2014 (2) TMI 1151 - AT - Income Tax

Penalty u/s. 271(1)(c) - AO made addition u/s. 41(1) on account of remission / cessation of trading liability - nonproduction of evidences of payments due u/s. 43-B - CIT(A) canceled penalty levy - Held that - No justification to interfere with the order of the ld. CIT(A) in cancelling the penalty. It is not in dispute that the assessee has been, able to offer an explanation which should not be found to be bogus or false. Hon ble Supreme Court in the case of CIT vs. Sugauli Sugar Works Pvt. Ltd., 1999 (2) TMI 5 - SUPREME Court held that unilateral action cannot bring about a cessation or remission of liability. In this case, since the assessee has shown outstanding balances carried forward from the earlier years and even carried forward in the subsequent assessment year, would show that the provisions of section 41(1) may not be attracted in the case of the assessee. The addition is thus based upon legal interpretation of provisions of section 41(1) of the IT Act and on mere surrender of amount by the assessee for taxation and the reasons given for such surrender was on account of heavy losses accumulated in the year under consideration. The ld. CIT(A) was, therefore, justified in holding that even the addition is doubtful in nature. It is, therefore, clear that the assessee has bona fide explanation and is supported by the above judgments cited. Therefore, it is not a fit case of levy of penalty u/s. 271(1)(c) of the IT Act. Similarly, it was find that Dharmada was not expenditure of this year and it was merely carried forward from the earlier years. On mere disallowance of expenses u/s. 43B of the IT Act, penalty would not be leviable as per judgment of Madras High Court in the case of MSK Construction Pvt. Ltd. (supra). The assessee has been further able to explain that the major item of disallowance u/s. 43B was addition on account of service tax on processing charges payable of ₹ 2,20,997/-, which amount was not payable as service tax and was, therefore, offered for taxation in subsequent year by the assessee. These facts would clearly disclose that the assessee has not furnished any inaccurate particulars of income and has also not concealed the particulars of income. The ld. CIT(A) was, therefore, justified in canceling the penalty. - Decided in favour of assessee.

Summary

Issues:
- Challenge against the cancellation of penalty u/s. 271(1)(c) of the IT Act for the assessment year 2008-09.

Analysis:
- The appellant, engaged in crushing and processing mustard seeds, showed sundry creditors in the balance sheet. The AO added outstanding balances u/s. 41(1) due to cessation of trading liability.
- Addition u/s. 43-B was made for statutory payments not made, and Dharmada amount was added for charitable purpose not spent.
- The AO levied penalty u/s. 271(1)(c) for the above additions, which the assessee challenged before the CIT(A).
- The CIT(A) cancelled the penalty, finding the additions were doubtful and not indicative of concealment of income.
- The CIT(A) reasoned that the assessee disclosed old balances carried forward from previous years, and the additions did not warrant penalty.
- The appellant's explanations were considered reasonable, supported by legal interpretations and judgments cited.
- The Tribunal upheld the CIT(A)'s decision, emphasizing the bona fide nature of the appellant's actions and the lack of concealment or inaccurate particulars of income.
- The Tribunal found no justification to interfere with the CIT(A)'s order, dismissing the departmental appeal and clarifying the findings were relevant to the penalty matter only.