Section 271(1)(c) – Assessee cannot be accused of either furnishing inaccurate particulars of income or concealing income in a case where facts are on record and all necessary information relating to expenditure has been fully disclosed in the financial statements and there is only a difference of opinion between the assessee and the AO with regard to the nature of the expenditure

9 DCIT vs. Akruti Kailash Construction (Mum.) Members: Saktijit Dey (J.M.) and Manoj Kumar
Aggarwal (A.M.) ITA No. 1978/Mum/2018 A.Y.: 2012-13 Date of order: 11^th October, 2019

Counsel for Revenue / Assessee: Manoj Kumar
/ Pavan Ved

Section
271(1)(c) – Assessee cannot be accused of either furnishing inaccurate
particulars of income or concealing income in a case where facts are on record
and all necessary information relating to expenditure has been fully disclosed
in the financial statements and there is only a difference of opinion between
the assessee and the AO with regard to the nature of the expenditure

FACTS

The assessee firm, engaged in the business of property development,
filed its return of income for A.Y. 2012-13 on 31^st July, 2012
declaring a loss of Rs. 3,36,32,538. The AO, in the course of assessment
proceedings, noted that the assessee has offered interest income of Rs. 70,492
under the head ‘Income from Other Sources’, whereas it has shown a loss of Rs.
3,43,45,900 under the head ‘Income from Business’. He noticed that the loss was
mainly due to various expenses such as administrative, employee costs, etc.,
which have been debited to the P&L account.

The AO held that
since the assessee has undertaken a single development project during the year,
the expenditure should have been capitalised and transferred to
work-in-progress and should not have been debited to the P&L account. The
AO, accordingly, disallowed the loss claimed which resulted in determination of
income at Rs. 5,70,840. The assessee did not contest the decision.

The AO initiated
proceedings for imposition of penalty u/s 271(1)(c) alleging furnishing of
inaccurate particulars of income and concealment of income. Rejecting the
explanation of the assessee, he imposed a penalty of Rs. 1,06,12,880 u/s
271(1)(c).

Aggrieved, the
assessee preferred an appeal to CIT(A) who allowed the appeal holding that
merely because the expenditure was required to be capitalised would not lead to
either concealment of income or furnishing of inaccurate particulars of income.
He observed that treating the expenditure as WIP is mere deferral of income and
that there was no taxable income and tax payable even after assessment and
thus, there cannot be a motive on the part of the assessee to evade tax. The
CIT(A) deleted the penalty levied by the AO.

Aggrieved, the
Revenue preferred an appeal to the Tribunal.

HELD

The Tribunal
observed that the AO has neither doubted nor disputed the genuineness of
expenditure incurred by the assessee. In the AO’s opinion, since the
development of the project undertaken by the assessee is in progress, instead
of debiting the expenditure to the P&L account the assessee should have
capitalised it by transferring it to WIP. Thus, it held that there is only a
difference of opinion between the assessee and the AO with regard to the nature
of expenditure. It observed that it is also a fact on record that all the
necessary information relating to the expenditure has been fully disclosed by
the assessee in the financial statements. In such circumstances, the assessee
cannot be accused of either furnishing inaccurate particulars of income or
concealing income. It held that the CIT(A) has rightly held that there is no
dispute with regard to the development of the project by the assessee and
treating the expenses as work-in-progress is merely deferral of expenses.

The Tribunal upheld the decision of the CIT(A) in deleting the penalty
and dismissed the appeal filed by the Revenue.