2012 (10) TMI 861 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance including addition of sundry creditors u/s 41(1) - Held that - As it is not in dispute that the outstanding liabilities in the accounts of sundry creditors was added by the A.O. u/s 41(1) without considering the fact that such amount was payable by the assessee from October, 1999, 2000, 2001 & 2003. Thus merely because the assessee did not file the appeal before the CIT(A) against the addition made u/s 41(1) does not mean that the said liability is false or untrue or the assessee has concealed the particulars of its income. As it is not the case of the Revenue that the assessee has unilaterally written back the accounts of the sundry creditors in its P&L account as a matter of fact the liability was shown in the balance sheet as on 31-3-2007. The assessee being a limited company, this amounted to acknowledging the debt in favour of the creditors for the purposes of section 18 of the Limitation Act, 1963. The assessee s liability to the creditors, thus, subsisted and did not cease nor was it remitted by the creditors and the liability was enforceable in a court of law. This being no concealment on the part of the assessee which may call for levy of penalty u/s 271(1)(c) - in favour of assessee.

Summary

Issues:
- Appeal against penalty imposed under section 271(1)(c) of the Income Tax Act, 1961.

Analysis:
1. The appellant, engaged in manufacturing color pigments, filed a return declaring total income as 'Nil'. The assessment resulted in an income of 'Nil' after disallowances, including addition of sundry creditors under section 41(1) of the Act. The Assessing Officer (A.O.) initiated penalty proceedings under section 271(1)(c) based on alleged inaccurate particulars of income amounting to Rs. 9,79,615. The A.O. imposed a penalty of Rs. 3,30,000, which was confirmed by the ld. CIT(A).

2. The appellant contended that the liability cessation was unilateral by the A.O. and did not warrant a penalty. The A.O. maintained that inaccurate particulars were furnished, leading to concealment. The ld. CIT(A) upheld the penalty. The appellant challenged this decision before the ITAT, arguing the sustainability of the penalty.

3. During the hearing, the appellant's counsel highlighted the company's continuous losses, becoming a Sick Industrial Company due to financial constraints. The accumulated losses exceeded the net worth, and liabilities surpassed assets. The appellant's accounts were prepared on a going concern basis despite financial struggles. The outstanding liabilities to sundry creditors were detailed, with amounts overdue since 1999-2003.

4. The ITAT noted that the A.O. added the liabilities under section 41(1) without considering the long-standing nature of the debts. Merely not appealing against this addition did not imply concealment. Citing legal precedents, including CIT vs. Reliance Petroproducts Pvt. Ltd., the ITAT emphasized that inaccurate particulars must be furnished to attract penalty under section 271(1)(c).

5. Relying on the Supreme Court's interpretation, the ITAT concluded that no inaccurate particulars were provided in the return. The liabilities were acknowledged in the balance sheet, indicating their subsistence and enforceability. As the liabilities were not unilaterally written off and were legally enforceable, the ITAT ruled out concealment, leading to the deletion of the penalty imposed by the A.O. and confirmed by the ld. CIT(A).

6. Consequently, the ITAT allowed the appellant's appeal, overturning the penalty under section 271(1)(c) of the Income Tax Act, 1961.