Merely because the disallowance has been confirmed by the higher forum, it cannot automatically result into penalty.

01. This appeal is filed by The Assistant Commissioner of Income Tax, Circle – 10 (1), New Delhi (The learned AO) against the order of The Commissioner of Income Tax (Appeals) – XIII, New Delhi (The Learned CIT – A) dated 3 April 2013 for assessment year 2006 – 07 raising the solitary ground of appeal that the learned Commissioner of Income Tax (Appeals), under the facts and circumstances of the case and in law, was not justified in deleting the penalty amounting to ₹ 554,621,230/– imposed by the assessing officer u/s 271 (1) (C) of The Income Tax Act 1961 (The Act).

02. Brief facts shows that appellant is engaged in real estate development the return of income for assessment year 2006 – 077 was filed declaring income of Rs 3,406,422,522/–. The assessment u/s 143 (3) of the act was passed on 6 May 2009 determining total income at Rs 1356,63,90,103/– making an addition of Rs 1,159,967,581. The assessee preferred an appeal before the learned Commissioner Of Income Tax Appeals who passed an order on 25th of March 2011 allowing the relief of addition of ₹ 8,51,22,52,583/–. The learned Commissioner of Income Tax (A) confirmed the disallowance of ₹ 1,647,716,066/– consisting of 12 different nature of disallowances.

03. As the learned assessing officer initiated penalty proceedings u/s 271 (1)(C) on passing of order by the learned Commissioner of income Tax (Appeals), issued show cause notice dated 15th of March 2012 for imposing the penalty.

04. Before the learned assessing officer, assessee submitted that learned Commissioner of Income Tax A has deleted substantial addition and for balance addition/disallowance, appeal of assessee is pending before ITAT. Assessee also submitted that it is hopeful to get a substantial relief .It was also submitted that at the time of confirmation of the addition by the learned Commissioner of income tax A , no comments have been given against the assessee company nor has he made any adverse comments on the income shown by the assessee. It was further submitted that most of the addition is confirmed by the learned Commissioner of income tax A are also revenue neutral or having a time gap only. It was also submitted that mere this allowance of expenditure cannot result into penalty automatically. Assessee also claimed that it is bona fide claim are rejected. It has neither concealed any income nor furnished inaccurate particulars of its income.

Therefore, it was submitted that there is a merely difference of opinion and not the concealment of income and therefore the penalty u/s 271 (1) (C) cannot be imposed. Assessee also submitted that it has submitted complete details before the lower authorities and there is no concealment of income at any stage. Assessee further relied upon the several judicial precedents submitting the penalty should not be levied.

05. However, the learned assessing officer considered the explanation of the assessee. He held that in the present case the various additions/disallowances are sustained by the learned CIT A were detected by the Department after conducting an elaborate enquiry in as much as special audit was conducted u/s 142 (2A) of the act. Additions so made are virtually the outcome of detailed investigation. On the plea of the assessee that it had disclosed everything in the balance sheet and profit and loss account, do not stand to reason. Therefore, it was held that the assessee has the furnished inaccurate particulars of the income with the intention to evade taxes. Subsequently the penalty of ₹ 554,621,230/– was levied by the learned assessing officer as per order passed u/s 271 (1) (C ) of the act by the order dated 29th of March 2012.

06. The assessee challenged the same before the learned CIT A . He passed an order on 3 rd April 2013, allowing the appeal of the assessee deleting the above levy of penalty. He considered every disallowance made by the learned assessing officer and confirmed by the learned CIT – A and thereafter held that in none of the disallowances the assessee has furnished inaccurate particulars of income and therefore the penalty levied by the learned assessing officer was cancelled.

07. The learned assessing officer aggrieved with the order of the learned CIT– A has preferred this appeal before us. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that additions/ disallowances have been made by the learned assessing officer and discussed the issue in detail that why the above addition has been made. These additions have also been confirmed by the learned CIT – A therefore there is no reason that the penalty shall not be levied on such additions and disallowances.

08. The learned authorised representative submitted that now the order of the coordinate bench has been received, on the appeal filed by the assessee and based on the above order, the learned assessing officer has also passed an order giving appeal effect to the above order on 30 December 2017, where the substantial part of the addition has been deleted by coordinate bench. Therefore, it was submitted that on the issues on which addition has been deleted the penalty couldn’t be levied. He also referred to the order of the coordinate bench wherein various additions made have been deleted.

09. The learned authorised representative also referred to the notice dated 6th May 2009, issued by the learned assessing officer u/s 274 read with Section 271 of The Income Tax Act for initiating the penalty proceedings u/s 271 (1) ( C ) of the act for assessment year 2006 – 07.

