Change of opinion & Change in Method of Accounting by assessee not Deemed Concealment of income: ITAT upholds Deletion of Penalty [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune Bench has upheld the deletion of penalty under Section 271(l)(c) of the Income Tax Act, 1961 stating that a change of opinion of assessee or a change in the method of accounting followed by the assessee is not a deemed concealment of income.

The appeal was filed by the Revenue, represented by Shri M.G.Jasnani, against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Pune emanating from the order of the Assistant Commissioner of Income Tax (ACIT) under Section 271(1)(c)of the Income Tax Act, 1961.

The assessee M/s. Raviraj Ventures is a builder represented by Shri Rajiv Thakkar. It had filed Original Return under Section 139(1) of the Income Tax Act, 1961 declaring Nil income following Project Completion Method.

A search was conducted under Section 132 of the Income Tax Act, 1961 and documents including architect’s report was found which explains the percentage of completion of the project undertaken by the assessee.

The assesse, while giving statement under Section132(4) of the Income Tax Act, 1961, offered additional income under Percentage Completion Method and filed a revised return of Income under Section 139(5) immediately after the search, which was processed under Section 143(1) of the Income Tax Act.

The assessee filed a return showing the revised income on receipt of notice under Section 153A of the Income Tax Act and the total income shown in the revised return and the return filed in response to the notice under Section 153A was same.

The Assessing Officer (AO) had passed the impugned assessment order under Section 143(3) of the Income Tax Act, 1961 read with Section 153A accepting the total income of the assesse.

The AO had levied Penalty under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that assessee offered additional income only because of search.

The bench observed that the difference in the return of Income is only because of the method of Accounting and the explanation submitted by the assessee for the difference in the original return of income and return filed after the search is a valid and acceptable.

The Tribunal noted that assessee has always treated the said project as capitalised item debiting all expenses to the capital account. This method had been accepted by the Revenue in the past.

The project was not complete and redevelopment was still in progress. The assessee had to recoup expenditure from other co-owners. Agreement to sale had not been registered and possession of property was not handed over, the two member bench of the Income Tax Appellate Tribunal noted.

The assessee cannot be thrust upon percentage of completion method of accounting by the Assessing Officer, the bench added.

A legal claim or change of opinion cannot partake character of concealment. The assessee was at liberty to select the method of accounting since both were acceptable for the relevant assessment year. Hence, there is no concealment of income on the part of the assesse, the bench clarified.

The two-member bench comprising Shri S.S.Viswanethra Ravi (Judicial Member) and Dr. Dipak P. Ripote (Accountant Member) agreed with CIT(A) that penalty under Section 271(1)(c) of the Income Tax Act, 1961 is not sustainable. Accordingly, all the grounds of appeal raised by Revenue were dismissed.

To Read the full text of the Order CLICK HERE

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