No section 271(1)(c) penalty on mere Disallowance of claim

Mere Disallowance of claim cannot be made the basis for levying Penalty under section 271(1)(c) of the Income Tax Act.

As per section 271(1)(c) of income tax act, 1961, assessing officer or CIT(A) or CIT in the course of proceedings under this Act may impose penalty in the range of 100% to 300% of the amount of tax sought to be evaded. The penalty can be impose if he satisfy that any person concealed the particulars of such income or furnished inaccurate particulars of such income. This penalty is in addition to the tax payable by assessee.

Further, there is also a concept of deemed concealment laid down under explanation 1 to section 271(1)(c). the explanation 1 is triggered when the person :-

  1. Fails to offer an explanation or
  2. Offers an explanation which is found to be false, or
  3. Offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him],

So the question is mere the claim made by a person in his return which disallowed by revenue, is comes under the ambit of section 271(1)(c) / explanation 1 of to section 271(1)(c). Continue reading

Construction company can follow the project completion method for determining the taxable income

In the case of construction contracts, the assessee company can follow the project completion method for determining the taxable income, if method is regularly employed.

In the case, Deputy Commissioner of Income Tax Versus Ansal Landmark Townships (P) Ltd. ITAT Delhi

The assessee is real estate developer company and consistently following a project completion method for recognizing the income and AO made the addition on account of applying the percentage completion method.

Commissioner of Income Tax(Appeals) has given a finding that assessee company falls under the category of real estate developer and not a construction contractor. In that view of the matter, clearly AS-9 issued by the ICAI is applicable to the assessee and AS-7 is applicable to the construction contractor. Further it is seen that assessee has been consistently following this method of accounting in the previous years since long and it has not been disturbed.

CIT(A) also observed that:- Continue reading

Depreciation & interest deductable even where the profit of assessee is determined on percentage basis

Even if the income is determined on estimated percentage basis under section 144 by AO on account of “books of account” were disbelieved, the benefit of claiming depreciation and interest cannot be denied if proof of purchase of machinery and other items and payment of interest is available with assessee.

The Commissioner of Income Tax Versus Y. Ramachandra Reddy – ANDHRA PRADESH HIGH COURT

The respondent is a civil contractor, and is an assessee under the Act. He submitted returns for the Assessment Year 1994-95 declaring loss of Rs.15,24,198/-. Thereafter, revised returns were filed showing enhanced figures of loss, being Rs.93,11,879/-. The Assessing Officer issued notice to the respondent. The books of account were not believed and obviously, by taking recourse to Section 144 of the Act, the Assessing Officer passed an order to the effect that the total receipts are to the tune of Rs.9,52,52,636/- and net profit at 9%, works out to Rs.85,72,737/-. A sum of Rs.1,49,294/- was added towards miscellaneous receipts. AO took the view that since the profit is determined on estimation basis, deduction of depreciation or interest would not be allowed. Continue reading

Civil construction & installation cost eligible for windmill depreciation 80%

Civil construction & installation cost incurred for setting up the windmill is a integral part of windmill and same is also eligible for windmill depreciation at the rate of 80%.

In the case, The Dy. Commissioner of Income Tax Versus Aminity Developers & Builders -ITAT PUNE

The assessee has installed turbine in the wind mill and aggregate cost of turbine incurred is Rs. 7,41,56,986/- and claim windmill depreciation at the rate of 80% on aggregate cost.

The total cost of the wind mill after segregation is as under :

1. Cost of Turbine                                                  Rs.5,64,40,792/-
2. Cost of Civil Construction                                    Rs.52,23,108/-
3. Installation and Commissioner                             Rs.1,23,93,086/-

In the opinion of the A.O, the depreciation is to be allowed at 10% on the civil work and 15% on the erection and commissioning work treating such expenses in the block of building and plant & machinery respectively as against claim of 80% made by assessee. Continue reading

Order u/s 147 not sustainable without disposing off assessee objections raised

Reassessment order u/s 147 without first disposing off the preliminary objections raised by the assessee can not  be sustained and is thus liable to be quashed.

Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19  had devised the process to be followed while carrying out assessment order u/s 147 . It clarified that when a notice u/s 148 is issued, the assessee upon submission of return of income can claim reasons for issue of notice u/s 148, which the assessing officer is bound to submit within a reasonable period.  Upon receipt of the reasons, assessee has the right to file his objections to the issuance of notice u/s 147.The assessing officer is bound to dispose off  such objections by way of a speaking order.

However, it has sometimes been observed that assessing officers, without first disposing off assessee’s objection by way of a separate speaking order, have proceeded with assessment proceedings. Continue reading