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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
This appeal has been preferred by the assessee against order dated 27.1.2012, passed by the Ld.CIT(A)-22,, Mumbai, under section 271(1)( c ) of the Income Tax Act, 1961 (the Act) for the assessment year 2003-04 wherein the penalty was imposed by the AO which has been also upheld by the ld. CIT(A) by order under appeal.
The assessee has taken several grounds in its appeal but the matter of controversy between the parties is in connection with the levy of penalty u/s 271(1) (c) of the Act. amounting to Rs.3,16,48,949/-.
The facts of the case are that the during the course of assessment proceedings, it was noticed that the assessee has claimed expenses on account of provisions made for contract totalling to Rs.8,61,19,588/- The said provisions pertain to 12 of the contracts undertaken by the assessee which were completed/incomplete. The AO examined the facts of each and every contract and the nature of the provisions during the course of assessment in order to verify the uncertain liabilities under each of the said provision giving finding that the said provisions are in the nature of unascertained liabilities and also that they are not capable of being estimated with reasonable certainties and accordingly disallowed the same. After completion of assessment, penalty notice was issued and in pursuant to penalty notice Shri Lalitha Vishwanathan, Manager (Taxation) appeared on behalf of the assessee company and the AO after providing opportunity of being heard to the assessee passed order dated 28.3.2011 levying penalty of Rs.3,16,48,949/-. Subsequently, the assessee filed appeal before the ld. CIT(A), who confirmed the action of AO by his order dated 27.1.2012. Aggrieved by the order of ld.CIT(A), the assessee is in appeal before us.
The ld. AR has argued that the notice dated 28.2.2006 was served to the assessee without explaining any reason for levy of penalty u/s 271(1)( c ) derived from the circumstances. The ld. AR submitted that the penalty order passed by the AO and confirmed by the ld. CIT(A) is wrong and against the law and facts and is liable to be set aside. The ld.AR submitted that the assessee nowhere furnished inaccurate particulars of income and concealed his income to avoid tax liability derived from the said circumstances. It is also specifically submitted that in view of the Accounting Standard 7 revised-2002, the assessee can claim future losses in the relevant assessment year which is quite justifiable, hence, in the said circumstances, the rejection of claim by the AO is not falling in the category of furnishing of accurate particulars or concealment of particulars of income to avoid tax liability, hence, in the said circumstances, the said penalty order is not justifiable in the eyes of law specifically in the circumstances when the department has allowed the said claim in the earlier assessment years i.e. AYs1999-2000 to 2002-03. It is also argued that the assessee has filed appeal before Hon’ble Bombay High Court for the assessment year 2003-04, wherein the similar point is under consideration and the appeal has been admitted on 26.3.2013, therefore, in the said circumstances no action against the assessee for levy of penalty u/s 271(1)( c ) is required to be taken. In support of this contentions the ld. AR has placed reliance on the following case law: a) CIT V/s Nayan Builders and Developers (368 ITR 722)(Bom); b) Schrader Duncan Ltd V/s Addl.CIT (2015)37 ITR (Trib)674(Mumbai); c) M/s Westin Hospitality Services P.Ltd. V/s DCIT in (AYs-2002-03 and 2001-02) order dated 27.8.2014; d) Advaita Estate Development P Ltd V/s ITO (2013) 27 ITR (Trib) 112 (Mum); e) CIT vs. Reliance Petroproducts (Supreme Court). (2010)322 ITR 158 (SC).
On the other hand, the ld. DR refuted the said contentions and argued that the assessee has mentioned in his return about future losses and there was no work done and no profit was assessed and it is impossible how the assessee is claiming future losses without any basis hence the AO has rightly imposed the penalty and ld.CIT(A) has also confirmed the said action in accordance with law, therefore, the present caption appeal filed by the assessee is liable to be dismissed. It is also argued by the ld. DR that the order passed by the AO for assessment year 2003-04 has also affirmed by the ld.CIT(A) and the same has not been set aside by any higher authority under law, therefore, in the said circumstances, the penalty order u/s 271(1)( c ) dated 28.3.2011 has rightly been passed by the AO and confirmed by the ld.CIT(A) by his order dated 27.1.2012 and these orders are not liable to be interfered with by this Tribunal and, the appeal of the assessee is liable to be dismissed.
Keeping in view the arguments advanced by the parties and on careful perusal of the record before us it is required to be seen by this Tribunal that whether the assessee concealed the particulars of income or furnished inaccurate particulars of income to avoid tax liability which attract to the imposition of penalty u/s 271(1)(c) of the Act or not. While passing the assessment order by the AO for the AY-2003-04, the AO disallowed the claim on incomplete contracts and added the amount of Rs.8,61,19,588/-. In the instant case, it is to be seen as to whether the assessee has furnished inaccurate particulars of income or concealed the particulars of income to avoid tax liability or not. In view of the provisions of AS-7, (revised-2002) it came to the notice that the assessee can recognize the expected loss. The said matter is hereby mentioned at page 118 of the paper book (AS-7), i.e. recognition of expected losses, wherein it is stated at para 35 “when it is probable that total contract costs will exceed total contract revenue, the expected loss should be recognized as an expenses immediately” and under para 36, it is mentioned that the amount of such a loss is determined irrespective of :
(a) Whether or not work has commenced on the contract; b) The stage of completion of contract activity; or; c) The amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with paragraph 8 the stage:
. On perusal of the assessment order dated 28.2.2006, apparently, the assessee claimed losses with regard to the incomplete work which has not been allowed by the AO and the said losses having been added to the income of the assessee. In our view, it is not a case of furnishing in accurate particulars of income. Making incorrect claim, if any, does not amount to concealment of particulars because no information given by the assessee in its return of income is found to be incorrect. In this regard, we draw the support from the decision of CIT vs. Reliance the Hon’ble Supreme Court in the case of Petroproducts (Supreme Court). (2010)322 ITR 158 (SC). Further it is also noted that the assessment for the assessment year 2003-04 is in appeal before the Hon’’ble Bombay High Court in of 2012 vide which the said question of law has arisen. In effect, we are of the view that the AO was not justified in levying penalty on the amount disallowed since the said claim is supported by Accounting Standard-7 issued by ICAI. Accordingly, we set aside the order of ld.CIT(A) and direct the AO to delete the penalty.
In the result, the appeal of the assessee is allowed. 7. Pronounced accordingly on 18th Nov, 2015. घोषणा खुले �यायालय म� �दनांकः 18th Nov, 2015 को क� गई ।