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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI RAJESH KUMAR, AM
PER RAJESH KUMAR, AM : All these appeals are directed against the common order dated 11.6.2012 passed by the ld.CIT(A)-41, Mumbai and they relate to the assessment years 2001-02 to 2006-07. Since the issue involved in all these appeals are common, therefore, these appeals were clubbed together ,heard together and are being decided by this consolidated order, for the sake of convenience.
2 And other five appeals.
The facts in dispute involved in all these appeals are same except figures. Therefore, we are taking up the ITA No 5355/Mum/2012 assessment year 2001-02 first for adjudication. The assessee has taken followings grounds of appeal:- “1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was correct in deleting penalty of Rs.28,92,183/- levied u/s 271(1)(c) on account of allocation of common expenses towards projects eligible for deduction u/s 80IB(10) of the IT Act, 1961 without appreciating the fact that expenses of eligible project have been booked into non eligible projects resulting in reduction of taxable income.
Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) was correct in deleting penalty of Rs 1,39,6571/- levied u/s 271(1)(c) on account of disallowance of reduction of 10% claimed on stock-in-trade without appreciating the fact that assessee has without any reason reduced the value of inventories by 10 % every year and thereby reducing taxable income.
Facts in brief are that the assessee filed its return of income on 31.10.2001 declaring total income at Rs.1,49,46,426/-. The assessee is engaged in the business of Real Estate development and slum rehabilitation. The case of the assessee was selected for scrutiny and statutory notices under section 143(2) r.w.s 153A were issued and served upon the assessee. The assessment was completed vide order dated 27.2.2004 u/s 143(3) of the Act at Rs.2,44,58,100/-. A search and seizure operation was conducted under section 132 in the premises of Akruti Group of cases, including the assessee on 10.8.2006 and the assessment was completed u/s 143(3)(153A on 30.12.2008 at a total income of Rs.1,90,05,793/-. During the year under consideration, the assessee claimed deduction under section 80IB(10) of the Income Tax Act, 1961 to the tune of Rs.3,91,88,997/-. During the course of search, it was found that the assessee had claimed deduction u/s only being qualified for claiming the said deduction. the AO asked the assessee to 3 And other five appeals. explain the basis of common expenses were allocated to the various projects covered under section 80IB(10). During the assessment as made us/ 143(3) r.w.s. 153A of the Act various additions were made and the matter was appealed before the CIT(A) who deleted the additions made except two additions first of Rs. 73,12,726/- for expenses allocated to projects for which the deduction u/s 80IB(10) was made and second d of Rs. 3,53,115/- being reduction claimed @ 10% of Stock in trade. In response to the query raised by the AO , the assessee submitted that the total expenses debited to the profit and loss account from the assessment year 2001-02 to 2007-08 were Rs.34,16,95,092/- which was actually found to be allocable to the construction projects and it was further stated that out of these allocable expenses the amount to the extent of Rs.10,34,31,192/- were related to the project covered under section 80IB(10). The AO accordingly, rejected the claim of the assessee u/s 80IB(10) in all the assessment years and also initiated penalty proceedings under section 271(1)( c ) of the Act. The second addition involved on which the penalty was levied by the AO was deduction of 10% of the stock-in-trade. The AO asked the assessee to explain the provisions made while reducing its value of stock-in-trade and further asked the assessee to explain that since the value of real estate had appreciated manifold what was the logic of writing off 10% of stock–in-trade i.e building. The assessee submitted before the AO that land and building constituted stock-in-trade in the business of the assessee as it was engaged in the business of Real Estate development and slum rehabilitation and therefore, 10% of the closing stock is in accordance with Accounting Standared-2 as notified by The Institute of Chartered Accountant. The AO rejected the contention of the assessee and initiated penalty proceedings. Accordingly, the AO imposed the penalty of Rs.30,31,840/- being 100% of the tax sought to be evaded under section 271(1)( c) of the Act for both the additions for furnishing inaccurate particulars of income and suppressing the 4 And other five appeals. income by rejecting the submissions of the assessee and holding that the assessee had tried to manipulate profits by maneovering the expenses in such a manner so that non-taxable income u/s 80IB (10) would go up and the taxable income from non 80IB(10) came down and thus manipulated the books of account to avoid tax liability. Similarly, the AO held that the reduction of 10% in stock-in-trade which was alleged to be with a view to comply with the correct accounting and taxation principles was baseless. The assessee preferred the appeal before the ld. CIT(A), who deleted the penalty by holding as under :
