M/s Lokhandwala Construction Industries Pvt. Ltd. vs. DCIT-9(2); Date of order: 29th April, 2016; [ITA. No. 4403/Mum/2013; A.Y.: 2007-08; Bench: Mum. ITAT] Section 271(1)(c): Penalty – Inaccurate particulars of income – Method of accounting – Project completion method – Dispute is on the year of allowability of claim – Levy of penalty not justified

8.  CIT vs. M/s
Lokhandwala Construction Industries Pvt. Ltd. [Income tax Appeal No. 992 of
2017] Date of order: 17^th September, 2019 (Bombay High Court)]

M/s Lokhandwala Construction Industries Pvt. Ltd. vs.
DCIT-9(2); Date of order: 29th April, 2016; [ITA. No. 4403/Mum/2013; A.Y.:
2007-08; Bench: Mum. ITAT]

Section 271(1)(c): Penalty – Inaccurate particulars of
income – Method of accounting – Project completion method – Dispute is on the
year of allowability of claim – Levy of penalty not justified

The
assessee is in the activity of building and construction. In filing the return
of income for the A.Y. 2007-2008, the assessee followed the Project Completion
Method. The AO by his assessment order dated 24^th December, 2009,
disallowed the expenditure claimed towards advertisement and sales promotion on
the ground that the expenses would be claimed only in the year the project is
completed and income offered to tax. In penalty proceedings, the AO held that
the assessee was guilty of filing inaccurate particulars of income within the
meaning of section 271(1)(c) of the Act and levied penalty. The assessee filed
an appeal before the CIT(A) who dismissed the same.

Being
aggrieved by the order, the assessee filed an appeal to the Tribunal. The
Tribunal held that the claim was disallowed in the instant year on the ground
that such advertisement / sales promotion expenses should be allowed in the
year in which the sale of flats was undertaken in respect of which such
expenses were incurred. Pertinently, in A.Ys. 2009-10 and 2010-11 such expenses
were allowed following the methodology devised by the AO in the instant
assessment year. The aforesaid factual matrix goes to amply demonstrate that
the difference between the assessee and the Revenue does not hinge on
allowability or genuineness of expenditure but merely on the year of
allowability. In fact, the methodology devised by the AO in the A.Y. 2006-07
for the first time only seeks to postpone the allowability of expenses but does
not reflect any disagreement on the merit of the expenses claimed.

In the
years starting from A.Y. 1990-91 and up to 2005-06, the claim for deduction of
expenses has been allowed in the manner claimed by the assessee following the
‘project completion’ method of accounting. Therefore, if in a subsequent period
the AO re-visits an accepted position and makes a disallowance, the same would
not be construed as a deliberate attempt by the assessee to furnish inaccurate
particulars of income or concealment of particulars of his income. Therefore,
where the difference between the assessee and the Revenue is merely on account
of difference in the year of allowability of claim, and in the absence of any
finding or doubt with regard to the genuineness of the expenses claimed, the
penal provisions of section 271(1)(c) of the Act are not attracted. The penalty
levied u/s 271(1)(c) of the Act deserves to be deleted.

Being
aggrieved by the order, the Revenue filed an appeal to the High Court. The
Court observed that the AO adopted a methodology to postpone allowability of
claim for deduction of expenses in the year in which the income is offered to
tax. The question, therefore, is whether making such a claim on the basis of
accepted practice would amount to furnishing inaccurate particulars of income
within the meaning of section 271(1)(c) of the Act. In the case of CIT
vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158, the Supreme
Court observes that a mere making of a claim, which is not sustainable in law,
by itself will not amount to furnishing inaccurate particulars regarding the
income. Therefore, mere making of a claim which is disallowed in quantum
proceedings cannot by itself be a ground to impose penalty u/s 271(1)(c) of the
Act. The fact was that the assessee was following the above method since
1990-1991 till the subject assessment year and there was no dispute in respect
thereof save for the A.Y. 2006-07 and the subject assessment year. This fact
itself would militate against imposition of any penalty upon the assessee on
the ground of furnishing inaccurate particulars of income. Accordingly, the
Revenue appeal was dismissed.