CAPRICON REALTY LTD., MUMBAI v. ACIT CIR 2(1), MUMBAI

ITA 5724/MUM/2013 | 2005-2006
Pronouncement Date: 28-11-2017 | Result: Allowed

Appeal Details

RSA Number 572419914 RSA 2013
Assessee PAN AAACC4297J
Bench Mumbai
Appeal Number ITA 5724/MUM/2013
Duration Of Justice 4 year(s) 2 month(s) 9 day(s)
Appellant CAPRICON REALTY LTD., MUMBAI
Respondent ACIT CIR 2(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted C
Tribunal Order Date 28-11-2017
Assessment Year 2005-2006
Appeal Filed On 18-09-2013
Judgment Text
C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY JUDICIAL MEMBER AND SHRI RAMIT KOCHAR ACCOUNTANT MEMBER ./ I.T.A. NO. 5724/ MUM/2013 ( / ASSESSMENT YEAR : 2005 - 06 ) CAPRICON REAL TY LTD. 213 SIR VITHALDAS CHAMBERS 16 MUMBAI SAMACHAR MARG MUMBAI 400001 / V. ACIT CIR 2(1) AAYAKAR BHAVAN M K ROAD MUMBAI 400020 ./ PAN : AAACC4297J ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. K. GOPAL / MS. NEHA PARANJPE REVENUE BY : SHRI H.N S INGH CIT - DR / DATE OF HEARING : 04 - 10 - 2017 / DATE OF PRONOUNCEMENT : 28.11.2017 / O R D E R PER RAMIT KOCHAR ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE BEING ITA NO. 5724/ MUM/2013 FOR ASSESSMENT YEAR 200 5 - 06 IS DIRECTED AGAINST THE APPELLATE ORDER DATED 20 - 08 - 2013 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 4 MUMBAI (HEREINAFTER CALLED THE CI T(A)) FOR ASSESSMENT YEAR 2005 - 06 APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE PENALTY ORDER DATED 08.03.2010 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 271(1)(C) OF THE IN COME - TAX ACT 1961 (HEREINAFTER CALLED THE ACT). 2. THE G ROUNDS OF APPEAL RAISED BY THE A SSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - 1) THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING PENALTY OF RS.5 24 37 851/ - U/S. 271(1 )(C) OF THE INCOME TAX ACT 1961 LEVIED BY THE ASSESSING OFFICER. YOUR APPELLANTS SUBMIT THAT I.T.A. NO. 5724/MUM/2013 2 THE SAID PENALTY IS NOT LEVIABLE AND NOT OUGHT TO BE LEVIED. YOUR APPELLANTS SUBMIT THAT THE SAID PENALTY OUGHT TO BE QUASHED. 2) YOUR APPELLANTS FURTHER RESERVE THE RIGHTS TO ADD AMEND OR ALTER THE AFORESAID GROUNDS OF APPEAL AS THEY MAY THINK FIT BY THEMSELVES OR BY THEIR REPRESENTATIVES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENTS. THE ASSESSEE COMPANY IS ONE OF THE THREE S PECIAL PURPOSE V EHICLES (SPV) WHICH ARE ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT ENTRU STED WITH THE TASK OF RE - CONSTRUCTION OF THE COMPANY M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. AS PER THE REHABILITATION SCHEME DATED 01.04.2004 SANCTIONED BY BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION( BIFR ). A S PER TH E SCHEME OF THE SAID ARRANGEMENT APPROVED BY B IFR MAHALAXMI PROPERTY OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. HAS BEEN ASSIGNED TO THE ASSESSEE FOR DEVELOPMENT AND LIABILITIES EQUIVALENT TO THE TRANSFERRED VALUE OF THE ASSETS WERE ALSO TRANSFERRED TO THE ASSESSEE. THE ASSESSEE IS IN THE PROCE SS OF DEVELOPING THE REAL ESTATE TRANSFERRED TO IT . THE ASSESSEE IS FOLLOWING PROJECT C OMPLETION METHOD BUT AS PER THE AUDITED ACCOUNTS OF THE ASSESSEE IT HAS NOT COMPLETED ANY PROJECT DURING THE YEAR. THE ASSESSEE COMPANY HOWEVER CLAIMED IN ITS PROFIT AND LOSS ACCOUNT AN AMOUNT OF RS.14 44 31 840 / - PERTAINING TO LOSS ON SALE OF ASSET. THE AO OBSERVED THAT IT IS CLEARLY MENTIONED IN THE SCHEDULE 11 TO AUDIT ACCOUNT LOSS ON SALE OF ASSET IS MAINLY ON ACCOUNT OF LOSS ON SALES OF CHARGEABLE AREA OF LAND A PPROPRIATE D BY THE DEVELOPERS TOWARDS ADJUSTMENT OF ADVANCE GIVEN BY THE DEVELOPERS PLUS INTEREST THEREON IN TERM S OF THE PROVISION S OF THE DEVELOPMENT AGREEMENT AND THE SANCTIONED SCHEME BY BIFR WHICH WAS BELOW THE RATE AT WHICH THE SAID AREA OF THE PROPE RTY WAS ALLOTTED TO THE ASSESSEE UNDER THE SCHEME APPROVED BY BIFR AN D AS PER ACCOUNTING POLICY FOLLOWED IT WAS REQUIRED TO BE CARRIED TO THE REAL ESTATE DEVELOPMENT W ORK - IN - P ROGRESS ACCOUNT WHILE INSTEAD THE SAME WAS ADDED TO THE P&L ACCOUNT WHICH LED T O THE DISALLOWANCE OF THE SAID LOSS WHEREIN ADDITION OF 14 44 31 840/ - IN THE ASSESSMENT ORDER WAS MADE BY THE AO TO BE ALLOWED TO BE CARRIED TO REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS ACCOUNT IN AN ASSESSMENT FRAMED U/S 143(3) . F URTHER THE AO OBSERVED THAT THERE WAS A CLAIM OF DEPREC IATION OF RS.1 20 090/ - IN RESPECT OF THE VEHICLES TRANSFERRED FROM M/S. HINDOOSTAN I.T.A. NO. 5724/MUM/2013 3 SPINNING & WEAVING MILLS LTD. AS PER THE AGREEMENT WHICH SHOULD HAVE FORMED PART OF THE REAL ESTATE DEVELOPMENT WORK IN P R OGRESS WHICH WAS ALSO ADDED TO THE INCOME BY THE A.O . IN AN ASSESSMENT FRAMED U/S 143(3). F URTHER IT WAS OBSERVED BY THE A.O THAT ASSESSEE HAS INCUR RED EXPENSES OF RS.16 44 673/ - THE DETAIL OF WHICH ARE HEREUNDER: - PRINTING & STATIONERY