“5. I have considered the submissions of the appellant, order of the AO and facts of the case carefully. It is noticed that in the quantum appeal, the appellant had claimed deduction u/s 80IB(10) and 80IA(4) of the IT Act. During the assessment proceedings, the disallowance was made on account of allocation of common expenses to towards 80IB(10) projects and disallowance was made accordingly. The Ld. CIT(A) has decided this issue by accepting the stand of the assessee that only 80.92% of the common expenses were allowable to 80IB(10) projects and he allowed relief to the extent of Rs.46 lakhs of further addition made in the hands of the assessee. This order of the CIT(A) was accepted by the assessee and the department. On the second issue in which the assessee has claimed a reduction in value of stock-in-trade @ 10% of the cost of the stock-in-trade. The disallowance was made by the AO after discussing the issue in the assessment order and initiated penalty proceedings. During the penalty proceedings again an opportunity was given to the assessee to explain the same. The assessee has submitted that even if the value of the stock is not subjected to amortization, the same would only result in increase in profit for the year in which the inventory is sold which would only increase deduction u/s. 80IA( 4) and making it tax neutral. But the AO has not accepted the arguments of the appellant and levied penalty u/s. 271(1)(c) of the IT. Act on the basis of reasons given above. During the appellate proceedings, the AR of the appellant has submitted that the assessee has claimed expenses and despite relating to allocation of common expenses towards 80IB(10) projects was accepted on the basis of the CIT(A) by the department and the assessee. Similarly, on the second issue of disallowance of reduction of 10% claimed in stock-in-trade, the assessee has made claim and it has increased deduction u/s.
5 It was held that a mere making of the claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. The Hon'ble High Court in CIT v. Indian Metals & Ferro Alloys Ltd. has held that "the word "conceal" is derived from the Latin word "concolare" which implies "to hide". Webster's New International Dictionary equates its meaning to "hide” or “withdraw” from observation; to cover or keep from sight; to prevent the discover of; to withhold knowledge of". The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of income-tax authorities". The Hon'ble Pune Tribunal has held in Kanbay Software India Pvt. Ltd. that the expression "concealment of income" has not been defined in the Act, but the natural meanings of the expression "concealment" are to keep from being seen, found, observed, or discovered". It would therefore follow that the expression concealment of income, in its natural sense and grammatical meaning, implies an income is being hidden, camouflaged or covered up so as cannot be seen, found, observed or discovered. The expression "inaccurate" refers to "not in conformity with the fact or truth" and that is the meaning which, in our considered view, is relevant in the context of "furnishing of inaccurate particulars" .... The details or- information about income deal with the factual details of income and this cannot be extended to areas which are subjective such as the status of taxability of an income, admissibility of a deduction and interpretation of law .... The admission or rejection of a claim is a subjective exercise and whether a claim is accepted or rejected has nothing to do with furnishing of inaccurate particulars of income In our considered view, raising a legal claim, even if it is ultimately found to be legally unacceptable, cannot amount of (sic) furnishing of inaccurate particulars of income". In the present case, the assessee has claimed expenses which were re- allocated as per-decision of CIT(A) which was accepted by the assessee and the department. Thus, the appellant has made
6 And other five appeals. claim which was modified in appeal means that it was a debatable issue. By making claim of expenses in the return, assessee has not concealed any facts nor submitted inaccurate particulars of income. Similarly in second ground, the assessee has claimed reduction of 10% in value of stock- in-trade. The appellant has claimed 10% of the cost of the super structure as diminution in the value of the super structure due to passage of time as per accounting standard 2 'valuation of inventory' issued by ICAI. It was disallowed by the AO and confirmed in appeal. Now question arises whether the assessee' has concealed the facts or Submitted inaccurate particulars of income? The answer is given by Hon'ble Supreme Court in case of Reliance Petro products by holding that merely the claim made by the assessee which is not accepted by the AO is not a case of concealment and submitting of inaccurate particulars of income as per the provisions of section 271(1)(c). In view of these facts, it is held that it was not a case of concealment of income or submitting of inaccurate particulars as per the decisions of the Hon’ble Supreme Court and other Courts cited above, Keeping in view the totality of the facts and circumstances, it is held that the penalty levied by the AO is not sustainable, hence, deleted. Ground of appeal is allowed.”