10. It was submitted that the learned assessing officer has not struck off any of the twin charges, with respect to the concealment of income or furnishing of inaccurate particulars of such income in terms of explanation 1,2,3,4 and 5 of the above Section. He therefore submitted that even otherwise the penalty levied by the learned assessing officer does not survive. He relied up on decision of Honourable Jurisdictional High court in Case of PCT V Sahara India Life Insurance Company limited dated 2-8-2019. He submitted that this issue has been decided against the assessee as per ground number 1 of the appeal before the learned Commissioner – A where the jurisdictional facts were contested.

11. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case the learned assessing officer has levied the penalty with respect to the following additions/disallowance confirmed by the learned CIT – A. Assessee and the AO both carried matter before the coordinate bench. Further, assessee preferred appeal before the coordinate bench and coordinate bench has also deleted the certain addition, set aside certain additions to the file of the learned assessing officer for further verification as per order dated 11th of March 2016 in ITA number 2677/del/2011 and 3061/del/2011. Assessee also referred its miscellaneous application wherein coordinate bench as per order dated 1/8/2017 also allowed certain further relief to the assessee. Subsequent to that, the learned assessing officer, on verification, passed an order on 30 December 2017, wherein, as per paragraph number 6 of that order, after verification of records, certain additions were deleted.

12. After the above judicial orders the relevant additions on which the AO has levied the penalty a detailed as Under:-

serial number Nature Of Addition/Disallowances Amount of addition/disal lowance of by the learned Commissioner of incom tax (A) on which penalty u/s 271 (1) (C) was levied Present Status After The Order Of The Coordinate Bench In ITA Number 2677/Del/2011 And 3061/Del/2011 Dated 11th of March 2016

1. Stale cheque amount 3,67,27,062 This addition is deleted by the coordinate bench as per paragraph number 18 – 27 of its order

2. Revenue recognition method 5,41,75,304 Addition is deleted by the coordinate bench at page number 48 at para number 28 – 34, the matter is pending before the honourable Delhi High Court

3. Addition in respect of Magnolia and Summit projects 78,77,80,921 The coordinate bench has set aside the issue and directed the learned assessing officer to decide again after verification of the facts as per paragraph number 35 – 42 at page number 58 – 63 of the order, which is pending before the honourable Delhi High Court. Subsequently after verification of facts, the AO has passed an appeal effect order dated 30 December 2017 deleting the above addition.

4. Capitalization of interest expenditure as per AS -16 27,45,00,000 Addition deleted by the coordinate bench as per paragraph number 43 – 50 at page number 63 – 70 and the matter is pending before the honourable Delhi High Court

5. Brokerage paid for AMEX building 64,39,262 Appeal of the assessee is dismissed by the coordinate bench

6. Addition on account of enhancement of the revenue from constructed properties 42,86,06,986 Coordinate bench has set aside the issue and directed the AO to decide again after verification of facts as per paragraph number 58 – 62 and page number 72 – 73 of the order. Subsequently the AO as per appeal effect order dated 30 December 2017 has deleted the above addition.

7. Withdrawal of claim of deduction u/s 24 of 30% deduction 35,09,870 This issue is not pressed by the assessee and assessee’s appeal is dismissed by coordinate bench holding that income is not assessable Under the head house property as per paragraph number 63 – 64 at page number 73 of the order

8. Disallowance of provision of gratuity u/s 40 A (7) 14,49,123 This issue is not pressed by the assessee before the coordinate bench and appeal of the assessee is dismissed by coordinate bench at paragraph number 65 – 66 at page number 73 of the order

9. Capitalization of revenue expenditure i.e. disallowance of revenue expenditure 84,12,762 The coordinate bench has deleted the part addition of ₹ 8,262,762 and confirmed the addition of ₹ 150,000 as per paragraph number 67 – 86 at page number 73 – 77 of the order

10. Addition on account of closing credit balance of refundable security deposits 3,12,41,768 This addition is deleted by the coordinate bench as per paragraph number 87 – 91 at page number 77 – 79 of its order

11. Expenses disallowed not related to the business 1,47,70,222 This addition is deleted by the coordinate bench wide paragraph number 92 – 96 at page number 79 – 80 of its order

12. Disallowance of expenditure u/s 40 A (3) 1,02,786 The ITA T has set aside the issue to the file of the learned assessing officer for fresh decision at paragraph number 97 – 101 at page number 80 – 81 of the order. Subsequently the assessing officer as per appeal effect order dated 30 December 2017 allowed relief to the assessee and deleted th disallowance.