RS. 33 062/ - BANK CHARGES/COMMISSION RS. 85 627/ - ELECTRICITY CHARGES RS. 23 700/ - RATES & TAXES RS. 5 78 346/ - POST & COURIER CHARGES RS. 76 455/ - SECURITY CHARGES RS. 29 974/ - TRAVELING EXPENSES RS. 8 431/ - TRUSTEESHIP FEES RS. 54 000/ - SUNDRY EXPENSES RS. 68 296/ - INTEREST ON OTHERS RS. 6 35 386/ - DEPRECIATION RS. 51 396/ - TOTAL ------------------- RS.16 44 673/ - =========== THE AFORESAID EXPENSES WERE DEBITED TO THE PROFIT AND LOSS A CCOUNT WHICH WERE DISALLOWED BY THE A.O AS THE REAL ESTATE DEVELOPMENT PROJECT WAS NOT COMPLETED DURING THE YEAR UNDER CONSIDERATION AND THE ASSESSEE WAS FOLLOWING PROJECT C OMPLETION METHOD. THE AO HOWEVER ALLOWED THE SAID EXPENSES TO BE CARRIED FORWARD TO REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS ACCOUNT WHICH SHALL BE ALLOWED IN THE YEAR IN WHICH PROJECT IS COMPLETED BY THE ASSESSEE. THE A.O INVOKED PROVISION S OF SECTION 271(1)(C) FOR ASSESSEE HAVING FURNISHED INACCURATE PARTICULARS OF INCOME AND CONCEALING PARTICULARS OF INCOME. DURING THE COURSE OF PENALTY PROCEEDINGS U/S 271(1)(C) THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PENALTY SHOULD NOT BE LEVIED U/ S. 271(1)(C) AND THE ASSESSEE IN N UTSHELL SUBMITTED AS UNDER: I) THERE IS NO DOUBT AS REGARDS THE GENUINENESS OF THE CLAIM OF EXPENSES MADE BY THE AS S ESSEE THOUGH THERE IS DIFFERENCE OF OPINION AS REGARDS THE PERIOD IN WHICH THE EXPENSES INCURRED BY THE ASSESSEE SHOULD BE ALLOWED. II) RELIANCE WAS PLACED ON THE UNREPORTED DEC ISION OF THE MUMBAI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF AKSHAY SOFTWARE TECHNOLOGIES LIMITED VS. ACIT IN ITA NO.6331/MUM/2005 WHEREIN IT I.T.A. NO. 5724/MUM/2013 4 HAS BEEN HELD THAT WHERE A CLAIM OF THE ASSESSEE IS REJECTED MERELY ON TECHNICAL GROUND THAT THE EXPENDITURE IS ALLOWABLE IN ANOTHER YEAR THERE CAN BE NO MERIT IN THE LEVY OF PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT 1961. COPY OF RELEVANT JUDGEMENT IS PROVIDED. III) THE ASSESSEE COMPANY RELIED ON FOLLOWIN G JUDICIAL PRONOUNCEMENTS; A) BANARAS TEXTORIUM VS. CIT (1988) 169 ITR 782 (ALL) B) CIT VS. T. GOVINDANKUTTY MENON (1989) 178 ITR 509 (KER) C) HOTEL & ALLIED TRADES (P) LTD. VS. CIT (1996) 221 ITR 619 (KER ) THE A.O OBSERVED THAT THE ASSESSEE WRONGLY CLAIM ED EXPENSES LEADING TO HIGHER LOSSES TO BE CARRIED FORWARD AND SET OFF AGAINST FUTURE BUSINESS PROFITS WHEREIN IT WAS NOT ENTITLED TO CLAIM SAID EXPENSES AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND NO PROJECT WAS COMPLETED DURING THE YEAR UNDER CONS IDERATION THUS LEADING TO FURNISHING OF INACCURATE PARTICULARS OF INCOME . THE SAID DISALLOWANCE OF EXPENSES WAS ACCEPTED BY THE ASSESSEE AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND NO GROUNDS OF APPEAL WERE RAISED BY THE ASSESSEE ON THE ABOVE ISSUES BEFORE LEARNED CIT(A). THE A.O ALSO RELIED UPON THE DECISION IN GROUP CASES OF THE ASSESSEE COMPANY I.E. CHAITRA REALTY LTD. - A.Y 2005 - 06 FORMED UNDER THE SAME SCHEME OF BIFR WHEREIN THE 200% OF THE TAX SOUGHT TO BE EVADED WAS LEVIED AS P ENALTY BY THE AO WHICH WAS REDUCED TO 100% BY THE LEARNED CIT(A) DURING APPELLATE PROCEEDINGS IN THE CASE OF CHAITRA REALTY PRIVATE LIMITED. THE A.O LEVIED THE PENALTY U/S 271(1)(C) OF RS.5 24 37 851/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED BY THE A SSESSEE VIDE PENALTY ORDER DATED 08 - 03 - 2010 PASSED BY THE AO U/S 271(1)(C) . 4. AGGRIEVED BY THE PENALTY ORDER DATED 08 - 03 - 2010 PASSED BY THE AO U/S 271(1)(C) THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT( A ) WHO REJECTED THE CONTENTI ON OF THE ASSESSEE AND UPHELD THE PENALTY LEVIED BY THE AO VIDE APPELLATE ORDER DATED 20 - 08 - 2013 PASSED BY LEARNED CIT(A) . 5. A GGRIEVED BY THE APPELLATE ORDER DATED 20 - 08 - 2013 PASSED BY LEARNED CIT(A) THE ASSESSEE HAS COME I N APPEAL BEFORE THE TRIBUNAL . A T THE OUTSET LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON THE SIMILAR /IDENTICAL FACTS TRIBUNAL H AS DELETED PENALTY IN THE CASE OF CHAITRA REALITY LTD. V. DCIT IN ITA NO. 2520/M UM/2010 FOR ASSESSMENT YEAR 2005 - I.T.A. NO. 5724/MUM/2013 5 06 WHEREIN THE TRIBUNAL DELETE D THE PENALTY VIDE ORDER DATED 1 8. 