S.P. BUILDERS,MUMBAI vs. ITO 12(3)(4), MUMBAI

The assessee is aggrieved by the action of the CIT(A) in confirming the penalty u/s.271(1)(c) of the Act of Rs.86,88,110/- on the addition of Rs.2,77,00,000/-.

Rival contentions have been heard and record perused. Facts in brief are that the assessee is a firm which is carrying on business of building construction and had completed two projects viz. Paschim Apartments consisting ‘A’ to ‘C’ wing and Shaan Apartments consisting only one wing i.e. ‘D’ Wing long back. During the course of assessment proceedings the AO noted that the assessee in the balance sheet has shown advance against ‘Paschim Apartments’, Kalpavruksha Developers, Mercury Plants, etc. The assessee was required to submit explanation along with various details, however, the assessee did not find any favour from the AO and accordingly the AO assessed the total income of the assessee at Rs.2,77,00,000/- and disallowed the same. Being aggrieved with the order of AO, the assessee preferred appeal before the CIT(A), the CIT(A) deleted the addition so made by the AO and in further appeal before the Tribunal by the revenue, the order of the CIT(A) was set aside and the assessment order of the AO was upheld. In view of the same, the AO levied penalty of Rs.86,88,110/- on the addition of Rs.2.77cr., against which the assessee preferred appeal before the CIT(A) and the CIT(A) dismissed the appeal of the assessee against which assessee is in further appeal before us.

Rival contentions have been heard and record perused. From the record we found that on 30-9-1972, the assessee purchased from M/s MC Ghia & Co. land measuring 11,889 sq.meters in Mahim area with buildings and structures standing thereon at Kashinath Dhuru and Yadav Patil Lane, Off Veer Sarvarkar Marg, Mumbai. On 18-10-1972 the assessee leased out 4,910 sq. meters of land to M/s mercury Paints & Varnishes Ltd. for a period of 7 years and 3 months i.e. till 31-12-1979.

In 1975-1976, the assessee submitted redevelopment plan of the property to the Corporation for constructing towers. Assessee constructed building which is Paschim Apartment, Tower A, B, C & Shaan Apartment Tower D, but could not construct Tower E as the said land was in occupation of M/s Mercury Paints (to whom land was leased). The buildings have been completed and all apartments therein sold and are fully occupied by the flat purchasers. On 6-10-2000, the Assessee filed a suit against Mercury Paints and Varnishes Limited for ejectment (eviction from property) and other reliefs. The tenant also filed suit seeking to establish tenancy rights in respect of the suit property used and occupied by them. On 28-7-2003, the Assessee entered into an MOU with M/s Class Construction & Hotels Pvt. Ltd. granting them development rights in respect of the land in occupation of M/s Mercury Paints. An advance of 51 lacs was paid to the assssee. The MOU could not be completed and the same was cancelled on 02.04.2004. On 23-12-2002, the Assessee entered into an MOU with Kalpavruksha Developers for constructing Building E on the 4,190 sq. meters of land which was in occupation of Mercury Paints and Varnishes Ltd. An advance of Rs.51 lacs was to be paid in advance and other amounts for different purposes. The terms of the MOU could not be complied with which led to a suit and compromise and another development agreement dated 22.01.2004. Further on 2-4- 2004 the Assessee and Class Construction & Hotel Pvt. Ltd. agreed to cancel the MOU dated 23.12.2002 on paying 3.75 crores as compensation to them.

We also found that Deed of modification was entered into between the assessee and Kalpavruksha Developers whereby the assessee agreed to sell the suit property on "as is where is" basis. Further on 28.02.05, Deed of conveyance was executed between the assessee and Kalpavruksha Developers whereby the assessee conveyed the property described as 11,889 sq. meters and M/s Kalpavruksha was to pay the assessee a sum of 7.01cr. (which included 3.75 crores payable to Class Construction as damages) and two other parties including Shaan Apartment Co-op Housing Society and Paschim Apartments. The net sum receivable by the assessee was 2,77,00,000. The disputes arose between the seller and the purchasers (pertaining to 4,910 sq. meters which was occupied by Mercury Paints & Varnishes Ltd.) and they also joined the pending proceedings in the Small Cause Court. The conveyance deed specifically mentions as under.. “....... AND WHEREAS presently no further development on the said property is possible as the remaining portion of the said property are in possession and occupation of the said lessee/tenant/ M/s Mercury Paints & Varnishes Ltd. AND WHEREAS the lease has expired and thereafter the said lessee/tenant filed a suit in appropriate court in Mumbai, seeking to establish tenancy rights in respect of the said property in their use and occupation. AND WHEREAS THE VENDORS have also filed suit against the said lessee tenant for ejectment and other reliefs and the same is pending ... " This basically proves that the land sought to be transferred already had pending litigations with respect to its occupation and possession.

