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S. 271(1)(c) : Penalty - furnishing inaccurate particulars – Bogus purchases - Levy of penalty was held to be not justified.

The assessee is engaged in the business of trading in chemicals and also dealing in shares & securities, filed his return of income for AY 2009-10 on 30-09-2009 declaring total income of Rs.15,90,000. The case was selected for scrutiny and the assessment was completed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 determining the total income at Rs.15,90,000 by making addition towards 25% gross profit on alleged bogus purchase made from hawala dealers.

Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income and after considering relevant submissions of the assessee levied penalty of Rs.3,40,980 which is 100% tax sought to be evaded on the ground that the assessee has failed to offer any explanation with regard to the alleged bogus purchases made from hawala dealers.

The assessee claims that it has accepted addition made by the AO considering the fact that even after disallowance of gross profit on alleged bogus purchases, income from business in the year continued to be net loss, therefore, he was under the bona fide belief that penalty provisions for concealment of particulars of income u/s 271(1)(c) will not attract. The assessee further contended that he has agreed for estimation of gross profit on alleged bogus purchases, it was only for the purpose of avoiding litigation at the stage of assessment proceedings itself, but fact remains that he has furnished complete evidences to prove such purchases and also filed quantitative details of purchase and sales alongwith comparable gross profit ratio.

Tribunal found that the AO has estimated 25% gross profit on alleged bogus purchases, never made any observations with regard to the incorrectness in details filed by the assessee to prove such purchases. The AO never disbelieved information filed by the assessee, but he proceeded on the basis of information received from sales-tax department to make additions. The AO has made such addition on adhoc basis by estimating gross profit on alleged bogus purchases. From these facts, it is very clear that the AO failed to make a case of deliberate attempt by the assessee to furnish inaccurate particulars of income. Therefore, we are of the considered view that mere disallowance of purchases on adhoc basis does not tantamount to willful furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of the Income-tax Act, 1961. Hence, we are of the considered view that the AO was erred in levying penalty u/s 271(1)(c) of the Act. Accordingly we direct the AO to delete penalty levied u/s 271(1)(c) of the Act.

Ajay Loknath Lohia  v ITO 25(2)(1), Mumbai, ITA No.2998/Mum/2017, DOH: 05/10/2018 (Mum)(Trib)

Ajay Loknath Lohia

S. 22 : Income from house property – Business income – Property held as stock-in-trade - unsold stock of completed units at various projects - not chargeable as notional rental value of the said units under the  head Income from House Property.

The assessee being resident corporate entity was engaged as Real Estate Developer during impugned AY.  During assessment proceedings, upon perusal of details of closing  stock-in-trade, it was found that the assessee had unsold stock of  completed units in the shape of flats / shops at various projects being  carried out by the assessee during impugned AY. The cost of  construction of these units was reflected as Rs.14.39 Crores.

The AO, in terms of judgment of Hon’ble Delhi High Court rendered in CIT  Vs. Ansal Housing Finance & Leasing Co. Ltd. [354 ITR 180], opined  that notional rental value of the said units was chargeable under the  head Income from House Property. The AO notional rental value of these units @8.5% of cost of construction i.e.  Rs.14.39 Crores which came to Rs.1.22 Crores. After providing statutory  deduction of 30% as per Section 24(b), the net addition thus worked out  came to Rs.85.62 Lacs, which was added to the income of the assessee. 

The assessee submitted that recent judgment of this Tribunal rendered in the case of assessee’s  sister concern titled as ACIT Vs. Haware Construction Private Ltd. [ITA  Nos.3321/Mum/2016 & 3172/Mum/2016 dated 31/08/2018] and also relies on the judgment of the  Hon’ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.)  and the order of the Tribunal in M/s. Runwal Constructions vs. ACIT (ITA  No.5408/Mum/2016 dtd.22/02/2018) and Progressive Homes vs. ACIT (ITA  No.5082/Mum/2016 dtd. 16/05/2018).  to submit  that the issues under similar facts and circumstances, has been  adjudicated in assessee’s favour after considering the conflicting judicial  precedents.