The ld. DR relied on the order of AO heavily and submitted that the assessee had manipulated its account by apportioning less expenses to the projects which were covered by the provisions of section 80IB(10) and allocating more expenses towards those projects which were not covered by the said provisions. The assessee had been manipulating its accounts thereby suppressing the taxable income from non 80IB(10) projects and inflating the income of those projects to which the provisions of section 80IB(10) were applicable and accordingly , the claimed deduction. The ld. DR further submitted that during the course of assessment proceedings, the assessee, in reply to the query raised by the AO submitted the details of expenses of Rs.10,34,31,192/- which were to be allocable to various projects covered by the provisions of section 80IB(10) from the AY-2001-02 to 2007-08 out of total expenses debited and charged to the profit and loss account during all these years of Rs.3,41,69,510/-. Similarly the assessee
7 And other five appeals. reduced its stock-in-trade (building) at the rate of 10% on the ground that the value of the building depreciated by wear and tear which is a general phenomena under bonafide belief whereas the AO observed that such deduction was claimed with malafide intention to reduced the income as real estate the prices of land and building were spiriling with the passage of time. In view of these facts, the ld. DR finally submitted that the penalty was rightly imposed on the assessee for furnishing inaccurate particulars of income by way of suppressing the taxable profit and inflating the tax free profit u/s 80IB(10).
The ld. AR vehemently submitted before us that full and true disclosure was made in the books of account and also in the annual audited e The ld. AR further submitted that the common expenses were not allocated on the basis of view taken by the Tribunal for the assessment year 1999-2000 in the assessee’s own case, wherein it has been held that common expenses were not required to be allocated to any project. The ld. AR submitted that this stand had been accepted by the department in the original assessment made u/s 143(3) for the assessment years 2002-03, 2003-04 and 2004-05. The ld. AR submitted that the common expenses represented the cost not identifiable to any specific project which comprises of general administrative expenses, interest expenditures and depreciation etc and were claimed accordingly. The ld. AR further referred to the principle laid down in Accounting Standard-7 by submitting that the assessee had not allocated any of such expenses to any projects since financial year 1998-99. The assessee had during the year completed certain projects at Saiwadi and MIDC and the profits earned on the these were claimed as deduction us 80IB (10). These projects were under construction since last two to three years and common expense were never allocated to these projects and consequently never charged to the profit and loss account of the respective year. Further in respect of claim of the assessee being 10% of the super
8 And other five appeals. structure due to wear and tear, the assessee submitted that stock-in-trade was valued as per Accounting standard-2 issued by The Institute Of Chartered Accountants Of India which deals with valuation of inventory at cost or market price whichever is lower and accordingly, the assessee followed it stock-in-trade at cost less 10%. This had appended because the assessee leased out various building in Phase-I, II, III and MIDC, Ancheri (E) which were held as stock-in-trade and not sold immediately. Since there was considerable time gap in the completion and selling these buildings, the assessee valued these building at cost less 10% on account of wear and tear. The ld. AR submitted that all these facts were adequately sufficiently disclosed in the return of income and audited accounts. The assessee in support of his contentions relied on the decisions of the Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (Supreme Court). (2010)322 ITR 158 (SC) and the decision in the case of Commissioner Of Income-Tax Vs Indian Metals And Ferro Alloys( 1995) 211 ITR 35 Orissa. Finally, the ld.AR submitted that since all the facts relating to non-allocation of expenses were duly stated and disclosed and were inconformity with the stand of the assessee accepted by the revenue and also as per the various accounting Standards. In respect of reduction in stock in trade to the extent of 10% was revenue neutral as ultimately upon selling the stock in trade the true profits would be accounted automatically which proved the genuineness of assessee’s claim and thus no penal action u/s 271(1)( c ) was called for. The ld. AR, therefore, prayed that the order of ld. CIT(A) be confirmed.