03.2011 BY HOLDING AS UNDER: 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DEVELOPER WHO WAS EXECUTING A PROPERTY DEVELOPMENT PROJECT AND METHOD OF ACCOUNTING FOLLOWED WAS PR OJECT COMPLETION METHOD. THE ASSESSEE HAD HOWEVER CLAIMED EXPENSES AMOUNTING TO RS.33 11 617/ - CONSISTING INTEREST OF RS.25 22 797/ - AND OTHER DAY TO DAY EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THIS HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE EXP ENDITURE COULD BE CLAIMED ONLY IN THE YEAR OF COMPLETION. THE DISALLOWANCE HAD BEEN ACCEPTED BY THE ASSESSEE. HOWEVER THE AO HAD ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) @ 200% OF TAX SOUGHT TO BE EVADED WHICH IN APPEAL WAS REDUCED TO 100% OF TAX SOUGH T TO BE EVADED. THE ISSUE IS WHETHER ON THE FACTS OF THE CASE PENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED. 6.1 A PENALTY UNDER SECTION 271(1)(C) IS ONLY A CIVIL LIABILITY AS HELD BY THE HONBLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES AND PROCESSO RS (SUPRA) AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVED BY THE REVENUE. HOWEVER EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO PENALTY UNDER SECTION 271(1)(C). A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF THE EXPLANATI ON 1 TO SECTION 271(1)(C) AS PER WHICH IN CASE OF ANY ADDITION MADE IN ASSESSMENT EVEN IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION BUT IS ABLE TO PROVE THAT THE EXPLANATION IS BONAFIDE AND ALL NECESSARY DETAILS HAVE BEEN SUBMITTED PENALTY U NDER SECTION 271(1)(C) CANNOT BE LEVIED. IN THIS CASE THERE IS NO DISPUTE THAT DETAILS OF EXPENSES HAD BEEN GIVEN. THE CASE OF THE ASSESSEE IS THAT THE CLAIM HAD BEEN MADE UNDER THE BONAFIDE BELIEF THAT SUCH EXPENSES WERE ALLOWABLE FROM YEAR TO YEA R BASIS. WE ALSO NOTE THAT ALLOW ABILITY OF EXPENSES SUCH AS INTEREST ETC ON YEAR TO YEAR BASIS OR IN THE YEAR OF COMPLETION OF PROJECT HAS BEEN A DEBATABLE ISSUE. THERE HAVE BEEN CONTRARY DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL. THE SPECIAL BENCH OF THE T RIBUNAL IN CASE OF WALL STREET CONSTRUCTION PVT. LTD. VS JCIT (SUPRA) HAD RENDERED DECISION ONLY VIDE ORDER DATED 22.9.2005 IN WHICH IT WAS HELD THAT THE INTEREST HAS TO BE ALLOWED IN THE YEAR OF COMPLETION OF THE PROJECT. THE SAID DECISION IT HAS BEEN POI NTED OUT WAS PUBLISHED IN THE ITD ONLY IN THE YEAR 2006. MOREOVER THE DECISION OF THE SPECIAL BENCH HAS BEEN DISPUTED BEFORE THE HIGH COURT WHERE THE APPEAL IS PENDING. UNDER SUCH CIRCUMSTANCES IN OUR VIEW IT IS POSSIBLE TO FORM A BONAFIDE BELIEF ON THE DA TE OF FILING RETURN OF INCOME I.E. ON 31.10.2005 THAT THE EXPENSES COULD BE ALLOWED FROM YEAR TO YEAR BASIS. THE LEARNED AR HAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO OTHER INCOME EVEN TILL TODAY AND THEREFORE THERE WAS NO ADVANTAGE TO THE ASSESSEE IN CLA IMING EXPENSES AND DECLARE LOSSES FROM YEAR TO YEAR AS THE LOSSES COULD BE CARRIED FORWARD ONLY FOR A LIMITED NUMBER OF YEARS. IN SUCH A SITUATION CLAIMING THE EXPENSES IN THE YEAR OF COMPLETION WOULD HAVE BEEN ADVANTAGES TO THE ASSESSEE AS IN THAT CASE AL L THE EXPENSES COULD HAVE BEEN ALLOWED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES IN OUR VIEW EXPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN MADE UNDER BONAFIDE BELIEF HAS TO BE ACCEPTED AND IT WILL NOT BE APPROPRIATE TO LEVY PENALTY UNDER SECTION 271(1)(C) IN THIS CASE. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. IT IS ALSO BROUGHT TO THE NOTICE OF TRIBUNAL THAT ON THE SIMILAR GROUNDS THE TRIBUNAL HAS DELETED THE PENALTY IN THE CASE OF M/S. BHISHMA REALITY LTD. V. ACIT IN ITA NO. 5725/MUM/2013 FOR AY 2005 - 06 VIDE ORDERS DATED I.T.A. NO. 5724/MUM/2013 6 30.09.2016 WHEREIN THE TRIBUNAL HAS DELETED THE P ENALTY BY HOLDING AS UNDER: 6. IN THE AFORESAID BACKGROUND WE HAVE PERUSED THE DECISION OF OUR COORDINATE BENCH IN THE CASE OF M/S. CHAITRA REALTY LTD. (SUPRA) WHICH IS A SISTER CONCERN OF THE ASSESSEE AND IS ALSO ONE OF THE THREE SPVS (APART FROM THE ASSESSEE) WHICH HAS BEEN TASKED WITH THE IMPLEMENTATION OF THE REHABILITATION SCHEME DATED 1.4.2004 SANCTIONE D BY THE BIFR IN THE CASE OF THE HINDOOSTAN SPINNING & WEAVING MILLS LTD.. IN THE CASE OF M/S. CHAITRA REALTY LTD. ALSO SIMILAR ADDITIONS WERE MADE AND PENALTY WAS IMPOSED U/S 271(1)(C) OF THE ACT. IN FACT IN THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER LEVYING THE PENALTY A REFERENCE HAS ALSO BEEN MADE TO THE PENALTY IMPOSED BY HIM IN THE CASE OF M/S. CHAITRA REALTY LTD. IN THE CASE OF M/S. CHAITRA REALTY LTD. (SUPRA) THE TRIBUNAL DELETED THE PENALTY BY MAKING THE FOLLOWING DISCUSSION : - 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DEVELOPER WHO WAS EXECUTING A PROPERTY DEVELOPMENT PROJECT AND METHOD OF ACCOUNTING FOLLOWED WAS PROJECT COMPLETION METHOD. THE ASSESSEE HAD HOWEVER CLAIMED EXPEN SES AMOUNTING TO RS.33 11 617/ - CONSISTING INTEREST OF RS.25 22 797/ - AND OTHER DAY TO DAY EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THIS HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE EXPENDITURE COULD BE CLAIMED ONLY IN THE YEAR OF COMPLETION. THE D ISALLOWANCE HAD BEEN ACCEPTED BY THE ASSESSEE. HOWEVER THE AO HAD ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) @ 200% OF TAX SOUGHT TO BE EVADED WHICH IN APPEAL WAS REDUCED TO 100% OF TAX SOUGHT TO BE EVADED. THE ISSUE IS WHETHER ON THE FACTS OF THE CASE P ENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED. 6.1 A PENALTY UNDER SECTION 271(1)(C) IS ONLY A