2015 (11) TMI 1437 - AT - Income Tax

Penalty u/s 271(1)(c) - bogus liability - Applicability of Section 41(1) - Held that - AO has questioned the genuineness of the liability and in absence of the requisite confirmation has held the same to be a bogus liability. Where the liability itself has been held to be a bogus liability where is the question of remission or cessation thereof. Thus in the instant case where the addition itself is doubtful under the provisions of section 41(1) the same cannot form the basis for levy of penalty. See COMMISSIONER OF INCOME TAX Versus BHOGILAL RAMJIBHAI ATARA 2014 (2) TMI 794 - GUJARAT HIGH COURT . Thus we delete the penalty levied under section 271(1)(c)

Summary

Issues:
Appeal against penalty under section 271(1)(c) of the Income Tax Act for the assessment year 2007-08.

Analysis:
The case involved the assessee appealing against the penalty imposed under section 271(1)(c) of the Income Tax Act for the assessment year 2007-08. The primary issue was the confirmation of the penalty by the ld. CIT(A) concerning the addition of a disputed liability of Rs. 3,95,288 shown in the books of account as income under section 41(1)(a) of the Act. The AO concluded that the liability was bogus, leading to the penalty imposition. The ld. CIT(A) upheld the penalty, stating that the surrender of income was not voluntary as it was made only after detection by the AO, indicating inaccurate particulars of income. The appellant argued that the liability was accepted to avoid litigation, emphasizing lack of control over the third party and the part repayment made to the creditor during the year. The appellant also cited relevant case laws to support the argument for deletion of the penalty.

The Tribunal analyzed the facts, considering the nature of the liability and the applicability of section 41(1) of the Act. Referring to a similar case decided by the Hon'ble Gujarat High Court, the Tribunal highlighted the requirement of remission or cessation of liability during the relevant assessment year for section 41(1) to apply. The Tribunal observed that if the liability itself was held to be bogus, there could be no question of remission or cessation. Therefore, in the absence of confirmation and doubtful addition under section 41(1), the basis for penalty imposition was deemed insufficient.

Additionally, the Tribunal referenced previous decisions by Coordinate Benches and a specific case where penalties were deleted under similar circumstances. Relying on the reasoning in those cases, the Tribunal concluded that the penalty of Rs. 1,20,959 imposed under section 271(1)(c) should be deleted. Considering the entirety of facts, circumstances, and relevant case laws, the Tribunal allowed the appeal of the assessee, pronouncing the order in open court on 09/10/2015.