/c. and detection of mistakes by A.O in the books and thus the disclosure cannot be said to be voluntary but was prompted at the instance of A.O. Under these circumstances the levy of penalty by A.O. is justified and is confirmed.”

Being aggrieved, the assessee filed appeal before us and submissions made before Ld. CIT(A) were reiterated. It is also brought to our notice that assessee has been consistently following percentage of completion method since last so many years. In A.Y. 2004-05, the AO had made addition by estimating the GP at 15%. The matter reached before the Tribunal wherein the Tribunal deleted the addition on the ground that since the assessee was following this system consistently which is supported by duly maintained books of account and in absence of any defects having been brought out in the books of accounts and without rejecting the books of account, no addition could have been made. It is further noted that in A.Y. 2001-02 also the assessment order was passed u/s 143(3) wherein method of accounting followed by the assessee was accepted and no addition was made. Further, the assessment for A.Y. 2003-04 was also made u/s 143(3), and there also the method of accounting followed by the assessee had been accepted and no addition in this regard has been made. Coming back to the facts of the case for the year under consideration, it is noted that the accounts submitted by the assessee have neither been rejected nor any defects have been pointed out by the AO. The addition was made by the AO purely on the basis of estimate, that too, without any basis, much less, any scientific basis. The assessee accepted the addition and offered to pay the tax with a view to buy peace and to avoid litigation, as is clear from the facts before us. Under these circumstances, it is noted that nothing has been brought on record by the lower authorities to show any concealment of income. The addition made on estimate basis cannot be put into the category of concealed income by any stretch of imagination. The AO made the addition because in his opinion, the GP of the assessee was to be estimated at a particular percentage. The opinion of the AO was purely subjective and discretionary and without any concrete basis. Under these circumstances, no penalty can be levied, as per law. In this regard, we find support from the judgement of Hon’ble Bombay High Court in the case of CIT vs Upendra V Mithani dt 5-8-2009 (Income Tax Appeal No.1860 of 2009) wherein Hon’ble High Court has observed as under:

Thus, in view of the aforesaid legal position and facts of the case, we find that penalty in this case is unjustified and the same is directed to be deleted.

In the result, appeal is allowed. Order pronounced in the court on this _27th ___ day of July, 2016.