CIVIL LIABILITY AS HELD BY THE HONBLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES AND PROCESSORS (SUPRA) AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVED BY THE REVENUE. HOWEVER EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO PENALTY UNDER SECTION 271(1)(C). A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF THE EXPLANATION 1 TO SECTION 271(1)(C) AS PER WHICH IN CASE OF ANY ADDITION M ADE IN ASSESSMENT EVEN IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION BUT IS ABLE TO PROVE THAT THE EXPLANATION IS BONAFIDE AND ALL NECESSARY DETAILS HAVE BEEN SUBMITTED PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. IN THIS CASE THERE IS N O DISPUTE THAT DETAILS OF EXPENSES HAD BEEN GIVEN. THE CASE OF THE ASSESSEE IS THAT THE CLAIM HAD BEEN MADE UNDER THE BONAFIDE BELIEF THAT SUCH EXPENSES WERE ALLOWABLE FROM YEAR TO YEA R BASIS. WE ALSO NOTE THAT ALLOWA BILITY OF EXPENSES SUCH AS INTEREST ETC ON YEAR TO YEAR BASIS OR IN THE YEAR OF COMPLETION OF PROJECT HAS BEEN A DEBATABLE ISSUE. THERE HAVE BEEN CONTRARY DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL. THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF WALL STREET CONSTRUCTION PVT. LTD. VS JCIT (S UPRA) HAD RENDERED DECISION ONLY VIDE ORDER DATED 22.9.2005 IN WHICH IT WAS HELD THAT THE INTEREST HAS TO BE ALLOWED IN THE YEAR OF COMPLETION OF THE PROJECT. THE SAID DECISION IT HAS BEEN POINTED OUT WAS PUBLISHED IN THE ITD ONLY IN THE YEAR 2006. MOREOVE R THE DECISION OF THE SPECIAL BENCH HAS BEEN DISPUTED BEFORE THE HIGH COURT WHERE THE APPEAL IS PENDING. UNDER SUCH CIRCUMSTANCES IN OUR VIEW IT IS POSSIBLE TO FORM A BONAFIDE BELIEF ON THE DATE OF FILING RETURN OF INCOME I.E. ON 31.10.2005 THAT THE EXPENS ES COULD BE ALLOWED FROM YEAR TO YEAR BASIS. THE I.T.A. NO. 5724/MUM/2013 7 LEARNED AR HAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO OTHER INCOME EVEN TILL TODAY AND THEREFORE THERE WAS NO ADVANTAGE TO THE ASSESSEE IN CLAIMING EXPENSES AND DECLARE LOSSES FROM YEAR TO YEAR AS THE LOSSE S COULD BE CARRIED FORWARD ONLY FOR A LIMITED NUMBER OF YEARS. IN SUCH A SITUATION CLAIMING THE EXPENSES IN THE YEAR OF COMPLETION WOULD HAVE BEEN ADVANTAGES TO THE ASSESSEE AS IN THAT CASE ALL THE EXPENSES COULD HAVE BEEN ALLOWED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES IN OUR VIEW EXPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN MADE UNDER BONAFIDE BELIEF HAS TO BE ACCEPTED AND IT WILL NOT BE APPROPRIATE TO LEVY PENALTY UNDER SECTION 271(1)(C) IN THIS CASE. ACCORDINGLY WE SET ASIDE THE OR DER OF CIT(A) AND DELETE THE PENALTY LEVIED. 7. FOLLOWING THE AFORESAID PRECEDENT WHICH HAS BEEN RENDERED UNDER IDENTICAL CIRCUMSTANCES WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED U/S 271(1)(C) OF TH E ACT. 8. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED. IT WAS EXPLAINED BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE BOTH THE ABOVE PARTIES M/S. BHISHMA REALITY LIMITED AND CHAITRA REALITY LTD. WERE SPV S SET UP AS PER THE REHABILITATION SANCTIONED BY BIFR IN THE CASE OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. VIDE ORDER DATED 01.04.2004 AND WERE RESPONSIBLE FOR DEVELOPING DIFFERENT PROPERTIES OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. AND ASS ESSEE WAS ALSO AN SPV SET UP FOR DEVELOPING MAHALAXMI PROPERTY OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. . THE ASSESSEE HAS ONLY CL AIMED CERTAIN EXPENSES WHICH WERE OTHERWISE ALLOWABLE TO THE ASSESSEE BEING REAL ESTATE DEVELOPER BU T SINCE ASSESSEE WAS FOLLOWING PROJECT C OMPLETION METHOD THE SAME OUGHT TO HAVE BEEN CLAIMED AS AN EXPENSES IN THE YEAR WHEN PROJECT WAS COMPLETED AND IN THE IMPUGNED YEAR UNDER CONSIDERATION THE SAME SHOULD HAVE BEEN DEBITED TO REAL ESTATE W ORK - IN - P ROGRESS AND SINCE T HE PROJECT IS NOT YET COMPLETED TILL THE END OF THE PREVIOUS THE ASSESSEE SHOULD HAVE CARRIED THE SAME AS REAL ESTATE W ORK - IN - P ROGRESS UNDER THE HEAD CURRENT ASSETS INSTEAD OF DEBITING TO P&L ACCOUNT . IT WAS EXPLAINED THAT NOT ONLY IN THE INCOME - TAX RE TURN BUT ALSO IN THE AUDITED ACCOUNTS FOR FY 2004 - 05 (AY 2005 - 06) THE SAID EXPENSES WERE DEBITED TO PROFIT AND LOSS ACCOUNT INSTEAD OF CARRYING THE SAME TO REAL ESTATE WORK - IN - PROGRESS . THE SAID AUDITED ACCOUNTS ARE PLACED IN PAPER BOOK/PAGE 1 - 29. OUR ATTENTION IS ALSO DRAWN TO THE AUDITED FINANCIAL STATEMENTS FOR THE F.Y 2004 - 05 AS WELL AS FOR THE FY.2005 - 06 AND IT WAS SUBMITTED THAT ASSESSEE HAS RECTIFIED THE SAID MISTAKE IN THE AUDITED I.T.A. NO. 5724/MUM/2013 8 ACCOUNT FOR F.Y 2005 - 06 BY REVISING THE ACCOUNTS FOR FY 2004 - 05 WHEREIN SA ID EXPENSES WERE CARRIED TO WORK - IN - PROGRESS REAL ESTATE DEVELOPMENT UNDER THE HEAD CURRENT ASSETS WHEREIN THE REVISED AUDITED BALANCE SHEET WAS SIGNED ON 21 - 08 - 2006 BY