We have considered the rival contentions and perused the material on records available before us. We find that the assessee was following the system of accounting of not allocating the common expenses including general administrative expenses, interest expenditures and depreciation etc to the specific projects. We further find that the assessee was charging expenses to the profit and loss account every year which was accepted by 9 And other five appeals. the department in the assessment years 2002-03, 2003-04 and 2004-05. During the course of scrutiny proceedings, the AO called for the details of various allocable expenses which were filed by the assessee from assessment year 2001-02 to 2007-08 amounting to Rs.10,34,31,192/- the details whereof as given by the assessee are as under:-
AY Total allocable expenses Allocable to 80IB(10) projects a B 2001-02 13,829,000 7,312,726 2002-03 23,853,235 9,131,987 2003-04 38,110,760 11,207,676 2004-05 53,094,827 15,139,246 2005-06 73,991,537 19,508,393 2006-07 61,046,157 26,585,183 2007-08 77,769,576 14,535,981 Total 341,695,092 103,431,192
The AO on the basis of the above breakup recomputed the deduction u/s 80IB(10) in all the assessment years from assessment year 2001-02 to 2007-08 and according imposed the penalty u/s 271(1)(c) of the Act. The second issue on which the penalty was imposed was on account of reduction in the value of stock-in-trade to the tune of 10% on the ground that the building constructed were held as stock-in-trade and were leased out during the year. Since the time gap between completion of construction and selling was huge therefore in order to account for normal wear and tear in the value of building the assessee reduced of 10% of the stock value which was claimed to be according to AS-2 issued by ICAI. The AO imposed the penalty of Rs.30,31,840/- on the ground that the assessee had furnished inaccurate particulars of income by not allocating the expenses of Rs. 73,12,726/- to pocket 7 project and for claiming 10% reduction in stock in trade. Now, the issue before us is whether the penalty was imposable under the above circumstances, or is it a fit case of difference of opinion and genuine claim on the part of the assessee. The ld. CIT(A) had dealt with 10 And other five appeals. this issue in great detail and rightly deleted the penalty by accepting the contention of the assessee who relying on the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (Supra). We also find that the ld. CIT(A) further found that the reduction in the value of stock-in-trade was tax neutral as ultimately in the year of sale of said stock in trade, the higher profit would be automatically accounted for and would be accruing to the assessee by claiming lower value of stock in trade. In the case of Reliance Petro products (supra), it has been held that mere making the claim which is not sustainable in law, itself would not amount to furnishing of inaccurate particulars of income, therefore, following the ratio laid down by the Hon’ble Apex Court in the case of Reliance Petro products (supra) we uphold the order of CIT(A) deleting the penalty levied by the AO by dismissing the appeal of the revenue. The AO is directed accordingly. I.T.A. No.5356 to 5360/Mum/2012(AYs : 2002-03 to 2005-06)
We have already decided a similar issue under identical facts in ITA No 5355/Mum/2012 assessment year 2001-02 and therefore our decisions in ITA No 5355/Mum/2012 AY 2001-02 would mutatis mutandis apply to these appeals as well and accordingly the order of CIT(A) is confirmed and upheld.
In result the appeals of the revenue are dismissed. Order pronounced in the open court on 15th Mar, 2016 . आदेश की घोषणा खुरे न्मामारम भें ददनांकः को की गई । (अममत शुक्ऱध/AMIT SHUKLA) (रधजेशकुमधर/RAJESH KUMAR) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 15/03/2016 व.यन.स./ SRL , Sr. PS
11 And other five appeals. आदेश की प्रनतमऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. 2. प्रत्मथी / The Respondent. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. आमकय आमुक्त / CIT 4. ववबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR,
ITAT, Mumbai गार्ड पाईर / Guard file. 6. आदेशधनुसधर/ BY ORDER,उऩ/सहधयक ऩंजीकधर (Dy./Asstt.