13. After the above analysis, it is held that where the additions have already been deleted by the coordinate bench, and by the learned assessing officer on verification, those do not survive for levy of the penalty. Both the parties agreed to the above proposition.

14. Further, assessee has also invoked the provisions of rule 27 of the ITAT rules stating that ground number 1 decided against the assessee holding it to be general in nature where in the notice of penalty issued u/s 274 read with Section 271 of the income tax act for levy of penalty u/s 271 (1) ( C ) of the act, the assessing officer has not struck off any of the twin charges of the concealment of income or furnishing of inaccurate particulars of income, therefore, as held by the honourable Delhi High Court in ITA number 475/2019 Principal Commissioner Of Income Tax Versus Sahara India Life Insurance Co Ltd dated 2 August 2019 in paragraph number 21, relying upon the decision of the honourable Karnataka High Court in 359 ITR 565 and 73 Taxman.com 241 has held that the notice issued by the AO would be bad in law, if it did not specify which limb of Section 271 (1) (C ) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income, the penalty order cannot be sustained.

15. Therefore, now only following additions/disallowances remain on which penalty levied survived, which has been deleted by the learned CIT – A.

a. Disallowance of brokerage paid for Amex building of ₹ 6,439,262/–

b. Withdrawal of deduction u/s 24 of 30% of standard deduction of Rs. 3,509,870/–

c. disallowance of provisions for gratuity u/s 40 A (7) of ₹ 14,49,123/-.

16. Now we first come to issue with respect to the allowance of brokerage paid for AMEX building of ₹ 6,439,262/–. Assessee has submitted that it has two AMEX buildings one is Amex tower- I and another is AMEX tower II. Tower 1 was completed in earlier years however, tower 2 was still under construction during the year under assessment. It is completed in subsequent years. Assessee has submitted that during the year under consideration an agreement was executive with M/s C B Elliss Richards South Asia private limited on 28th of April 2005. In terms of the above agreement services were rendered by that company and 50% of the total amount payable to that party as per the bill was paid during the year and balance amount has been paid in subsequent years, when income from that building has started. Learned assessing officer disallowed above amount for the reason that these are capital expenditure in nature and are not pertaining to the year under consideration. The learned Commissioner of income tax appeal also confirmed the above disallowances holding that the expenses are in respect of renting of the building, which are not allowable deduction u/s 24 of the act. The claim of the assessee is that the brokerage expenditure are related to tower number two whereas in the assessment order for assessment year 2005 – 06, the learned assessing officer made entire discussion with regard to tower number one. Assessee has submitted that these two buildings are quite distinct buildings though the name is somewhat similar. Assessee justified the claim for deduction on the ground that services relating to renting of tower number two had been partly provided by the broker in the year under consideration and therefore only half of the brokerage payable was paid during the year and claimed as deduction. Assessee further submitted that earning of rental income from tower two accrued to the appellant from next year and no income was earned from the above building during the assessment year under consideration. Therefore, on this basis the assessee made claim on actual payment basis since there was no rental or any other income from the said building. The claim of the assessee is that the deduction claimed by the assessee is bona fide and genuine and believed to be an allowable expenditure on actual payment basis. The learned Commissioner of income tax appeal has deleted the penalty stating that assessee has neither concealed any income or furnished any inaccurate particulars of income on the following facts emerging for the disallowance:-

a. full disclosure in respect of brokerage expenses was made by the appellant and the same has been shown in schedule 19 Under the head commission and brokerage and there is no element of concealment

b. since all the details are available on record there is no case of submission of inaccurate particulars of income either in the return of income or in the return submission filed in the course of assessment proceedings

c. no details or particulars have been withheld by the appellant

d. All the relevant facts have been brought to the notice of the assessing officer as well as special auditors by the assessee. The assessee filed return of income a company in the balance sheet and produced all the account books and the supporting vouchers along with relevant documents before the assessing officer the revenue could not discover any facts to hold that the appellant had suppressed anything, which they found out in the course of the assessment proceedings. The assessee has claimed deduction under the bona fide belief to its allowability and merely because in expenditure is been disallowed it does not result into the penalty for concealment of income automatically.

17. The learned departmental representative could not controvert the above finding of the learned Commissioner of income tax appeals. Further, the first ground of appeal before the learned Commissioner of income tax appeal which was dismissed considering the same is general in nature. Before us the assessee has produced the notice dated sixth may 2009 issued u/s 274 read with Section 271 of the income tax act wherein none of the twin charges was cancelled by the assessing officer. In view of this, penalty has rightly been deleted by the learned Commissioner of income tax appeals on this disallowance.