DIRECTORS/AUDITORS AND ADOPTED BY SHAREHOLDERS ON 29 - 09 - 2006 IN ANNUAL GEN ERAL MEETING AS THE SAID EXPENSES WERE INCURRED WITH RESPECT TO MAHALAXMI PROPERTY OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. AND SINCE THE PROJECT WAS NOT YET COMPLETED THE SAME WAS CARRIED FORWARD TO THE NEXT YEAR UNDER THE HEAD CURRENT ASSETS . IT IS ALSO SUBMITTED THAT THE ASSESSEE VOLUNTARILY REVISED ITS AUDITED ACCOUNTS VIDE REVISED BALANCE SHEET SIGNED ON 21 - 08 - 2006 WHICH WAS ADOPTED BY SHAREHOLDERS ON 29 - 09 - 2006 WHILE NOTICE U/S 143(2) WAS ONLY ISSUED BY REVENUE ON 28 - 10 - 2006 WHICH IS LA TER THAN THE SUO MOTU RECTIFICATION OF AUDITED ACCOUNTS BY THE ASSESSEE . THE AUDITED ACCOUNTS FOR FY 2005 - 06 ARE PLACED IN PAPER BOOK/PAGE 45 - 73. IT WAS SUBMITTED THAT ASSESSEE HAS ACCEPTED THE A.O ASSESSMENT ORDER U/S 143(3) WHICH WAS NOT CHALLENGED BEF ORE LEARNED CIT(A) AS IN ANY CASE THESE EXPENSES SHALL BE ALLOWED TO THE ASSESSEE IN THE YEAR WHEN PROJECT IS COMPLETED BECAUSE THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD . I T WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE WAS WRONG AS THE ASSESSEE SHOULD HAVE CLAIMED THE SAID EXPENSES IN WHICH THE PROJECT STOOD COMPLETED BUT IT WAS NOT A FALSE /BOGUS CLAIM AS EVEN ADMITTED BY THE A.O . THE LEARNED COU N SEL FOR THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUP REME COURT IN THE CASE OF CIT V. RELIANCE PETRO P RODUCT S P LTD . (2010) 322 ITR 158 (SC) . OUR ATTENTION WAS ALSO DRAWN TO AUDITED FINANCIAL STATEMENTS FOR FY 2012 - 13 THE YEAR IN WHICH THIS PROJECT GOT COMPLETED AND THE ASSESSEE HAS DECLARED REVENUE FROM THIS PROJECT TO THE TUNE OF RS. 357.35 CRORES FROM SALE OF FLATS IN ITS BOOKS OF ACCOUNTS AND DECLARED A PROFIT ON THIS PROJECT . LD. CIT - DR ON THE OTHER HAND SUBMITTED THAT ASS ESSEE HAS CLAIMED LOSS OF RS. 14 .54 CRORES IN THE RETURN OF INCOME FILED WITH THE REVENUE . O UR ATTENTION WAS DRAWN BY LEARNED CIT - DR TO PAGE NO. 32 - 44 OF THE PAPER BOOK WHEREIN RETURN OF INCOME FILED BY THE ASSESSEE WITH REVENUE ON 31 - 10 - 2005 IS PLACED A ND IT IS SUBMITTED THAT THE DECISION TO IMPOSE PENALTY U/S 271(1)(C) IS TO BE TAKEN IN CONTEXT OF REFERENCE TO THE RETURN OF INCOME FILED WITH THE REVENUE. THE LEARNED CIT - DR RELIED UPON THE DECISION OF HONBLE I.T.A. NO. 5724/MUM/2013 9 DELHI HIGH COURT IN THE CASE OF CIT V. ZOOM COMMUNICATION PRIVATE LIMITED 327 ITR 51 0 ( DEL. HC) AND ALSO DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. N G TECHNOLOGIES LIMITED 57 TAXMANN.COM 38 9 (DEL HC) WHICH WAS LATER CONFIRMED BY HONBLE SUPREME COURT IN (2016) 70 TAXMANN.COM 3 7(SC) WHEREIN SLP WAS DISMISSED BY HONBLE SUPREME COURT. THUS THE PRAYER WAS MADE BY LEARNED CIT - DR TO UPHOLD PENALTY LEVIED BY THE AO U/S 271(1)(C) WHICH WAS LATER CONFIRMED BY LEARNED CIT(A) . 6. W E HAVE CONSIDER ED R IVAL CONTENTION S AND HAVE PERUSED T HE MATERIAL ON RECORD INCLUDING ORDERS OF AUTHORITIES BELOW AND CITED CASE LAWS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENTS. THE ASSESSEE COMPANY IS ONE OF THE THREE SPECIAL PURPOSE VEHICLES(SPV) WHICH ARE ENGAGED IN THE BUSINESS OF R EAL ESTATE DEVELOPMENT ENTRUSTED WITH THE TASK OF RE - CONSTRUCTION OF THE COMPANY M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. AS PER THE REHABILITATION SCHEME DATED 01.04.2004 SANCTIONED BY BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION(BIFR). AS PER T HE SCHEME OF THE SAID ARRANGEMENT APPROVED BY BIFR MAHALAXMI PROPERTY OF M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. HAS BEEN ASSIGNED TO THE ASSESSEE FOR DEVELOPMENT AND LIABILITIES EQUIVALENT TO THE TRANSFERRED VALUE OF THE ASSETS WERE ALSO TRANSFERRE D TO THE ASSESSEE. THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD BUT IT HAS NOT COMPLETED THE SAID PROJECT DURING THE YEAR UNDER CONSIDERATION WHICH PROJECT STOOD COMPLETED IN THE FINANCIAL YEAR 2012 - 13 IN WHICH THE ASSESSEE HAS STATED TO HAVE OF FERED REVENUE AS WELL INCOME TO TAX . THE ASSESSEE COMPANY HOWEVER CLAIMED IN ITS PROFIT AND LOSS ACCOUNT AN AMOUNT OF RS.14 44 31 840/ - PERTAINING TO LOSS ON SALE OF ASSET WHICH WAS ON ACCOUNT OF LOSS ON SALES OF CHARGEABLE AREA OF LAND APPROPRIATED BY TH E DEVELOPERS BEING LOWER THAN THE ALLOTTED PRICE UNDER THE SCHEME APPROVED BY BIFR AND IT WAS REQUIRED TO BE CARRIED TO THE REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS ACCOUNT WHILE INSTEAD THE SAME WAS ADDED BY THE ASSESSEE TO THE P&L ACCOUNT WHICH LED TO THE DISALLOWANCE OF THE SAID LOSS WHEREIN ADDITION OF 14 44 31 840/ - IN THE ASSESSMENT ORDER WAS MADE TO BE ALLOWED TO BE CARRIED TO REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS ACCOUNT IN AN ASSESSMENT FRAMED BY THE AO U/S 143(3). FURTHER THERE WAS A C LAIM OF DEPRECIATION OF RS.1 20 090/ - IN RESPECT OF THE VEHICLES TRANSFERRED FROM