Tribunal found that, on the above issue, we come across one decision for the assessee and  another decision for the revenue. The decision in Neha Builders Pvt.Ltd.(supra) is  for the assessee, whereas the decision in Ansal Hsg. Finance & Leasing Co. Ltd.,  (supra) is for the Revenue. The Hon’ble Supreme Court in the case of CIT vs.  Vegetable Products 88 ITR 192 (SC) has held that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted.”  In view of the above position of law, we shall follow the decision in Neha Builders  Pvt.Ltd.(supra).

We now come to the relevant provisions in the Act. The following sub-section  (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017,  w.e.f. 01.04.2018: “(5) Where the property consisting any building or land appurtenant thereto is held as stock in-trade and the property or any part of the property is not let during the whole or any part of  the previous year, the annual value of such property or part of the property, for the period up  to one year from the end of the financial year in which the certificate of completion of  construction of the property is obtained from the competent authority, shall be taken to nil.”  Thus, in order to give relief to Real Estate Developers, section 23 has been  amended w.e.f. AY 2018-19 (FY 2017-18).

we hold that if a immoveable property in  the shape of flats / shops is held as stock-in-trade, then it becomes part  of trading operations for the assessee and as a natural corollary, any  income derived there-from would be Business Income and not Income  from House Property. Resultantly, the impugned additions as confirmed by first appellate authority stand deleted.  The appeal stands allowed in terms of our above order. 

Haware Engineers & Builders Private Ltd v DCIT, ITA No.7155/Mum/2016, DOH: 10/10/2018 (Mum)(Trib)

Haware Engineers & Builders Private Ltd

S. 68: High Sea trading loss – disallowed the losses on the basis that the goods are sold at the price lower than the purchase price – Law cannot oblige or compel a trader to make or maximise its profits – addition not justified

The assessee is closely held company-mainly engaged in the business of trading in edible oil.

During the year the AO noted that assessee-company makes a High Court transaction with M/s. Ruchi Soya Industries Ltd. the sale price is lower than the purchase price. Thus, the assessee incurs artificial losses & creates artificial profit to M/s. Ruchi Soya Industries Ltd, for which assessee incurred loss of Rs. 25,91,875/-  which was the benefit transferred to /s. Ruchi Soya Industries Ltd which cannot allowed and the same was added to the total income of the assessee which came to Rs.25,91,875/-. The A.O also analysed other transactions by following the same method. Therefore, the A.O held that total losses to the tune of Rs.4,93,44,276/- should not be allowed to the assessee and the same was added to the total income of the assessee.

Tribunal found that during the assessment proceedings the assessee had produced all sales and purchase bills for verification by AO. The books of accounts of the assessee are duly audited. The ledger accounts as well as bank statements have also been verified by AO. The AO has not found any discrepancies therein. It is also a fact that overall the assessee has made profit on forward trading. The AO has not disputed or doubted those transactions where it resulted in profits. The AO disputed or doubted those transactions where it resulted in losses. Therefore, the Id AO has adopted only onside approch, that Is, he picked only those transactions which has resulted into losses. We noted that profit making transactions and loss making transactions, both have settled through banking channels and no difference at all so that contractual terms are concerned, hence by the same logic, even the transactions resulting in losses should be taken as genuine unless proved otherwise. M/s Ruchi Soya Industries Ltd has submitted confirmation before CIT(A). The confirmation was not available when the assessment proceedings were going on, therefore assessee could not submitted before A.O.  Hence, there is no sustainable logic for presuming that the forward trading losses were effected to transfer benefit to certain trading partners. The AO has not disproved any of the contentions or explanations of the assessee and the addition is solely on suspicion. That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. In the result, appeal filed by the Revenue is dismissed.

ITO-12(2)(4) v Inu Exports Pvt. Ltd, ITA No.786/Mum/2016, DOH: 29/06/2018 (Mum)(Trib)

Inu Exports Pvt. Ltd

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