On 29-11-2005, Small Cause Court directed the Court Registrar to take the possession of the suit premises and allow the assessee and Kalpavruksha Developers to remain in physical and actual possession of the premises as agents of the Court Receiver. Mercury Paints & Varnishes Ltd. was directed to hand over vacant and peaceful possession of the premises on 1st December, 2005. M/s Kalpavruksha Developers also filed appeal No.710/2005 on 6-12-2005 against order dated 29th November, 2005 appointing Court Receiver. On 8-12-2005, Appeal No.219 of 2006 filed against order dated 30th September, 2005 by Kalpavruksha Developers. On 10-4-2006, Consent Terms filed. Disputes between the parties were resolved. Order dated 10th April 2006 confirmed the consent terms dated 10th April, 2006. We had also gone through the copy of the consent terms annexed in the paper book from page no. 6-15. The issue pertaining to the possession of the premises was finally settled by way of the consent terms Additional Consent Terms. On 2-5-2006, Additional Consent Terms were filed in High Court (Suit No.3717 of 2003) between the assessee and Kalpavruksha Developers which provided as follows: a. The Additional Consent Terms confirmed the Agreement between the assessee and Kalpavruksha Developers recorded in consent terms dated 11th November, 2003 and further confirms the execution of documents between the parties viz. i) Conveyance executed on 19th August, 2004 ii) Conveyance re-executed on 28th February, 2005 ill) Power of Attorney dated 22nd January, 2004 b. The assessee undertook to execute further documents as per the draft attached to the additional consent terms c. The developers agreed to pay enhanced consideration in view of settlement referred to therein of 2,01,00,000/- (1,00,00,000/- paid on or before the execution of the consent terms and the second installment of 1,01,00,000/- to be paid on registration of Deed of Rectification and additional consent terms filed in the Court.”

In the return filed for assessment year 2007-08 the assessee offered a sum of 4.78 Cr. as their income for A.Y.2007-2008. The sum comprises of Rs.2,77 Cr. referred to in Conveyance Deed dated 28th February, 2005 as modified by the Deed of Modification signed on 10th April, 2006 and filed on 2nd May, 2006. In the Auditors report, the Notes to the Books of Accounts of A.Y. 2007-2008 clearly state as under: "The Assessing Officer has added '2,77,00,000/- on account of sale of Paschim Apartment Plot in Asst. Year 2005-2006 against our NIL Income Tax Return. The assessee has preferred appeal to CIT(A)- XII. CIT(A) passed order dated 03.07.2008. The CIT(A} has granted relief that income from sale of plot accrues in Assessment Year 2007-2008. The assessee has received further amount of 2,01,00,000/- against same Paschim Apartment plot over and above 2,77,00,000/- as a full and final settlement. So the assessee firm has offered total sale value 4,78,00,000/- in Asst. Year 2007- 2008."

On the basis of above note, the AO took the view that as the land to the developer was conveyed vide Conveyance Deed dated 28-2-2005, he made an addition of Rs.2.77 cr in the A.Y.2005-06. However, in an appeal before the CIT(A), he accepted assessee’s contention that income will be taxable in the year when litigation got settled. Accordingly, deleted the addition made in A.Y.2005-06. While deleting the addition the CIT(A) relied on the decision of Hon’ble Supreme Court in the case of Godhra Electricity Co. Ltd., 225 ITR 746 and Bokaro Steel Ltd. 236 ITR 315. From the record we also found that penalty so levied was dropped by the AO on 21-7-2008. However, after the order of Tribunal, the AO again re- initiated the penalty proceedings.

It is clearly proved from the chronological events narrated above that difference of opinion has come out between the assessment stage and the first appellate authority stage wherein the AO had passed an order which was unfavourable for the assessee. On the other hand, the CIT(A) considered the matter and concluded the same in favour of the assessee. Hence, penalty ought not to be levied in a situation where there arises a difference of opinion. Under the circumstances discussed above, the assessee cannot be accused of any concealment of income. The notes to accounts of AY 2007-2008 also go on to clearly state the facts and circumstances of the pending litigations pertaining to AY 2005-2006 related to income tax as well as those pertaining to possession. There is also no dispute to the fact that the assessee has offered its 'real income' for taxation and paid the tax accordingly in the return of income for AY 2007-2008 after the conveyance attained finality and all litigations concerning the subject matter of conveyance were resolved. Thus, where assessee has furnished all particulars of income, imposition of penalty is not automatic in nature. Mere making of a claim which is not sustainable in law does not amount to levying of penalty under section 271(1)(c) of the Act. It is just a matter of difference between assessee and revenue regarding year of chargeability of income and not concealment of income. Intention of assessee is not to conceal the income which is evident from the fact that assessee has filled appeal for A.Y. 2007-08 against the action of department on reduction of the Income of RS.2,77,00,000/- from total income. If the Intention of assessee is bad then why he will file appeal when income was reduced. Thus, it is matter of just a difference of opinion regarding taxation of particular income in which year. Furthermore, the assessee was under bonafide belief that income was liable to tax in the assessment year 2007-08 and which has actually been offered in the assessment year 2007-08. Thus, it is not a fit case for levy of penalty on a disputed income.

In view of the above discussion and applying the proposition of law laid down by the Hon’ble Supreme Court and Hon’ble jurisdictional High Court as discussed above, we do not find any merit for the penalty imposed u/s.271(1)(c) of the Act for the disputed amount during the year under consideration, which was actually offered to tax in the subsequent year when it actually accrued on account of resolved dispute.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 08/10/2015.

Sd/- Sd/- (संजम गगव) (आय.सी.शभमव) (SANJAY GARG) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनमंक Dated 08/10/2015 प्र.कु.मभ/pkm, यन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीरमथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गमर्व पमईर / Guard file. 6. सत्ममवऩत प्रयत //True Copy// आदेशाि सार/ BY ORDER,