M/S. HINDOOSTAN SPINNING & WEAVING MILLS LTD. AS I.T.A. NO. 5724/MUM/2013 10 PER THE AGREEMENT WHICH SHOULD HAVE FORMED PART OF THE WORK IN PROGRESS WHICH WAS ALSO ADDED TO THE INCOME BY THE A.O. IN AN ASSESSMENT FRAMED BY THE AO U/S 143(3). FURTHER ASSESSEE HAS INCURRED EXPENSES OF RS.16 44 673/ - THE DETAIL OF WHICH ARE HEREUNDER: - PRINTING & STATIONERY RS. 33 062/ - BANK CHARGES/COMMISSION RS. 85 627/ - ELECTRICITY CHARGES R S. 23 700/ - RATES & TAXES RS. 5 78 346/ - POST & COURIER CHARGES RS. 76 455/ - SECURITY CHARGES RS. 29 974/ - TRAVELING EXPENSES RS. 8 431/ - TRUSTEESHIP FEES RS. 54 000/ - SUNDRY EXPENSES RS. 68 296/ - INTEREST ON OTHERS RS. 6 35 386/ - DEPRECIATION RS. 51 396/ - TOTAL ------------------- RS.16 44 673/ - =========== THE AFORESAID EXPENSES WERE DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WERE DISALLOWED BY THE A.O AS THE REAL ESTATE DEVELOPMENT PROJE CT WAS NOT COMPLETED DURING THE YEAR UNDER CONSIDERATION AND THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD. THE AO HOWEVER ALLOWED THE SAID EXPENSES TO BE CARRIED FORWARD TO REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS ACCOUNT WHICH SHALL BE ALLOWED I N THE YEAR IN WHICH PROJECT STOOD COMPLETED BY THE ASSESSEE. THE ASSESSEE DID NOT CHALLENGE THESE ADDITIONS BEFORE THE LEARNED CIT(A) AGAINST QUANTUM ASSESSMENT. THE A.O OBSERVED THAT THE ASSESSEE WRONGLY CLAIMED EXPENSES LEADING TO HIGHER LOSSES TO BE CAR RIED FORWARD AND SET OFF AGAINST FUTURE BUSINESS PROFITS WHEREIN IT WAS NOT ENTITLED TO CLAIM SAID EXPENSES AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND NO PROJECT WAS COMPLETED DURING THE YEAR UNDER CONSIDERATION THUS LEADING TO FURNISH ING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE AS PER AO. THE SAID DISALLOWANCE OF EXPENSES WAS ACCEPTED BY THE ASSESSEE AS THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD AND NO CHALLENGE WAS MADE BY THE ASSESSEE ON THE ABOVE ISSUES BEFORE L EARNED CIT(A) AGAINST QUANTUM ASSESSMENT . THE A.O LEVIED THE PENALTY U/S 271(1)(C) OF RS.5 24 37 851/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE VIDE PENALTY ORDER DATED 08 - 03 - 2010 PASSED BY THE AO U/S 271(1)(C) WHICH WAS LATER CONFIRMED BY LEARNED CIT(A). THE ASSESSEE HAS SUO - I.T.A. NO. 5724/MUM/2013 11 MOTU VOLUNTARILY OF ITS OWN REVISED ITS FINANCIAL ACCOUNTS FOR THE FINANCIAL YEAR 2004 - 05 WHEREIN THE SAID LOSSES WERE DEBITED TO REAL ESTATE DEVELOPMENT WORK - IN - PROGRESS INSTEAD OF PROFIT AND LOSS ACCOUNT VIDE AUDI TED REVISED ACCOUNTS FOR FINANCIAL YEAR 2005 - 06 WHICH WERE SIGNED BY DIRECTORS AND AUDITORS ON 21 - 08 - 2006 WHICH WERE LATER APPROVED BY SHAREHOLDERS IN ANNUAL GENERAL MEETING HELD ON 29 - 09 - 2006. THE AO ISSUED FIRST NOTICE U/S 143(2) SELECTING ASSESSEES CAS E FOR SCRUTINY ONLY ON 28 - 10 - 2006 WHILE THE ASSESSEE REVISED ITS FINANCIAL ACCOUNTS PRIOR TO THAT ON 21 - 08 - 2006. IN ANY CASE IT IS NOT THE CASE OF REVENUE THAT THESE ARE FALSE/ BOGUS CLAIM OF LOSS OR SOME FALSE EXPENSES WERE CLAIMED THE CASE OF REVENUE IS THAT THE ASSESSEE HAS CLAIMED EXPENSES AND CONSEQUENTLY BUSINESS LOSSES TO BE CARRIED FORWARD IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR WHILE THE PROJECT WAS NOT COMPLETED IN THE PREVIOUS YEAR UNDER CONSIDERATION AND SINCE THE ASSESSEE IS FOLLO WING PROJECT COMPLETION METHOD THESE EXPENSES COULD NOT HAVE BEEN CLAIMED IN THE YEAR UNDER CONSIDERATION RATHER THE SAME OUGHT TO HAVE BEEN DEBITED TO REAL ESTATE DEVELOPMENT WIP WHICH WOULD HAVE BEEN CARRIED FORWARD AND SET OFF AGAINST REVENUE IN THE Y EAR WHEN PROJECT STOOD COMPLETED. IN - FACT THE ASSESSEE BY CLAIMING BUSINESS LOSSES IN THE IMPUGNED YEAR HAS PUT ITSELF IN TO THE DISADVANTAGEOUS POSITION AS THE BUSINESS LOSSES ARE ALLOWED TO BE CARRIED FORWARD ONLY FOR EIGHT YEARS AND IN CASE PROJECT S TOOD COMPLETED AFTER EIGHT YEARS THE ASSESSEE WILL NOT GET BENEFIT OF SET OFF OF BUSINESS LOSS WHILE IF THE ASSESSEE WOULD HAVE DEBITED THE SAID EXPENSES TO REAL ESTATE DEVELOPMENT WIP THEN IT COULD HAVE CARRIED FORWARD THE SAID WIP INDEFINITELY TILL T HE PROJECT STOOD COMPLETED WHICH COULD HAVE BEEN SET OFF IN THE YEAR WHEN THE PROJECT STOOD COMPLETED EVEN IF IT IS BEYOND EIGHT YEARS.THUS THERE COULD NOT BE ANY ADVANTAGE TO THE ASSESSEE IN CLAIMING BUSINESS LOSSES/EXPENSES IN THE YEAR UNDER CONSIDERATI ON AND IT WAS A BONAFIDE BELIEF WHICH LED ASSESSEE TO CLAIM THOSE EXPENSES IN THE INSTANT YEAR WHICH WAS LATER SUO MOTU VOLUNTARILY RECTIFIED BY THE ASSESSEE ITSELF. THUS NO MALAFIDE OR AN INTENT TO DEFRAUD REVENUE CAN BE ATTRIBUTED TO THE ASSESSEE BUT I T IS A CASE OF BONAFIDE BELIEF IN CLAIMING EXPENSES/LOSSES IN THE YEAR OF INCURRING OF SAID EXPENSES/LOSSES . THUS THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROP RODUCT S PRIVATE LTD ( SUPRA) AND NO PENALTY IS EXIGIBLE U/S. 