2016 (11) TMI 711 - AT - Income Tax

Penalty levied on account of cessation of liability and estimation of net profit for concealment or furnishing inaccurate particulars of income - Held that - As emerges from the record that the assessee was running into perennial losses and became a sick unit unable to pay its outstanding loans secured against the fixed assets. The loan in question, though adjusted to capital reserve account by the assessee, was not written off by the Gujarat Industrial Co-op. Bank Ltd. All the relevant details about the transfer of the amount to capital reserve account are duly mentioned in the audited report. This clearly reflects that all the relevant particulars were filed by the assessee along with return of income. Merely because the assessee did not contest the addition, cannot give rise to any adverse inference against the assessee, as in any case it was running into huge losses. Thus no penalty to be levied - Decided in favour of assessee

Summary

Issues:
Appeal against deletion of penalty for cessation of liability and estimation of net profit for concealment or furnishing inaccurate particulars of income.

Analysis:
The Revenue appealed against the deletion of penalty by the Commissioner of Income Tax (Appeals) for the Assessment Year 2005-06. The issue revolved around the adjustment of a loan amount against the outstanding loan balance, resulting in a capital loss for the assessee. The Assessing Officer contended that this should have been treated as a Short Term Capital Loss in the return of income, leading to penalty proceedings for inaccurate particulars/concealment of income. The assessee, a sick unit incurring losses, argued that the loan amount was transferred to the Capital Reserve account and not written off by the bank. The Commissioner of Income Tax (Appeals) deleted the penalty, citing that the taxability under section 41(1) was debatable, and all relevant details were disclosed in the audited report filed with the return.

The Commissioner observed that the bank did not write off the loan and there was no non-disclosure of material facts. The addition made by the Assessing Officer was deemed not to fall under 'concealment' or 'deemed concealment'. The Commissioner relied on judgments emphasizing that if all relevant particulars are filed along with the return of income, penalty under section 271(1)(c) cannot be imposed. The Commissioner also noted that unilateral write-off entries in accounts may not justify additions under section 41(1) of the Act. The Tribunal concurred with the Commissioner's decision, emphasizing that the assessee, facing substantial losses, had disclosed all relevant particulars in the audited report. Relying on Supreme Court judgments, the Tribunal upheld the deletion of the penalty, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal against the deletion of the penalty for cessation of liability and estimation of net profit for concealment or furnishing inaccurate particulars of income. The decision was based on the assessee's disclosure of relevant particulars in the audited report, the debatable nature of the taxability under section 41(1), and the absence of adverse inferences due to the assessee's significant losses.