18. With respect to the withdrawal of 30% deduction u/s 24 of ₹ 3,509,870, the facts emerged that rent of Rs 160,99,500 was received from Sriram School in terms of agreement dated 27 December 2000 for operations and running Sriram School, Arawali. The above building was previously owned by the appellant but in arbitration award, it was reverted to DLF enclave complex educational charitable trust with effect from 1 April 1994 and the tenant Sriram School continued to pay rent to the assessee company in terms of lease deed entered into with them. The assessee in turn used to pay the entire rental receipts to the about trust. The assessee continued to show the rental income received from the school as its income Under the head “income from house property” on actual receipt basis and because of the fact that tax deduction at source was duly deducted by the tenant in the TDS certificates were also issued in the name of the company. In fact, the trust was the ultimate receiver of the rental income. The assessee company declared rental income in its hands, paid tax thereon but it also claimed the deduction/expenses of the amount transmitted to the trust. It also the benefit of the amount of tax deducted at source on its rental receipts. The claim of the assessee is that once the income has been shown Under the head income from house property and it has been duly taxed by the assessing officer in its hands, the applicable statutory deduction u/s 24 (a) should be allowed to the appellant company. Therefore, such deduction was claimed. The learned Commissioner of the also allowed the appellant’s claim of tax deduction at source and the amount transmitted to the about trust. However deduction u/s 24 (a) was disallowed. The learned CIT – A deleted the penalty on the above sum for the reason that the rental income is shown by the assessee, the tax deduction at source is allowed to the assessee, the remittance of the sum to the charitable trust is also demonstrated, therefore, the disallowance of the statutory deduction u/s 24 (a) is a simple disallowance and does not involve any element of concealment of income or furnishing of inaccurate particulars. Therefore, the penalty was deleted. Though learned departmental representative could not point out the reason that mere disallowance of the statutory claim when the assessee has been taxed under the head income from house property will result into penalty u/s 271 (1) (C) of the act. However, for the reason that the penalty notice does not show any of the twin charges, on which the penalty has been levied by the learned assessing officer, as none of them has been struck off, on this ground, we do not find any infirmity in the order of the learned Commissioner of is in deleting the penalty on above disallowance.

19. With respect to the disallowance of provisions for gratuity of ₹ 1,449,123/–, the facts noted that the learned assessing officer has made the disallowance of ₹ 4,981,625/– on account of disallowance on the basis of the report of special auditors whereas the learned Commissioner of income tax – A confirmed the disallowance to the extent of ₹ 14,49,123/–. The assessee submitted that the provision for gratuity debited in head office books in the profit and loss account has already been added back to the income of the assessee by applying the provisions of Section 43B. However, Rs 29,81,625 is a provision for gratuity liability in the books of account in the construction division. Out of the above sum Rs. 3,532,502/– has been recovered by the construction division from other companies and this amount is credited in gratuity expenses account. This leaves a net balance of ₹ 1,449,123/– which was booked in construction work in progress account. The above sum has neither been debited to the profit and loss account is expenses and has also not been claimed in the income tax return as a deduction but it was simply included in the balance-sheet has work in progress item only. Therefore, the claim of the assessee is that the disallowance u/s 43B is not applicable even to the amount of Rs 4,049,123/– as it has not been claimed as deduction in the profit and loss account or in the computation of total income. The learned Commissioner – A deleted the penalty on the above sum holding that the assessee has furnished the details in the income tax return, in the books of account, in the work in progress and the disallowance has been made only on account of difference of opinion, since the appellant holds a genuine belief that the amount of gratuity shown in the work in progress but not debited to the profit and loss account and not claimed as a deduction cannot be disallowed. Therefore, the penalty on this sum was deleted. Learned departmental representative could not show us any reason that penalty on the above sum is leviable. Further, it is also not free from doubt whether such disallowance can be made u/s 43B of the income tax act or not when the assessee itself is not claim the above deduction in the computation of total income. Merely because the disallowance has been confirmed by the higher forum, it cannot automatically result into penalty. Further for the reasons given by us, relying upon the decision of the jurisdictional High Court in case of principal Commissioner of income tax versus Sahara India life insurance Co Ltd (supra), we do not find any infirmity in the order of the learned some is CIT – A in deleting the penalty on the above disallowance.

20. In view of the above facts, we do not find any infirmity in the order of the learned CIT – A in cancelling the penalty levied by the learned assessing officer u/s 271 (1) (C) of the act.

21. Accordingly solitary ground of appeal and appeal of the learned assessing officer is dismissed.

Order pronounced in the open court on 10–09–2020.