271(1)(C) AND NO PENALTY IS EXIGIBLE ON THE ASSESSEE UNDER THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE . I.T.A. NO. 5724/MUM/2013 12 F URTHER WE HAVE OBSERVED THAT THE TRIBUNAL HAS DELETED PENALTY LEVIED U/S 271(1)(C) IN THE CASE OF CHAITRA REALITY LTD. V. DCIT IN ITA NO. 2520/MUM/2010 FOR ASSESSMENT YEAR 2005 - 06 UNDER IDENTICAL /SIMILAR CIRCUMSTANCES WHEREIN THE TRIBUNAL DELETED THE PENALTY VIDE ORDER DATED 18.03.2011 BY HOLDING AS UNDER: 6. WE HAVE PERUSED THE R ECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DEVELOPER WHO WAS EXECUTING A PROPERTY DEVELOPMENT PROJECT AND METHOD OF ACCOUNTING FOLLOWED WAS PROJECT COMPLETION METHOD. THE ASSESSEE HAD HOWEVER CLAIMED EXPENSES AMOUNTING TO RS.3 3 11 617/ - CONSISTING INTEREST OF RS.25 22 797/ - AND OTHER DAY TO DAY EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THIS HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE EXPENDITURE COULD BE CLAIMED ONLY IN THE YEAR OF COMPLETION. THE DISALLOWANCE HAD BEEN ACCEPTED BY THE ASSESSEE. HOWEVER THE AO HAD ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) @ 200% OF TAX SOUGHT TO BE EVADED WHICH IN APPEAL WAS REDUCED TO 100% OF TAX SOUGHT TO BE EVADED. THE ISSUE IS WHETHER ON THE FACTS OF THE CASE PENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED. 6.1 A PENALTY UNDER SECTION 271(1)(C) IS ONLY A CIVIL LIABILITY AS HELD BY THE HONBLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES AND PROCESSORS (SUPRA) AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVED BY THE REVENUE. HOWE VER EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO PENALTY UNDER SECTION 271(1)(C). A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF THE EXPLANATION 1 TO SECTION 271(1)(C) AS PER WHICH IN CASE OF ANY ADDITION MADE IN ASSESSMENT EV EN IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION BUT IS ABLE TO PROVE THAT THE EXPLANATION IS BONAFIDE AND ALL NECESSARY DETAILS HAVE BEEN SUBMITTED PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. IN THIS CASE THERE IS NO DISPUTE THAT DETAI LS OF EXPENSES HAD BEEN GIVEN. THE CASE OF THE ASSESSEE IS THAT THE CLAIM HAD BEEN MADE UNDER THE BONAFIDE BELIEF THAT SUCH EXPENSES WERE ALLOWABLE FROM YEAR TO YEA R BASIS. WE ALSO NOTE THAT ALLOW ABILITY OF EXPENSES SUCH AS INTEREST ETC ON YEAR TO YEAR BAS IS OR IN THE YEAR OF COMPLETION OF PROJECT HAS BEEN A DEBATABLE ISSUE. THERE HAVE BEEN CONTRARY DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL. THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF WALL STREET CONSTRUCTION PVT. LTD. VS JCIT (SUPRA) HAD RENDERED D ECISION ONLY VIDE ORDER DATED 22.9.2005 IN WHICH IT WAS HELD THAT THE INTEREST HAS TO BE ALLOWED IN THE YEAR OF COMPLETION OF THE PROJECT. THE SAID DECISION IT HAS BEEN POINTED OUT WAS PUBLISHED IN THE ITD ONLY IN THE YEAR 2006. MOREOVER THE DECISION OF TH E SPECIAL BENCH HAS BEEN DISPUTED BEFORE THE HIGH COURT WHERE THE APPEAL IS PENDING. UNDER SUCH CIRCUMSTANCES IN OUR VIEW IT IS POSSIBLE TO FORM A BONAFIDE BELIEF ON THE DATE OF FILING RETURN OF INCOME I.E. ON 31.10.2005 THAT THE EXPENSES COULD BE ALLOWED FROM YEAR TO YEAR BASIS. THE LEARNED AR HAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO OTHER INCOME EVEN TILL TODAY AND THEREFORE THERE WAS NO ADVANTAGE TO THE ASSESSEE IN CLAIMING EXPENSES AND DECLARE LOSSES FROM YEAR TO YEAR AS THE LOSSES COULD BE CARRIED F ORWARD ONLY FOR A LIMITED NUMBER OF YEARS. IN SUCH A SITUATION CLAIMING THE EXPENSES IN THE YEAR OF COMPLETION WOULD HAVE BEEN ADVANTAGES TO THE ASSESSEE AS IN THAT CASE ALL THE EXPENSES COULD HAVE BEEN ALLOWED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUM STANCES IN OUR VIEW EXPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN MADE UNDER BONAFIDE BELIEF HAS TO BE ACCEPTED AND IT WILL NOT BE I.T.A. NO. 5724/MUM/2013 13 APPROPRIATE TO LEVY PENALTY UNDER SECTION 271(1)(C) IN THIS CASE. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND DE LETE THE PENALTY LEVIED. IT IS ALSO OBSERVED THAT THE TRIBUNAL HAS ON THE IDENTICAL /SIMILAR GROUNDS DELETED PENALTY LEVIED U/S 271(1)(C) IN THE CASE OF M/S. BHISHMA REALITY LTD. V. ACIT IN ITA NO. 5725/MUM/2013 FOR AY 2005 - 06 VIDE ORDERS DATED 30.09.2016 WHEREIN THE TRIBUNAL DELETED THE PENALTY BY HOLDING AS UNDER: 6. IN THE AFORESAID BACKGROUND WE HAVE PERUSED THE DECISION OF OUR COOR DINATE BENCH IN THE CASE OF M/S. CHAITRA REALTY LTD. (SUPRA) WHICH IS A SISTER CONCERN OF THE ASSESSEE AND IS ALSO ONE OF THE THREE SPVS (APART FROM THE ASSESSEE) WHICH HAS BEEN TASKED WITH THE IMPLEMENTATION OF THE REHABILITATION SCHEME DATED 1.4.2004 SA NCTIONED BY THE BIFR IN THE CASE OF THE HINDOOSTAN SPINNING & WEAVING MILLS LTD.. IN THE CASE OF M/S. CHAITRA REALTY LTD. ALSO SIMILAR ADDITIONS WERE MADE AND PENALTY WAS IMPOSED U/S 271(1)(C) OF THE ACT. IN