2018 (6) TMI 549 - AT - Income Tax

Additions u/s 41(1) - cessation of liabilities - written off / remitted liabilities - Held that - Assessee has gone into BIFR - the claim has been filed before BIFR and therefore the same cannot be considered to have been ceased - it is only a matter of timing that as the issue is pending before BIFR, the creditors remain suspended but there has been no notice which could extinguish the existing right except to the extent that they become part of the sanctioned scheme - hence addition made by AO is unjustified - Decided in favor of assessee. Initiation of penalty u/s 271(1)(c) - Held that - As per CIT(A), fact that the appellant had not filed appeal against the assessment proceeding is not an unequivocal evidence that it had filed inaccurate particulars of income - thus there is no merit in the action of the AO of levying penalty - since we have already deleted the addition made by AO, which forms basis of levy of penalty, we do not find any infirmity in the penalty being deleted by Ld. CIT (A) - hence appeal of revenue is dismissed.

Summary

Issues:
1. Quantum addition confirmed by Ld. CIT (A)
2. Appeal against penalty deletion by Ld. CIT (A)

Issue 1: Quantum addition confirmed by Ld. CIT (A)
The assessee filed an appeal against the quantum addition confirmed by Ld. CIT (A) related to disallowance of sundry creditors and other liabilities under section 41(1) for the Assessment Year 2010-11. The grounds of appeal included errors by Ld. CIT (A) in making disallowances without proper verification and concluding that the liabilities had ceased to exist. The appellant contended that the liabilities had not ceased and were part of the ongoing liquidation process. The Ld. CIT (A) upheld the additions made by Ld. AO, leading to the current appeal before the tribunal. The tribunal reviewed the case, considering the history of the company's financial situation, regulatory compliance challenges, and the ongoing liquidation process. It was observed that the liabilities were not extinguished but were suspended due to the pending resolution before BIFR. The tribunal found the addition made by Ld. AO unjustified and allowed the grounds raised by the assessee, leading to the appeal being allowed in favor of the assessee.

Issue 2: Appeal against penalty deletion by Ld. CIT (A)
The revenue filed an appeal against the penalty deletion by Ld. CIT (A) under section 271(1)(c) for the Assessment Year 2010-11. The grounds of appeal included contentions that the penalty was imposed for inaccurate particulars and that the assessee did not appeal against the addition made in the regular assessment. The assessee also filed a Cross Objection challenging the penalty order on the basis of procedural errors in the notice issued. The tribunal noted that the Cross Objection by the assessee was not pressed and dismissed it accordingly. Upon reviewing the submissions and the impugned order, the Ld. CIT (A) had deleted the penalty considering the company's liquidation status, operational challenges, and lack of regulatory compliance due to limited staff. The Ld. CIT (A) found no concealment of income or inaccurate particulars based on the facts presented. The tribunal concurred with the observations and reasoning of Ld. CIT (A) and found no infirmity in the penalty deletion. Consequently, the grounds raised by the revenue were dismissed, and the appeal filed by the revenue as well as the Cross Objection filed by the assessee were also dismissed.

In conclusion, the tribunal upheld the appeal in favor of the assessee regarding the quantum addition and dismissed the appeal by the revenue against the penalty deletion, affirming the decision of Ld. CIT (A) in both instances.