ITA No. 8567/Del./2019 and CO No. 7/Del/2020 in ITA No. 8567/Del./2019

Assessment Year: 2015-2016

Decided On: 20.07.2022

Appellants: DCIT, Circle 10(1) Vs. Respondent: Galaxy International Realtech Pvt. Ltd.

Hon'ble Judges/Coram:
Shamim Yahya, Member (A) and Yogesh Kumar U.S.


Shamim Yahya, Member (A)

1. This appeal by the Revenue and cross objections by the assessee is directed against the order of the ld. CIT(A)-4, New Delhi dated 21.08.2019 pertaining to assessment year 2015-16.

2. The grounds of appeal raised by the Revenue read as under:-

"Whether on the facts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the penalty of Rs. 94,17,160/- imposed by the AO u/s. 271(1)(c) of the Act when the assessee did not file appeal before the Ld. CIT(A) against the disallowances made by in assessment order passed u/s. 143(3) and willfully accepted the order of the AO."

3. The assessee has taken the following grounds in the cross objections:-

"Under the facts and circumstances of the case, the penalty order was erroneous as the Ld. Assessing Officer has nowhere recorded the satisfaction in penalty notice whether penalty is leviable by virtue of concealment of particulars of income or by virtue of furnishing of inaccurate particulars in relation to such income. The satisfaction of the Ld. Assessing Officer is a prerequisite for issue of valid notice and levy of penalty."

4. Brief facts of the case leading to levy of penalty in this case are as under:-

"Brief facts of the case are that the appellant company is engaged in the real estate development business. During the assessment proceedings u/s. 143(3) the AO made following disallowances:-

Apart from disallowance at S. No. 1, all other disallowances were made on the ground that since the assessee is following project completion method, these expenses cannot be allowed as revenue expenditure and deserve to be capitalized.

The assessee did not file appeal against these disallowances. The AO had initiated penalty proceedings u/s. 271(1)(c) for filing Inaccurate particulars of income in respect of all the above disallowances. However, the AO, during penalty proceeding, imposed penalty on disallowances as mentioned in S. No. 2 above only i.e. on disallowance of advertisement expenses (Rs. 1,66,62,664/-) and disallowance of brokerage & commission expenses (Rs. 1,38,13,592/-).

5. Before the ld. CIT(A), assessee submitted that books of accounts are subject to audit and the appellant has followed Accounting Standard (AS)-2 issued by ICAI according which selling and distribution costs are not to be included as part of cost of inventories. It was also argued that addition made by AO is revenue neutral and doesn't involve any concealment. Treating certain items of expenses as capital, particularly when the same is reflected in audited financial statements and when the guidelines as contained in AS-2 is being followed, it was submitted, at maximum can be viewed as a debatable issue for which no penalty can be imposed.

6. Considering the above, ld. CIT(A) deleted the penalty holding that mere disallowance of a claim will not amount to furnishing of inaccurate particulars of income.

7. We may gainfully refer to the order of ld. CIT(A)'s as under:-

"6.6 Penalty u/s. 271(1)(c) can be imposed if the assessee fails to prove that explanation furnished by him is not only not bonafide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from assessee's explanation being not bonafide, it should be found as of fact that all the facts which were material to the computation of income was not disclosed by the assessee. The manner the assessee furnishes the particulars of his income is important.

6.7 In this case, I find that there is fo........