FACT IN THE IMPUGNED ORDER PASSED BY THE ASS ESSING OFFICER LEVYING THE PENALTY A REFERENCE HAS ALSO BEEN MADE TO THE PENALTY IMPOSED BY HIM IN THE CASE OF M/S. CHAITRA REALTY LTD. IN THE CASE OF M/S. CHAITRA REALTY LTD. (SUPRA) THE TRIBUNAL DELETED THE PENALTY BY MAKING THE FOLLOWING DISCUSSION : - 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE ASSESSEE IS A DEVELOPER WHO WAS EXECUTING A PROPERTY DEVELOPMENT PROJECT AND METHOD OF ACCOUNTING FOLLOWED WAS PROJECT COMPLETION METHOD. THE ASSESSEE HAD HOWEVER CLAIME D EXPENSES AMOUNTING TO RS.33 11 617/ - CONSISTING INTEREST OF RS.25 22 797/ - AND OTHER DAY TO DAY EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THIS HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT THE EXPENDITURE COULD BE CLAIMED ONLY IN THE YEAR OF COMPLETION . THE DISALLOWANCE HAD BEEN ACCEPTED BY THE ASSESSEE. HOWEVER THE AO HAD ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) @ 200% OF TAX SOUGHT TO BE EVADED WHICH IN APPEAL WAS REDUCED TO 100% OF TAX SOUGHT TO BE EVADED. THE ISSUE IS WHETHER ON THE FACTS OF THE CASE PENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED. 6.1 A PENALTY UNDER SECTION 271(1)(C) IS ONLY A CIVIL LIABILITY AS HELD BY THE HONBLE SUPREME COURT IN CASE OF DHARMENDRA TEXTILES AND PROCESSORS (SUPRA) AND WILLFUL CONCEALMENT IS NOT REQUIRED TO BE PROVED BY THE REVENUE. HOWEVER EACH AND EVERY ADDITION IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO PENALTY UNDER SECTION 271(1)(C). A CASE FOR PENALTY HAS TO BE EVALUATED IN TERMS OF THE EXPLANATION 1 TO SECTION 271(1)(C) AS PER WHICH IN CASE OF ANY ADD ITION MADE IN ASSESSMENT EVEN IF THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION BUT IS ABLE TO PROVE THAT THE EXPLANATION IS BONAFIDE AND ALL NECESSARY DETAILS HAVE BEEN SUBMITTED PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED. IN THIS CASE THE RE IS NO DISPUTE THAT DETAILS OF EXPENSES HAD BEEN GIVEN. THE CASE OF THE ASSESSEE IS THAT THE CLAIM HAD BEEN MADE UNDER THE BONAFIDE BELIEF THAT SUCH EXPENSES WERE ALLOWABLE FROM YEAR TO YEA R BASIS. WE ALSO NOTE THAT ALLOWA BILITY OF EXPENSES SUCH AS INTER EST ETC ON YEAR TO YEAR BASIS OR IN THE YEAR OF COMPLETION OF PROJECT HAS BEEN A DEBATABLE ISSUE. THERE HAVE BEEN CONTRARY DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL. THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF WALL STREET CONSTRUCTION PVT. LTD. VS JCIT (SUPRA) HAD RENDERED DECISION ONLY VIDE ORDER DATED 22.9.2005 IN WHICH IT WAS HELD THAT THE INTEREST HAS TO BE I.T.A. NO. 5724/MUM/2013 14 ALLOWED IN THE YEAR OF COMPLETION OF THE PROJECT. THE SAID DECISION IT HAS BEEN POINTED OUT WAS PUBLISHED IN THE ITD ONLY IN THE YEAR 2006. MOREOVER THE DECISION OF THE SPECIAL BENCH HAS BEEN DISPUTED BEFORE THE HIGH COURT WHERE THE APPEAL IS PENDING. UNDER SUCH CIRCUMSTANCES IN OUR VIEW IT IS POSSIBLE TO FORM A BONAFIDE BELIEF ON THE DATE OF FILING RETURN OF INCOME I.E. ON 31.10.2005 THAT THE EXPENSES COULD BE ALLOWED FROM YEAR TO YEAR BASIS. THE LEARNED AR HAS ALSO SUBMITTED THAT THE ASSESSEE HAD NO OTHER INCOME EVEN TILL TODAY AND THEREFORE THERE WAS NO ADVANTAGE TO THE ASSESSEE IN CLAIMING EXPENSES AND DECLARE LOSSES FROM YEAR TO YEAR AS TH E LOSSES COULD BE CARRIED FORWARD ONLY FOR A LIMITED NUMBER OF YEARS. IN SUCH A SITUATION CLAIMING THE EXPENSES IN THE YEAR OF COMPLETION WOULD HAVE BEEN ADVANTAGES TO THE ASSESSEE AS IN THAT CASE ALL THE EXPENSES COULD HAVE BEEN ALLOWED. CONSIDERING THE E NTIRETY OF FACTS AND CIRCUMSTANCES IN OUR VIEW EXPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN MADE UNDER BONAFIDE BELIEF HAS TO BE ACCEPTED AND IT WILL NOT BE APPROPRIATE TO LEVY PENALTY UNDER SECTION 271(1)(C) IN THIS CASE. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. 7. FOLLOWING THE AFORESAID PRECEDENT WHICH HAS BEEN RENDERED UNDER IDENTICAL CIRCUMSTANCES WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IMPOSED U/S 271(1)(C ) OF THE ACT. 8. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS AS STATED ABOVE AND KEEPING IN VIEW FACTUAL MATRIX OF THE CASE BEFORE US IN OUR CONSIDER ED VIEW NO PENALTY IS EXIGIBLE U/S. 271(1)(C) IN THE INSTANT CASE BEFORE US WHICH PENALTY LEVIED BY THE AO U/S 271(1)(C) AND AS CONFIRMED BY LEARNED CIT(A) IS HERE BY ORDER ED TO BE DELETED. WE ORDER ACCORDINGLY. 7 . IN THE RESULT APPEAL OF THE ASSESSEE IN ITA 5724/MUM /2013 F OR ASSESSM ENT YEAR 2005 - 06 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 . 11.2017 2 8 .11.2017 S D / - S D / - (SAKTIJIT DEY ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 2 8 .11.2017 NISHANT VERMA SR. PRIVATE SECRETARY I.T.A. NO. 5724/MUM/2013 15 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED MUMBAI 4 . THE CIT - CONCERNED MUMBAI 5 . THE DR BENCH E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI